Exhibit 10.1

Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as [*****]. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.

Execution Version

UNCOMMITTED LETTER OF CREDIT AGREEMENT

dated as of January 20, 2011

among

SEARS HOLDINGS CORPORATION

SEARS ROEBUCK ACCEPTANCE CORP.

SEARS, ROEBUCK AND CO.,

KMART CORPORATION

as Account Parties,

and

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Issuing Bank

 

 

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TABLE OF CONTENTS

 

     Page  

1.        DEFINITIONS

     1   

1.1      Defined Terms

     1   

1.2      Terms Generally

     13   

1.3      Currency Equivalents Generally

     13   

1.4      Letter of Credit Amounts

     13   

2.        Letters of Credit

     13   

2.1      Issuance of Letters of Credit; Discretionary

     13   

2.2      Reimbursement of Drawings

     14   

2.3      Notice of Drawings

     15   

2.4      Interest on Overdue Amounts

     15   

2.5      Procedures for Issuance and Amendment of Letters of Credit;
Auto-Extension Letters of Credit

     15   

2.6      Unconditional Obligations

     17   

2.7      Role of Issuing Bank

     18   

2.8      Fees

     19   

2.9      Applicability of ISP and UCP 600

     20   

2.10    Conflict with Issuer Documents

     20   

2.11    Termination or Reduction of Maximum Letter of Credit Ceiling

     20   

2.12    Maintenance of L/C Account; Statements of Account

     21   

2.13    Increased Costs

     21   

2.14    Payments

     22   

2.15    Taxes

     23   

2.16    Intentionally Omitted

     24   

2.17    Designation of SRAC as Account Parties’ and Subsidiary Applicants’ Agent

     24   

2.18    Transfer to Existing Financing Agreement

     25   

2.19    Existing Letters of Credit

     25   

3.        Representations and Warranties

     25   

3.1      Organization; Powers

     25   

3.2      Authorization; Enforceability

     26   

3.3      Governmental Approvals; No Conflicts

     26   

3.4      Litigation

     26   

3.5      No Default

     26   

3.6      Security Documents

     26   

3.7      Federal Reserve Regulations

     26   

3.8      Solvency

     27   

3.9      Taxes

     27   

3.10    Certain Existing Financing Agreement Representations

     27   

3.11    Environmental Compliance

     27   

3.12    Compliance with Laws

     28   

3.13    Other Liens

     28   

3.14    Full Disclosure

     28   

 

(i)

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3.15    [Intentionally omitted.]

     28   

3.16    Financial Statements; No Material Adverse Effect

     28   

4.        Conditions

     28   

4.1      Effective Date

     28   

4.2      Conditions Precedent to Each Letter of Credit

     30   

5.        Affirmative Covenants

     30   

5.1      Financial Statements and Other Information

     31   

5.2      Existence; Conduct of Business

     32   

5.3      Compliance with Laws

     32   

5.4      Use of Letters of Credit

     33   

5.5      Cash Collateralization of Letter of Credit Outstandings

     33   

5.6      [Intentionally Omitted]

     33   

5.7      Books and Records

     33   

5.8      Further Assurances

     33   

6.        Covenants

     33   

6.1      Liens, Collateral Dispositions

     33   

6.2      Fundamental Changes

     33   

7.        Events of Default

     34   

7.1      Events of Default

     34   

7.2      Remedies on Default

     36   

8.        Miscellaneous

     36   

8.1      Notices

     36   

8.2      Waivers; Amendments

     36   

8.3      Expenses; Indemnity; Damage Waiver

     37   

8.4      Successors and Assigns; Participations

     38   

8.5      Survival

     39   

8.6      Counterparts; Integration

     39   

8.7      Severability

     39   

8.8      Right of Setoff

     39   

8.9      Governing Law; Jurisdiction; Consent to Service of Process

     40   

8.10    WAIVER OF JURY TRIAL

     40   

8.11    Headings

     41   

8.12    Interest Rate Limitation

     41   

8.13    Additional Waivers

     41   

8.14    No Advisory or Fiduciary Responsibility

     42   

8.15    USA PATRIOT Act Notice

     43   

8.16    Foreign Control Regulations

     43   

8.17    No Strict Construction

     43   

8.18    Confidentiality

     43   

8.19    Additional Account Parties

     44   

 

(ii)

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This UNCOMMITTED LETTER OF CREDIT AGREEMENT dated as of January 20, 2011, is by
and among SEARS HOLDINGS CORPORATION, a corporation organized under the laws of
the State of Delaware (“Holdings”), SEARS ROEBUCK ACCEPTANCE CORP., a
corporation organized under the laws of the State of Delaware (“SRAC”), SEARS,
ROEBUCK AND CO., a corporation organized under the laws of the State of New York
(“Sears”), KMART CORPORATION, a corporation organized under the laws of the
State of Michigan (“Kmart”); and WELLS FARGO BANK, NATIONAL ASSOCIATION, as
Issuing Bank, a national banking association having a place of business at One
Boston Place, 19th Floor, Boston, Massachusetts 02108;

WITNESSETH

WHEREAS, the Account Parties and the Issuing Bank have agreed to enter into this
Agreement pursuant to which the Issuing Bank may, on a discretionary basis and
with no commitment or obligation, agree to issue Letters of Credit upon the
request of the Account Parties in an aggregate amount outstanding not to exceed
$500,000,000, all subject to the terms and conditions stated herein.

NOW THEREFORE, in consideration of the mutual covenants herein contained and
benefits to be derived herefrom, the parties hereby agree as follows:

 

1. DEFINITIONS.

1.1 Defined Terms.

As used in this Agreement, the following terms have the meanings specified
below:

“Account Parties” means each of Holdings, Kmart, Sears and SRAC.

“Adjusted LIBO Rate” means for any Base Rate calculation, an interest rate per
annum (rounded upwards, if necessary, to the next  1/100 of one percent) equal
to (i) LIBOR for a 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.

“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 or is a
director or officer of such Person.

“Aggregate First Year Fees” has the meaning given such term in
Section 2.8(a)(iii).

“Agreement” means this Letter of Credit Agreement, as modified, amended,
supplemented or restated, and in effect from time to time.

“Anniversary Fee” has the meaning given such term in Section 2.8(a)(iii).

 

1

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“Applicable Currency” means, with respect to any Letter of Credit, the currency
in which such Letter of Credit is issued provided; however, that the Issuing
Bank may, without limiting the generally discretionary nature of the letter of
credit facility provided by the Issuing Bank hereunder, refuse to issue any
Letter of Credit in any currency other than Dollars.

“Applicable Law” means as to any Person: (i) all laws, statutes, rules,
regulations, orders, or other requirements having the force of law and (ii) all
court orders and injunctions, and/or similar rulings, in each instance ((i) and
(ii)) of or by any Governmental Authority, or court, or tribunal which has
jurisdiction over such Person, or any property of such Person, or of any other
Person for whose conduct such Person would be responsible.

“Auto-Extension Letter of Credit” shall have the meaning specified in
Section 2.5(c).

“Availability” means, at any time of determination, an amount equal to the
difference between the amounts on deposit in the Cash Collateral Account and
103% of the Letter of Credit Outstandings.

“Board” means the Board of Governors of the Federal Reserve System of the United
States of America.

“Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in Boston, Massachusetts, Santa Monica, California,
Winston Salem, North Carolina, New York, New York or Wilmington, Delaware are
authorized or required by law to remain closed.

“Cash Collateral Account” shall mean a non-interest bearing DDA (as such term is
defined in the Existing Financing Agreement, as in effect as of the date hereof)
account established by SRAC, on behalf of the Account Parties, at Issuing Bank
under the sole and exclusive dominion and control of the Issuing Bank designated
as the “SRAC Cash Collateral Account”, in which account the Issuing Bank has
been granted a Lien pursuant to the Pledge and Security Agreement.

“Change in Control” means (a) any “person” or “group” (as such terms are used in
Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934, but
excluding any employee benefit plan of such person or its Subsidiaries, and any
Person or entity acting in its capacity as trustee, agent or other fiduciary or
administrator of any such plan) other than a Permitted Holder becomes the
“beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities
Exchange Act of 1934, except that a person or group shall be deemed to have
“beneficial ownership” of all securities that such person or group has the right
to acquire (such right, an “option right”), whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of 35%
or more of the Voting Stock of Holdings on a fully-diluted basis (and taking
into account all such securities that such person or group has the right to
acquire pursuant to any option right) and such “person” or “group” shall
beneficially own (as such term is used herein) a greater percentage of the
Voting Stock of Holdings than the Permitted Holders shall, collectively,
beneficially own; or (b) during any period of 12 consecutive months, a majority
of the members of the Board of Directors or other equivalent governing body of

 

2

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Holdings cease to be composed of individuals (x) who were members of that board
or equivalent governing body on the first day of such period, (y) whose election
or nomination to that board or equivalent governing body was approved by
individuals referred to in clause (x) above constituting at the time of such
election or nomination at least a majority of that board or equivalent governing
body or (z) whose election or nomination to that board or other equivalent
governing body was approved by individuals referred to in clauses (x) and
(y) above constituting at the time of such election or nomination at least a
majority of that board or equivalent governing body (excluding, in the case of
both clause (y) and clause (z), any individual whose initial nomination for, or
assumption of office as, a member of that board or equivalent governing body
occurs as a result of an actual or threatened solicitation of proxies or
consents for the election or removal of one or more directors by any person or
group other than a solicitation for the election of one or more directors by or
on behalf of the Board of Directors); or (c) Holdings shall cease for any reason
to own, directly or indirectly, 100% of the Voting Stock of the other Account
Parties and Subsidiary Applicants.

“Change in Law” means (a) the adoption or taking effect of any law, rule,
regulation or treaty after the date of this Agreement, (b) any change in any
law, rule, regulation or treaty or in the administration, interpretation or
application thereof by any Governmental Authority after the date of this
Agreement or (c) compliance by Issuing Bank (or by Issuing Bank’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, provided that, notwithstanding anything herein to the contrary,
the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended, and
all requests, rules, guidelines, requirements and directives thereunder issued
in connection therewith or in implementation thereof shall be deemed to be a
“Change in Law”, regardless of the date enacted, adopted, issued or implemented.

“Charges” has the meaning provided therefor in Section 8.12.

“Closing Date” means January 20, 2011.

“Code” means the Internal Revenue Code of 1986 and the regulations promulgated
thereunder, as amended from time to time.

“Collateral” means any and all “Collateral” as defined in the Pledge and
Security Agreement.

“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. The
terms “Controlling” and “Controlled” have meanings correlative thereto.

“Credit Documents” means this Agreement, the Letters of Credit, each Letter of
Credit Application, the Pledge and Security Agreement, the Deposit Account
Control Agreement, the Tele-Transmission Agreement, and any other instrument or
agreement now or hereafter executed

 

3

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and delivered in connection herewith or therewith, each as amended and in effect
from time to time.

“Credit Request” means a request by an Account Party for the issuance of a
Letter of Credit in accordance with Section 2.5.

“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all
other liquidation, conservatorship, bankruptcy, assignment for the benefit of
creditors, moratorium, rearrangement, receivership, insolvency, reorganization,
or similar debtor relief Laws of the United States or other applicable
jurisdictions from time to time in effect and affecting the rights of creditors
generally.

“Default” means any event or condition that constitutes an Event of Default or
that upon notice, lapse of time or both would, unless cured or waived, become an
Event of Default.

“Deposit Account Control Agreement” means the Deposit Account Control Agreement
(Access Restricted Immediately) dated as of the date hereof among Issuing Bank,
in its capacity as issuing bank of any Letters of Credit and in its capacity as
the depository institution thereunder, and SRAC, as such agreement may be
amended, modified, supplemented, restated, or replaced from time to time.

“Dollars” or “$” refers to lawful money of the United States of America.

“Effective Date” means the date on which the conditions specified in Section 4.1
are satisfied or waived by the Issuing Bank.

“ESL” means ESL Investments, Inc., a Delaware corporation.

“Event of Default” has the meaning assigned to such term in Section 7.1.

“Excluded Subsidiary” means OSH and Sears Canada.

“Excluded Taxes” means, with respect to Issuing Bank or any other recipient of
any payment to be made by or on account of any obligation of any Account Party
or any Subsidiary Applicant hereunder, (a) income or franchise Taxes imposed on
(or measured by) its gross or 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, and (b) any branch profits Taxes imposed by the
United States of America or any similar Tax imposed by any other jurisdiction in
which any Account Party or such Subsidiary Applicant is located.

“Existing Financing Agreement” means the Amended and Restated Credit Agreement,
dated as of May 21, 2009, as amended, amended and restated, supplemented or
otherwise modified from time to time among the Account Parties, the lenders
party thereto, certain other parties, Wells Fargo, as co-collateral agent, and
Bank of America, N.A., as administrative agent and co-collateral agent.

