exv4w3



 


EXHIBIT 4.3

SECOND AMENDMENT

TO REVOLVING CREDIT AND

GUARANTY AGREEMENT






     SECOND AMENDMENT, dated as of March 7, 2002 (the “Amendment”), to the
REVOLVING CREDIT AND GUARANTY AGREEMENT, dated as of January 22, 2002, among
KMART CORPORATION, a Michigan corporation (the “Borrower”), a debtor and
debtor-in-possession under Chapter 11 of the Bankruptcy Code, the Guarantors
named therein (the “Guarantors”), JPMORGAN CHASE BANK, a New York banking
corporation (“JPMorgan Chase”), each of the other financial institutions party
thereto (together with JPMorgan Chase, the “Banks”) and JPMORGAN CHASE BANK, as
Agent for the Banks (in such capacity, the “Agent”):





W I T N E S S E T H:






     WHEREAS, the Borrower, the Guarantors, the Banks and the Agent are parties
to that certain Revolving Credit and Guaranty Agreement, dated as of January
22, 2002, as amended by that certain First Amendment to Revolving Credit and
Guaranty Agreement dated as of February 15, 2002 (as the same may be further
amended, modified or supplemented from time to time, the “Credit Agreement”);





     WHEREAS, the Borrower and the Guarantors have requested that from and
after the Effective Date (as hereinafter defined) of this Amendment, the Credit
Agreement be amended subject to and upon the terms and conditions set forth
herein;





     WHEREAS, Section 10.03(b) of the Credit Agreement provides that each Bank
may assign to one or more Eligible Assignees all or a portion of its interests,
rights and obligations under the Credit Agreement (including, without
limitation, all or a portion of its Commitment and the same portion of the
related Loans at the time owing to it) by executing and delivering with such
Eligible Assignee an Assignment and Acceptance in substantially the form of
Exhibit C to the Credit Agreement (a copy of which is annexed hereto as
Schedule I); and





     WHEREAS, JPMorgan Chase and the Banks party to the Credit Agreement
immediately prior to the Effective Date of this Amendment (collectively, the
“Original Banks”) wish to (i) assign to each of the financial institutions
(other than the Original Banks) that is shown on Annex A hereto as having a
Tranche A Commitment Amount (such financial institutions other than the
Original Banks, collectively the “New Banks”), and each of the New Banks wishes
to assume, a pro rata portion of the Original Banks’ interests, rights and
obligations under the Credit Agreement such that upon the Effective Date of
this Amendment the Original Banks and the New Banks shall have the respective
Tranche A Commitment Amounts that are shown on Annex A hereto, and (ii)
allocate to each of the financial institutions that is shown on Annex A hereto
as having a Tranche B Credit-Linked Deposit (collectively, the “Tranche B
Lenders”) their participation interests in Letters of Credit having Letter of
Credit Outstandings in the aggregate amount of $200,000,000, and each of the
Tranche B Lenders desires to accept




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such allocation through the deposit with the Agent of cash in an amount equal
to such Tranche B Lender’s Tranche B Credit-Linked Deposit; and





     WHEREAS, the Borrower, the Guarantors, the Original Banks, the New Banks,
the Tranche B Lenders and the Agent have determined that the execution and
delivery of this Amendment to effectuate a reallocation of the Total Commitment
under the Credit Agreement as in effect on the date hereof among the Original
Banks, the New Banks and the Tranche B Lenders will be more expeditious and
administratively efficient than the execution and delivery of a separate
Assignment and Acceptance between each of the Original Banks and each of the
New Banks, and each of the Original Banks and each of the Tranche B Lenders,
respectively; and





     WHEREAS, upon the occurrence of the Effective Date of this Amendment, each
of the New Banks and Tranche B Lenders shall become a party to the Credit
Agreement in the form of Exhibit A hereto as a “Bank” and shall have the rights
and obligations of a Bank thereunder, the respective Commitments of each of the
Original Banks and New Banks under the Credit Agreement shall be in the amount
set forth opposite its name on Annex A hereto under the heading “Tranche A
Commitment Amount”, and each of the Tranche B Lenders shall have the interest
shown opposite its name on Annex A hereto under the heading “Tranche B
Credit-Linked Deposit”, as each of the same may be reduced from time to time
pursuant to Section 2.10 or Section 2.13 of the Credit Agreement;





     NOW, THEREFORE, the parties hereto hereby agree as follows:





     1.     As used herein, all terms that are defined in the Credit Agreement (in
effect immediately prior to the Effective Date of this Amendment) shall have
the same meanings herein.





     2.     The Credit Agreement is hereby amended by inserting each of the
provisions which appear with computerized underscoring and by deleting each of
the provisions which appear with computerized strike-through in the document
annexed hereto as Exhibit A.





     3.     Annex A to the Credit Agreement is hereby replaced in its entirety by
Annex A hereto.





     4.     The signature pages of the Credit Agreement are hereby amended to
conform to the signature pages hereto.





     5.     By its execution and delivery hereof, each of the Original Banks shall
be deemed to have made each of the statements set forth in clauses (i) and (ii)
of paragraph 2 of the Assignment and Acceptance as if such statements were
fully set forth herein at length.





     6.     By its execution and delivery hereof, each of the New Banks and Tranche
B Lenders shall be deemed to have made each of the statements set forth in




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 clauses (i), (ii), (iii), (iv) and (v) of paragraph 3 of the Assignment
and Acceptance as if such statements were fully set forth herein at length.





     7.     On the Effective Date, (i) each New Bank will pay to the Agent (for the
accounts of the Original Banks) such amount as represents such New Bank’s pro
rata portion of the aggregate principal amount of the Loans, if any, that are
outstanding on the Effective Date and such New Bank’s pro rata portion of the
aggregate amount of the then unreimbursed drafts, if any, that were theretofore
drawn under Letters of Credit, (ii) each Tranche B Lender will pay to the Agent
in cash the amount of its Credit-Linked Deposit, and (iii) the Agent shall pay
to each of the New Bank and Tranche B Lenders such fees as have been previously
agreed to between the Agent and such New Bank and the Agent and such Tranche B
Lender, respectively. Promptly following the occurrence of the Effective Date,
and in accordance with Section 10.03(e) of the Credit Agreement, the Agent
shall record in the Register the names and addresses of each New Bank and
Tranche B Lender and the principal amount equal to such Bank’s Commitment, or
such Tranche B Lender’s Credit-Linked Deposit, as the case may be, reflected on
Annex A hereto.





     8.     By its execution and delivery hereof, each of the New Banks and Tranche
B Lenders (i) agrees that any interest, Commitment Fees and Letter of Credit
Fees (pursuant to Sections 2.08, 2.20 and 2.21 of the Credit Agreement) that
accrued prior to the Effective Date shall not be payable to such New Bank or
Tranche B Lender and authorizes and directs the Agent to deduct such amounts
from any interest, Commitment Fees or Letter of Credit Fees paid after the date
hereof and to pay such amounts to the Original Banks (it being understood that
interest, Commitment Fees and Letter of Credit Fees respecting the Commitment
of the Original Banks and each New Bank which accrue on or after the Effective
Date shall be payable to such Bank in accordance with its Commitment), (ii)
acknowledges that if such New Bank or Tranche B Lender is organized under the
laws of a jurisdiction outside of the United States, such New Bank or Tranche B
Lender has heretofore furnished to the Agent the forms prescribed by the
Internal Revenue Service of the United States certifying as to such New Bank’s
or Tranche B Lender’s exemption from United States withholding taxes with
respect to any payments to be made to such New Bank or Tranche B Lender under
the Credit Agreement (or such other documents as are necessary to indicate that
all such payments are subject to such tax at a rate reduced by an applicable
tax treaty) and (iii) acknowledges that such New Bank or Tranche B Lender has
heretofore supplied to the Agent the information requested on the
administrative questionnaire which is attached to the Assignment and Acceptance
as Exhibit A.





