EXHIBIT 10.2

EXECUTION COPY

 

 

 

GUARANTY AND SECURITY AGREEMENT

by

SEARS AUTHORIZED HOMETOWN STORES, LLC

as Lead Borrower

and

THE OTHER BORROWERS AND GUARANTORS PARTY HERETO

FROM TIME TO TIME

and

BANK OF AMERICA, N.A.,

as Agent

Dated as of October 11, 2012

 

 

 

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TABLE OF CONTENTS

 

          Page   PREAMBLE         1    RECITALS         1    AGREEMENT         2
   ARTICLE I    DEFINITIONS AND INTERPRETATION    SECTION 1.1.   

Definitions

     2    SECTION 1.2.   

Interpretation

     5    SECTION 1.3.   

Perfection Certificate

     5    ARTICLE II    GUARANTY    SECTION 2.1.   

Guaranty

     5    SECTION 2.2.   

Guaranteed Obligations Not Affected

     5    SECTION 2.3.   

Security

     6    SECTION 2.4.   

Guaranty of Payment

     6    SECTION 2.5.   

No Discharge or Diminishment of Guaranty

     6    SECTION 2.6.   

Information

     7    SECTION 2.7.   

Subordination

     7    ARTICLE III    GRANT OF SECURITY AND SECURED OBLIGATIONS    SECTION
3.1.   

Grant of Security Interest

     8    SECTION 3.2.   

Secured Obligations

     8    SECTION 3.3.   

Security Interest

     8    ARTICLE IV    PERFECTION; SUPPLEMENTS; FURTHER ASSURANCES;    USE OF
COLLATERAL    SECTION 4.1.   

Financing Statements and Other Filings; Maintenance of Perfected Security
Interest

     9   

 

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          Page   SECTION 4.2.   

Other Actions

     10    SECTION 4.3.   

Supplements; Further Assurances

     11    ARTICLE V    REPRESENTATIONS, WARRANTIES AND COVENANTS    SECTION
5.1.   

Title

     12    SECTION 5.2.   

Limitation on Liens; Defense of Claims; Transferability of Collateral

     12    SECTION 5.3.   

Chief Executive Office; Change of Name; Jurisdiction of Organization

     12    SECTION 5.4.   

Location of Inventory

     13    SECTION 5.5.   

[Reserved]

     13    SECTION 5.6.   

Consents

     13    SECTION 5.7.   

Insurance

     13    SECTION 5.8.   

[Reserved]

     14    SECTION 5.9.   

Credit Card Receivables

     14    SECTION 5.10.   

Related Intellectual Property

     14    ARTICLE VI    REMEDIES    SECTION 6.1.   

Remedies

     15    SECTION 6.2.   

Notice of Sale

     17    SECTION 6.3.   

Waiver of Notice and Claims

     17    SECTION 6.4.   

Certain Sales of Collateral

     17    SECTION 6.5.   

No Waiver; Cumulative Remedies

     17    SECTION 6.6.   

Grant of License

     18    SECTION 6.7.   

Application of Proceeds

     18    ARTICLE VII    MISCELLANEOUS    SECTION 7.1.   

Concerning the Agent

     19    SECTION 7.2.   

Agent May Perform; Agent Appointed Attorney-in-Fact

     20    SECTION 7.3.   

[Reserved.]

     20    SECTION 7.4.   

Continuing Security Interest; Assignment

     20    SECTION 7.5.   

Termination; Release

     21    SECTION 7.6.   

Modification in Writing

     21    SECTION 7.7.   

Notices

     21   

 

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          Page   SECTION 7.8.   

GOVERNING LAW

     21    SECTION 7.9.   

CONSENT TO JURISDICTION; SERVICE OF PROCESS; WAIVER OF JURY TRIAL

     21    SECTION 7.10.   

Severability of Provisions

     23    SECTION 7.11.   

Execution in Counterparts; Effectiveness

     23    SECTION 7.12.   

No Release

     23    SIGNATURES       SCHEDULE I   

Filings, Registrations and Recordings

  

 

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GUARANTY AND SECURITY AGREEMENT

GUARANTY AND SECURITY AGREEMENT dated as of October 11, 2012 (as amended,
restated, supplemented or otherwise modified from time to time in accordance
with the provisions hereof, this “Agreement”) made by (i) SEARS AUTHORIZED
HOMETOWN STORES, LLC, a Delaware limited liability company having an office at
3333 Beverly Road, Hoffman Estates, Illinois 60179, as lead borrower for itself
and the other Borrowers (the “Lead Borrower”), (ii) THE OTHER BORROWERS LISTED
ON THE SIGNATURE PAGES HERETO (together with the Lead Borrower, the “Original
Borrowers”) OR FROM TIME TO TIME PARTY HERETO BY EXECUTION OF A JOINDER
AGREEMENT (the “Additional Borrowers,” and together with the Original Borrowers,
the “Borrowers”), and (iii) THE GUARANTORS LISTED ON THE SIGNATURE PAGES HERETO
(the “Original Guarantors”) AND THE OTHER GUARANTORS FROM TIME TO TIME PARTY
HERETO BY EXECUTION OF A JOINDER AGREEMENT (the “Additional Guarantors,” and
together with the Original Guarantor, the “Guarantors”), as pledgors, assignors
and debtors (the Borrowers, together with the Guarantors, in such capacities and
together with any successors in such capacities, the “Grantors,” and each, a
“Grantor”), in favor of BANK OF AMERICA, N.A., having an office at 100 Federal
Street, 9th Floor, Boston, Massachusetts 02110, in its capacity as
administrative agent and collateral agent for the Credit Parties (as defined in
the Credit Agreement defined below) pursuant to the Credit Agreement, as
pledgee, assignee and secured party (in such capacities and together with any
successors in such capacities, the “Agent”).

R E C I T A L S :

A. The Borrowers, the Agent, and the Lenders party thereto, among others, have,
in connection with the execution and delivery of this Agreement, entered into
that certain Credit Agreement dated as of the date hereof (as amended, restated,
supplemented or otherwise modified from time to time, the “Credit Agreement”).

B. The Borrowers and the Guarantors will receive substantial benefits from the
execution, delivery and performance of the Secured Obligations (as defined
below) and each is, therefore, willing to enter into this Agreement.

D. This Agreement is given by each Grantor in favor of the Agent for the benefit
of the Credit Parties to secure the payment and performance of all of the
Secured Obligations.

E. It is a condition to the obligations of the Lenders to make the Loans under
the Credit Agreement and a condition to the L/C Issuer’s issuing Letters of
Credit under the Credit Agreement that each Grantor execute and deliver the
applicable Loan Documents, including this Agreement.

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A G R E E M E N T :

NOW THEREFORE, in consideration of the foregoing premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each Grantor and the Agent hereby agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

SECTION 1.1. Definitions.

(a) Unless otherwise defined herein or in the Credit Agreement, capitalized
terms used herein that are defined in the UCC shall have the meanings assigned
to them in the UCC.

(b) Capitalized terms used but not otherwise defined herein that are defined in
the Credit Agreement shall have the meanings given to them in the Credit
Agreement.

(c) The following terms shall have the following meanings:

“Accommodation Payment” shall have the meaning assigned to such term in SECTION
2.7 hereof.

“Additional Guarantors” shall have the meaning assigned to such term in the
Preamble hereof.

“Agent” shall have the meaning assigned to such term in the Preamble hereof.

“Agreement” shall have the meaning assigned to such in the Preamble hereof.

“Allocable Amount” shall have the meaning assigned to such term in SECTION 2.7
hereof.