 

4

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“Existing Letters of Credit” means the following letters of credit issued by the
Issuing Bank:

 

LC Number

  

Beneficiary

   Stated Amount      Undrawn
Amount as of
Effective Date     

Expiry

Date

  

Applicant

SM234025W   

[*****]

   $ 103,972,857.00       $ 103,972,857.00       2/9/2011    SEARS HOLDINGS
CORPORATION

 

[*****] Confidential material redacted and filed separately with the Securities
and Exchange Commission.

 

5

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SM234027W   

[*****]

   $ 38,608,351.00       $ 38,608,351.00       2/9/2011    SEARS, ROEBUCK AND
CO. SM217902W   

[*****]

   $ 7,300,000.00       $ 7,300,000.00       1/10/2012    KMART CORPORATION

 

[*****] Confidential material redacted and filed separately with the Securities
and Exchange Commission.

 

6

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SM217858W   

[*****]

   $ 658,995.00       $ 658,995.00       *1/13/12 expiry per evergreen w/final
expiry 4/1/2016    SEARS HOLDINGS MANAGEMENT CORPORATION

 

[*****] Confidential material redacted and filed separately with the Securities
and Exchange Commission.

“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 Wells Fargo from three Federal funds brokers of recognized standing
selected by it.

“GAAP” means generally accepted accounting principles of the United States of
America, consistently applied.

“Governmental Authority” means the government of the United States of America,
any other nation or any political subdivision thereof, whether state, provincial
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 (including any supra-national bodies, such as the European Union or
the European Central Bank), any securities exchange and any self-regulatory
organization (including the National Association of Insurance Commissioners).

“Group Member” means Holdings, the Account Parties, and their respective
Subsidiaries.

“Holdings” has the meaning given such term in the Preamble.

“Honor Date” means any date of any payment by the Issuing Bank under a Letter of
Credit

“Indemnified Taxes” means Taxes other than Excluded Taxes.

“Indemnitee” has the meaning provided therefor in Section 8.3(b).

“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, the Standby Letter of Credit Agreement, if applicable, and any
other document,

 

7

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agreement and instrument entered into by the Issuing Bank and the Account Party
(or any Subsidiary) or in favor of the Issuing Bank and relating to any such
Letter of Credit.

“Issuing Bank” means Wells Fargo or its Affiliates, in their capacities as the
issuers of Letters of Credit hereunder.

“Kmart” is defined in the Preamble hereto.

“Laws” means each international, foreign, Federal, state and local statute,
treaty, rule, guideline, regulation, ordinance, code and administrative or
judicial precedent or authority, including the interpretation or administration
thereof by any Governmental Authority charged with the enforcement,
interpretation or administration thereof, and each applicable administrative
order, directed duty, request, license, authorization and permit of, and
agreement with, any Governmental Authority, in each case whether or not having
the force of law.

“L/C Disbursement” means a payment made by Issuing Bank pursuant to a Letter of
Credit.

“Letter of Credit” shall mean a letter of credit that is issued pursuant to this
Agreement and is (i) for the account of an Account Party and on behalf of such
Account Party or any Subsidiary Applicant, (ii) a Standby Letter of Credit,
(iii) issued for purposes for which an Account Party or any Subsidiary Applicant
has historically obtained Standby Letters of Credit, or for any other purpose
that is reasonably acceptable to the applicable Issuing Bank, (iv) in form
reasonably satisfactory to the applicable Issuing Bank, and (v) issued in
Dollars, or any other Applicable Currency which is approved in writing, on a
case by case basis, by the Issuing Bank in its sole and absolute discretion. The
Issuing Bank’s written approval to issue a specific Letter of Credit in a
currency other than Dollars shall not extend to, nor be deemed to be the Issuing
Bank’s approval of, the issuance of any other Letters of Credit in such foreign
currency. The Existing Letters of Credit shall be deemed and constitute Letters
of Credit under this Agreement as though originally issued hereunder.

“Letter of Credit Application” means an application for the issuance or
amendment of a Letter of Credit in the form from time to time in use by the
Issuing Bank.

“Letter of Credit Fees” has the meaning given such term in Section 2.8(a)(i).

“Letter of Credit Outstandings” shall mean, at any time, the sum of (a) with
respect to Letters of Credit outstanding at such time, the aggregate maximum
amount that then is or at any time thereafter may become available for drawing
or payment thereunder plus (b) all amounts theretofore drawn or paid under
Letters of Credit for which the Issuing Bank has not then been reimbursed.

“LIBOR” means the rate per annum equal to the British Bankers Association LIBOR
Rate (“BBA LIBOR”), as published by Reuters (or other commercially available
source providing quotations of BBA LIBOR as designated by the Issuing Bank from
time to time) at approximately 11:00 a.m., London time for Dollar deposits with
a maturity comparable to the

 

8

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expiry of such Letter of Credit. If such rate is not available at such time for
any reason, then “LIBOR” shall be the rate per annum determined by the Issuing
Bank to be the rate at which deposits in Dollars for delivery in same day funds
in the approximate amount of the Letter of Credit and with a term equivalent to
a maturity comparable to the expiry of such Letter of Credit would be offered by
Wells Fargo to major banks in the London interbank eurodollar market at their
request at approximately 11:00 a.m. (London time).

“Lien” means, with respect to any asset, any mortgage, deed of trust, lien,
pledge, hypothecation, encumbrance, charge or security interest in, on or of
such asset.

“Margin Stock” has the meaning assigned to such term in Regulation U.

“Material Adverse Effect” means a material adverse effect on (a) the business,
operations, property, assets, or condition (financial or otherwise) of SRAC,
individually, or Holdings and its Subsidiaries taken as a whole, (b) the ability
of SRAC, individually, or the Account Parties to perform any material obligation
or to pay any Obligations under this Agreement or any of the other Credit
Documents, or (c) the validity or enforceability of this Agreement or any of the
other Credit Documents or any of the material rights or remedies of the Issuing
Bank hereunder or thereunder (including, but not limited to, the enforceability
or priority of any Liens granted to the Issuing Bank under the Pledge and
Security Agreement or any other Credit Document). In determining whether any
individual event would result in a Material Adverse Effect, notwithstanding that
such event in and of itself does not have such effect, a Material Adverse Effect
shall be deemed to have occurred if the cumulative effect of such event and all
other then existing events would result in a Material Adverse Effect.

“Maximum Letter of Credit Ceiling” means a maximum amount of L/C Outstandings
not to exceed $500,000,000 at any time or such lesser amount on account of a
reduction thereof in accordance with the provisions of Section 2.11 hereof.

“Maximum Rate” has the meaning provided therefor in Section 8.12.

“Non-Extension Notice Date” has the meaning specified in Section 2.5(c).

“Obligations” means the due and punctual payment by the Account Parties of
(i) each payment required to be made by each such Account Party or any
Subsidiary Applicant under this Agreement in respect of any Letter of Credit,
when and as due, including payments in respect of reimbursement of disbursements
and interest thereon (including all interest that accrues after the commencement
of any case or proceeding by or against any Account Party or any Subsidiary
Applicant under any federal or state bankruptcy, insolvency, receivership or
similar law, whether or not allowed in such case or proceeding) and (ii) all
other monetary obligations, including fees, costs, expenses and indemnities
(including all such amounts that accrue after the commencement of any case or
proceeding by or against any Account Party or any Subsidiary Applicant under any
federal or state bankruptcy, insolvency, receivership or similar law, whether or
not allowed in such case or proceeding), whether primary, secondary, direct,
contingent, fixed or otherwise, of any Account Party or any Subsidiary Applicant
to the Issuing Bank under this Agreement and the other Credit Documents.

 

9

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“Organizational Document” means, relative to any Person, its limited partnership
agreement, its certificate of incorporation, formation or limited partnership,
its operating agreement, its by-laws and all material shareholder or equity
holder agreements, voting trusts and similar arrangements to which such Person
is a party or which is applicable to its capital stock or its limited
partnership agreement.

“OSH” means Orchard Supply Hardware Stores Corporation, a Delaware corporation,
and its Subsidiaries.

“Other Taxes” means any and all current or future stamp or documentary Taxes or
any other excise or property Taxes, charges or similar levies arising from any
payment made under any Credit Document or from the execution, delivery or
enforcement of, or otherwise with respect to, any Credit Document.

“Permitted Holder” means ESL and any of its Affiliates other than a Group
Member.

“Permitted Liens” has the meaning given such term in the Existing Financing
Agreement, as in effect on the date hereof.

“Person” means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.

“Pledge and Security Agreement” means the Pledge and Security Agreement, dated
as of the date hereof, between the Issuing Bank and the Account Parties, as such
agreement may be modified, amended, supplemented, or restated and in effect from
time to time.

“Prime Rate” means, for any day, a fluctuating rate per annum equal to the
highest of (a) the Federal Funds Rate, as in effect from time to time, plus
one-half of one percent (0.50%), (b) the Adjusted LIBO Rate plus one percent
(1.00%), or (c) the rate of interest in effect for such day 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.

“Regulation U” means Regulation U of the Board as from time to time in effect
and all official rulings and interpretations thereunder or thereof.

“Regulation X” means Regulation X of the Board as from time to time in effect
and all official rulings and interpretations thereunder or thereof.

“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.

 

10

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“Responsible Officer” means the Chief Executive Officer, President, Chief
Operating Officer, Chief Financial Officer, Treasurer, Assistant Treasurer,
Treasury Manager or any Vice President of SRAC or Holdings provided that such
officer has executed and delivered the Tele-Transmission Agreement to the
Issuing Bank.

“Sears” is defined in the Preamble hereto.

“Sears Canada” means the collective reference to Sears Canada Inc., a Canadian
corporation, and its Subsidiaries.

“Security Documents” means the Pledge and Security Agreement and any other
Credit Document which purports to grant a lien in favor of Issuing Bank on any
asset of an Account Party.

“Set-Up Fee” has the meaning given such term in Section 2.8(a)(ii).

“Solvent” means, with respect to any Person on a particular date, that on such
date (a) the present fair saleable value of the properties and assets of such
Person is not less than the amount that would be required to pay the probable
liability of such Person on its debts as they become absolute and matured,
(b) such Person is able to realize upon its properties and assets and pay its
debts and other liabilities, contingent obligations and other commitments as
they mature in the normal course of business, (c) such Person does not intend
to, and does not believe that it will, incur debts beyond such Person’s ability
to pay as such debts mature, and (d) such Person is not engaged in a business or
a transaction, and is not about to engage in a business or transaction, for
which such Person’s properties and assets would constitute unreasonably small
capital after giving due consideration to the prevailing practices in the
industry in which such Person is engaged.

“Spot Rate” has the meaning given such term in Section 1.2.

“SRAC” is defined in the Preamble hereto.

“Standby Letter of Credit” means any Letter of Credit other than a documentary
or commercial Letter of Credit.

“Standby Letter of Credit Agreement” means a Standby Letter of Credit Agreement
relating to the issuance of a Standby Letter of Credit in the form from time to
time in use by the Issuing Bank.

“Stated Amount” means at any time the maximum amount for which a Letter of
Credit may be honored.

“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 Federal Reserve to which the Issuing Bank is subject with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred
to

 

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as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such Regulation D. The
Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.

“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 Applicant” means any Subsidiary of an Account Party, other than an
Excluded Subsidiary, on whose behalf an Account Party has requested that a
Letter of Credit be issued by the Issuing Bank and which is party to any Credit
Document.

“Taxes” means any and all current or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.

“Tele-Transmission Agreement” means the Tele-Transmission Agreement or
Agreements by the Account Parties and the Issuing Bank, as the same may be
amended, restated, supplemented, or replaced from time to time.

“Termination Date” shall mean the earliest to occur of (i) January 20, 2014,
(ii) any date specified by the Issuing Bank in accordance with Section 7.1 upon
the occurrence of any Event of Default, (iii) the date on which, pursuant to
Section 2.11(b), the Issuing Bank elects, in its sole and absolute discretion,
to no longer issue Letters of Credit pursuant to this Agreement and (iv) the
date on which, the Account Parties notify the Issuing Bank that the Account
Parties shall no longer apply for or request the issuance, amendment, or
extension of Letters of Credit pursuant to this Agreement.

“Transfer Notice” has the meaning set forth in Section 2.16 hereof.

“UCP 600” means the rules of the Uniform Customs and Practice for Documentary
Credits, as most recently published by the International Chamber of Commerce and
in effect as of July 1, 2007.

“Voting Stock” means capital stock issued by a corporation, or equivalent
interests in any other Person, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of directors (or
persons performing similar functions) of such Person, even if the right so to
vote has been suspended by the happening of such a contingency.