     9.     The Agent shall promptly deliver to the Borrower the forms and other
documents furnished to it pursuant to paragraph 8(ii) hereof.





     10. This Amendment shall not become effective (the “Effective Date”) until
(i) the date on which this Amendment shall have been executed by the Borrower,
the Guarantors, the Original Banks, the New Banks, the Tranche B Lenders and
the Agent, and the Agent shall have received evidence satisfactory to it of
such execution and (ii) the payments provided for in the first sentence of
paragraph 7 hereof shall have been made.







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     11.     Except to the extent hereby amended, the Credit Agreement and each of
the Loan Documents remain in full force and effect and are hereby ratified and
affirmed.





     12.     The Borrower agrees that its obligations set forth in Section 10.05 of
the Credit Agreement shall extend to the preparation, execution and delivery of
this Amendment, including the reasonable fees and disbursements of special
counsel to the Agent.





     13.     This Amendment shall be limited precisely as written and shall not be
deemed (a) to be a consent granted pursuant to, or a waiver or modification of,
any other term or condition of the Credit Agreement or any of the instruments
or agreements referred to therein or (b) to prejudice any right or rights which
the Agent or the Banks may now have or have in the future under or in
connection with the Credit Agreement or any of the instruments or agreements
referred to therein. Whenever the Credit Agreement is referred to in the
Credit Agreement or any of the instruments, agreements or other documents or
papers executed or delivered in connection therewith, such reference shall be
deemed to mean the Credit Agreement as modified by this Amendment.





     14.     This Amendment may be executed in any number of counterparts and by
the different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same instrument.





     15. This Amendment shall be governed by, and construed in accordance with,
the laws of the State of New York.







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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and the year first written.






	 	BORROWER:








	 	KMART CORPORATION








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	GUARANTORS:








	 	BIG BEAVER DEVELOPMENT CORPORATION








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	BIG BEAVER OF CAGUAS DEVELOPMENT CORPORATION








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	BIG BEAVER OF FLORIDA DEVELOPMENT, LLC








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	BIG BEAVER OF GUAYNABO DEVELOPMENT CORPORATION








	 	By: /s/ John McDonald



Name: John McDonald

Title:







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	 	BLUELIGHT.COM LLC








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	KMART HOLDINGS, INC.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	KMART MICHIGAN PROPERTY SERVICES, L.L.C.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	KMART OF AMSTERDAM, NY DISTRIBUTION CENTER, INC.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	KMART OF MICHIGAN, INC.








	 	By: /s/ Gerald Tschura



Name: Gerald Tschura

Title:








	 	KMART OF NORTH CAROLINA LLC








	 	By: /s/ John McDonald



Name: John McDonald

Title:







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	 	KLC, INC.








	 	By: /s/ Alfred Leon



Name: Alfred Leon

Title:








	 	KMART CORPORATION OF ILLINOIS, INC.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	BLUELIGHT.COM, INC.








	 	By: /s/ James Misplan



Name: James Misplan

Title








	 	KMART STORES OF INDIANA, INC.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	KMART STORES OF TNCP, INC.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	TC GROUP I LLC








	 	By: /s/ John McDonald



Name: John McDonald

Title:







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	 	TROY CMBS PROPERTY, L.L.C.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	KMART OVERSEAS CORPORATION








	 	By: /s/ James Misplan



Name: James Misplan

Title:








	 	JAF, INC.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	VTA, INC.








	 	By: /s/ Kathi L. Askins



Name: Kathi L. Askins

Title:








	 	BIG BEAVER OF CAGUAS DEVELOPMENT CORPORATION II








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	BIG BEAVER OF CAROLINA DEVELOPMENT CORPORATION








	 	By: /s/ John McDonald



Name: John McDonald

Title:







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	 	KMART PHARMACIES, INC.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	KMART PHARMACIES OF MINNESOTA, INC.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	BUILDERS SQUARE, INC.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	KMART CMBS FINANCING, INC.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	KMART INTERNATIONAL SERVICES, INC.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	PMB, INC.








	 	By: /s/ John McDonald



Name: John McDonald

Title:







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	 	SOURCING & TECHNICAL SERVICES, INC.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	ILJ, INC.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	STI MERCHANDISING, INC.








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	KBL HOLDING INC.








	 	By: /s/ James Misplan



Name: James Misplan

Title:








	 	KMART OF INDIANA








	 	By: /s/ John McDonald



Name: John McDonald

Title:








	 	KMART OF PENNSYLVANIA LP








	 	By: /s/ John McDonald



Name: John McDonald

Title:







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	 	KMART OF TEXAS L.P.








	 	By: /s/ John McDonald



Name: John McDonald

Title:







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	 	JPMorgan Chase Bank








	 	By: B. Joseph Lillis



Name: B. Joseph Lillis

Title: Managing Director








	 	Fleet Retail Finance Inc.








	 	By: /s/ James R. Dore



Name: James R. Dore

Title: Director








	 	General Electric Capital Corporation


By: /s/ Donna H. Evans



Name: Donna H. Evans

Title: Vice President








	 	Credit Suisse First Boston,
   Cayman
Islands Branch








	 	By: /s/ Bill O’Daly



Name: Bill O’Daly

Title: Director








	 	By: /s/ Cassandra Droogan



Name: Cassandra Droogan

Title: Associate







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	 	NEW BANKS:








	 	Bank of Scotland








	 	By: /s/ Joseph Fratus



Name: Joseph Fratus

Title: Vice President








	 	The CIT Group/Business Credit, Inc.








	 	By: /s/ James A. Brennan, Jr.



Name: James A. Brennan, Jr.

Title: Vice President








	 	GMAC Business Credit, LLC








	 	By: /s/ W. Wakefield Smith



Name: W. Wakefield Smith

Title: Director








	 	National City Commercial Finance, Inc.








	 	By: /s/ Dennis Hatvany



Name: Dennis Hatvany

Title: Vice President








	 	First Union National Bank








	 	By: /s/ Jill W. Akre



Name: Jill W. Akre

Title: Director








	 	Wells Fargo Retail Finance, LLC








	 	By: /s/ Kent Dahl



Name: Kent Dahl

Title: President







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	 	The Bank of New York








	 	By: /s/ James W. Whitaker



Name: James W. Whitaker

Title: Senior Vice President








	 	Bayerische Hypo und Vereinsbank AG, New York Branch








	 	By: /s/ Richard Garcia



Name: Richard Garcia

Title: Managing Director








	 	Metropolitan Life Insurance Company








	 	By: /s/ James R. Dingler



Name: James R. Dingler

Title: Director








	 	Satellite Senior Income Fund, LLC








	 	By: Satellite Asset Management, L.P.,

its Investment Manager








	 	By: /s/ Brian S. Kritcher



Name: Brian S. Kritcher

Title: Chief Operating Officer & Principal








	 	AmSouth Bank








	 	By: /s/ Mark McNally



Name: Mark McNally

Title: Attorney-in-Fact








	 	US Bank National Association








	 	By: /s/ Timothy N. Scheer



Name: Timothy N. Scheer

Title: Vice President







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	 	LaSalle Business Credit, Inc.








	 	By: /s/ Francis D. O’Conner



Name: Francis D. O’Conner

Title: Senior Vice President








	 	PB Capital Corporation








	 	By: /s/ Dana L. McDougall



Name: Dana L. McDougall

Title: Vice President








	 	By: /s/ Lisa Moraglia



Name: Lisa Moraglia

Title: Associate








	 	PNC Business Credit








	 	By: /s/ Mark Kiskorna



Name: Mark Kiskorna

Title: Vice President








	 	Textron Financial Corporation








	 	By: /s/ Michael O’Neal



Name: Michael O’Neal

Title: Vice President








	 	Transamerica Business Capital Corporation








	 	By: /s/ Stephen K. Goetschius



Name: Stephen K. Goetschius

Title: Senior Vice President







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	 	The Provident Bank








	 	By: /s/ Michael D. Shover



Name: Micheal D. Shover

Title: Assistant Vice President








	 	Highland Loan Funding V Ltd.