“Borrowers” shall have the meaning assigned to such term in the Preamble hereof.

“Claims” shall mean any and all property taxes and other taxes, assessments and
special assessments, levies, fees and all governmental charges imposed upon or
assessed against, and all claims (including, without limitation, landlords’,
carriers’, mechanics’, workmen’s, repairmen’s, laborers’, materialmen’s,
suppliers’ and warehousemen’s Liens and other claims arising by operation of
law) against, all or any portion of the Collateral.

 

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“Collateral” shall have the meaning assigned to such term in SECTION 3.1 hereof.

“Contracts” shall mean, collectively, with respect to each Grantor, all sale,
service, performance, equipment or property lease contracts, agreements and
grants and all other contracts, agreements or grants (in each case, whether
written or oral, or third party or intercompany), between such Grantor and any
other party, and all assignments, amendments, restatements, supplements,
extensions, renewals, replacements or modifications thereof.

“Control” shall mean (i) in the case of each DDA, “control,” as such term is
defined in Section 9-104 of the UCC, and (ii) in the case of any security
entitlement, “control,” as such term is defined in Section 8-106 of the UCC.

“Control Agreements” shall mean, collectively, the Blocked Account Agreements
and the Securities Account Control Agreements.

“Copyrights” shall mean (i) all copyrights arising under the laws of the United
States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished, all
registrations and recordings thereof, and all applications in connection
therewith, including, without limitation, all registrations, recordings and
applications in the United States Copyright Office and (ii) the right to obtain
all renewals thereof.

“Copyright Licenses” shall mean any written agreement naming any Grantor as
licensor or licensee granting any right under any Copyright, including, without
limitation, the grant of rights to manufacture, distribute, exploit and sell
materials derived from any Copyright.

“Credit Agreement” shall have the meaning assigned to such term in Recital A
hereof.

“Grantor” shall have the meaning assigned to such term in the Preamble hereof.

“Guarantors” shall have the meaning assigned to such term in the Preamble
hereof.

“Guaranteed Obligations” shall have the meaning assigned to such term in SECTION
2.1 hereof.

“Lead Borrower” shall have the meaning assigned to such term in the Preamble
hereof.

“Patents” shall mean (i) all letters patent of the United States, any other
country or any political subdivision thereof, all reissues and extensions
thereof and all goodwill associated therewith, (ii) all applications for letters
patent of the United States or any other country and all divisions,
continuations and continuations-in-part thereof and (iii) all rights to obtain
any reissues or extensions of the foregoing.

 

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“Patent License” shall mean all agreements, whether written or oral, providing
for the grant by or to any Grantor of any right to manufacture, use or sell any
invention covered in whole or in part by a Patent.

“Perfection Certificate” shall mean that certain Perfection Certificate dated as
of the date hereof, executed and delivered by each Grantor in favor of the Agent
for the benefit of the Credit Parties, and each other Perfection Certificate
(which shall be in form and substance reasonably acceptable to the Agent)
executed and delivered by the applicable Borrower or Guarantor in favor of the
Agent for the benefit of the Credit Parties contemporaneously with the execution
and delivery of a joinder agreement executed in accordance with Section 6.11 of
the Credit Agreement, in each case, as the same may be amended, amended and
restated, restated, supplemented or otherwise modified from time to time in
accordance with the Credit Agreement.

“Secured Obligations” shall mean the Obligations (as defined in the Credit
Agreement) and the Guaranteed Obligations.

“Securities Account Control Agreement” shall mean an agreement in form and
substance reasonably satisfactory to the Agent with respect to any Securities
Account of a Grantor.

“Trademarks” shall mean (i) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles, service
marks, logos and other source or business identifiers, and all goodwill
associated therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, whether in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof, or otherwise, and all common-law
rights related thereto, and (ii) the right to obtain all renewals thereof.

“Trademark License” shall mean any agreement, whether written or oral, providing
for the grant by or to any Grantor of any right to use any Trademark.

“UCC” or “Uniform Commercial Code” means the Uniform Commercial Code as in
effect from time to time in the State of New York; provided, however, that if a
term is defined in Article 9 of the Uniform Commercial Code differently than in
another Article thereof, the term shall have the meaning set forth in Article 9;
provided further that, if by reason of mandatory provisions of law, perfection,
or the effect of perfection or non-perfection, of a security interest in any
Collateral or the availability of any remedy hereunder is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than the State of
New York, “Uniform Commercial Code” means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or non-perfection or availability of
such remedy, as the case may be.

 

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“UFCA” shall have the meaning assigned to such term in SECTION 2.7 hereof.

“UFTA” shall have the meaning assigned to such term in SECTION 2.7 hereof.

SECTION 1.2. Interpretation The rules of interpretation specified in Article I
of the Credit Agreement shall be applicable to this Agreement.

SECTION 1.3. Perfection Certificate. The Agent and each Grantor agree that the
Perfection Certificate, and all schedules, amendments and supplements thereto
are and shall at all times remain a part of this Agreement.

ARTICLE II

GUARANTY

SECTION 2.1. Guaranty. Each Grantor irrevocably and unconditionally guaranties,
jointly with the other Grantors and severally, as a primary obligor and not
merely as a surety, the due and punctual payment when due (whether at the stated
maturity, by required prepayment, by acceleration or otherwise) and performance
by the Borrowers and each other applicable Loan Party of all Obligations
(collectively, the “Guaranteed Obligations”), including all such Guaranteed
Obligations which shall become due but for the operation of any Debtor Relief
Law. Each Grantor further agrees that the Guaranteed Obligations may be extended
or renewed, in whole or in part, without notice to or further assent from it,
and that it will remain bound upon this Agreement notwithstanding any extension
or renewal of any Guaranteed Obligation.

SECTION 2.2. Guaranteed Obligations Not Affected. To the fullest extent
permitted by applicable Law, each Grantor waives presentment to, demand of
payment from, and protest to, any Loan Party of any of the Guaranteed
Obligations, and also waives notice of acceptance of this guaranty, notice of
protest for nonpayment and all other notices of any kind. To the fullest extent
permitted by applicable Law, the obligations of each Grantor hereunder shall not
be discharged or impaired or otherwise affected by (a) any rescission, waiver,
amendment or modification of, or any release from, any of the terms or
provisions of this Agreement, any other Loan Document or any other agreement
delivered or given in connection herewith or therewith, with respect to any Loan
Party or with respect to the Guaranteed Obligations, (b) the failure to perfect
any security interest in, or the release of, any of the Collateral held by or on
behalf of the Agent or any other Credit Party, or (c) the lack of legal
existence of any Loan Party or legal obligation to discharge any of the
Guaranteed Obligations by any Loan Party for any reason whatsoever, including,
without limitation, in any insolvency, bankruptcy or reorganization of any Loan
Party.

 

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SECTION 2.3. Security. Each of the Grantors hereby acknowledges and agrees that
the Agent and each of the other Credit Parties may (a) take and hold security
for the payment of this guaranty and the Guaranteed Obligations and exchange,
enforce, waive and release any such security, (b) apply such security and direct
the order or manner of sale thereof as they in their sole discretion may
determine (subject to any limitations contained herein), and (c) release or
substitute any one or more endorsees, the Borrowers or other obligors, in each
case without affecting or impairing in any way the liability of any Grantor
hereunder.