“Wells Fargo” means Wells Fargo Bank, National Association.

 

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1.2 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 (i) 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), (ii) any reference
herein to any Person shall be construed to include such Person’s successors and
assigns, (iii) 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, and (iv) 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.

1.3 Currency Equivalents Generally. Any amount specified in this Agreement or
any of the other Credit Documents to be in Dollars shall also include the
equivalent of such amount in any currency other than Dollars, such equivalent
amount thereof in the Applicable Currency to be determined by the Issuing Bank
at such time on the basis of the Spot Rate (as defined below) for the purchase
of such currency with Dollars. For purposes of this Section 1.3, the “Spot Rate”
for a currency means the rate determined by the Issuing Bank (or its Affiliates)
to be the spot rate for the purchase by such Person of such currency with
another currency through its principal foreign exchange trading office at
approximately 11:00 a.m. on the date two Business Days prior to the date of such
determination; provided that the Issuing Bank may obtain such spot rate from
another financial institution reasonably designated by the Issuing Bank if the
Issuing Bank (or its Affiliates) does not have as of the date of determination a
spot buying rate for any such currency.

1.4 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
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.

 

2. LETTERS OF CREDIT.

2.1 Issuance of Letters of Credit; Discretionary.

 

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(a) Upon the terms and subject to the conditions herein set forth, an Account
Party may, for its own account, and on its own behalf or on behalf of a
Subsidiary Applicant reasonably acceptable to the Issuing Bank, request the
Issuing Bank, at any time and from time to time after the date hereof and prior
to the Termination Date, to issue, and subject to the terms and conditions
contained herein, the Issuing Bank may issue, for the account of such Account
Party one or more Letters of Credit; provided that no Letter of Credit shall be
issued if after giving effect to such issuance (i) the aggregate Letter of
Credit Outstandings shall exceed the Maximum Letter of Credit Ceiling, or
(ii) Availability would be less than zero.

(b) Each Letter of Credit shall expire at or prior to the close of business on
the earlier of (i) the date one (1) year after the date of the issuance of such
Letter of Credit (or, in the case of any renewal or extension thereof, one
(1) year after such renewal or extension) and (ii) the first anniversary of the
Termination Date.

(c) The Account Parties acknowledge and agree, that the Issuing Bank has no
commitment or obligation to issue any Letter of Credit and that the facility
provided by the Issuing Bank is entirely discretionary. Accordingly, the Issuing
Bank may decline to issue, amend, or extend any Letter of Credit and the
issuance by the Issuing Bank of any Letter of Credit, or any amendments or
extensions of any Letter of Credit, shall not oblige or require the Issuing Bank
to issue any other Letters of Credit or to amend, renew, or extend any Letter of
Credit.

(d) Notwithstanding anything herein or in any other Credit Document to the
contrary, the Account Parties shall be fully obligated to pay all amounts owing
hereunder with respect to each Letter of Credit, including each unreimbursed L/C
Disbursement and accrued interest thereon with respect to such Letter of Credit
and the applicable Letter of Credit Fee, Set-Up Fee, and all other fees and
expenses arising hereunder or under any other Credit Document, whether or not
such Letter of Credit is issued in support of any obligations of any Subsidiary
Applicant or any Subsidiary Applicant is party as an applicant to the relevant
Letter of Credit Application, all on the terms set forth herein. The Account
Parties hereby acknowledge that the issuance of Letters of Credit on behalf of
any Subsidiary Applicant inures to the benefit of the Account Parties, and that
the Account Parties’ business derives substantial benefits from the businesses
of such Subsidiary Applicants. Nothing in this Agreement or the other Credit
Documents shall constitute or be deemed to constitute a waiver, limitation,
impairment or amendment of, and the Issuing Bank hereby expressly reserves, any
and all rights, powers and claims that the Issuing Bank has or may in the future
have with respect to any reimbursement obligations of an Account Party or
Subsidiary Applicant with respect to any letter of credit (including the Letters
of Credit issued hereunder) issued by the Issuing Bank under the Uniform
Commercial Code as enacted in any applicable jurisdiction, the ISP, the UCP 600,
or any other Applicable Law.

2.2 Reimbursement of Drawings. Drafts drawn under each Letter of Credit shall be
reimbursed by the Account Parties by paying to the Issuing Bank an amount equal
to such drawing not later than 4:00 p.m., Boston time, on (i) the date that SRAC
shall have received notice of such drawing, if such notice is received prior to
12:00 noon, Boston time, on such date, or (ii) the Business Day immediately
following the day that SRAC receives such notice, if such

 

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notice is received after 12:00 noon, Boston time, on the day of drawing. Without
in any way limiting any of the Issuing Bank’s rights under the other Credit
Documents, the Account Parties hereby authorize the Issuing Bank to, in its sole
discretion from time to time, without notice or demand (except as may otherwise
be expressly required herein), withdraw from the Cash Collateral Account any
amounts necessary to fully pay or reimburse the Issuing Bank for any L/C
Disbursements not paid in accordance with the immediately preceding sentence.

2.3 Notice of Drawings. Issuing Bank shall, promptly following its receipt
thereof, examine all documents purporting to represent a demand for payment
under a Letter of Credit. The Issuing Bank shall promptly notify the Account
Parties by telephone or electronic mail of such demand for payment and whether
Issuing Bank has made or will make payment thereunder, provided that any failure
to give or delay in giving such notice shall not relieve the Account Parties of
their obligations to reimburse Issuing Bank with respect to any such payment.
Any notice given by the Issuing Bank pursuant to this Section 2.3 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.

2.4 Interest on Overdue Amounts. If Issuing Bank shall make any L/C
Disbursement, then, unless the Account Parties shall reimburse the Issuing Bank
in full at the time required herein (including by withdrawals by the Issuing
Bank from the Cash Collateral Account), the unpaid amount thereof shall bear
interest, for each day from and including the date such payment is made to but
excluding the date that the Account Parties reimburse Issuing Bank therefor, at
the rate per annum equal to the Prime Rate. Interest shall be calculated on the
basis of a 365 day year (or 366-day in a leap year) and actual days elapsed.

2.5 Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension
Letters of Credit.

(a) Each Letter of Credit shall be issued or amended, as the case may be, upon
the request of the Account Parties delivered to the Issuing Bank in the form of
a Letter of Credit Application, appropriately completed and signed by a
Responsible Officer of the applicable Account Party. Such Letter of Credit
Application must be received by the Issuing Bank not later than 11:00 a.m. at
least three Business Days (or such other date and time as the 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 satisfactory to the Issuing Bank: (A) the
proposed issuance date of the requested Letter of Credit (which shall be a
Business Day); (B) the Stated 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; and (G) such other matters as the Issuing Bank may 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 satisfactory
to the 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 the Issuing Bank may require.
Additionally, the Account Parties shall furnish to the Issuing Bank such other

 

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documents and information pertaining to such requested Letter of Credit issuance
or amendment, and any Issuer Documents (including, if requested by the Issuing
Bank, a Standby Letter of Credit Agreement), as the Issuing Bank may require.

(b) Promptly after receipt of any Letter of Credit Application, and no later
than two Business Days after the receipt of the Letter of Credit Application,
the Issuing Bank will advise the Account Parties, in writing (which may be via
electronic mail) whether the Issuing Bank has elected to issue, amend, or extend
the requested Letter of Credit. If the Issuing Bank advises the Account Parties,
in writing, that it will issue, amend, or extend the applicable requested Letter
of Credit, the Issuing Bank shall, on the requested date, issue (or amend or
extend) a Letter of Credit for the account of the applicable Account Party or
enter into the applicable amendment, as the case may be, in each case in
accordance with the Issuing Bank’s usual and customary business practices and
subject to the terms and conditions of the Credit Documents.

(c) If the Account Parties so request in any applicable Letter of Credit
Application, the Issuing Bank may, in its sole and absolute discretion, agree to
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 the Issuing Bank to prevent any such extension once
in each twelve-month period (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;
provided, Issuing Bank shall use reasonable efforts to inform the applicable
Account Party of its intention to issue any notice of non-renewal in respect of
a Letter of Credit at least three (3) Business Days prior to issuance of such
notice, it being understood that any failure or delay of Issuing Bank to so
inform the applicable Account Party shall in no way limit, waive, or impair
Issuing Bank’s right to deny or prevent any such extension. Unless otherwise
directed by the Issuing Bank, the Account Parties shall not be required to make
a specific request to the Issuing Bank for any such extension. Once an
Auto-Extension Letter of Credit has been issued, the Issuing Bank shall be
deemed to have been authorized (but not required or committed) to permit the
extension of such Standby Letter of Credit at any time to an expiry date not
later than one year after the Termination Date; provided, however, that, without
limiting the Issuing Bank’s discretion to decline to extend any Auto-Extension
Letter of Credit for any reason, the Issuing Bank shall not permit any such
extension if (A) the Issuing Bank has determined that it would not be permitted
at such time to issue such Standby Letter of Credit in its revised form (as
extended) under the terms hereof, or (B) the Issuing Bank has received notice
(which may be by telephone or in writing) on or before the day that is five
Business Days before the Non-Extension Notice Date from the Account Parties that
one or more of the applicable conditions specified in Section 4.2 is not then
satisfied, and in each such case directing the Issuing Bank not to permit such
extension.

(d) 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, the Issuing Bank will also deliver to the Account Parties a true and
complete copy of such Letter of Credit or amendment.

 

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2.6 Unconditional Obligations. The obligation of the Account Parties to
reimburse the Issuing Bank for any L/C Disbursement and other Obligations 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 Credit Document;

(ii) the existence of any claim, counterclaim, setoff, defense or other right
that the Account Parties or any Subsidiary Applicant 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), the
Issuing Bank or any other Person, whether in connection with this Agreement or
the other Credit Documents, 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 the 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 the 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 Debtor Relief Law;

(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 Account Parties or any
of their Subsidiary Applicants;

(vi) whether or not the Issuing Bank has given notice to the Account Parties of
any L/C Disbursement or draw request; or

(vii) the fact that any Default or Event of Default shall have occurred and be
continuing.

Each Account Party 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 Account Parties’ instructions or other irregularity, such
Account Party will promptly and in any event within two (2) Business Days of
receipt of such copy notify the Issuing Bank. The

 

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Account Parties and Subsidiary Applicants shall be conclusively deemed to have
waived any such claim against the Issuing Bank and its correspondents unless
such notice is given as aforesaid.

2.7 Role of Issuing Bank. Each Account Party agrees that, in paying any drawing
under a Letter of Credit, the Issuing Bank shall not have any responsibility to
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. The Account Parties, on their own
behalf and on behalf of the Subsidiary Applicants, hereby assume 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 Account Parties from pursuing such rights and
remedies as they may have against the beneficiary or transferee at Law or under
any other agreement. None of the Issuing Bank, any of its Related Parties nor
any correspondent, participant or assignee of the Issuing Bank shall be liable
or responsible for any of the matters described in clauses (i) through (v) of
Section 2.6(e) or for any action, neglect or omission under or in connection
with any Letter of Credit or Issuer Documents, including, without limitation,
the issuance or any amendment of any Letter of Credit, the failure to issue or
amend any Letter of Credit, or the honoring or dishonoring of any demand under
any Letter of Credit, and such action or neglect or omission will bind the
Account Parties and Subsidiary Applicants; provided, however, that anything in
such clauses to the contrary notwithstanding, the Account Parties may have a
claim against the Issuing Bank, and the Issuing Bank may be liable to the
Account Parties, to the extent, but only to the extent, of any direct, as
opposed to consequential, exemplary or punitive damages suffered by the Account
Parties or Subsidiary Applicants which the Account Parties prove were caused by
the Issuing Bank’s willful misconduct or gross negligence or the 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. In furtherance and not in
limitation of the foregoing, the 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 the 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 may disregard
any requirement in a Letter of Credit that notice of dishonor be given in a
particular manner and any requirement that presentation be made at a particular
place or by a particular time of day), and the 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. The Issuing Bank shall not be
responsible for the wording of any Letter of Credit (including, without
limitation, any drawing conditions or any terms or conditions that are
ineffective, ambiguous, inconsistent, unduly complicated or reasonably
impossible to satisfy), notwithstanding any assistance the Issuing Bank may
provide to the Account Parties or Subsidiary Applicants with drafting or
recommending text for any Letter of Credit Application or with the structuring
of any transaction related to any Letter of Credit, and the Account Parties
hereby acknowledge, on their own behalf and on behalf of the Subsidiary
Applicants, and agree that any such assistance will not constitute legal or
other advice by the Issuing Bank, or any agent or attorney of the Issuing Bank,
or any representation or

 

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warranty by the Issuing Bank that any such wording or such Letter of Credit will
be effective. Without limiting the foregoing, the Issuing Bank may, as it deems
appropriate, modify or alter and use in any Letter of Credit the terminology
contained on the Letter of Credit Application for such Letter of Credit.