	 	By: Highland Capital Management, L.P. as Collateral Manager








	 	By: /s/ Louis Koven



Name: Louis Koven

Title: Executive Vice President — CFO Highland Capital Management, L.P.








	 	Restoration Funding CLO, Ltd.








	 	By: /s/ Louis Koven



Name: Louis Koven

Title: Executive Vice President — CFO Highland Capital
Management, L.P.








	 	HSBC Business Credit (USA) Inc.








	 	By: /s/ Jimmy Schwartz



Name: Jimmy Schwartz

Title: Vice President








	 	Orix Financial Services, Inc.








	 	By: /s/ Thomas M. Watson



Name: Thomas M. Watson

Title: Vice President







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	 	RZB Finance LLC








	 	By: /s/ John A. Valiska



Name: John A. Valiska

Title: Vice President








	 	By: /s/ Christoph Hoedl



Name: Christoph Hoedl

Title: Vice President








	 	UPS Capital Corporation








	 	By: /s/ Scott Mowell



Name: Scott Mowell

Title: Managing Director








	 	Israel Discount Bank of New York








	 	By: /s/ Alan Lefkowitz



Name: Alan Lefkowitz

Title: First Vice President & Group Head








	 	By: /s/ Karen Chen



Name: Karen Chen

Title: Assistant Manager








	 	Webster Bank








	 	By: /s/ John Gilsenan



Name: John Gilsenan

Title: Vice President







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	 	Regiment Capital, Ltd.








	 	By: Regiment Capital Management, LLC as its Investment Advisor








	 	By: Regiment Capital Advisors, LLC its Manager and pursuant to delegated authority








	 	By: /s/ Mark Brostowski



Name: Mark Brostowski

Title: Vice President








	 	President & Fellows of Harvard College








	 	By: Regiment Capital Management, LLC as its Investment Advisor








	 	By: Regiment Capital Advisors, LLC its Manager and pursuant to delegated authority








	 	By: /s/ Timothy Peterson



Name: Timothy Peterson

Title: President







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	 	TRANCHE B LENDERS:








	 	Laguna Funding Trust








	 	By: /s/ Kelly W. Warnement



Name: Kelly W. Warnement

Title: Authorized Agent








	 	Webster Bank








	 	By: /s/ John Gilsenan



Name: John Gilsenan

Title: Vice President








	 	Regiment Capital, Ltd.








	 	By: Regiment Capital Management, LLC as its Investment Advisor








	 	By: Regiment Capital Advisors, LLC its Manager and pursuant to delegated authority








	 	By: /s/ Mark Brostowski



Name: Mark Brostowski

Title: Vice President







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	 	President & Fellows of Harvard

College








	 	By: Regiment Capital Management, LLC as its Investment Advisor








	 	By: Regiment Capital Advisors, LLC its Manager and pursuant to delegated authority








	 	By: /s/ Timothy Peterson



Name: Timothy Peterson

Title: President








	 	Northwoods Capital, Limited








	 	By: Angelo, Gordon & Co., L.P., as Collateral Manager








	 	By: /s/ John W. Fraser



Name: John W. Fraser

Title: Managing Director








	 	Northwoods Capital II, Limited








	 	By: Angelo, Gordon & Co., L.P., as Collateral Manager








	 	By: /s/ John W. Fraser



Name: John W. Fraser

Title: Managing Director








	 	Northwoods Capital III, Limited








	 	By: Angelo, Gordon & Co., L.P., as Collateral Manager








	 	By: /s/ John W. Fraser



Name: John W. Fraser

Title: Managing Director







20







 



	 	Eaton Vance CDO III, Ltd.








	 	By: Eaton Vance Management as Investment Advisor








	 	By: /s/ Payson F. Swaffield



Name: Payson F. Swaffield

Title: Vice President








	 	Constantinus Eaton Vance CDO V, Ltd.








	 	By: Eaton Vance Management as Investment Advisor








	 	By: /s/ Payson F. Swaffield



Name: Payson F. Swaffield

Title: Vice President








	 	Eaton Vance CDO IV, Ltd.








	 	By: Eaton Vance Management as Investment Advisor








	 	By: /s/ Payson F. Swaffield



Name: Payson F. Swaffield

Title: Vice President








	 	Eaton Vance Institutional Senior Loan Fund








	 	By: Eaton Vance Management as Investment Advisor








	 	By: /s/ Payson F. Swaffield



Name: Payson F. Swaffield

Title: Vice President







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	 	Eaton Vance Senior Income Trust








	 	By: Eaton Vance Management as Investment Advisor








	 	By: /s/ Payson F. Swaffield



Name: Payson F. Swaffield

Title: Vice President








	 	Senior Debt Portfolio








	 	By: Boston Management and Research as Investment Advisor








	 	By: /s/ Payson F. Swaffield



Name: Payson F. Swaffield

Title: Vice President








	 	Grayson & Co.








	 	By: Boston Management and Research as Investment Advisor








	 	By: /s/ Payson F. Swaffield



Name: Payson F. Swaffield

Title: Vice President








	 	Foothill Group, Inc.








	 	By: /s/ R. Michael Bohannon



Name: R. Michael Bohannon

Title: Vice President







22







 



	 	Oak Hill Securities Fund, L.P.








	 	By: Oak Hill Securities GenPar, L.P.,

its General Partner








	 	By: Oak Hill Securities MGP, Inc.,
 its General Partner








	 	By: /s/ Scott D. Krase



Name: Scott D. Krase

Title: Authorized Signatory








	 	Oak Hill Securities Fund, II, L.P.








	 	By: Oak Hill Securities GenPar II, L.P.,
 its General Partner








	 	By: Oak Hill Securities MGP II, Inc., 
its General Partner








	 	By: /s/ Scott D. Krase



Name: Scott D. Krase

Title: Authorized Signatory








	 	Oak Hill Credit Partners I, Limited








	 	By: Oak Hill CLO Management as Investment Advisor


By: /s/ Scott D. Krase



Name: Scott D. Krase

Title: Authorized Signatory







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	 	Massachusetts Mutual Life Insurance Company








	 	By: David L. Babson & Company Inc. as Investment Adviser








	 	By: /s/ John B. Wheeler



Name: John B. Wheeler

Title: Managing Director








	 	Maplewood (Cayman) Limited








	 	By: David L. Babson & Company Inc. under delegated authority from Massachusetts Mutual Life Insurance Company as Investment Manager








	 	By: /s/ John B. Wheeler



Name: John B. Wheeler

Title: Managing Director








	 	Bill & Melinda Gates Foundation








	 	By: David L. Babson & Company Inc. as Investment Adviser








	 	By: /s/ John B. Wheeler



Name: John B. Wheeler

Title: Managing Director








	 	Flagship CLO II








	 	By: /s/ Colleen Cuniffe



Name: Colleen Cuniffe

Title: Attorney in fact







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	 	Flagship CLO-2001-1








	 	By: Flagship Capital Mgt., Inc.








	 	By: /s/ Colleen Cuniffe



Name: Colleen Cunniffe

Title: Director








	 	Franklin Floating Rate Daily Access Fund








	 	By: /s/ Richard D’Addario



Name: Richard D’Addario

Title: Senior Vice President








	 	Franklin Floating Rate Master Series








	 	By: /s/ Richard D’Addario



Name: Richard D’Addario

Title: Senior Vice President








	 	Franklin Floating Rate Trust








	 	By: /s/ Richard D’Addario



Name: Richard D’Addario

Title: Senior Vice President








	 	Steamboat Capital, LLC








	 	By: /s/ Edward A. Mulé



Name: Edward A. Mulé

Title: Principal








	 	Toronto Dominion (New York), Inc.