SECTION 2.4. Guaranty of Payment. Each of the Grantors further agrees that this
guaranty constitutes a guaranty of payment and performance when due of all
Guaranteed Obligations and not of collection and, to the fullest extent
permitted by applicable Law, waives any right to require that any resort be had
by the Agent or any other Credit Party to any of the Collateral or other
security held for payment of the Guaranteed Obligations or to any balance of any
deposit account or credit on the books of the Agent or any other Credit Party in
favor of any Loan Party or any other Person or to any other guarantor of all or
part of the Guaranteed Obligations. Any payment required to be made by the
Grantors hereunder may be required by the Agent or any other Credit Party on any
number of occasions and shall be payable to the Agent, for the benefit of the
Agent and the other Credit Parties, in the manner provided in the Credit
Agreement.

SECTION 2.5. No Discharge or Diminishment of Guaranty. The obligations of each
Grantor hereunder shall not be subject to any reduction, limitation, impairment
or termination for any reason (other than the payment in full in cash of the
Guaranteed Obligations), including any claim of waiver, release, surrender,
alteration or compromise of any of the Guaranteed 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
Guaranteed Obligations or otherwise (other than the defense of payment in full
in cash of the Guaranteed Obligations). Without limiting the generality of the
foregoing, the Guaranteed Obligations of each Grantor hereunder shall not be
discharged or impaired or otherwise affected by the failure of the Agent or any
other Credit Party to assert any claim or demand or to enforce any remedy under
this Agreement, the Credit Agreement, any other Loan Document or any other
agreement delivered or given in connection herewith or therewith, by any waiver
or modification of any provision thereof, by any default, failure or delay,
willful or otherwise, in the performance of the Guaranteed Obligations, or by
any other act or omission that may or might in any manner or to any extent vary
the risk of any Grantor or that would otherwise operate as a discharge of any
Grantor as a matter of law or equity (other than a written release of such
Grantor from the Agent in accordance with the terms of the Loan Documents or the
payment in full in cash of the Guaranteed Obligations).

 

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SECTION 2.6. Information. Each of the Grantors assumes all responsibility for
being and keeping itself informed of each Loan Party’s financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of
the Guaranteed Obligations and the nature, scope and extent of the risks that
such Grantor assumes and incurs hereunder, and agrees that none of the Agent or
the other Credit Parties will have any duty to advise any of the Grantors of
information known to it or any of them regarding such circumstances or risks.

SECTION 2.7. Subordination. Upon payment by any Grantor of any Guaranteed
Obligations, all rights of such Grantor against any other Grantor arising as a
result thereof by way of right of subrogation, contribution, reimbursement,
indemnity or otherwise shall in all respects be subordinate and junior in right
of payment to the prior payment in full in cash of all of the Guaranteed
Obligations (other than (i) contingent indemnification obligations for which a
claim has not been asserted, and (ii) Letters of Credit that have been Cash
Collateralized or for which back-to-back letters of credit from an issuer
acceptable to the L/C Issuer and on terms acceptable to the L/C Issuer have been
provided in respect of such Letters of Credit) and the termination of the
Commitments. If any amount shall erroneously be paid to any Grantor on account
of such subrogation, contribution, reimbursement, indemnity or similar right,
such amount shall be held in trust for the benefit of the Credit Parties and
shall forthwith be paid to the Agent to be credited against the payment of the
Obligations, whether matured or unmatured, in accordance with the terms of this
Agreement and the other Loan Documents. Subject to the foregoing, to the extent
that any Borrower shall, under this Agreement as a joint and several obligor,
repay any of the Obligations constituting Loans made to another Borrower
hereunder or other Obligations incurred directly and primarily by any other
Borrower (an “Accommodation Payment”), then the Borrower making such
Accommodation Payment shall be entitled to contribution and indemnification
from, and be reimbursed by, each of the other Borrowers in an amount, for each
of such other Borrowers, equal to a fraction of such Accommodation Payment, the
numerator of which fraction is such other Borrower’s Allocable Amount and the
denominator of which is the sum of the Allocable Amounts of all of the
Borrowers. As of any date of determination, the “Allocable Amount” of each
Borrower shall be equal to the maximum amount of liability for Accommodation
Payments which could be asserted against such Borrower hereunder without
(a) rendering such Borrower “insolvent” within the meaning of Section 101
(32) of the Bankruptcy Code, Section 2 of the Uniform Fraudulent Transfer Act
(“UFTA”) or Section 2 of the Uniform Fraudulent Conveyance Act (“UFCA”),
(b) leaving such Borrower with unreasonably small capital or assets, within the
meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or
Section 5 of the UFCA, or (c) leaving such Borrower unable to pay its debts as
they become due within the meaning of Section 548 of the Bankruptcy Code or
Section 4 of the UFTA, or Section 5 of the UFCA. Anything herein or in any other
Loan Document to the contrary notwithstanding, the maximum liability of each
Grantor (other than, as to their respective Obligations, the Borrowers)
hereunder and under the other Loan Documents shall in no event exceed the amount
which can be guaranteed by such Grantor under applicable federal and state laws
relating to the insolvency of debtors.

 

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ARTICLE III

GRANT OF SECURITY AND SECURED OBLIGATIONS

SECTION 3.1. Grant of Security Interest.

As collateral security for the payment and performance in full of all the
Secured Obligations, each Grantor hereby pledges and grants to the Agent for its
benefit and for the benefit of the other Credit Parties, a lien on and security
interest in and to all of the right, title and interest of such Grantor in, to
and under the following personal property and interests in such personal
property, wherever located, and whether now existing or hereafter arising or
acquired from time to time (collectively, the “Collateral”):

 

  (i) all Accounts, including all Credit Card Receivables;

 

  (ii) all Inventory;

 

  (iii) all cash and cash equivalents;

 

  (iv) all Deposit Accounts;

 

  (v) all Securities Accounts;

(vi) all General Intangibles (other than Intellectual Property),
Letter-of-Credit Rights, Documents, Instruments, Chattel Paper, and Commercial
Tort Claims, in each case relating to Accounts and Inventory;

 

  (vii) all books and records relating to the foregoing clauses (i) through
(vi); and

 

  (viii) to the extent not otherwise included above, all Proceeds (including all
insurance claims and proceeds thereof), Supporting Obligations and products of
each of the foregoing, and all indemnities, warranties, collateral security and
guarantees payable to such Grantor from time to time with respect to any of the
foregoing.

SECTION 3.2. Secured Obligations . This Agreement secures, and the Collateral is
collateral security for, the payment and performance in full when due of the
Secured Obligations.

SECTION 3.3. Security Interest. (a) Each Grantor hereby irrevocably authorizes
the Agent at any time and from time to time to authenticate and file in any
relevant jurisdiction any financing statements and amendments thereto that
contain the information required by Article 9 of the Uniform Commercial Code of
each applicable jurisdiction for the filing of any financing statement or
amendment relating to the Collateral, including, without

 

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limitation, (i) whether such Grantor is an organization, the type of
organization and any organizational identification number issued to such Grantor
and (ii) a description of the Collateral as set forth in SECTION 3.1 above. Each
Grantor agrees to provide all information described in the immediately preceding
sentence to the Agent promptly upon request.

(b) Each Grantor hereby ratifies its prior authorization for the Agent to file
in any relevant jurisdiction any financing statements or amendments thereto
relating to the Collateral if filed prior to the date hereof.