2.8 Fees. The Account Parties shall jointly and severally be obligated to pay
the Issuing Bank:

(a) on the 5th day subsequent to the last day of each April, July, October and
January, in arrears, a fee (each, a “Letter of Credit Fee”) equal to 0.175% per
annum of the average daily Stated Amount of the Letters of Credit outstanding
during the applicable period; provided, however, that if an Account Party fails
to comply with Section 5.5 below, the Letter of Credit Fees shall be increased
by an amount equal to two percent (2.00%) per annum during the period of
non-compliance;

(b) on or before the date on which any Letter of Credit is issued, the Stated
Amount of any Letter of Credit is increased, or the expiry date of any Letter of
Credit is extended (including any automatic extensions), and as a condition
precedent to such issuance, increase, or extension, a fee (each such fee, a
“Set-Up Fee”) equal to (x) 0.025% of, with respect to any issuances or
extensions, the Stated Amount of such Letter of Credit so issued or extended or
(y) 0.025% with respect to any increase in the Stated Amount, the amount of such
increase (it being understood and agreed that no Set-Up Fee shall be charged for
any transfer made with the Issuing Bank’s consent of any standby letters of
credit issued by the Issuing Bank under the Existing Financing Agreement,
including, without limitation, the Existing Letters of Credit, to this
Agreement);

(c) in the event that, on the earlier of the first anniversary of the Effective
Date or termination of this Agreement by the Account Parties, the aggregate
amount of the Letter of Credit Fees and Set-Up Fees paid to the Issuing Bank in
cash by the Account Parties under Sections 2.8(a) and 2.8(b) (“Aggregate First
Year Fees”) does not equal at least $1,000,000, then, the Account Parties agree
to pay the Issuing Bank the difference between $1,000,000 and the Aggregate
First Year Fees (the “Anniversary Fee”). The Account Parties shall pay the
Anniversary Fee within five (5) Business Days of written demand therefor by
Issuing Bank to the Account Parties. No fees, interest, or other income earned
and/or paid to the Issuing Bank by the Account Parties or their Subsidiaries
with respect to any Existing Letter of Credit prior to the date of this
Agreement shall be included or given credit in the calculation of the Aggregate
First Year Fees or the Anniversary Fee. Notwithstanding the foregoing or
anything herein to the contrary, (i) no Anniversary Fee shall be due and payable
to the extent that the Issuing Bank terminates this Agreement or reduces the
Maximum Letter of Credit Ceiling prior to the first anniversary of the Effective
Date and (ii) the Anniversary Fee shall be reduced by the amount of any fees
that the Issuing Bank would have earned under Sections 2.8(a) and 2.8(b) in
respect of any Letters of Credit for which applications were denied by the
Issuing Bank without cause;

(d) [Intentionally omitted.]

 

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(e) in addition to the Letter of Credit Fees, the Anniversary Fee and each
Set-Up Fee, such other reasonable fees and charges in connection with the
administration, issuance, negotiation, settlement, payment, amendment and
processing of each Letter of Credit issued by the Issuing Bank as are
customarily imposed by the Issuing Bank from time to time in connection with
letter of credit transactions.

(f) All fees shall be calculated on the basis of a 365-day year (or 366-day in a
leap year) and actual days elapsed.

(g) The Account Parties acknowledge that neither the payment of any fee under
this Section 2.8 nor the Account Parties’ obligation to do so shall require the
Issuing Bank to maintain the uncommitted facility made available pursuant to
this Agreement or to agree to provide any Letters of Credit.

(h) All fees shall be paid on the dates due, in immediately available funds, to
the Issuing Bank as provided herein. All fees shall be fully earned on the date
when due (or on the Effective Date if specifically indicated as such) and shall
not be refundable under any circumstances, absent manifest error.

2.9 Applicability of ISP and UCP 600

Unless otherwise expressly agreed by the Issuing Bank and the Account Parties
when a Letter of Credit is issued the rules of the ISP and the UCP 600 shall
apply to each Standby Letter of Credit.

2.10 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.

2.11 Termination or Reduction of Maximum Letter of Credit Ceiling.

(a) Except as otherwise provided herein, this Agreement shall continue in full
force and effect for a term ending on the Termination Date, unless sooner
terminated pursuant to the terms hereof. Upon the Termination Date or any other
effective date of termination of this Agreement, without limiting the
discretionary nature of the facility contemplated hereunder, the Issuing Bank
shall issue no further Letters of Credit. Termination of this Agreement or any
other Credit Document shall not constitute a termination, release, or waiver of
any provision of this Agreement or any other Credit Document which expressly by
its terms is stated to survive termination of this Agreement, any other Credit
Document, or the occurrence of the Termination Date.

(b) The Issuing Bank may, in its sole discretion and for any reason, terminate
this Agreement or reduce the Maximum Letter of Credit Ceiling (including
reductions to zero) at any time on at least fifteen (15) days prior written
notice to the Account Parties. Any such termination or reduction shall become
effective upon the date set forth on such notice.

 

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(c) Except as otherwise provided in the Pledge and Security Agreement, no
termination of this Agreement for any reason, reduction to the Maximum Letter of
Credit Ceiling, or occurrence of the Termination Date shall require the Issuing
Bank to return any Collateral to the Account Parties or any other pledgor of
Collateral, release the Lien of the Issuing Bank on the Collateral or the Cash
Collateral Account, or otherwise impair, waive, or relinquish any rights or
remedies of the Issuing Bank under the Credit Documents.

2.12 Maintenance of L/C Account; Statements of Account.

(a) The Issuing Bank shall maintain an account on its books in the name of the
Account Parties (the “L/C Account”) which will reflect all Letter of Credit
Outstandings and other Obligations, L/C Disbursements, fees and interest that
have become payable as herein set forth.

(b) After the end of each calendar month, the Issuing Bank shall send to the
Account Parties a statement accounting for the transactions occurring among and
between the Issuing Bank and the Account Parties during that month. The monthly
statements shall, absent manifest error, be final, conclusive and binding on the
Account Parties, unless otherwise objected to in writing by the Account Parties
within forty-five (45) days after receipt of the monthly statement.

2.13 Increased Costs.

(a) If any Change in Law 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, the Issuing Bank; or

(ii) impose on Issuing Bank any other condition affecting this Agreement or any
Letter of Credit;

and the result of any of the foregoing shall be to increase the cost to Issuing
Bank of issuing or maintaining any Letter of Credit by an amount deemed material
by Issuing Bank (acting reasonably) or to reduce the amount of any sum received
or receivable by Issuing Bank hereunder by an amount deemed material by Issuing
Bank (acting reasonably), then the Account Parties will pay to Issuing Bank such
additional amount or amounts as will compensate Issuing Bank for such additional
costs incurred or reduction suffered.

(b) If Issuing Bank reasonably determines that any Change in Law regarding
capital requirements has or would have the effect of reducing the rate of return
on Issuing Bank’s capital or on the capital of Issuing Bank’s holding company,
if any, as a consequence of this Agreement or the Letters of Credit issued by
the Issuing Bank, to a level below that which Issuing Bank or Issuing Bank’s
holding company could have achieved but for such Change in Law (taking into
consideration Issuing Bank’s policies and the policies of Issuing Bank’s holding
company with respect to capital adequacy), then from time to time the Account
Parties will pay to Issuing Bank such additional amount or amounts as will
compensate Issuing Bank or

 

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Issuing Bank’s holding company for any such reduction suffered deemed to be
material by Issuing Bank.

(c) A certificate of the Issuing Bank setting forth the amount or amounts
necessary to compensate Issuing Bank or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section and setting forth in
reasonable detail the manner in which such amount or amounts were determined
shall be delivered to the Account Parties and shall be conclusive absent
manifest error. The Account Parties shall pay Issuing Bank the amount shown as
due on any such certificate within ten (10) Business Days after receipt thereof
absent manifest error.

(d) Failure or delay on the part of the Issuing Bank to demand compensation
pursuant to the foregoing provisions of this Section shall not constitute a
waiver of the Issuing Bank’s right to demand such compensation, provided that
the Account Parties shall not be required to compensate the Issuing Bank
pursuant to the foregoing provisions of this Section for any increased costs
incurred or reductions suffered more than six months prior to the date that such
Issuing Bank, as the case may be, notifies the Account Parties of the Change in
Law giving rise to such increased costs or reductions and of the Issuing Bank’s
intention to claim compensation therefor (except that, if the Change in Law
giving rise to such increased costs or reductions is retroactive, then the
six-month period referred to above shall be extended to include the period of
retroactive effect thereof).

2.14 Payments

(a) The Issuing Bank shall, at any time that any Obligations (other than
payments to reimburse the Issuing Bank for L/C Disbursements, as to which
Section 2.2 shall govern, or payments to the Issuing Bank for any amounts due to
it under the Deposit Account Control Agreement in its capacity as the depositary
bank thereunder, as to which amounts the Deposit Account Control Agreement shall
govern) invoice SRAC, on behalf of all the Account Parties, which invoice shall
set forth a payment date of not less than five (5) Business Days after the date
of such invoice; provided that any failure or delay by the Issuing Bank in
sending such an invoice to SRAC shall not constitute a waiver, reduction, or
release of any Obligations or any of the Issuing Bank’s rights or remedies. The
Account Parties shall pay any such invoice on or prior to the payment date
provided therein, subject to the terms of the Credit Documents. In the event
that, within two (2) Business Days after the applicable payment date set forth
on an invoice, the Account Parties have not paid such amount in full to the
Issuing Bank, the Issuing Bank may, and is hereby authorized, without any
further consent or notice, to apply any amounts in the Cash Collateral Account
towards any such outstanding amount. In the event that amounts on deposit in the
Cash Collateral Account are not sufficient to make payment in full of any
outstanding Obligations, the Account Parties shall remain liable to the Issuing
Bank for any amounts remaining outstanding and make payment of such amounts
pursuant to Section 2.14(b).

(b) The Account Parties shall make each payment required to be made by an
Account Party hereunder or under any other Credit Document (whether of interest,
fees or reimbursement of L/C Disbursements, or of amounts payable under Sections
2.13 or 2.15, or otherwise) prior to 4:00 p.m., Boston time, on the date when
due, in immediately available funds,

 

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without setoff or counterclaim. Any amounts received after such time on any date
may, in the discretion of the Issuing Bank, 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 Issuing Bank at the address set forth at
Section 8.1. If any payment under any Credit Document 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
under each Credit Document shall be made in Dollars.

(c) In addition, at any time that the amount of Collateral on deposit in the
Cash Collateral Account is equal to or less than 102% of the Letter of Credit
Outstandings (and without waiving any Event of Default), the Account Parties
authorize the Issuing Bank to charge any account maintained by the Account
Parties or any Subsidiary Applicant with the Issuing Bank or any Affiliate of
the Issuing Bank for any payment of any L/C Disbursement or payment of any fees
arising under Section 2.8(a) or Section 2.8(b) and any other Obligations then
due under this Agreement or the other Credit Documents; provided, however, that
the Issuing Bank shall not charge any account for such other Obligations which
are the subject of any good faith, bona fide dispute between the Issuing Bank
and Account Parties. The Issuing Bank shall provide notice to SRAC in the event
that the Issuing Bank determines to so charge any such account. The Issuing Bank
acknowledges and agrees that notwithstanding the foregoing authorization, no
Account Party nor any Subsidiary Applicant has granted, directly or indirectly,
any lien or security interest in any such account or the proceeds thereof to the
Issuing Bank to secure the Obligations, except as provided in the Pledge and
Security Agreement.

2.15 Taxes

(a) Any and all payments by or on account of any obligation of the Account
Parties or the Subsidiary Applicants hereunder or under any other Credit
Document shall be made free and clear of and without deduction for any
Indemnified Taxes, provided that if the Account Parties shall be required to
deduct any Indemnified Taxes from such payments, then (i) the sum payable shall
be increased as necessary so that after making all required deductions for
Indemnified Taxes (including deductions for Indemnified Taxes applicable to
additional sums payable under this Section) the Issuing Bank receives an amount
equal to the sum it would have received had no such deductions been made,
(ii) the Account Parties shall make such deductions, and (iii) the Account
Parties shall pay the full amount deducted to the relevant Governmental
Authority in accordance with Applicable Law.

(b) In addition, the Account Parties shall pay any Other Taxes to the relevant
Governmental Authority in accordance with Applicable Law.