	 	By: /s/ Stacey Malek



Name: Stacey Malek

Title: Vice President







25







 



	 	Stanwich Loan Funding LLC








	 	By: /s/ Kelly W. Warnement



Name: Kelly W. Warnement

Title: Vice President








	 	CSAM Funding I








	 	By: /s/ Andrew H. Marshak



Name: Andrew H. Marshak

Title: Authorized Signatory








	 	CSAM Funding II








	 	By: /s/ Andrew H. Marshak



Name: Andrew H. Marshak

Title: Authorized Signatory








	 	161 Fidelity Advisor Series II: Fidelity Advisor Floating Rate High Income Fund








	 	By: /s/ Maria Dwyer



Name: Maria Dwyer

Title: Deputy Treasurer








	 	Avalon Capital Ltd.








	 	By: Invesco Senior Secured Management, Inc As Portfolio Manager








	 	By: /s/ Anne M. McCarthy



Name: Anne M. McCarthy

Title: Authorized Signatory







26







 



	 	Avalon Capital Ltd. 2








	 	By: Invesco Senior Secured Management, Inc. As Portfolio Manager








	 	By: /s/ Anne M.McCarthy



Name: Anne M. McCarthy

Title: Authorized Signatory








	 	AIM Floating Rate Fund








	 	By: Invesco Senior Secured Management, Inc. As Attorney in fact








	 	By: /s/ Anne M. McCarthy



Name: Anne M. McCarthy

Title: Authorized Signatory








	 	Charter View Portfolio








	 	By: Invesco Senior Secured Management, Inc As Investment Advisor








	 	By: /s/ Anne M. McCarthy



Name: Anne M. McCarthy

Title: Authorized Signatory








	 	Diversified Credit Portfolio Ltd.








	 	By: Invesco Senior Secured Management, Inc. As Investment Advisor








	 	By: /s/ Anne M.McCarthy



Name: Anne M. McCarthy

Title: Authorized Signatory







27







 




	 	 	 
	.	 	
COMPOSITE CONFORMED COPY
	 	 	
THROUGH MARCH 7, 2002











REVOLVING CREDIT AND GUARANTY AGREEMENT












Among






KMART CORPORATION,






a Debtor and a Debtor-in-Possession under Chapter 11 of the Bankruptcy Code






as Borrower






and






THE SUBSIDIARIES OF THE BORROWER NAMED HEREIN,






Each a Debtor and a Debtor-in-Possession under Chapter 11 of the Bankruptcy Code






as Guarantors






and






THE BANKS PARTY HERETO,






and






JPMORGAN CHASE BANK,

as Administrative Agent, Collateral Agent and Co-Collateral Monitor






J.P. MORGAN SECURITIES INC.,

as Co-Lead Arranger and Joint Bookrunner






FLEET SECURITIES, INC.,

as Co-Lead Arranger and Joint Bookrunner,






FLEET RETAIL FINANCE INC.

as Co-Collateral Monitor and Documentation Agent






GENERAL ELECTRIC CAPITAL CORPORATION,

as Co-Syndication Agent and Co-Collateral Monitor






CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH,

as Co-Syndication Agent
















Dated as of January 22, 2002






CONFORMED TO REFLECT MODIFICATIONS SET FORTH IN THE FIRST AMENDMENT TO
REVOLVING CREDIT AND GUARANTY AGREEMENT DATED AS OF FEBRUARY 15, 2002 AND THE
SECOND AMENDMENT TO REVOLVING CREDIT AND GUARANTY AGREEMENT DATED AS OF MARCH
7, 2002





 







 


TABLE OF CONTENTS


	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 	 	 	 	 	 	
	 
	SECTION 1.	 	
DEFINITIONS
	 	 	 	 	2	 
	 	 	 	 	 	 	 	 	 
	 	 	
SECTION 1.01
	 	Defined Terms
	 	 	2	 
	 	 	 	 	 	 	 	 	 
	 	 	
SECTION 1.02
	 	Terms Generally
	 	 	1522	 
	 	 	 	 	 	 	 	 	 
	SECTION 2.	 	
AMOUNT AND TERMS OF CREDIT
	 		1623	
	 	 	 	 	 	 			
	 	 	
SECTION 2.01
	 	Commitment of the Banks; Total Tranche A
Commitment Usage
	 		1623	
	 	 	 	 	 	 			
	 	 	
SECTION 2.02
	 	Borrowing Base
	 		1623	
	 	 	 	 	 	 			
	 	 	
SECTION 2.03
	 	Letters of Credit 16;
Participations of Tranche A Banks
	 	 	24	 
	 	 	 	 	 	 	 	 	 
	 	 	
SECTION 2.04
	 	Issuance
	 		1826	
	 	 	 	 	 	 			
	 	 	
SECTION 2.04A
	 	Tranche B Letter of Credit Participations
	 	 	26	 
	 	 	 	 	 	 	 	 	 
	 	 	
SECTION 2.04B
	 	Earnings on Tranche B Credit-Linked Deposit
	 	 	27	 
	 	 	 	 	 	 	 	 	 
	 	 	
SECTION 2.05
	 	Nature of Letter of Credit Obligations Absolute
	 		1827	
	 	 	 	 	 	 			
	 	 	
SECTION 2.06
	 	Making of Loans
	 		1928	
	 	 	 	 	 	 			
	 	 	
SECTION 2.07
	 	Repayment of Loans; Evidence of Debt
	 		2029	
	 	 	 	 	 	 			
	 	 	
SECTION 2.08
	 	Interest on Loans
	 		2129	
	 	 	 	 	 	 			
	 	 	
SECTION 2.09
	 	Default Interest
	 		2130	
	 	 	 	 	 	 			
	 	 	
SECTION 2.10
	 	Optional Termination or Reduction of Commitment
	 		2130	
	 	 	 	 	 	 			
	 	 	
SECTION 2.11
	 	Alternate Rate of Interest
	 		2130	
	 	 	 	 	 	 			
	 	 	
SECTION 2.12
	 	Refinancing of Loans
	 		2230	
	 	 	 	 	 	 			
	 	 	
SECTION 2.13
	 	Mandatory Prepayment; Commitment Termination; Cash
Collateral
	 		2331	
	 	 	 	 	 	 			
	 	 	
SECTION 2.14
	 	Optional Prepayment of Loans; Reimbursement of Banks
	 		2332	
	 	 	 	 	 	 			
	 	 	
SECTION 2.15
	 	Reserve Requirements; Change in Circumstances
	 		2534	
	 	 	 	 	 	 			
	 	 	
SECTION 2.16
	 	Change in Legality
	 		2635	
	 	 	 	 	 	 			
	 	 	
SECTION 2.17
	 	Pro Rata Treatment, etc
	 		2736	
	 	 	 	 	 	 			
	 	 	
SECTION 2.18
	 	Taxes
	 		2736	
	 	 	 	 	 	 			
	 	 	
SECTION 2.19
	 	Certain Fees
	 		2837	
	 	 	 	 	 	 			
	 	 	
SECTION 2.20
	 	Commitment Fee
	 		2837	
	 	 	 	 	 	 			
	 	 	
SECTION 2.21
	 	Letter of Credit Fees
	 		2837	
	 	 	 	 	 	 			
	 	 	
SECTION 2.22
	 	Nature of Fees
	 		2938	
	 	 	 	 	 	 			
	 	 	
SECTION 2.23
	 	Priority and Liens
	 		2938	
	 	 	 	 	 	 			
	 	 	
SECTION 2.24
	 	Right of Set-Off
	 		3039	
	 	 	 	 	 	 			
	 	 	
SECTION 2.25
	 	Security Interest in Letter of Credit Account
	 		3140	





 







 