ARTICLE IV

PERFECTION; SUPPLEMENTS; FURTHER ASSURANCES;

USE OF COLLATERAL

SECTION 4.1. Financing Statements and Other Filings; Maintenance of Perfected
Security Interest. Each Grantor represents and warrants that the security
interests granted pursuant to this Agreement will, upon completion of the
filings and other actions specified on Schedule I (which, in the case of all
filings and other documents referred to on said Schedule, have been or will be
delivered to the Agent in completed and, if applicable, duly executed form in
accordance with the Credit Agreement and the other Loan Documents) constitute
valid perfected security interests in all of the Collateral as of the date
hereof in favor of the Agent, for the ratable benefit of the Credit Parties, as
collateral security for such Grantor’s Secured Obligations, enforceable in
accordance with the terms hereof against all creditors of such Grantor and any
Persons purporting to purchase any Collateral from such Grantor, other than with
respect to Deposit Accounts and Securities Accounts or cash and cash equivalents
contained therein, in each case as to which perfection of the lien granted
herein is not required hereunder or under any other Loan Document. Each Grantor
agrees that at the sole cost and expense of the Grantors, (i) such Grantor will
maintain the security interest created by this Agreement in the Collateral as a
perfected security interest having the priority required by the Credit Agreement
and shall defend such security interest against the claims and demands of all
Persons (other than with respect to Permitted Encumbrances and subject to the
rights of the Grantors to dispose of the Collateral to the extent permitted
under the Loan Documents) and (ii) at any time and from time to time, upon the
written request of the Agent, such Grantor shall promptly and duly execute and
deliver, and file and have recorded, such further instruments and documents and
take such further action as the Agent may reasonably request for the purpose of
obtaining or preserving the full benefits of this Agreement and the other Loan
Documents and the rights and powers herein and therein granted, including the
filing of any financing statements, continuation statements and other documents
(including this Agreement) under the UCC (or other applicable Laws) and, to the
extent applicable, the execution and delivery of Control Agreements, all in form
reasonably satisfactory to the Agent and in such offices as the Agent may
reasonably request.

 

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SECTION 4.2. Other Actions. In order to further evidence the attachment,
perfection and priority of, and the ability of the Agent to enforce, the Agent’s
security interest in the Collateral, each Grantor represents, warrants and
agrees, in each case at such Grantor’s own expense, with respect to the
following Collateral that:

(a) Instruments and Tangible Chattel Paper. As of the date hereof (i) no amount
payable under or in connection with any of the Collateral is evidenced by any
Instrument or Tangible Chattel Paper other than (a) such Instruments and
Tangible Chattel Paper listed in Section II. E. of the Perfection Certificate
and (b) Instruments with a face value equal to or less than $250,000
individually or $1,000,000 in the aggregate as to all such Instruments held by
or payable to any Grantor, and (ii) each Instrument and each item of Tangible
Chattel Paper listed in Section II. E. of the Perfection Certificate that
constitutes Collateral, to the extent requested by the Agent, has been properly
endorsed, assigned and delivered to the Agent, accompanied by instruments of
transfer or assignment and letters of direction duly executed in blank. If any
amount payable under or in connection with any of the Collateral shall be
evidenced by any Instrument or Tangible Chattel Paper, the Grantor acquiring
such Instrument or Tangible Chattel Paper shall forthwith endorse, assign and
deliver the same to the Agent, accompanied by such instruments of transfer or
assignment duly executed in blank as the Agent may reasonably request from time
to time.

(b) Securities Accounts. (i) (1) As of the date hereof, it has no Securities
Accounts other than those listed in Section II.B. of the Perfection Certificate,
and (2) within sixty (60) days following the Closing Date (as such time period
may be extended by the Agent in its sole discretion), it shall enter into and
deliver to the Agent a duly authorized, executed and delivered Securities
Account Control Agreement with respect to each Securities Account listed in
Section II.B. of the Perfection Certificate. Except with respect to the
Securities Accounts described in clause (i)(2) above and any Securities Accounts
established hereafter in accordance with clause (ii) below, no Grantor has any
Securities Accounts constituting Collateral.

(ii) No Grantor shall hereafter establish and maintain any Securities Account
(other than any Securities Account containing Securities not constituting
Collateral), unless such Grantor shall have delivered a Control Agreement to the
Agent with respect to such Securities Account. The Agent agrees with each
Grantor that the Agent shall not give any entitlement orders or instructions or
directions to Securities Intermediary, and shall not withhold its consent to the
exercise of any withdrawal or dealing rights by such Grantor with respect to any
Securities Account, unless a Cash Dominion Event has occurred and is continuing.

(c) Electronic Chattel Paper and Transferable Records. As of the date hereof no
amount payable under or in connection with any of the Accounts or Inventory is
evidenced by any Electronic Chattel Paper or any “transferable record” (as that
term is defined in Section 201 of the Federal Electronic Signatures in Global
and National

 

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Commerce Act, or in Section 16 of the Uniform Electronic Transactions Act as in
effect in any relevant jurisdiction). If any amount payable under or in
connection with any of the Accounts or Inventory shall be evidenced by any
Electronic Chattel Paper or any transferable record, the Grantor acquiring such
Electronic Chattel Paper or transferable record shall promptly notify the Agent
thereof and shall take such action as the Agent may reasonably request to vest
in the Agent control under UCC Section 9-105 of such Electronic Chattel Paper or
control under Section 201 of the Federal Electronic Signatures in Global and
National Commerce Act or, as the case may be, Section 16 of the Uniform
Electronic Transactions Act, as so in effect in such jurisdiction, of such
transferable record. The Agent agrees with such Grantor that the Agent will
arrange, pursuant to procedures reasonably satisfactory to the Agent and so long
as such procedures will not result in the Agent’s loss of control, for the
Grantor to make alterations to the Electronic Chattel Paper or transferable
record permitted under UCC Section 9-105 or, as the case may be, Section 201 of
the Federal Electronic Signatures in Global and National Commerce Act or
Section 16 of the Uniform Electronic Transactions Act, unless an Event of
Default has occurred and is continuing or would occur after taking into account
any action by such Grantor with respect to such Electronic Chattel Paper or
transferable record.

(d) Letter-of-Credit Rights. If such Grantor is at any time a beneficiary under
a Letter of Credit now or hereafter issued in favor of such Grantor (which, for
the avoidance of doubt, shall not include any Letter of Credit issued pursuant
to the Credit Agreement) and such Letter of Credit constitutes Collateral
hereunder, such Grantor shall promptly notify the Agent thereof and such Grantor
shall, during the continuance of an Event of Default, at the request of the
Agent, arrange for the Agent to become the beneficiary of such Letter of Credit;
provided that during the continuance of a Cash Dominion Event, any proceeds
received by such Grantor (or the Agent, if applicable) on account of any drawing
under any such Letter of Credit shall be applied as provided in the Credit
Agreement.

(e) Commercial Tort Claims. As of the date hereof it holds no Commercial Tort
Claims constituting Collateral other than those listed in Section IV of the
Perfection Certificate. If any Grantor shall at any time hold or acquire a
Commercial Tort Claim constituting Collateral, such Grantor shall immediately
notify the Agent in writing signed by such Grantor of the brief details thereof
and grant to the Agent in such writing a security interest therein and in the
Proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance reasonably satisfactory to the Agent.