(c) The Account Parties shall indemnify the Issuing Bank, within ten
(10) Business Days after written demand therefor, for the full amount of any
Indemnified Taxes or Other Taxes paid by the Issuing Bank on or with respect to
any payment by or on account of any obligation of Account Parties hereunder or
under any other Credit Document (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

 

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respect thereto. A certificate as to the amount of such payment or liability
delivered to the Account Parties by the Issuing Bank setting forth in reasonable
detail the manner in which such amount was determined, shall be conclusive
absent manifest error.

(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes
by Account Parties or a Subsidiary Applicant to a Governmental Authority, the
Account Parties shall deliver to the Issuing Bank 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 Issuing Bank.

(e) The Issuing Bank agrees that upon the occurrence of any circumstances
entitling such party to indemnification or additional amounts pursuant hereto,
such party shall use reasonable efforts to take any action (including
designating a new lending office and signing any prescribed forms or other
documentation appropriate in the circumstances) if such action would reduce or
eliminate any Tax (including penalties or interest, as applicable) with respect
to which such indemnification or additional amounts may thereafter accrue.

(f) If Issuing Bank reasonably determines that it has actually and finally
realized, by reason of a refund, deduction or credit of any Taxes paid or
reimbursed by Account Parties pursuant to subsection (a) or (c) above in respect
of payments under the Credit Documents, a current monetary benefit that it would
otherwise not have obtained and that would result in the total payments under
this Section 2.14(c) exceeding the amount needed to make Issuing Bank whole,
Issuing Bank shall pay to the Account Parties, with reasonable promptness
following the date upon which it actually realizes such benefit, an amount equal
to the lesser of the amount of such benefit or the amount of such excess, in
each case net of all out-of-pocket expenses incurred in securing such refund,
deduction or credit.

2.16 Intentionally Omitted.

2.17 Designation of SRAC as Account Parties’ and Subsidiary Applicants’ Agent.

(a) Each Account Party hereby irrevocably designates and appoints SRAC as such
Person’s agent to obtain, amend, or extend Letters of Credit, the proceeds of
which shall be available for such uses as are permitted under this Agreement. As
the disclosed principal for its agent, each Account Party shall be obligated to
the Issuing Bank on account of all Obligations incurred by each such Account
Party, on its own behalf or on behalf of a Subsidiary Applicant, notwithstanding
the manner by which such Obligations are recorded on the books and records of
SRAC and of any other Account Party and Subsidiary Applicant.

(b) Each Account Party recognizes that credit available to it and its Subsidiary
Beneficiaries hereunder is in excess of and on better terms than it otherwise
could obtain on and for its own account and that one of the reasons therefor is
its joining in the credit facility contemplated herein with all other Account
Parties. Consequently, each Account Party hereby assumes and agrees to discharge
all Obligations of each of the other Account Parties.

 

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(c) SRAC shall act as a conduit for each Account Party (including itself, as an
“Account Party”) on whose behalf SRAC has requested a Letter of Credit. The
Issuing Bank shall not have any obligation to see to the application of such
proceeds therefrom.

2.18 Transfer to Existing Financing Agreement. SRAC may, upon three (3) Business
Days written notice (a “Transfer Notice”) to the Issuing Bank, request that any
or all of the Letters of Credit issued under this Agreement be deemed issued
under the Existing Financing Agreement. Provided that the issuance of such
Letters of Credit would then be permitted under the Existing Financing Agreement
and all conditions precedent to such issuance would be satisfied (as if such
Letters of Credit were newly issued on the date set forth in the Transfer
Notice) and such issuance would not result in the occurrence of a “Default” or
“Event of Default” (as each of those terms is defined in the Existing Financing
Agreement), the Issuing Bank shall take such action, at the expense of the
Account Parties, as may be reasonably required to cause such Letters of Credit
to become “Letters of Credit” under the Existing Financing Agreement. The
Issuing Bank and the Account Parties agree that so long as the Issuing Bank is
an Issuing Lender (as defined in the Existing Financing Agreement) no fronting
fee will be due and owing under the Existing Financing Agreement in respect of
any Letter of Credit issued hereunder and subsequently transferred to the
Existing Financing Agreement until the one year anniversary of the payment of
the Set-Up Fee for the issuance or extension of such Letter of Credit. For any
Letter of Credit issued hereunder and subsequently transferred to the Existing
Financing Agreement, the fronting fee shall continue at a rate of 0.025% per
annum, unless the Issuing Bank provides written notice at least five Business
Days prior to (i) for non Auto-Extension Letters of Credit, the expiration date
of such Letter of Credit and (ii) for Auto Extension Letters of Credit, the date
that such Letter of Credit is automatically extended per its terms that a
different fronting fee shall be charged, in which case such different fronting
fee shall be charged, subject to any limitation in the Existing Financing
Agreement.

2.19 Existing Letters of Credit. The Existing Letters of Credit shall constitute
Letters of Credit under this Agreement and the other Credit Documents as though
the Existing Letters of Credit were originally issued pursuant to the terms of
the Credit Documents. Without limiting the generality of the foregoing, the
Stated Amount of the Existing Letters of Credit shall constitute part of the
Letter of Credit Outstandings, any draws on an Existing Letter of Credit paid by
the Issuing Bank shall constitute L/C Disbursements hereunder, and all
reimbursement and other obligations of the Account Party or Subsidiary Applicant
of an Existing Letter of Credit shall constitute part of the Obligations
hereunder and the Account Parties’ payment and performance of such Obligations
shall be secured by the Security Documents. The Account Parties represent that
the information describing the Existing Letters of Credit in the definition of
such term contained in this Agreement is accurate.

 

3. REPRESENTATIONS AND WARRANTIES

Each Account Party represents and warrants to the Issuing Bank that:

3.1 Organization; Powers. Each Account Party and each Subsidiary Applicant is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, and has all requisite power and authority to
carry on its business as now conducted.

 

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3.2 Authorization; Enforceability. The transactions contemplated hereby and by
the other Credit Documents to be entered into by each Account Party and each
Subsidiary Applicant are within such Account Party’s and such Subsidiary
Applicant’s corporate, limited partnership, limited liability company and other
powers and have been duly authorized by all necessary action. This Agreement,
and each other Credit Document, has been duly executed and delivered by each
Account Party and this Agreement and each other Credit Document constitutes,
when executed and delivered by such Account Party or such Subsidiary Applicant
will constitute, a legal, valid and binding obligation of such Account Party and
each such Subsidiary Applicant (as the case may be), 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.

3.3 Governmental Approvals; No Conflicts. The transactions to be entered into
and contemplated by the Credit Documents (a) do not require any consent or
approval of, registration or filing with, or any other action by, any
Governmental Authority, except for such as have been obtained or made and are in
full force and effect, (b) will not violate any Applicable Law or the
Organizational Documents of any Account Party or any Subsidiary Applicant or any
order of any Governmental Authority, (c) will not violate or result in a default
under any indenture, material agreement or other material instrument (including
the Existing Financing Agreement and the other documents executed by the Account
Parties and their Affiliates in connection therewith) binding upon any Account
Party or any Subsidiary Applicant or its assets, or give rise to a right
thereunder to require any payment to be made by any Account Party or any
Subsidiary Applicant, and (d) will not result in the creation or imposition of
any Lien on any asset of any Account Party or any Subsidiary Applicant, except
Liens created under the Credit Documents.

3.4 Litigation. There are no actions, suits, or proceedings, by or before any
arbitrator or Governmental Authority pending against, or to the knowledge of the
Account Parties, threatened against or affecting the Account Parties and their
Subsidiaries that (i) that, if adversely determined, could reasonably be
expected, individually or in the aggregate, to result in a Material Adverse
Effect under clauses (b) and (c) of the definition thereof, or (ii) that involve
the Collateral or any of the Credit Documents or any of the transactions
contemplated in the Credit Documents.

3.5 No Default. No Default or Event of Default has occurred and is continuing or
would result from the consummation of the transactions contemplated by this
Agreement or any other Credit Document.

3.6 Security Documents. The Security Documents shall create in favor of the
Issuing Bank a legal, valid and enforceable security interest in the Collateral,
and the Security Documents, if properly filed, or upon other action required for
perfection, shall constitute the creation of a fully perfected first priority
Lien on, and security interest in, all right, title and interest of the Account
Parties thereunder in such Collateral, in each case prior and superior in right
to any other Person.

3.7 Federal Reserve Regulations.

 

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(a) No Account Party or Subsidiary Applicant is engaged, principally or as one
of its important activities, in the business of purchasing or carrying Margin
Stock or extending credit for the purpose of purchasing or carrying Margin
Stock. No Letter of Credit shall be used for any purpose that might cause such
Letter of Credit, or the proceeds thereof, to be considered a “purpose credit”
within the meaning of Regulations T, U, or X issued by the Board.

(b) None of the Account Parties, their Subsidiaries, or any Person Controlling
any Account Party or any Subsidiary is or is required to be registered as an
“investment company”, or a company “controlled” by an “investment company” under
the Investment Company Act of 1940, as amended.

3.8 Solvency. To the best of the knowledge of the Account Parties: (i) each
Account Party and (ii) each Subsidiary Applicant together with the Account
Parties is and will be, Solvent.

3.9 Taxes. All United States Federal income tax returns and all other material
tax returns which are required to be filed have been filed by or on behalf of
Holdings, the other Account Parties and their respective Subsidiaries, and all
taxes due with respect to Holdings, the other Account Parties and their
respective Subsidiaries pursuant to such returns or pursuant to any assessment
received by Holdings, the other Account Parties or any Subsidiary have been paid
except to the extent permitted in Section 6.1(b) of the Existing Financing
Agreement as in effect on the date hereof. The charges, accruals and reserves on
the books of Holdings, the other Account Parties and their Subsidiaries in
respect of taxes or other governmental charges have been made in accordance
with, and to the extent required by, GAAP.

3.10 Certain Existing Financing Agreement Representations. (a) Section 5.01(n)
of the Existing Financing Agreement, as in effect on the date hereof, is
incorporated herein by reference as though stated herein in full; provided,
however, that for purposes of this Agreement, the references in Section 5.01(n)
to: (i) “Loan Parties” shall be deemed to refer to the Account Parties and their
Subsidiaries other than OSH and Sears Canada; and (ii) “Borrowers” shall be
deemed to refer to the Account Parties. All other defined terms used in
Section 5.01(n) shall be as defined in the Existing Financing Agreement, as in
effect on the date hereof. Section 5.01(n) of the Existing Financing Agreement,
as in effect on the date hereof, shall remain incorporated herein by reference
even if the Existing Financing Agreement is amended, terminated, modified,
restated, or replaced.

3.11 Environmental Compliance.

Except as, individually or in the aggregate, would not reasonably be expected to
result in a Material Adverse Effect, no Group Member (i) has failed to comply
with any Environmental Law, as such term is defined in the Existing Financing
Agreement, as in effect on the date hereof, or to obtain, maintain or comply
with any permit, license or other approval required under any Environmental Law,
(ii) has become subject to any Environmental Liability, as such term is defined
in the Existing Financing Agreement, as in effect on the date hereof, (iii)

 

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has received notice of any claim with respect to any Environmental Liability or
(iv) knows of any basis for any Environmental Liability.

3.12 Compliance with Laws. Each of Holdings, the Loan Parties and each
Subsidiary is in compliance in all material respects with the requirements of
all Laws and all orders, writs, injunctions and decrees applicable to it or to
its properties, except in such instances in which (a) such requirement of Law or
order, writ, injunction or decree is being contested in good faith by
appropriate proceedings diligently conducted or (b) the failure to comply
therewith, either individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.

3.13 Other Liens. The Collateral is subject to no Liens, other than Permitted
Liens.

3.14 Full Disclosure. All written factual information heretofore furnished by
Holdings, the Account Parties or their Subsidiaries to the Issuing Bank for
purposes of or in connection with this Agreement or any other Credit Document,
taken as a whole, was true and correct in all material respects on the date as
of which such information was stated or certified, provided that the Account
Parties make no representations or warranties with respect to any projections or
other nonfactual information contained in such information.

3.15 [Intentionally omitted.]

3.16 Financial Statements; No Material Adverse Effect.

(a) The consolidated balance sheet of Holdings and its Subsidiaries as at
January 30, 2010, and the related consolidated statements of income and cash
flows of Holdings and its Subsidiaries for the fiscal year then ended,
accompanied by an opinion of Deloitte & Touche LLP, independent public
accountants fairly present the consolidated financial condition of Holdings and
its Subsidiaries as at such date and the consolidated results of the operations
of Holdings and its Subsidiaries for the period ended on such date, all in
accordance with GAAP consistently applied.

(b) Since January 30, 2010, there has been no event or circumstance, either
individually or in the aggregate, that has had or would reasonably be expected
to have a Material Adverse Effect.