TABLE OF CONTENTS
(continued)


	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 	 	 	 	 	 	
	 
	 	 	
SECTION 2.26
	 	Payment of Obligations
	 		3140	
	 	 	 	 	 	 			
	 	 	
SECTION 2.27
	 	No Discharge; Survival of Claims
	 		3140	
	 	 	 	 	 	 			
	SECTION 3.	 	
REPRESENTATIONS AND WARRANTIES
	 		3140	
	 	 	 	 	 	 			
	 	 	
SECTION 3.01
	 	Organization and Authority
	 		3140	
	 	 	 	 	 	 			
	 	 	
SECTION 3.02
	 	Due Execution
	 		3241	
	 	 	 	 	 	 			
	 	 	
SECTION 3.03
	 	Statements Made
	 		3241	
	 	 	 	 	 	 			
	 	 	
SECTION 3.04
	 	Financial Statements
	 		3342	
	 	 	 	 	 	 			
	 	 	
SECTION 3.05
	 	Ownership
	 		3342	
	 	 	 	 	 	 			
	 	 	
SECTION 3.06
	 	Liens
	 		3342	
	 	 	 	 	 	 			
	 	 	
SECTION 3.07
	 	Compliance with Law
	 		3342	
	 	 	 	 	 	 			
	 	 	
SECTION 3.08
	 	Insurance
	 		3443	
	 	 	 	 	 	 			
	 	 	
SECTION 3.09
	 	Use of Proceeds
	 		3443	
	 	 	 	 	 	 			
	 	 	
SECTION 3.10
	 	Litigation
	 		3443	
	 	 	 	 	 	 			
	 	 	
SECTION 3.11
	 	Inventory Value
	 		3443	
	 	 	 	 	 	 			
	 	 	
SECTION 3.12
	 	Labor Relations
	 		3443	
	 	 	 	 	 	 			
	SECTION 4.	 	
CONDITIONS OF LENDING
	 	 	 		3544	
	 	 	 	 	 	 			
	 	 	
SECTION 4.01
	 	Conditions Precedent to Initial Loans and Initial
Letters of Credit
	 		3544	
	 	 	 	 	 	 			
	 	 	
SECTION 4.02
	 	Conditions Precedent to Each Loan and Each Letter of Credit
	 		3746	
	 	 	 	 	 	 			
	SECTION 5.	 	
AFFIRMATIVE COVENANTS
	 	 	 		3847	
	 	 	 	 	 	 			
	 	 	
SECTION 5.01
	 	Financial Statements, Reports, etc
	 		3948	
	 	 	 	 	 	 			
	 	 	
SECTION 5.02
	 	Corporate Existence
	 		4150	
	 	 	 	 	 	 			
	 	 	
SECTION 5.03
	 	Insurance
	 		4150	
	 	 	 	 	 	 			
	 	 	
SECTION 5.04
	 	Obligations and Taxes
	 		4150	
	 	 	 	 	 	 			
	 	 	
SECTION 5.05
	 	Notice of Event of Default, etc
	 		4251	
	 	 	 	 	 	 			
	 	 	
SECTION 5.06
	 	Access to Books and Records
	 		4251	
	 	 	 	 	 	 			
	 	 	
SECTION 5.07
	 	Blocked Account
Arrangements 42;
Concentration Account
	 	 	51	 
	 	 	 	 	 	 	 	 	 
	 	 	
SECTION 5.08
	 	Borrowing Base Certificate
	 		4251	
	 	 	 	 	 	 			
	 	 	
SECTION 5.09
	 	Collateral Monitoring and Review
	 		4251	
	 	 	 	 	 	 			
	 	 	
SECTION 5.10
	 	Operating Plan
	 		4352	
	 	 	 	 	 	 			
	 	 	
SECTION 5.11
	 	Additional UCC Searches
	 		4352	





ii







 


TABLE OF CONTENTS
(continued)


	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 	 	 	 	 	 	
	 
	 	 	
SECTION 5.12
	 	Delivery of Schedules; Supplemental Schedules
	 		4352	
	 	 	 	 	 	 			
	SECTION 6.	 	
NEGATIVE COVENANTS
	 	 	 		4352	
	 	 	 	 	 	 			
	 	 	
SECTION 6.01
	 	Liens
	 		4353	
	 	 	 	 	 	 			
	 	 	
SECTION 6.02
	 	Merger, etc
	 		4453	
	 	 	 	 	 	 			
	 	 	
SECTION 6.03
	 	Indebtedness
	 		4453	
	 	 	 	 	 	 			
	 	 	
SECTION 6.04
	 	Capital Expenditures
	 		4453	
	 	 	 	 	 	 			
	 	 	
SECTION 6.05
	 	EBITDA
	 		4554	
	 	 	 	 	 	 			
	 	 	
SECTION 6.06
	 	Guarantees and Other Liabilities
	 		4555	
	 	 	 	 	 	 			
	 	 	
SECTION 6.07
	 	Chapter 11 Claims
	 		4555	
	 	 	 	 	 	 			
	 	 	
SECTION 6.08
	 	Dividends; Capital Stock
	 		4555	
	 	 	 	 	 	 			
	 	 	
SECTION 6.09
	 	Transactions with Affiliates
	 		4555	
	 	 	 	 	 	 			
	 	 	
SECTION 6.10
	 	Investments, Loans and Advances
	 		4555	
	 	 	 	 	 	 			
	 	 	
SECTION 6.11
	 	Disposition of Assets
	 		4655	
	 	 	 	 	 	 			
	 	 	
SECTION 6.12
	 	Nature of Business
	 		4656	
	 	 	 	 	 	 			
	SECTION 7.	 	
EVENTS OF DEFAULT
	 	 	 		4656	
	 	 	 	 	 	 			
	 	 	
SECTION 7.01
	 	Events of Default
	 		4656	
	 	 	 	 	 	 			
	SECTION 8.	 	
THE AGENT
	 	 	 		4959	
	 	 	 	 	 	 			
	 	 	
SECTION 8.01
	 	Administration by Agent
	 		4959	
	 	 	 	 	 	 			
	 	 	
SECTION 8.02
	 	Advances and Payments
	 		5059	
	 	 	 	 	 	 			
	 	 	
SECTION 8.03
	 	Sharing of Setoffs
	 		5060	
	 	 	 	 	 	 			
	 	 	
SECTION 8.04
	 	Agreement of Required Banks and Super-majority Banks
	 		5160	
	 	 	 	 	 	 			
	 	 	
SECTION 8.05
	 	Liability of Agent
	 		5161	
	 	 	 	 	 	 			
	 	 	
SECTION 8.06
	 	Reimbursement and Indemnification
	 		5161	
	 	 	 	 	 	 			
	 	 	
SECTION 8.07
	 	Rights of Agent
	 		5262	
	 	 	 	 	 	 			
	 	 	
SECTION 8.08
	 	Independent Banks
	 		5262	
	 	 	 	 	 	 			
	 	 	
SECTION 8.09
	 	Notice of Transfer
	 		5262	
	 	 	 	 	 	 			
	 	 	
SECTION 8.10
	 	Successor Agent
	 		5262	
	 	 	 	 	 	 			
	 	 	
SECTION 9.
	 	GUARANTY
	 		5362	
	 	 	 	 	 	 			
	 	 	
SECTION 9.01
	 	Guaranty
	 		5362	
	 	 	 	 	 	 			
	 	 	
SECTION 9.02
	 	No Impairment of Guaranty
	 		5463	
	 	 	 	 	 	 			
	 	 	
SECTION 9.03
	 	Subrogation
	 		5464	
	 	 	 	 	 	 			
	 	 	
SECTION 10.
	 	MISCELLANEOUS
	 		5464	




iii







 


TABLE OF CONTENTS
(continued)



	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 	 	 	 	 	 	
	 
	 	 	 	 	 	 			
	 	 	