SECTION 4.3. Supplements; Further Assurances. Each Grantor shall take such
further actions, and execute and deliver to the Agent such additional
assignments, agreements, supplements, powers and instruments, as the Agent may
in its reasonable judgment deem necessary or appropriate, wherever required by
Law, in order to perfect, preserve and protect the security interest in the
Collateral as provided herein and the rights and interests granted to the Agent
hereunder, to carry into effect the purposes hereof or better to assure and
confirm unto the

 

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Agent or permit the Agent to exercise and enforce its rights, powers and
remedies hereunder with respect to any Collateral. If an Event of Default has
occurred and is continuing, the Agent may institute and maintain, in its own
name or in the name of any Grantor, such suits and proceedings as the Agent may
be advised by counsel shall be necessary or expedient to prevent any impairment
of the security interest in or the perfection thereof in the Collateral. All of
the foregoing shall be at the sole cost and expense of the Grantors. The
Grantors and the Agent acknowledge that this Agreement is intended to grant to
the Agent for the benefit of the Credit Parties a security interest in and Lien
upon the Collateral and shall not constitute or create a present assignment of
any of the Collateral.

ARTICLE V

REPRESENTATIONS, WARRANTIES AND COVENANTS

In addition to, and without limitation of, each of the representations,
warranties and covenants set forth in the Credit Agreement and the other Loan
Documents, each Grantor represents, warrants and covenants as follows:

SECTION 5.1. Title. No financing statement or other public notice with respect
to all or any part of the Collateral is on file or of record in any public
office, except such as have been filed in favor of the Agent pursuant to this
Agreement or as are permitted by the Credit Agreement.

SECTION 5.2. Limitation on Liens; Defense of Claims; Transferability of
Collateral. Except for the security interest granted to the Agent for the
ratable benefit of the Credit Parties pursuant to this Agreement and the other
Liens permitted to exist on the Collateral by the Credit Agreement, each Grantor
owns each item of the Collateral free and clear of any and all Liens or claims
of others. No financing statement or other public notice with respect to all or
any part of the Collateral is on file or of record in any public office, except
such as have been filed in favor of the Agent, for the ratable benefit of the
Credit Parties, pursuant to this Agreement or as are permitted by the Credit
Agreement. Each Grantor shall, at its own cost and expense, defend title to the
Collateral pledged by it hereunder and the security interest therein and Lien
thereon granted to the Agent and the priority thereof against all claims and
demands of all Persons, at its own cost and expense, at any time claiming any
interest therein adverse to the Agent or any other Credit Party other than
Permitted Encumbrances.

SECTION 5.3. Chief Executive Office; Change of Name; Jurisdiction of
Organization. (a) The exact legal name, type of organization, jurisdiction of
organization, federal taxpayer identification number, organizational
identification number (if any) and chief executive office of such Grantor is
indicated next to its name in Sections I.A. and I.B. of the Perfection
Certificate. Such Grantor agrees (A) to provide such notice with respect to any
change to any of the foregoing as provided in the Credit Agreement and (B) to
take all action

 

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reasonably requested by the Agent to maintain the perfection and priority of the
security interest of the Agent for the benefit of the Credit Parties in the
Collateral intended to be granted hereunder. Each Grantor agrees to promptly
provide the Agent with certified Organization Documents reflecting any of the
changes described in the preceding sentence.

(b) The Agent may rely on opinions of counsel as to whether any or all UCC
financing statements of the Grantors need to be amended as a result of any of
the changes described in SECTION 5.3(a). If any Grantor fails to provide
information to the Agent about such changes on a timely basis, the Agent shall
not be liable or responsible to any party for any failure to maintain a
perfected security interest in such Grantor’s property constituting Collateral,
for which the Agent needed to have information relating to such changes. The
Agent shall have no duty to inquire about such changes if any Grantor does not
inform the Agent of such changes, the parties acknowledging and agreeing that it
would not be feasible or practical for the Agent to search for information on
such changes if such information is not provided by any Grantor.

SECTION 5.4. Location of Inventory. As of the Closing Date, other than locations
where any Grantor maintains Collateral with a value equal to or less than
$25,000 individually or $250,000 in the aggregate as to all such locations, all
Inventory of such Grantor is located at the chief executive office or such other
location listed in the Perfection Certificate or in transit between such
locations.

SECTION 5.5. [Reserved].

SECTION 5.6. Consents. Following the occurrence and during the continuation of
an Event of Default, if the Agent desires to exercise any remedies or consensual
rights or attorney-in-fact powers set forth in this Agreement and reasonably
determines it necessary to obtain any approvals or consents of any Governmental
Authority or any other Person therefor, then, upon the reasonable request of the
Agent, such Grantor agrees to use commercially reasonable efforts to assist and
aid the Agent to obtain as soon as commercially practicable any necessary
approvals or consents for the exercise of any such remedies, rights and powers.

SECTION 5.7. Insurance. Such Grantor shall maintain or shall cause to be
maintained such insurance as is required pursuant to Section 6.07 of the Credit
Agreement. Each Grantor hereby irrevocably makes, constitutes and appoints the
Agent (and all officers, employees or agents designated by the Agent) as such
Grantor’s true and lawful agent (and attorney-in-fact), exercisable only after
the occurrence and during the continuance of an Event of Default, for the
purpose of making, settling and adjusting claims in respect of the Collateral
under policies of insurance, endorsing the name of such Grantor on any check,
draft, instrument or other item of payment for the proceeds of such policies of
insurance and for making all determinations and decisions with respect thereto
(it being understood and agreed that after the occurrence and during the
continuance of a Cash Dominion Event, such Grantor shall remit to the Agent any
such proceeds of insurance policies as and to the extent required by the Credit

 

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Agreement). In the event that any Grantor at any time or times shall fail to
obtain or maintain any of the policies of insurance required hereby or to pay
any premium in whole or in part relating thereto, the Agent may, without waiving
or releasing any obligation or liability of the Grantors hereunder or any
Default or Event of Default, in its sole discretion, obtain and maintain such
policies of insurance and pay such premium and take any other actions with
respect thereto as the Agent deems advisable. All sums disbursed by the Agent in
connection with this SECTION 5.7, including reasonable attorneys’ fees, court
costs, expenses and other charges relating thereto, shall be payable, upon
demand, by the Grantors to the Agent and shall be additional Secured Obligations
secured hereby.

SECTION 5.8. [Reserved].

SECTION 5.9. Credit Card Receivables.

(a) No amount payable to such Grantor under or in connection with any Credit
Card Receivable is evidenced by any Instrument or Chattel Paper which has not
been delivered to the Agent.

(b) None of the obligors on any Credit Card Receivable is a Governmental
Authority.

(c) Each Eligible Credit Card Receivable is a bona fide existing payment
obligation of a credit card payment processor or an issuer of credit cards to a
Grantor resulting from charges by a customer of a Grantor on credit cards issued
by such issuer in connection with the sale of goods by such Grantor, or services
performed by such Grantor, in each case in the ordinary course of its business.

(d) Except as would not be reasonably expected to result in a Material Adverse
Effect, there are no facts, events or occurrences which would impair the
validity of any Credit Card Receivable, or tend to reduce the amount payable
thereunder from the face amount of the claim or invoice or statements delivered
to the Agent with respect thereto (other than arising in the ordinary course of
business).

SECTION 5.10. Related Intellectual Property. Each Grantor owns or has a license
to use all Intellectual Property which is reasonably necessary to sell the
Collateral in the ordinary course of such Grantor’s business. Such Grantor shall
take all reasonable and necessary steps to maintain and preserve the benefit of
each Trademark License, Copyright License and Patent License which relates to
Intellectual Property to the extent that the use of such Intellectual Property
would be reasonably necessary in connection with the Agent’s enforcement of any
of its remedies under the Loan Documents. Except for consents which have been
obtained, such Grantor does not own any Eligible Inventory which is subject to
any Copyright License, Trademark License or Patent License or similar agreement
with any third party which would require any consent of any third party upon
sale or disposition of that Eligible Inventory pursuant to a
going-out-of-business sale, orderly liquidation or similar sale, in each case to
the extent such going-out-of-business sale, orderly liquidation or similar sale
is conducted at the Stores or at any

 

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location operated by a Third Party Dealer or Third Party Franchisee, and such
Grantor will promptly deliver notice to the Agent upon entering into any
Copyright License, Trademark License or Patent License or amendment thereto
which would require any such consent.