 

4. CONDITIONS

4.1 Effective Date. This Agreement shall become effective and in full force and
effect when the following conditions have been satisfied or provided for in a
manner satisfactory to the Issuing Bank (the “Effective Date”):

(a) The Issuing Bank (or its counsel) shall have received from each party hereto
either (i) a counterpart of this Agreement and all other Credit Documents signed
on behalf of such party, or (ii) written evidence satisfactory to the Issuing
Bank (which may include telecopy transmission of a signed signature page of this
Agreement) that such party has signed a counterpart of this Agreement and the
other Credit Documents.

 

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(b) The Issuing Bank shall have received such resolutions, documents and
certificates as the Issuing Bank or its counsel may reasonably request relating
to the organization, valid existence and good standing of each Account Party,
the authorization of the transactions contemplated by the Credit Documents, the
identity, authority and capacity of each Authorized Officer thereof authorized
to act as an Authorized Officer in connection with this Agreement and the other
Credit Documents to which such Account Party is a party or is to be a party and
any other legal matters relating to each Account Party, the Credit Documents or
the transactions contemplated thereby, all in form and substance reasonably
satisfactory to the Issuing Bank and its counsel.

(c) The Issuing Bank shall have received copies of each Account Party’s
organization or other governing documents.

(d) The Issuing Bank shall have received an opinion of in house counsel to the
Account Parties and of one or more special or local counsel to the Account
Parties, addressed to the Issuing Bank as to such matters as the Issuing Bank
may reasonably request, including, among other things, an opinion that the
execution and delivery of the Credit Documents, the issuance of the Letters of
Credit, and other transactions contemplated hereunder do not conflict with,
violate, or give rise to a default under the Existing Financing Agreement or any
other material agreement of the Account Parties;

(e) The Issuing Bank shall have received a certificate signed by an Authorized
Officer of the Account Parties certifying (i) that the conditions specified in
Sections 4.2(d) and (e)(i) have been satisfied and (ii) to the Solvency of the
Account Parties and their Subsidiaries, taken as a whole, as of the Effective
Date after giving effect to the transactions contemplated hereby;

(f) [Intentionally omitted.]

(g) All necessary consents and approvals to the transactions contemplated hereby
shall have been obtained and shall be satisfactory to the Issuing Bank.

(h) There shall not have occurred any event or circumstance since January 30,
2010, that has had or could reasonably be expected to have, either individually
or in the aggregate, a Material Adverse Effect.

(i) All costs and expenses incurred by the Issuing Bank in connection with this
Agreement and the establishment of the credit facility contemplated hereby
(including the fees and expenses of counsel to the Issuing Bank) shall have been
paid in full.

(j) The consummation of the transactions contemplated hereby shall not violate
any Applicable Law.

(k) No Default or Event of Default shall have occurred and be continuing.

 

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(l) There shall have been delivered to the Issuing Bank such additional
instruments, records and documents as the Issuing Bank or counsel to the Issuing
Bank reasonably may require or request.

(m) All actions required by Law or reasonably requested by Issuing Bank to be
undertaken, and all, documents and instruments, including the Pledge and
Security Agreement, required by Law or reasonably requested by the Issuing Bank
to be filed, registered, or recorded to create or perfect the Liens intended to
be created under the Credit Documents shall have been so filed, registered or
recorded to the satisfaction of the Issuing Bank.

4.2 Conditions Precedent to Each Letter of Credit.

In addition to those conditions described in Section 4.1, and without limiting
the discretionary nature of the facility provided hereunder, the Issuing Bank
shall not agree to issue, amend, or extend any Letter of Credit without prior
satisfaction of the following conditions precedent:

(a) Issuer Documents. The Issuing Bank shall have received a duly executed and
delivered Letter of Credit Application from an Account Party and, if applicable
and reasonably required by the Issuing Bank, any Subsidiary thereof on whose
behalf the Letter of Credit is being requested and all other Issuer Documents
required by the Issuing Bank shall have been duly executed and delivered by all
parties thereto.

(b) Cash Collateral Account. After giving effect to the issuance, amendment, or
extension of the applicable Letter of Credit, the cash of the Account Parties on
deposit in the Cash Collateral Account shall at least equal an aggregate amount
of 103% of all Letter of Credit Outstandings, after giving effect to the
reimbursement of any outstanding or pending L/C Disbursements.

(c) Representations and Warranties. All representations and warranties contained
in this Agreement and the other Credit Documents or otherwise made in writing in
connection herewith or therewith shall be true and correct in all material
respects on and as of the date of each issuance of each Letter of Credit
hereunder with the same effect as if made on and as of such date, other than
representations and warranties that relate solely to an earlier date.

(d) No Default. On the date of each issuance of each Letter of Credit, and after
giving effect thereto, (i) no Default or Event of Default shall have occurred
and be continuing, and (ii) Availability shall not be less than zero.

The request by an Account Party for, and the acceptance by an Account Party of,
each Letter of Credit hereunder shall be deemed to be a representation and
warranty by the Account Party that the conditions specified in this Section 4.2
have been satisfied at that time.

 

5. AFFIRMATIVE COVENANTS

 

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Until (i) the occurrence of the Termination Date, and (ii) all Obligations
payable hereunder shall have been paid in full, and (iii) all Letters of Credit
shall have expired or terminated, each Account Party covenants and agrees with
the Issuing Bank that:

5.1 Financial Statements and Other Information. Holdings will furnish to the
Issuing Bank:

(a) as soon as available and in any event within 50 days after the end of each
of the first three fiscal quarters of each fiscal year of Holdings, the
consolidated balance sheet of Holdings and its Subsidiaries (and, for so long as
required to be delivered under the Existing Financing Agreement, the
consolidated balance sheet of Holdings and its domestic Subsidiaries (other than
OSH)) as of the end of such quarter and consolidated statements of income and
cash flows of Holdings and its Subsidiaries (and, for so long as required to be
delivered under the Existing Financing Agreement, the consolidated statements of
income and cash flows of Holdings and its domestic Subsidiaries (other than
OSH)) for the period commencing at the end of the previous fiscal year and
ending with the end of such quarter, duly certified (subject to year-end audit
adjustments) by an Authorized Officer of Holdings as having been prepared in
accordance with GAAP, provided Holdings may satisfy the requirements of this
clause (a) by delivery via electronic mail of its quarterly report on form 10-Q
(or any successor form), as filed with the SEC;

(b) as soon as available and in any event within 95 days after the end of each
fiscal year of Holdings, (i) a copy of the annual audit report for such year for
Holdings and its Subsidiaries, containing the consolidated balance sheet of
Holdings and its Subsidiaries as of the end of such fiscal year and consolidated
statements of income and cash flows of Holdings and its Subsidiaries for such
fiscal year, in each case reported on without a “going concern” or like
qualification or exception, or qualification arising out of the scope of the
audit, by its Board-appointed auditor of national standing and (ii) for so long
as required to be delivered under the Existing Financing Agreement, a
consolidated balance sheet of Holdings and its domestic Subsidiaries (other than
OSH) as of the end of such fiscal year and consolidated statements of income and
cash flows of Holdings and its domestic Subsidiaries (other than OSH) for such
fiscal year duly certified by an Authorized Officer of Holdings as having been
prepared in accordance with GAAP, provided Holdings may satisfy the requirements
of this clause (b) by delivery via electronic mail of its annual report on form
10-K (or any successor form), as filed with the SEC;

(c) at least ten (10) days prior written notice of any change (i) in any Account
Party’s or any Subsidiary Applicant’s corporate name, (ii) in any Account
Party’s or any Subsidiary Applicant’s corporate structure or jurisdiction of
incorporation or formation, or (iii) in any Account Party’s or any Subsidiary
Applicant’s Federal Taxpayer Identification Number or organizational
identification number assigned to it by its state of organization;

 

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(d) promptly and in any event within five days after any Authorized Officer of
Holdings or any Account Party has knowledge of the occurrence and continuance of
a Default or Event of Default, a statement of an Authorized Officer of Holdings
or such Account Party setting forth details of such Default or Event of Default
and the action that Holdings or such Account Party has taken and proposes to
take with respect thereto;

(e) (i) contemporaneously with the delivery of the reports required pursuant to
clauses (a) and (b) of this Section, a report (which may take the form of a
footnote to Holdings’ quarterly and annual reports filed with the SEC and
delivered to the Issuing Bank) setting forth the estimated Unfunded Pension
Liability of Holdings and its Subsidiaries, and (ii) promptly after receipt
thereof by the Account Parties, a copy of the funded status report received from
the Account Parties’ actuaries with respect to amounts to be funded under the
Account Parties’ Pension Plan;

(f) [Intentionally Omitted];

(g) promptly, notice of any event that the Account Parties reasonably believe
has resulted in a Material Adverse Effect; and

(h) promptly following any request therefor, such other information regarding
the operations, business affairs and financial condition of the Account Parties
and the Subsidiary Applicants, or compliance with the terms of any Credit
Document, as the Issuing Bank may reasonably request.

Reports and financial statements required to be delivered by the Account Parties
pursuant to clauses (a), (b), (e), (g), and (h) of this Section shall be deemed
to have been delivered on the date on which Holdings or the Account Parties
cause such reports, or reports containing such financial statements, to be
posted on the Internet at www.sec.gov or at such other website identified by the
Account Parties in a notice to the Issuing Bank and that is accessible by the
Issuing Bank without charge. In addition, the Account Parties obligations to
deliver any reports and financing statements required to be delivered pursuant
to any clause of this Section shall be deemed to have been satisfied on the date
on which the Issuing Bank, in its capacity as a “Lender” under the Existing
Financing Agreement, receives copies of such reports and statements pursuant to
the Existing Financing Agreement.

5.2 Existence; Conduct of Business. Each Account Party will, and will cause each
of the Subsidiary Applicants to, do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its legal existence and the
rights, licenses, permits, and privileges, except where the failure to do so
would not reasonably be expected to result in a Material Adverse Effect,
provided that the foregoing shall not prohibit any merger, consolidation,
liquidation or dissolution permitted under Section 6.2.

5.3 Compliance with Laws. Each Account Party will, and will cause each of the
Subsidiary Applicants to, comply with all Applicable Laws applicable to the
transactions contemplated by this Agreement and the other Credit Documents,
except where the failure to do

 

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so, individually or in the aggregate, could not reasonably be expected to result
in a Material Adverse Effect.

5.4 Use of Letters of Credit. The Letters of Credit issued hereunder will be
used (a) to replace or collateralize Standby Letters of Credit issued under the
Existing Financing Agreement or (b) for general corporate purposes. No part of
any 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 U and X.

5.5 Cash Collateralization of Letter of Credit Outstandings. The Account Parties
shall cause the amounts on deposit in the Cash Collateral Account to be at least
equal to 103% of the Letter of Credit Outstandings at all times.

5.6 [Intentionally Omitted].

5.7 Books and Records. Each Account Party will, and will cause each of the
Subsidiary Applicants to, permit any representatives designated by Issuing Bank,
upon reasonable prior notice, to examine and make extracts from its books and
records applicable to the transactions contemplated by this Agreement to the
extent deemed reasonably necessary by the Issuing Bank to administer and enforce
this Agreement and the other Credit Documents.

5.8 Further Assurances. Each Account Party will, and will cause each of the
Subsidiary Applicants to, execute any and all further documents, financing
statements, agreements and instruments, and take all such further actions that
may be required under any Applicable Law, or which Issuing Bank may reasonably
request, to effectuate the transactions contemplated by the Credit Documents or
to grant, preserve, protect or perfect the Liens created or intended to be
created by the Pledge and Security Agreement or the validity or priority of any
such Lien, all at the expense of the Account Parties.

 

6. COVENANTS

Until (i) the occurrence of the Termination Date, and (ii) all Obligations
payable hereunder shall have been paid in full, and (iii) all Letters of Credit
shall have expired or terminated, each Account Party covenants and agrees with
the Issuing Bank that:

6.1 Liens, Collateral Dispositions. No Account Party will create, incur, assume
or permit to exist any Lien on any Collateral (other than Permitted Liens or
Liens created under the Security Documents) or sell, transfer, assign or
otherwise dispose of any Collateral.

6.2 Fundamental Changes. No Account Party will 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 Default or Event of Default shall
have occurred and be continuing, (i) any Account Party may merge into any other
Account Party, and (ii) any Account Party may merge into any other Person if the
Account Party is the survivor of such merger or if such Person has, in form and
substance reasonably satisfactory to Issuing Bank, agreed to assume all of the
liabilities and obligations of such Account Party under the Credit Documents.