SECTION 10.01
	 	Notices
	 		5464	
	 	 	 	 	 	 			
	 	 	
SECTION 10.02
	 	Survival of Agreement, Representations and Warranties, etc
	 		5565	
	 	 	 	 	 	 			
	 	 	
SECTION 10.03
	 	Successors and Assigns
	 		5565	
	 	 	 	 	 	 			
	 	 	
SECTION 10.04
	 	Confidentiality
	 		5768	
	 	 	 	 	 	 			
	 	 	
SECTION 10.05
	 	Expenses
	 		5868	
	 	 	 	 	 	 			
	 	 	
SECTION 10.06
	 	Indemnity
	 		5868	
	 	 	 	 	 	 			
	 	 	
SECTION 10.07
	 	CHOICE OF LAW
	 		5969	
	 	 	 	 	 	 			
	 	 	
SECTION 10.08
	 	No Waiver
	 		5969	
	 	 	 	 	 	 			
	 	 	
SECTION 10.09
	 	Extension of Maturity
	 		5969	
	 	 	 	 	 	 			
	 	 	
SECTION 10.10
	 	Amendments, etc
	 		5969	
	 	 	 	 	 	 			
	 	 	
SECTION 10.11
	 	Severability
	 		6071	
	 	 	 	 	 	 			
	 	 	
SECTION 10.12
	 	Headings
	 		6071	
	 	 	 	 	 	 			
	 	 	
SECTION 10.13
	 	Execution in Counterparts
	 		6171	
	 	 	 	 	 	 			
	 	 	
SECTION 10.14
	 	Prior Agreements
	 		6171	
	 	 	 	 	 	 			
	 	 	
SECTION 10.15
	 	Further Assurances
	 		6171	
	 	 	 	 	 	 			
	 	 	
SECTION 10.16
	 	WAIVER OF JURY TRIAL
	 		6171	




	 	 	 
	ANNEX A	–	
Tranche A Commitment Amounts and Tranche B Credit-Linked Deposits
	EXHIBIT A-1	–	
Form of Interim Order
	EXHIBIT A-2	–	
Form of Final Order
	EXHIBIT B	–	
Form of Security and Pledge Agreement
	EXHIBIT C	–	
Form of Opinion of Counsel
	EXHIBIT D	–	
Form of Assignment and Acceptance
	EXHIBIT E	–	
Form of Borrowing Base Certificate




	 	 	 	 	 
	SCHEDULE 3.05	 	–	 	Subsidiaries
	SCHEDULE 3.10	 	–	 	Litigation
	SCHEDULE 3.12	 	–	 	Labor Relations
	SCHEDULE 6.10	 	–	 	Existing Investments
	SCHEDULE 6.11	 	–	 	Asset Sales
	SCHEDULE 7.01(m)	 	 	 	First Day Orders



iv





 







 


REVOLVING CREDIT AND GUARANTY AGREEMENT

Dated as of January 22, 2002






     REVOLVING CREDIT AND GUARANTY AGREEMENT, dated as of January 22, 2002,
among KMART CORPORATION, a Michigan corporation (the “Borrower”), a debtor and
debtor-in-possession in a case pending under Chapter 11 of the Bankruptcy Code,
and certain of the direct or indirect subsidiaries of the Borrower signatory
hereto (each a “Guarantor” and collectively, the “Guarantors”), each of which
Guarantors referred to in this paragraph is a debtor and debtor-in-possession
in a case pending under Chapter 11 of the Bankruptcy Code (the cases of the
Borrower and the Guarantors, each a “Case” and collectively, the “Cases”),
JPMORGAN CHASE BANK, a New York banking corporation (“JPMorgan Chase”), each of
the other financial institutions from time to time party hereto (together with
JPMorgan Chase, the “Banks”) and JPMORGAN CHASE BANK, as administrative agent
(in such capacity, the “Agent”) for the Banks.






INTRODUCTORY STATEMENT



     On January 22, 2002, the Borrower and the Guarantors filed voluntary
petitions with the Bankruptcy Court initiating the Cases and have continued in
the possession of their assets and in the management of their business pursuant
to Sections 1107 and 1108 of the Bankruptcy Code.





     The Borrower has applied to the Banks for a revolving credit and letter of
credit facility in an aggregate principal amount not to exceed $2,000,000,000,
all of the Borrower’s obligations under which are to be guaranteed by the
Guarantors.





     The proceeds of the Loans will be used for working capital and other
general corporate purposes of the Borrower and the Guarantors and for the other
purposes described in Section 3.09.





     To provide guarantees and security for the repayment of the Loans, the
reimbursement of any draft drawn under a Letter of Credit and the payment of
the other obligations of the Borrower and the Guarantors hereunder and under
the other Loan Documents (including, without limitation, but subject to the
“provided” clause of the last sentence of Section 2.23(a), the Obligations of
the Borrower to any Bank (or any of their respective Bank Affiliates) under
Section 6.03(vii)), the Borrower and the Guarantors will provide to the Agent
and the Banks the following (each as more fully described herein):





     (a)  a guaranty from each of the Guarantors of the due and punctual payment
and performance of the obligations of the Borrower hereunder;





     (b)  an allowed administrative expense claim in each of the Cases pursuant
to Section 364(c)(1) of the Bankruptcy Code having priority over all
administrative expenses of the kind specified in Sections 503(b) and 507(b) of
the Bankruptcy Code;





     (c)  a perfected first priority Lien, pursuant to Section 364(c)(2) of the
Bankruptcy Code, upon all unencumbered property of the Borrower and the
Guarantors (limited,





 







 


in the case of leasehold interests, to the proceeds received upon any
sale, disposition or termination thereof) that is not subject to valid,
perfected and non-avoidable liens as of the commencement of the Cases,
including, without limitation, substantially all inventory of the Borrower and
the Guarantors (excluding the Borrower’s and the Guarantors’ rights in respect
of avoidance actions under the Bankruptcy Code, it being understood that,
notwithstanding such exclusion of avoidance actions, the proceeds of such
actions shall be available to repay the Obligations), and on all cash and cash
equivalents in the Letter of Credit Account; and





     (d)  a perfected Lien, pursuant to Section 364(c)(3) of the Bankruptcy
Code, upon all property of the Borrower and the Guarantors (limited, in the
case of leasehold interests, to the proceeds received upon any sale,
disposition or termination thereof) that is subject to valid, perfected and
non-avoidable Liens in existence on the Filing Date that is subject to valid
Liens in existence on the Filing Date that are perfected subsequent to the
Filing Date as permitted by Section 546(b) of the Bankruptcy Code or that is
subject to Permitted Liens, junior to such valid, perfected and non-avoidable
Liens.





     All of the claims and the Liens granted hereunder in the Cases to the
Agent and the Banks shall be subject to the Carve-Out to the extent provided in
Section 2.23.






     Accordingly, the parties hereto hereby agree as follows:


SECTION 1. DEFINITIONS





   SECTION 1.01 Defined Terms.






     “ABR Borrowing” shall mean a Borrowing comprised of ABR Loans.





     “ABR Loan” shall mean any Loan bearing interest at a rate determined by
reference to the Alternate Base Rate in accordance with the provisions of
Section 2.





     “Additional Credit” shall have the meaning given such term in Section
4.02(d) hereof.





     “Adjusted Eligible Inventory Amount” shall be equal to (a) the Eligible
Inventory Amount less (b) the Inventory Reserves.





     “Adjusted LIBOR Rate” shall mean, with respect to any Eurodollar Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the quotient of (a) the LIBOR Rate
in effect for such Interest Period divided by (b) a percentage (expressed as a
decimal) equal to 100% minus Statutory Reserves. For purposes hereof, the term
“LIBOR Rate” shall mean the rate at which dollar deposits approximately equal
in principal amount to such Eurodollar Borrowing and for a maturity comparable
to such Interest Period are offered to the principal London office of the Agent
in immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.