ARTICLE VI

REMEDIES

SECTION 6.1. Remedies. Upon the occurrence and during the continuance of any
Event of Default the Agent may, and at the direction of the Required Lenders,
shall, from time to time in respect of the Collateral, in addition to the other
rights and remedies provided for herein, under applicable Law or otherwise
available to it:

(i) Personally, or by agents or attorneys, immediately take possession of the
Collateral or any part thereof, from any Grantor or any other Person who then
has possession of any part thereof with or without notice or process of law, and
for that purpose may enter upon any Grantor’s premises where any of the
Collateral is located, remove such Collateral, remain present at such premises
to receive copies of all communications and remittances relating to the
Collateral and use in connection with such removal and possession any and all
services, supplies, aids and other facilities of any Grantor;

(ii) Demand, sue for, collect or receive any money or property at any time
payable or receivable in respect of the Collateral including, without
limitation, instructing the obligor or obligors on any agreement, instrument or
other obligation constituting part of the Collateral to make any payment
required by the terms of such agreement, instrument or other obligation directly
to the Agent, and in connection with any of the foregoing, compromise, settle,
extend the time for payment and make other modifications with respect thereto;
provided, however, that in the event that any such payments are made directly to
any Grantor, prior to receipt by any such obligor of such instruction, such
Grantor shall segregate all amounts received pursuant thereto in trust for the
benefit of the Agent and shall promptly pay such amounts to the Agent;

(iii) Sell, assign, grant a license to use or otherwise liquidate, or direct any
Grantor to sell, assign, grant a license to use or otherwise liquidate, any and
all investments made in whole or in part with the Collateral or any part
thereof, and take possession of the proceeds of any such sale, assignment,
license or liquidation;

(iv) Take possession of the Collateral or any part thereof, by directing any
Grantor in writing to deliver the same to the Agent at any place or places
reasonably selected by the Agent, in which event such Grantor shall at its own
expense: (A) forthwith cause the same to be moved to the place or places
designated by the Agent and therewith delivered to the Agent, (B) store and keep
any Collateral so delivered to the Agent at such place or places pending further
action by the Agent and (C) while the Collateral shall be so stored and kept,
provide such

 

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security and maintenance services as shall be necessary to protect the same and
to preserve and maintain them in good condition. Time is of the essence with
respect to each Grantor’s obligation to deliver the Collateral as contemplated
in this SECTION 6.1. Upon application to a court of equity having jurisdiction,
the Agent shall be entitled to a decree requiring specific performance by any
Grantor of such obligation;

(v) Withdraw all moneys, instruments, securities and other property in any bank,
financial securities, deposit or other account of any Grantor constituting
Collateral for application to the Secured Obligations as provided in SECTION 6.7
hereof; and

(vi) Exercise all the rights and remedies of a secured party under the UCC, and
the Agent may also in its sole discretion, without notice except as specified in
SECTION 6.2 hereof, sell, assign or grant a license to use the Collateral or any
part thereof in one or more parcels at public or private sale, at any exchange,
broker’s board or at any of the Agent’s offices or elsewhere, as part of one or
more going out of business sales in the Agent’s own right or by one or more
agents and contractors, all as the Agent, in its sole discretion, may deem
advisable, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as the Agent may deem advisable. The Agent may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Upon reasonable notice, the
Agent shall have the right to conduct such sales on any Grantor’s premises and
shall have the right to use any Grantor’s premises without charge for such sales
for such time or times as the Agent may reasonably see fit. The Agent and any
agent or contractor, in conjunction with any such sale, may augment the
Inventory with other goods (all of which other goods shall remain the sole
property of the Agent or such agent or contractor). Any amounts realized from
the sale of such goods which constitute augmentations to the Inventory (net of
an allocable share of the costs and expenses incurred in their disposition)
shall be the sole property of the Agent or such agent or contractor and neither
any Grantor nor any Person claiming under or in right of any Grantor shall have
any interest therein. The Agent or any other Credit Party or any of their
respective Affiliates may be the purchaser, licensee, assignee or recipient of
any or all of the Collateral at any such sale and shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold, assigned or licensed at such sale, to
use and apply any of the Secured Obligations owed to such Person as a credit on
account of the purchase price of any Collateral payable by such Person at such
sale. Each purchaser, assignee, licensee or recipient at any such sale shall
acquire the property sold, assigned or licensed absolutely free from any claim
or right on the part of any Grantor, and each Grantor hereby waives, to the
fullest extent permitted by Law, all rights of redemption, stay and/or appraisal
which it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. The Agent shall not be obligated to
make any sale of Collateral regardless of notice of sale having been given. To
the fullest extent permitted by Law, each Grantor hereby waives any claims
against the Agent arising by reason of the fact that the price at which any
Collateral may have been sold, assigned or licensed at such a private sale was
less than the price which might have been obtained at a public sale, even if the
Agent accepts the first offer received and does not offer such Collateral to
more than one offeree.

 

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SECTION 6.2. Notice of Sale. Each Grantor acknowledges and agrees that, to the
extent notice of sale or other disposition of Collateral shall be required by
applicable Law and unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Agent shall provide such Grantor such advance notice as may be
practicable under the circumstances), ten (10) days’ prior notice to such
Grantor of the time and place of any public sale or of the time after which any
private sale or other intended disposition is to take place shall be
commercially reasonable notification of such matters. No notification need be
given to any Grantor if it has signed, after the occurrence of an Event of
Default, a statement renouncing or modifying (as permitted under Law) any right
to notification of sale or other intended disposition.

SECTION 6.3. Waiver of Notice and Claims. Each Grantor hereby waives, to the
fullest extent permitted by applicable Law, notice or judicial hearing in
connection with the Agent’s taking possession or the Agent’s disposition of any
of the Collateral, including, without limitation, any and all prior notice and
hearing for any prejudgment remedy or remedies and any such right which such
Grantor would otherwise have under law, and each Grantor hereby further waives,
to the fullest extent permitted by applicable Law: (i) all damages occasioned by
such taking of possession, (ii) except as otherwise expressly provided herein,
all other requirements as to the time, place and terms of sale or other
requirements with respect to the enforcement of the Agent’s rights hereunder and
(iii) all rights of redemption, appraisal, valuation, stay, extension or
moratorium now or hereafter in force under any applicable Law. The Agent shall
not be liable for any incorrect or improper payment made pursuant to this
ARTICLE VI in the absence of gross negligence or willful misconduct. Any sale of
or any other realization upon, any Collateral in accordance with this Agreement
shall operate to divest all right, title, interest, claim and demand, either at
law or in equity, of the applicable Grantor therein and thereto, and shall be a
perpetual bar both at law and in equity against such Grantor and against any and
all Persons claiming or attempting to claim the Collateral so sold, optioned or
realized upon, or any part thereof, from, through or under such Grantor.