 

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7. EVENTS OF DEFAULT

7.1 Events of Default. If any of the following events (“Events of Default”)
shall occur:

(a) any Account Party or Subsidiary Applicant shall fail to pay any
reimbursement obligation in respect of any L/C Disbursement when and as the same
shall become due and payable;

(b) any Account Party or Subsidiary Applicant shall fail to pay any fee or any
other amount (other than an amount referred to in Section 7.1(a)) payable under
this Agreement or any other Credit Document within three (3) Business Days of
such amount being due and payable;

(c) any representation or warranty made or deemed made by or on behalf of any
Account Party or any Subsidiary Applicant in or in connection with any Credit
Document or in any report, certificate, financial statement or other document
furnished pursuant to or in connection with any Credit Document shall prove to
have been incorrect in any material respect when made or deemed made;

(d) any Account Party shall fail to observe or perform any covenant, condition
or agreement contained in Sections 5.4, 5.5, 6.1, or 6.2;

(e) any Account Party shall fail to observe or perform any covenant, condition
or agreement contained in any Credit Document (other than those specified in
Sections 7.1(a), 7.1(b), 7.1(c), or 7.1(d)), and such failure shall continue
unremedied for a period of thirty (30) days after notice thereof from the
Issuing Bank to SRAC;

(f) the occurrence and continuance of any Event of Default under the Existing
Financing Agreement;

(g) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed seeking (i) liquidation, reorganization or other relief in
respect of any Account Party or any Subsidiary Applicant, their respective
debts, or of a substantial part of their respective assets, under any federal or
state 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 Account Party or any Subsidiary
Applicant or for a substantial part of their respective assets, and, in any such
case, such proceeding or petition shall continue undismissed for sixty (60) days
or an order or decree approving or ordering any of the foregoing shall be
entered;

(h) any Account Party or any Subsidiary Applicant shall (i) voluntarily commence
any proceeding or file any petition seeking liquidation, reorganization or other
relief under any federal or state 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 Section 7.1, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator,

 

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conservator or similar official for any Account Party or any Subsidiary
Applicant or for a substantial part of their respective 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 Account Party or any Subsidiary Applicant shall become unable, admit in
writing its inability or fail generally to pay its debts as they become due;

(j) any non-monetary judgment or order shall have been rendered against any
Account Party or any Subsidiary Applicants that is reasonably likely to have a
Material Adverse Effect and there shall be any period of twenty (20) consecutive
days during which a stay of enforcement of such judgment or other, by reason of
a pending appeal or otherwise, shall not be in effect;

(k) (i) any challenge by or on behalf of any Account Party or any Subsidiary
Applicant to the validity of any Credit Document or the applicability or
enforceability of any Credit Document strictly in accordance with the subject
Credit Document’s terms or which seeks to void, avoid, limit, or otherwise
adversely affect any security interest created by or in any Credit Document or
any payment made pursuant thereto;

(ii) any Lien purported to be created under any Security Document shall cease to
be, or shall be asserted by any Account Party or any Subsidiary Applicant not to
be, a valid and perfected Lien on any Collateral, with the priority required by
the applicable Security Document;

(l) the indictment of, or institution of any legal process or proceeding
against, any Account Party or any Subsidiary Applicant, under any federal,
state, municipal, and other civil or criminal statute, rule, regulation, order,
or other requirement having the force of law, which is reasonably likely to have
a Material Adverse Effect;

(m) the determination by any Account Party to suspend the operation of its
business in the ordinary course, liquidate all or substantially all of any
Account Party’s or such assets or employ an agent or other third party to
conduct a program of closings, liquidations or “Going-Out-Of-Business” sales of
all or substantially all of the business; or

(n) any Change in Control;

then, and in every such event (other than an event with respect to any Account
Party or any Subsidiary Credit Party described in clause (g) or (h) of this
Section 7.1), and at any time thereafter during the continuance of such event,
the Issuing Bank may by written notice to the Account Parties, take either or
both of the following actions, at the same or different times: (i) terminate
this Agreement and (ii) declare all Obligations then outstanding to be due and
payable in whole and thereupon the Obligations so declared to be due and payable
shall become due and payable immediately, without presentment, demand, protest
or other notice of

 

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any kind, all of which are hereby waived by the Account Parties and the
Subsidiary Applicants; and in case of any event with respect to any Account
Party or a Subsidiary Applicant described in clause (g) or (h) of this Article,
the Obligations then outstanding, shall automatically become due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Account Parties and the Subsidiary Applicants.

7.2 Remedies on Default.

In case any one or more of the Events of Default shall have occurred and be
continuing, the Issuing Bank may proceed to protect and enforce its rights and
remedies under this Agreement or any of the other Credit Documents by suit in
equity, action at law or other appropriate proceeding, and proceed to enforce
the payment thereof or any other legal or equitable right of the Issuing Bank.
No remedy herein is intended to be exclusive of any other remedy and each and
every remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or any other provision of law.

 

8. MISCELLANEOUS

8.1 Notices. Except in the case of notices and other communications expressly
permitted to be given by telephone, 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
telecopy, as follows:

(a) if to any Account Party or any Subsidiary Applicant to it at 3333 Beverly
Road, Hoffman Estates, Illinois 60179, Attention: Treasurer (Telecopy No.
(847) 286-2055; E-mail: Fred.Jasser@searshc.com), with a copy to General Counsel
(Telecopy No. (847) 286-2471; E-mail: legalint@searshc.com) and Sears Roebuck
Acceptance Corp. at 3711 Kennett Pike, Greenville, DE 19807, Attention:
President (Telecopy No. (302) 434-3156; E-mail: ksmath1@searshc.com);

(b) if to the Issuing Bank, to Wells Fargo Bank, National Association, One
Boston Place, 19th Floor, Boston, Massachusetts 02108, Attention Joseph Burt
(Telecopy No. (617) 866-3988; E-mail: Joseph.Burt@wellsfargo.com), with a copy
to Brown Rudnick LLP, One Financial Center, Boston, Massachusetts 02111,
Attention: Steve Levine (Telecopy No. (617) 289-0418; E-mail:
SLevine@BrownRudnick.com);

Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.

8.2 Waivers; Amendments. (a) No failure or delay by the Issuing Bank in
exercising any right or power hereunder or under any other Credit 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 Issuing
Bank

 

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hereunder and under the other Credit Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any provision of any Credit Document or consent to any departure by any Account
Party or any Subsidiary Applicant therefrom shall in any event be effective
unless the same shall be permitted by paragraph (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 issuance of a Letter of Credit shall not be construed as a waiver of any
Default or Event of Default, regardless of whether the Issuing Bank may have had
notice or knowledge of such Default or Event of Default at the time.

(b) Neither this Agreement nor any other Credit Document nor any provision
hereof or thereof may be waived, amended or modified except pursuant to an
agreement or agreements in writing entered into by the Account Parties and the
Issuing Bank.

8.3 Expenses; Indemnity; Damage Waiver. (a) Each Account Party shall jointly and
severally pay (i) all actual reasonable out-of-pocket expenses incurred by the
Issuing Bank and its Affiliates, including the actual reasonable fees, charges
and disbursements of counsel for the Issuing Bank, for the preparation and
administration of the Credit Documents or any amendments, modifications or
waivers of the provisions thereof (whether or not the transactions contemplated
hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket
expenses incurred by the Issuing Bank in connection with the issuance,
amendment, renewal or extension of any Letter of Credit or any demand for
payment thereunder, and (iii) all reasonable out-of-pocket expenses incurred by
the Issuing Bank, including the reasonable fees, charges and disbursements of
any counsel for the Issuing Bank in connection with the enforcement or
protection of its rights in connection with the Credit Documents, including its
rights under this Section, or in connection with the Letters of Credit issued
hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Letters of Credit.

(b) Each Account Party shall, jointly and severally, indemnify the Issuing Bank
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, liabilities and related expenses, including the
reasonable 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 any Credit Document or
any other agreement or instrument contemplated hereby, the performance by the
parties to the Credit Documents of their respective obligations thereunder or
the consummation of the transactions contemplated by the Credit Documents or any
other transactions contemplated hereby, (ii) any Letter of Credit or the use of
the proceeds therefrom (including any refusal by the 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), or (iii) 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, liabilities or related expenses
resulted from the gross negligence, willful misconduct or bad faith of such
Indemnitee.

 

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In connection with any indemnified claim hereunder, the Indemnitees shall be
entitled to select a single counsel for themselves (absent conflicts of
interest) and the Account Parties shall promptly pay the reasonable fees and
expenses of such counsel.

(c) To the extent permitted by Applicable Law, no Account Party nor any
Subsidiary Applicant 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 contemplated by the Credit
Documents, any Letter of Credit or the use of the proceeds thereof. The Account
Parties (on their own behalf and on behalf of the Subsidiary Applicants) further
agree that no Indemnitee shall have any liability to any Account Party or any
such Subsidiary Applicant, any Person asserting claims by or on behalf of any
Account Party, any Subsidiary Applicant or any other Person in connection with
this Agreement or the other Credit Documents except the Indemnitee’s gross
negligence, willful misconduct or bad faith.

(d) All amounts due under this Section shall be payable promptly after written
demand therefor.

8.4 Successors and Assigns; Participations. (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
the Issuing Bank that issues any Letter of Credit), except that the Account
Parties and the Subsidiary Applicants may not assign or otherwise transfer any
of their rights or obligations hereunder or under any of the other Credit
Documents without the prior written consent of Issuing Bank (and any such
attempted assignment or transfer without such consent shall be null and void).
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 the Issuing Bank that
issues any Letter of Credit) and, to the extent expressly contemplated hereby,
the Related Parties of the Issuing Bank) any legal or equitable right, remedy or
claim under or by reason of this Agreement.

(b) Issuing Bank 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 Issuing
Bank, including any pledge or assignment to secure obligations to any of the
twelve Federal Reserve Banks organized under Section 4 of the Federal Reserve
Act, 12 U.S.C. Section 341, 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 Issuing Bank from any of its obligations
hereunder or substitute any such pledgee or assignee for Issuing Bank as a party
hereto.

(c) The Issuing Bank may at any time, without the consent of but after notice
to, the Account Parties or any Affiliate, sell participations to any Person
(each, a “Participant”) in all or a portion of the Issuing Bank’s rights and/or
obligations under this Agreement; provided that (i) the Issuing Bank’s
obligations under this Agreement shall remain unchanged, (ii) the Issuing Bank
shall remain solely responsible to the other parties hereto for the performance
of such obligations and (iii) the Account Parties and the Subsidiary Applicants
shall continue to

 

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deal solely and directly with the Issuing Bank with respect to all matters under
this Agreement and the other Credit Documents. Any Participant shall agree in
writing to comply with all confidentiality obligations set forth in Section 8.18
as if such Participant was the Issuing Bank hereunder. Each Participant shall be
entitled to the benefits of Sections 2.13, 2.15 and 2.14 to the same extent as
if it were the Issuing Bank. To the extent permitted by Law, each Participant
also shall be entitled to the benefits of Section 8.8 as though it were the
Issuing Bank.

8.5 Survival. All covenants, agreements, representations and warranties made by
the Account Parties and the Subsidiary Applicants in the Credit Documents and in
the certificates or other instruments delivered in connection with or pursuant
to this Agreement or any other Credit Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Credit Documents and the issuance of any Letters of Credit,
regardless of any investigation made by any such other party or on its behalf
and notwithstanding that the Issuing Bank may have had notice or knowledge of
any Default, Event of 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 any Obligations are outstanding and unpaid or any Letter of
Credit is outstanding. The provisions of Sections 2.8, 2.13, 2.15 and 8.3 shall
survive and remain in full force and effect regardless of the consummation of
the transactions contemplated hereby, the repayment of the Obligations, the
expiration or termination of the Letters of Credit or the termination of this
Agreement or any provision hereof.

8.6 Counterparts; Integration. 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 and the other Credit Documents constitute the
entire contract among the parties relating to the subject matter hereof and
supersede any and all contemporaneous or previous agreements and understandings,
oral or written, relating to the subject matter hereof. Except as provided in
Section 4.1, this Agreement shall become effective when it shall have been
executed by the Issuing Bank and the Account Parties and when the Issuing Bank
shall have received counterparts hereof that, 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 telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.

8.7 Severability. Any provision of this Agreement 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
hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction.

8.8 Right of Setoff. If an Event of Default shall have occurred and be
continuing, Issuing Bank 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 Issuing
Bank or its Affiliates or for the credit or the account of the Account Parties
and the

 

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Subsidiary Applicants against any of and all the obligations of the Account
Parties now or hereafter existing under this Agreement held by Issuing Bank,
irrespective of whether or not Issuing Bank shall have made any demand under
this Agreement and although such obligations may be unmatured. The rights of
Issuing Bank under this Section are in addition to other rights and remedies
(including other rights of setoff) that Issuing Bank may have under the Credit
Documents or otherwise.