     “Affiliate” shall mean, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person. For





2







 


purposes of this definition, a Person (a “Controlled Person”) shall be
deemed to be “controlled by” another Person (a “Controlling Person”) if the
Controlling Person possesses, directly or indirectly, power to direct or cause
the direction of the management and policies of the Controlled Person whether
by contract or otherwise.





     “Agent” shall have the meaning set forth in the Introduction.





     “Agreement” shall mean this Revolving Credit and Guaranty Agreement, as
the same may from time to time be further amended, modified or supplemented.





     “Alternate Base Rate” shall mean, for any day, a rate per annum equal to
the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate
in effect on such day plus 1% and (c) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. For purposes hereof, “Prime Rate” shall
mean the rate of interest per annum publicly announced from time to time by the
Agent as its prime rate in effect at its principal office in New York City;
each change in the Prime Rate shall be effective on the date such change is
publicly announced. “Base CD Rate” shall mean the sum of (a) the quotient of
(i) the Three-Month Secondary CD Rate divided by (ii) a percentage expressed as
a decimal equal to 100% minus Statutory Reserves and (b) the Assessment Rate.
“Three-Month Secondary CD Rate” shall mean, for any day, the secondary market
rate for three-month certificates of deposit reported as being in effect on
such day (or, if such day shall not be a Business Day, the next preceding
Business Day) by the Board through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current practices
of the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if such rate shall not be so reported
on such day or such next preceding Business Day, the average of the secondary
market quotations for three-month certificates of deposit of major money center
banks in New York City received at approximately 10:00 a.m., New York City
time, on such day (or, if such day shall not be a Business Day, on the next
preceding Business Day) by the Agent from three New York City negotiable
certificate of deposit dealers of recognized standing selected by it. “Federal
Funds Effective Rate” shall mean, for any day, the weighted average 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 which is a Business Day, the average of
the quotations for the day of such transactions received by the Agent from
three Federal funds brokers of recognized standing selected by it. If for any
reason the Agent shall have determined (which determination shall be conclusive
absent manifest error) that it is unable to ascertain the Base CD Rate or the
Federal Funds Effective Rate or both for any reason, including the inability or
failure of the Agent to obtain sufficient quotations in accordance with the
terms hereof, the Alternate Base Rate shall be determined without regard to
clause (b) or (c), or both, of the first sentence of this definition, as
appropriate, until the circumstances giving rise to such inability no longer
exist. Any change in the Alternate Base Rate due to a change in the Prime
Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate
shall be effective on the effective date of such change in the Prime Rate, the
Three-Month Secondary CD Rate or the Federal Funds Effective Rate,
respectively.





     “Appraisal Inventory Value” shall be equal to (i) Gross Inventory Value
per the stockledger, plus (ii) scan-based trading, less, to the extent included
therein, (iii) in-






3







 


transit from vendors, miscellaneous and wholesaler freight fees, and
consigned inventory, and (iv) plus or minus any other reconciling items,
calculated in a manner consistent with the initial appraisal performed in
January — February 2002.





     “Assessment Rate” shall mean for any date the annual rate (rounded
upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the
Agent as the then current net annual assessment rate that will be employed in
determining amounts payable by the Agent to the Federal Deposit Insurance
Corporation (or any successor) for insurance by such Corporation (or any
successor) of time deposits made in dollars at the Agent’s domestic offices.





     “Assignment and Acceptance” shall mean an assignment and acceptance
entered into by a Bank and an Eligible Assignee, and accepted by the Agent,
substantially in the form of Exhibit D.





     “Bank Affiliate” means, (a) with respect to any Bank, (i) an Affiliate of
such Bank or (ii) any entity (whether a corporation, partnership, trust or
otherwise) that is engaged in making, purchasing, holding or otherwise
investing in bank loans and similar extensions of credit in the ordinary course
of its business and is administered or managed by a Bank or an Affiliate of
such Bank and (b) with respect to any Bank that is a fund which invests in bank
loans and similar extensions of credit, any other fund that invests in bank
loans and similar extensions of credit and is managed by the same investment
advisor as such Bank or by an Affiliate of such investment advisor.





     “Bankruptcy Code” shall mean The Bankruptcy Reform Act of 1978, as
heretofore and hereafter amended, and codified as 11 U.S.C. Section 101 et seq.





     “Bankruptcy Court” shall mean the United States Bankruptcy Court for the
Northern District of Illinois or any other court having jurisdiction over the
Cases from time to time.





     “Banks” shall have the meaning set forth in the Introduction.





     “Benchmark LIBOR Rate” shall have the meaning set forth in Section
2.04B(a).





     “Board” shall mean the Board of Governors of the Federal Reserve System of
the United States.





     “Borrower” shall have the meaning set forth in the Introduction.





     “Borrowing” shall mean the incurrence of Loans of a single Type made from
all the Banks on a single date and having, in the case of Eurodollar Loans, a
single Interest Period (with any ABR Loan made pursuant to Section 2.16 being
considered a part of the related Borrowing of Eurodollar Loans).





     “Borrowing Base” shall be defined in a manner mutually satisfactory to the
Agent, the Co-Collateral Monitors and the Borrower and reflected in themean on
any date the amount (calculated based on the most recent Borrowing Base
Amendment and shall limit





4







 


Total Commitment UsageCertificate delivered pursuant to the lowest ofthis
Agreement) that is equal to (i) 95% of(A) if and only if the Total Commitment,
(ii) aEffective Advance Rate is equal to or greater than the percentage to be
determinedequal to 75% of the Recovery Rate, 75% multiplied by the Initial
Banks in consultation withRecovery Rate multiplied by the Borrower (as set
forth inGross Inventory Value or (B) if and only if the Borrowing Base
Amendment) of the net orderly liquidation value of inventory at cost as
determined byEffective Advance Rate is less than the outside inventory
consultants/appraisers retained by the Agent and the Co-Collateral Monitors and
(iii) a percentage to be determined by the Initial Banks in consultation with
the Borrower (as set forth in the Borrowing Base Amendment) of eligible
inventory; such Borrowing Base shall include inventory of the Borrower and the
Guarantors meeting certain eligibility standards determined by the Agent in
consultation with the Borrower and with the consent of the Co-Collateral
Monitors and shall reflect
equal to 75% of the Recovery Rate, the Net Available
Inventory Amount less (ii)  (x) a reserve equal to the sum of $200,000,000 on
account of pari passu cash management claims granted pursuant to Section
2.23(a) and permitted by Section 6.03(vii), plus (y) a reserve equal to
$25,000,000 and (yz) other availability reserves established by the Agent in
its reasonable discretion acting at the direction of the Co-Collateral Monitors
from time to time. Borrowing Base standards (including availability reserves)
may be established and revised from time to time solely by the Agent in its
reasonable discretion acting withat the consentdirection of the Co-Collateral
Monitors with any changes in such standards to be effective five (5) Business
Days after delivery of notice thereof to the Borrower.





     “Borrowing Base Amendment” shall mean an amendment to this Agreement
satisfactory to the Initial Banks and the Borrower to be executed within the
later to occur of (i) two (2) weeks after the first to occur of the making of
the initial Loans hereunder or under the Interim Order or the issuance of the
initial Letter of Credit hereunder and (ii) one (1) week following the date
upon which the Agent shall have provided a draft of the Borrowing Base
Amendment to the Borrower.





     “Borrowing Base Certificate” shall mean a certificate substantially in the
form of an exhibit to the Borrowing Base AmendmentExhibit E hereto (with such
changes therein from time to time as may be required by the Agent in its
reasonable discretion acting at the direction of the Co-Collateral Monitors to
reflect the components of and reserves against the Borrowing Base as provided
for hereunder from time to time), executed and certified by a Financial Officer
of the Borrower, which shall include appropriate exhibits, schedules and
collateral reporting requirements as referred to therein and as provided for in
Section 5.08.