SECTION 6.4. Certain Sales of Collateral. Each Grantor recognizes that, by
reason of certain prohibitions contained in law, rules, regulations or orders of
any Governmental Authority, the Agent may be compelled, with respect to any sale
of all or any part of the Collateral, to limit purchasers to those who meet the
requirements of such Governmental Authority. Each Grantor acknowledges that any
such sales may be at prices and on terms less favorable to the Agent than those
obtainable through a public sale without such restrictions, and, notwithstanding
such circumstances, agrees that any such restricted sale shall be deemed to have
been made in a commercially reasonable manner and that, except as may be
required by applicable Law, the Agent shall have no obligation to engage in
public sales.

SECTION 6.5. No Waiver; Cumulative Remedies. No failure on the part of the Agent
to exercise, no course of dealing with respect to, and no delay on the part of
the Agent in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy hereunder preclude any other or

 

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further exercise thereof or the exercise of any other right, power or remedy;
nor shall the Agent be required to look first to, enforce or exhaust any other
security, collateral or guaranties. The remedies herein provided are cumulative
and are not exclusive of any remedies provided by Law.

(i) In the event that the Agent shall have instituted any proceeding to enforce
any right, power or remedy under this Agreement by foreclosure, sale, entry or
otherwise, and such proceeding shall have been discontinued or abandoned for any
reason or shall have been determined adversely to the Agent, then and in every
such case, the Grantors, the Agent and each other Credit Party shall be restored
to their respective former positions and rights hereunder with respect to the
Collateral, and all rights, remedies and powers of the Agent and the other
Credit Parties shall continue as if no such proceeding had been instituted.

SECTION 6.6. Grant of License. For the purpose of enabling the Agent, during the
continuance of an Event of Default, to exercise rights and remedies under this
ARTICLE VI at such time as the Agent shall be lawfully entitled to exercise such
rights and remedies, and for no other purpose, each Grantor hereby grants to the
Agent, to the extent assignable, an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to such Grantor)
to use, license or sublicense any of the Related Intellectual Property, and any
Equipment, Real Estate or other assets now owned or hereafter acquired by such
Grantor, wherever the same may be located, including in such license access to
all media in which any of the licensed items may be recorded or stored and to
all computer programs used for the compilation or printout thereof; provided
that, notwithstanding the foregoing, except as provided in any agreement between
the Agent and the owner or licensor of such Intellectual Property, Equipment,
Real Estate or other assets (including, without limitation, the Sears Tri-Party
Agreement), this Agreement shall not constitute a license to use, license or
sublicense, any Intellectual Property to the extent such license or sublicense
is prohibited by or results in the termination of or requires any consent not
obtained under, any contract, license, agreement, instrument or other document
evidencing or giving rise to such Intellectual Property, except to the extent
that (x) the term in such contract, license, agreement, instrument or other
document providing for such prohibition, breach, default or termination or
requiring such consent is ineffective under applicable law, or (y) the contract,
license, agreement, instrument or other document pursuant to which such Grantor
was granted its rights to any such Intellectual Property was issued by a
Subsidiary or Affiliate of such Grantor (and is not subject to an applicable
constraint in an over-license or other agreement with a third party).

SECTION 6.7. Application of Proceeds. The proceeds received by the Agent in
respect of any sale of, collection from or other realization upon all or any
part of the Collateral pursuant to the exercise by the Agent of its remedies
shall be applied, together with any other sums then held by the Agent pursuant
to this Agreement, in accordance with and as set forth in Section 8.03 of the
Credit Agreement.

 

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ARTICLE VII

MISCELLANEOUS

SECTION 7.1. Concerning the Agent.

(i) The Agent has been appointed as administrative agent and collateral agent
pursuant to the Credit Agreement. The actions of the Agent hereunder are subject
to the provisions of the Credit Agreement. The Agent shall have the right
hereunder to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking action (including,
without limitation, the release or substitution of the Collateral), in
accordance with this Agreement and the Credit Agreement. The Agent may employ
agents and attorneys-in-fact in connection herewith and shall not be liable for
the negligence or misconduct of any such agents or attorneys-in-fact except to
the extent that a court of competent jurisdiction determines in a final and
non-appealable judgment that the Agent acted with gross negligence or willful
misconduct in the selection of such sub-agents or attorneys-in-fact. The Agent
may resign and a successor Agent may be appointed in the manner provided in the
Credit Agreement. Upon the acceptance of any appointment as the Agent by a
successor Agent, that successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent
under this Agreement, and the retiring Agent shall thereupon be discharged from
its duties and obligations under this Agreement. After any retiring Agent’s
resignation, the provisions hereof shall inure to its benefit as to any actions
taken or omitted to be taken by it under this Agreement while it was the Agent.

(ii) The Agent shall be deemed to have exercised reasonable care in the custody
and preservation of the Collateral in its possession if such Collateral is
accorded treatment substantially equivalent to that which the Agent, in its
individual capacity, accords its own property consisting of similar instruments
or interests, it being understood that neither the Agent nor any of the other
Credit Parties shall have responsibility for taking any necessary steps to
preserve rights against any Person with respect to any Collateral.

(iii) The Agent shall be entitled to rely upon any written notice, statement,
certificate, order or other document or any telephone message believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person, and, with respect to all matters pertaining to this Agreement and its
duties hereunder, upon advice of counsel selected by it.

(iv) If any item of Collateral also constitutes collateral granted to Agent
under any other deed of trust, mortgage, security agreement, pledge or
instrument of any type, in the event of any conflict between the provisions
hereof and the provisions of such other deed of trust, mortgage, security
agreement, pledge or instrument of any type in respect of such collateral,
Agent, in its sole discretion, shall select which provision or provisions shall
control.

 

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SECTION 7.2. Agent May Perform; Agent Appointed Attorney-in-Fact.

(i) During the continuance of an Event of Default, if (1) any Grantor shall fail
to perform any covenants contained in this Agreement or, with respect to
covenants relating to the protection or preservation of the Collateral, in the
Credit Agreement (including, without limitation, such Grantor’s covenants to
(A) pay the premiums in respect of all required insurance policies hereunder,
(B) pay taxes, (C) discharge Liens and (D) pay or perform any other obligations
of such Grantor with respect to any Collateral) or (2) any warranty on the part
of any Grantor contained herein shall be breached, the Agent may (but shall not
be obligated to) do the same or cause it to be done or remedy any such breach,
and may expend funds for such purpose; provided, however, that Agent shall in no
event be bound to inquire into the validity of any tax, lien, imposition or
other obligation which such Grantor fails to pay or perform as and when required
hereby. Any and all amounts so expended by the Agent shall be paid by the
Grantors in accordance with the terms of Section 10.04 of the Credit Agreement.
Neither the provisions of this SECTION 7.2 nor any action taken by Agent
pursuant to the provisions of this SECTION 7.2 shall prevent any such failure to
observe any covenant contained in this Agreement nor any breach of warranty from
constituting an Event of Default.

(ii) Each Grantor hereby appoints the Agent its attorney-in-fact, with full
authority in the place and stead of such Grantor and in the name of such
Grantor, or in its own name, for the purpose of carrying out the terms of this
Agreement, from time to time after the occurrence and during the continuation of
an Event of Default, to take any and all appropriate action and to execute any
instrument consistent with the terms of the Credit Agreement and the other
Security Documents which the Agent reasonably deems necessary to accomplish the
purposes of this Agreement. The foregoing grant of authority is a power of
attorney coupled with an interest and such appointment shall be irrevocable for
the term hereof. Each Grantor hereby ratifies all that such attorney shall
lawfully do or cause to be done by virtue hereof. Anything in this
Section 7.2(ii) to the contrary notwithstanding, the Agent agrees that it will
not exercise any right under the power of attorney provided for in this
Section 7.2(ii) unless an Event of Default shall have occurred and be
continuing.