8.9 Governing Law; Jurisdiction; Consent to Service of Process

(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.

(b) Each Account Party, on its own behalf and on behalf of the Subsidiary
Applicants, and the Issuing Bank agree that any suit for the enforcement of this
Agreement or any other Credit Document may be brought in any New York state or
federal court sitting in the New York County as Issuing Bank may elect in its
sole discretion and consent to the non-exclusive jurisdiction of such courts.
Each Account Party, on its own behalf and on behalf of the Subsidiary
Applicants, and the Issuing Bank hereby waive any objection which they may now
or hereafter have to the venue of any such suit or any such court or that such
suit is brought in an inconvenient forum. Each Account Party, on its own behalf
and on behalf of the Subsidiary Applicants, and the Issuing Bank agree that any
action commenced by any of them asserting any claim or counterclaim arising
under or in connection with this Agreement or any other Credit Document shall be
brought solely in any New York state or federal court sitting in the New York
County as Issuing Bank may elect in its sole discretion and consent to the
exclusive jurisdiction of such courts with respect to any such action.

(c) Each party to this Agreement irrevocably consents to service of process in
the manner provided for notices in Section 8.1. Nothing in this Agreement or any
other Credit Document will affect the right of any party to this Agreement to
serve process in any other manner permitted by law.

8.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A JURY IN ANY TRIAL OF ANY CASE
OR CONTROVERSY IN WHICH ANY ACCOUNT PARTY, ANY SUBSIDIARY APPLICANT, OR ISSUING
BANK, IS OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR
AGAINST AN ACCOUNT PARTY, ANY SUBSIDIARY APPLICANT OR ISSUING BANK, OR IN WHICH
AN ACCOUNT PARTY, ANY SUBSIDIARY APPLICANT OR ISSUING BANK IS JOINED AS A PARTY
LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN RESPECT OF, ANY
RELATIONSHIP AMONGST OR BETWEEN AN ACCOUNT PARTY, ANY SUBSIDIARY APPLICANT OR
ANY OTHER PERSON AND THE ISSUING BANK. 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

 

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INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.

8.11 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.

8.12 Interest Rate Limitation. Notwithstanding anything herein to the contrary,
if at any time the interest rate, together with all fees, charges and other
amounts that are treated as interest on such Letter of Credit or L/C
Disbursement under Applicable Law (collectively the “Charges”), shall exceed the
maximum lawful rate (the “Maximum Rate”) that may be contracted for, charged,
taken, received or reserved by the Issuing Bank in accordance with Applicable
Law, the rate of interest payable, together with all Charges payable, shall be
limited to the Maximum Rate and, to the extent lawful, the interest and Charges
that would have been payable but were not payable as a result of the operation
of this Section shall be cumulated and the interest and Charges payable to
Issuing Bank in respect of other 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 Issuing Bank.

8.13 Additional Waivers.

(a) The Obligations are the joint and several obligations of each Account Party.
Each Account Party hereby assumes, guarantees, and agrees to discharge all
Obligations of all other obligors.

(b) To the fullest extent permitted by Applicable Law, the obligations of each
Account Party hereunder shall not be affected by (i) the failure of Issuing Bank
to assert any claim or demand or to enforce or exercise any right or remedy
against any other obligor under the provisions of this Agreement, any other
Credit Document or otherwise, (ii) any rescission, waiver, amendment or
modification of, or any release from any of the terms or provisions of, this
Agreement, any other Credit Document, or any other agreement, including with
respect to any other obligor, or (iii) the failure to perfect any security
interest in, or the release of, any of the security held by or on behalf of the
Issuing Bank.

(c) To the fullest extent permitted by Applicable Law, the obligations of each
Account Party hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than the indefeasible payment in
full in cash of the Obligations), including any claim of waiver, release,
surrender, alteration or compromise of any of the Obligations, and shall not be
subject to any defense or set-off, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality or unenforceability of the
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of the Account Parties hereunder shall not be discharged or impaired
or otherwise affected by any default, failure or delay, willful or otherwise, in
the performance of the Obligations, or by any other act or omission that may or
might in any manner or to any extent vary the risk of any

 

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obligor or that would otherwise operate as a discharge of any obligor as a
matter of law or equity (other than the indefeasible payment in full in cash of
all the Obligations).

(d) To the fullest extent permitted by Applicable Law, each Account Party waives
any defense based on or arising out of any defense of any other obligor or the
unenforceability of the Obligations or any part thereof from any cause, or the
cessation from any cause of the liability of any other obligor, other than the
indefeasible payment in full in cash of all the Obligations. The Issuing Bank
may, at its election, foreclose on any security held by one or more of them by
one or more judicial or nonjudicial sales, accept an assignment of any such
security in lieu of foreclosure, compromise or adjust any part of the
Obligations, make any other accommodation with any other obligor, or exercise
any other right or remedy available to them against any other obligor, without
affecting or impairing in any way the liability of any obligor hereunder except
to the extent that all the Obligations have been indefeasibly paid in full in
cash. Pursuant to Applicable Law, each obligor waives any defense arising out of
any such election even though such election operates, pursuant to Applicable
Law, to impair or to extinguish any right of reimbursement or subrogation or
other right or remedy of such obligor against any other obligor, as the case may
be, or any security.

8.14 No Advisory or Fiduciary Responsibility. In connection with all aspects of
each transaction contemplated hereby, the Account Parties each acknowledge and
agree that: (i) the credit facility provided for hereunder and any related
arranging or other services in connection therewith (including in connection
with any amendment, waiver or other modification hereof or of any other Credit
Document) are an arm’s-length commercial transaction between the Account Parties
and Subsidiary Applicants, on the one hand, and the Issuing Bank, on the other
hand, and each of the Account Parties and Subsidiary Applicants is capable of
evaluating and understanding and understands and accepts the terms, risks and
conditions of the transactions contemplated hereby and by the other Credit
Documents (including any amendment, waiver or other modification hereof or
thereof); (ii) in connection with the process leading to such transaction, the
Issuing Bank is and has been acting solely as a principal and is not the
financial advisor, agent or fiduciary, for the Account Parties and Subsidiary
Applicants or any of their respective Affiliates, stockholders, creditors or
employees or any other Person; (iii) the Issuing Bank has not assumed or will
not assume an advisory, agency or fiduciary responsibility in favor of the
Account Parties and Subsidiary Applicants with respect to any of the
transactions contemplated hereby or the process leading thereto, including with
respect to any amendment, waiver or other modification hereof or of any other
Credit Document (irrespective of whether the Issuing Bank has advised or is
currently advising any Account Parties and Subsidiary Applicants or any of their
Affiliates on other matters) and the Issuing Bank has no obligation to any
Account Party, Subsidiary Applicant or any of their Affiliates with respect to
the transactions contemplated hereby except those obligations expressly set
forth herein and in the other Credit Documents; (iv) the Issuing Bank and its
Affiliates may be engaged in a broad range of transactions that involve
interests that differ from those of the Account Parties and Subsidiary
Applicants and their respective Affiliates, and the Issuing Bank has no
obligation to disclose any of such interests by virtue of any advisory, agency
or fiduciary relationship; and (v) the Issuing Bank has not provided and will
not provide any legal, accounting, regulatory or tax advice with respect to any
of the transactions contemplated hereby (including any amendment, waiver or
other modification hereof or of any other Credit Document) and each of the
Account Parties and

 

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Subsidiary Applicants has consulted its own legal, accounting, regulatory and
tax advisors to the extent it has deemed appropriate. Each of the Account
Parties, on its own behalf and on behalf of the Subsidiary Applicants, hereby
waives and releases, to the fullest extent permitted by law, any claims that it
may have against the Issuing Bank and its Affiliates with respect to any breach
or alleged breach of agency or fiduciary duty.

8.15 USA PATRIOT Act Notice. The Issuing Bank hereby notifies the Account
Parties and Subsidiary Applicants that pursuant to the requirements of the USA
Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001))
(the “Act”), it is required to obtain, verify and record information that
identifies each of the Account Parties and Subsidiary Applicants, which
information includes the name and address of each of the Account Parties and
Subsidiary Applicants and other information that will allow the Issuing Bank, to
identify each of the Account Parties and Subsidiary Applicants in accordance
with the Act. Each of the Account Parties and Subsidiary Applicants is in
compliance, in all material respects, with the Act. The Letters of Credit will
not be used by the Account Parties and Subsidiary Applicants, directly or
indirectly, for any payments to any governmental official or employee, political
party, official of a political party, candidate for political office, or anyone
else acting in an official capacity, in order to obtain, retain or direct
business or obtain any improper advantage, in violation of the United States
Foreign Corrupt Practices Act of 1977, as amended.

8.16 Foreign Control Regulations. Neither of the issuance of the Letters of
Credit nor the use of the proceeds of any thereof will violate the Trading With
the Enemy Act (50 U.S.C. § 1 et seq., as amended) (the “Trading With the Enemy
Act”) or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) (the “Foreign
Assets Control Regulations”) or any enabling legislation or executive order
relating thereto (which for the avoidance of doubt shall include, but shall not
be limited to (a) Executive Order 13224 of September 21, 2001 Blocking Property
and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or
Support Terrorism (66 Fed. Reg. 49079 (2001)) (the “Executive Order”) and
(b) the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56)).
Furthermore, none of the Account Parties, the Subsidiary Applicants, or their
respective Affiliates (a) is or will become a “blocked person” as described in
the Executive Order, the Trading With the Enemy Act or the Foreign Assets
Control Regulations or (b) engages or will engage in any dealings or
transactions, or be otherwise associated, with any such “blocked person” or in
any manner violative of any such order.

8.17 No Strict Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement and the other Credit Documents. In
the event an ambiguity or question of intent or interpretation arises, this
Agreement and the other Credit Documents shall be construed as if drafted
jointly by the parties hereto and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provisions
of this Agreement and the other Credit Documents.

8.18 Confidentiality. The Issuing Bank agrees to maintain the confidentiality of
the Information (as defined below), except that Information may be disclosed
(a) to its Affiliates and to its and its Affiliates’ respective partners,
directors, officers, employees, agents, advisors,

 

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attorneys, funding sources, and representatives (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
purporting to have jurisdiction over it (including any self-regulatory
authority), (c) to the extent required by Applicable Law or regulations or by
any subpoena or similar legal process, (d) to any other party hereto, (e) in
connection with the exercise of any remedies hereunder or under any other Credit
Document or any action or proceeding relating to this Agreement or any other
Credit Document or the enforcement of rights hereunder or thereunder,
(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 an Account Party or
any Subsidiary Applicant and its obligations, (g) with the consent of SRAC or
(h) to the extent such Information (x) becomes publicly available other than as
a result of a breach of this Section or (y) becomes available to the Issuing
Bank or any of its Affiliates on a non-confidential basis from a source other
than an Account Party or any Subsidiary Applicant.

For purposes of this Section, “Information” means all information received from
an Account Party or any Subsidiary Applicant relating to the Account Parties or
any Subsidiary Applicants or their respective businesses, other than any such
information that is available to any Issuing Bank on a nonconfidential basis
prior to disclosure by the Account Parties or any Subsidiary Applicants. 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 its own
confidential information.

8.19 Additional Account Parties. Holdings and Issuing Bank may from time to time
request that one or more additional Subsidiaries of Holdings (“New Account
Parties”) become party to this Agreement as “Account Parties”. Issuing Bank may,
in its sole discretion, agree to any such request from Holdings, in which case
each New Account Party shall execute a joinder to this Agreement and the other
Credit Documents in a form acceptable to Issuing Bank and shall execute and
deliver such further documentation as Issuing Bank may request. Thereafter, such
New Account Party shall be deemed to be an Account Party hereunder for all
purposes, with the same force and effect as if it had been originally named as
an “Account Party” herein.

[SIGNATURE PAGES FOLLOW]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as a sealed instrument as of
the day and year first above written.

 

KMART CORPORATION By:  

/s/ Alfred H. Jasser

Name:   Alfred H. Jasser Title:   Vice President and Treasurer SEARS HOLDINGS
CORPORATION By:  

/s/ Alfred H. Jasser

Name:   Alfred H. Jasser Title:   Vice President and Treasurer SEARS, ROEBUCK
AND CO. By:  

/s/ Alfred H. Jasser

Name:   Alfred H. Jasser Title:   Vice President and Treasurer SEARS ROEBUCK
ACCEPTANCE CORP. By:  

/s/ Karen M. Smathers

Name:   Karen M. Smathers Title:   President

 

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WELLS FARGO BANK, NATIONAL ASSOCIATION, as Issuing Bank By:  

/s/ Joseph Burt

Name:   Joseph Burt Title:   Director

 

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