SECTION 7.3. [Reserved.]

SECTION 7.4. Continuing Security Interest; Assignment. This Agreement shall
create a continuing security interest in the Collateral and shall (i) be binding
upon the Grantors, their respective successors and assigns, and (ii) inure,
together with the rights and remedies of the Agent hereunder, to the benefit of
the Agent and the other Credit Parties and each of their respective successors,
transferees and assigns. No other Persons (including, without limitation, any
other creditor of any Grantor) shall have any interest herein or any right or
benefit with respect hereto. Without limiting the generality of the foregoing
clause (ii), any Credit Party may, subject to the provisions of the Credit
Agreement, assign or otherwise transfer any indebtedness held by it secured by
this Agreement to any other Person, and such other Person shall thereupon become
vested with all the benefits in respect thereof granted to such Credit Party,
herein or otherwise.

 

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SECTION 7.5. Termination; Release.

This Agreement, the Lien in favor of the Agent (for the benefit of itself and
the other Credit Parties) and all other security interests granted hereby shall
terminate in accordance with Section 10.21 of the Credit Agreement.

SECTION 7.6. Modification in Writing. No amendment, modification, supplement,
termination or waiver of or to any provision hereof, nor consent to any
departure by any Grantor therefrom, shall be effective unless the same shall be
made in accordance with the terms of the Credit Agreement and unless in writing
and signed by the Agent and the Grantors. Any amendment, modification or
supplement of or to any provision hereof, any waiver of any provision hereof and
any consent to any departure by any Grantor from the terms of any provision
hereof shall be effective only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required by
this Agreement or any other document evidencing the Secured Obligations, no
notice to or demand on any Grantor in any case shall entitle any Grantor to any
other or further notice or demand in similar or other circumstances.

SECTION 7.7. Notices. Unless otherwise provided herein or in the Credit
Agreement, any notice or other communication herein required or permitted to be
given shall be given in the manner and become effective as set forth in the
Credit Agreement, as to any Grantor, addressed to it at the address of the Lead
Borrower set forth in the Credit Agreement and as to the Agent, addressed to it
at the address set forth in the Credit Agreement, or in each case at such other
address as shall be designated by such party in a written notice to the other
parties hereto complying as to delivery with the terms of this SECTION 7.7.

SECTION 7.8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 7.9. CONSENT TO JURISDICTION; SERVICE OF PROCESS; WAIVER OF JURY TRIAL.

(a) EACH GRANTOR IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS
PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE
SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH
GRANTOR IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE
COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL

 

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COURT. EACH GRANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS
AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT ANY CREDIT
PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY GRANTOR OR ITS PROPERTIES IN
THE COURTS OF ANY JURISDICTION.

(b) EACH GRANTOR IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH
(A) OF THIS SECTION. EACH GRANTOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(c) EACH GRANTOR AGREES THAT ANY ACTION COMMENCED BY ANY GRANTOR ASSERTING ANY
CLAIM OR COUNTERCLAIM ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT SHALL BE BROUGHT SOLELY IN A COURT OF THE STATE OF NEW YORK
SITTING IN NEW YORK COUNTY OR ANY FEDERAL COURT SITTING THEREIN AS THE AGENT MAY
ELECT IN ITS SOLE DISCRETION AND CONSENTS TO THE EXCLUSIVE JURISDICTION OF SUCH
COURTS WITH RESPECT TO ANY SUCH ACTION.

(d) EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER
PROVIDED FOR NOTICES IN SECTION 7.7. NOTHING IN THIS AGREEMENT WILL AFFECT THE
RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
APPLICABLE LAW.

(e) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY
(WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND WHETHER INITIATED BY OR
AGAINST ANY SUCH PERSON OR IN WHICH ANY SUCH PERSON IS JOINED AS A PARTY
LITIGANT). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER

 

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PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.

SECTION 7.10. Severability of Provisions. Any provision hereof which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.

SECTION 7.11. Execution in Counterparts; Effectiveness.

This Agreement may be executed in any number of counterparts (and by different
parties hereto in different counterparts), each of which shall constitute an
original, but all of which when taken together shall constitute a single
contract. Delivery of an executed counterpart of a signature page of this
Agreement by telecopy, pdf or other electronic transmission shall be as
effective as delivery of a manually executed counterpart of this Agreement.

SECTION 7.12. No Release. Nothing set forth in this Agreement shall relieve any
Grantor from the performance of any term, covenant, condition or agreement on
such Grantor’s part to be performed or observed under or in respect of any of
the Collateral or from any liability to any Person under or in respect of any of
the Collateral or shall impose any obligation on the Agent or any other Credit
Party to perform or observe any such term, covenant, condition or agreement on
such Grantor’s part to be so performed or observed or shall impose any liability
on the Agent or any other Credit Party for any act or omission on the part of
such Grantor relating thereto or for any breach of any representation or
warranty on the part of such Grantor contained in this Agreement, the Credit
Agreement or the other Loan Documents, or under or in respect of the Collateral
or made in connection herewith or therewith.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the Grantors and the Agent have caused this Agreement to be
duly executed and delivered by their duly authorized officers as of the date
first above written.

 

SEARS HOMETOWN AND OUTLET

STORES, INC., as a Grantor

By:   /s/ Steven D. Barnhart Name:   Steven D. Barnhart Title:  

Senior Vice President, Chief Financial

Officer and Treasurer

SEARS AUTHORIZED HOMETOWN

STORES, LLC, as a Grantor

By:   /s/ Steven D. Barnhart Name:   Steven D. Barnhart Title:   Senior Vice
President and Treasurer

SEARS HOME APPLIANCE SHOWROOMS,

LLC, as a Grantor

By:   /s/ Steven D. Barnhart Name:   Steven D. Barnhart Title:   Senior Vice
President and Treasurer SEARS OUTLET STORES, L.L.C., as a Grantor By:   /s/
Steven D. Barnhart Name:   Steven D. Barnhart Title:   Senior Vice President and
Treasurer TROY COOLIDGE NO. 6, LLC, as a Grantor By:   SEARS OUTLET STORES,
L.L.C.,   its sole member By:   /s/ Steven D. Barnhart Name:   Steven D.
Barnhart Title:   Senior Vice President and Treasurer

Signature Page to Guaranty and Security Agreement

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BANK OF AMERICA, N.A., as Agent By:   /s/ Stephen J. Garvin Name:   Stephen J.
Garvin Title:   Managing Director

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Schedule I

Filings, Registrations and Recordings

Uniform Commercial Code Filings

UCC-1 Financing Statements to be filed against the Grantors specified below with
the Secretary of State of the jurisdictions set forth next to such Grantor’s
name:

 

Grantor

  

Jurisdiction

Sears Authorized Hometown Stores, LLC    Delaware, Puerto Rico, and Guam Sears
Home Appliance Showrooms, LLC    Delaware Sears Home and Outlet Stores, Inc.   
Delaware Sears Outlet Stores, L.L.C.    Delaware and Puerto Rico Troy Coolidge
No. 6, LLC    Michigan

Other Actions

 

1. Establishing control over Collateral for which perfection requires possession
or control (as defined in the New York UCC), including cash and cash equivalents
and Deposit Accounts (for which an appropriate agreement with the applicable
depository institution, broker, intermediary or other institution with which
such assets are held would be needed).

 

2. Any steps required for perfection of Collateral that cannot be perfected by
possession or control of such Collateral or the filing of a UCC-1 financing
statement in the jurisdiction in which the applicable grantor is organized or
domiciled.