     “Business Day” shall mean any day other than a Saturday, Sunday or other
day on which banks in the State of New York are required or permitted to close
(and, for a Letter of Credit, other than a day on which the Fronting Bank
issuing such Letter of Credit is closed); provided, however, that when used in
connection with a Eurodollar Loan, the term “Business Day” shall also exclude
any day on which banks are not open for dealings in dollar deposits on the
London interbank market.





     “Capital Expenditures” shall mean, for any period, the aggregate of all
expenditures (whether paid in cash and not theretofore accrued subsequent to
January 1, 2002 or accrued as liabilities during such period and including that
portion of any post-petition





5







 


Capitalized Lease which is capitalized on the consolidated balance sheet
of the Borrower and the Guarantors) net of cash amounts received by the
Borrower and the Guarantors from other Persons during such period in
reimbursement of Capital Expenditures made by the Borrower and the Guarantors,
excluding interest capitalized during construction, made by the Borrower and
the Guarantors during such period that, in conformity with GAAP, are required
to be included in or reflected by the property, plant, equipment or similar
fixed asset accounts reflected in the consolidated balance sheet of the
Borrower and the Guarantors (including equipment which is purchased
simultaneously with the trade-in of existing equipment owned by the Borrower or
any of the Guarantors to the extent of the gross amount of such purchase price
less the book value of the equipment being traded in at such time), but
excluding expenditures made in connection with the replacement or restoration
of assets to the extent reimbursed or financed from (x) insurance proceeds paid
on account of the loss of or the damage to the assets being replaced or
restored or (y) awards of compensation arising from the taking by condemnation
or eminent domain of such assets being replaced.





     “Capitalized Lease” shall mean, as applied to any Person, any lease of
property by such Person as lessee which would be capitalized on a balance sheet
of such Person prepared in accordance with GAAP.





     “Carve-Out” shall have the meaning set forth in Section 2.23.





     “Cases” shall have the meaning set forth in the Introduction.





     “Change of Control” shall mean (i) the acquisition of ownership, directly
or indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof), of shares
representing more than 50% of the aggregate ordinary voting power represented
by the issued and outstanding capital stock of the Borrower; or (ii) the
occupation of a majority of the seats (other than vacant seats) on the Board of
Directors of the Borrower by Persons who were neither (A) nominated by the
Board of Directors of the Borrower nor (B) appointed by directors so nominated.





     “Closing Date” shall mean the date on which this Agreement has been
executed and the conditions precedent to the making of the initial Loans set
forth in Section 4.01 have been satisfied or waived, which date shall occur
promptly upon entry of the Interim Order, but not later than 10 days following
the Filing Date.





     “Code” shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the regulations promulgated and rulings issued thereunder.





     “Co-Collateral Monitors” shall mean JPMorgan Chase, Fleet and GECC;
provided that for the purposes of this Agreement, all determinations, consents
and actions of the Co-Collateral Monitors shall be made or taken by the
Co-Collateral Monitors whose Commitmentscommitments in respect of Tranche A
Loans and Tranche B Letters of Credit at the time of any such determination,
consent or action represent at least 66-2/3% of the Commitmentscommitments of
the Co-Collateral Monitors in respect of Tranche A Loans and Tranche B Letters
of Credit in the aggregate.





6







 


     “Collateral” shall mean the “Collateral” as defined in the Security and
Pledge Agreement.





     “Commitment” shall mean, with respect to each Bank, the commitment of each
Bank hereunder in the amount set forth opposite its name on Annex A hereto or
as may subsequently be set forth in the Register from time to time, as the same
may be reduced from time to time pursuant to this Agreement.





     “Commitment Fee” shall have the meaning set forth in Section 2.20.





     “Commitment Percentage” shall mean at any time, with respect to each Bank,
the percentage obtained by dividing its Commitment at such time by the Total
Commitment at such time.





     “Consummation Date” shall mean the date of the substantial consummation
(as defined in Section 1101 of the Bankruptcy Code and which for purposes of
this Agreement shall be no later than the effective date) of a Reorganization
Plan that is confirmed pursuant to an order of the Bankruptcy Court.





     “CSFB” shall mean Credit Suisse First Boston, Cayman Islands Branch.





     “DC” shall mean any distribution center owned or leased and operated by
the Borrower or any Guarantor.





     “Dollars” and “$” shall mean lawful money of the United States of America.





     “EBITDA” shall mean, for any period, all as determined in accordance with
GAAP, the consolidated net income (or net loss) of the Borrower and its
Subsidiaries for such period, plus (a) the sum of (i) depreciation expense,
(ii) amortization expense, (iii) other non-cash expenses, (iv) provision for
LIFO adjustment for inventory valuation, (v) net total Federal, state and local
income tax expense, (vi) gross interest expense for such period less gross
interest income for such period, (vii) extraordinary losses, (viii) any
non-recurring charge or restructuring charge which in accordance with GAAP has
been deducted in the calculation of operating income, (ix) the cumulative
effect of any change in accounting principles and (x) “Chapter 11 expenses” (or
“administrative costs reflecting Chapter 11 expenses”) as shown on the
Borrower’s consolidated statement of income for such period less (b)
extraordinary gains plus or minus (c) the amount of cash received or expended
in such period in respect of any amount which, under clause (viii) above, was
taken into account in determining EBITDA for such or any prior period.





     “Effective Advance Rate” shall be stated as a percentage equal to the Net
Available Inventory Amount divided by the Gross Inventory Value.





     “Eligible Assignee” shall mean (i) a commercial bank having total assets
in excess of $1,000,000,000; (ii) a finance company, insurance company or other
financial institution or fund, in each case reasonably acceptable to the Agent,
which in the ordinary course of business extends credit of the type
contemplated herein or buys and/or invests in commercial loans and has total
assets in excess of $200,000,000 and whose becoming an





7







 


assignee would not constitute a prohibited transaction under Section 4975
of ERISA; (iii) a Bank Affiliate of the assignor Bank; and (iv) any other
financial institution reasonably satisfactory to the Agent.





     “Eligible Inventory Amount” shall mean, on the last day of any fiscal
week, without duplication, the Gross Inventory Value of Inventory held for sale
to third party customers of the Borrower and the Guarantors at the time of such
determination that is not ineligible for inclusion in the calculation of the
Borrowing Base pursuant to any of clauses (a) through (r) below. Without
limiting the foregoing, to qualify as “Eligible Inventory Amount” no Person
other than the Borrower or the Guarantors, as applicable, shall have any direct
or indirect ownership, interest or title to such Inventory and no Person other
than the Borrower and the Guarantors, as applicable, shall be indicated on any
purchase order or invoice with respect to such Inventory as having or
purporting to have an interest therein. Unless otherwise from time to time
approved in writing by the Agent, no Inventory shall be deemed included in the
Eligible Inventory Amount if, without duplication:






		
	 	     (a) the Borrower or the Guarantors do not have
sole and good, valid and unencumbered title thereto
(except for Liens expressly permitted by Section 6.01
(iii) or (vi) or Liens for taxes not yet due or which
are being contested in good faith by appropriate
proceedings and with respect to which adequate
reserves or other appropriate provisions are being
maintained in accordance with GAAP); or




		
	 	     (b) it is not located in the United States,
Puerto Rico or U.S. Virgin Islands; or is located in
Guam; or




		
	 	     (c) it is not located at property owned or leased
by the Borrower or the Guarantors (except to the
extent such Inventory is in transit between such
locations) or is located at a third party warehouse or
is located at a closed Store (except pursuant to
clause (f)) or is located at a closed DC; or




		
	 	     (d) it is identified as accrued Inventory without
a receiver in the Borrower’s or Guarantors’
stockledger; or




		
	 	     (e) it is not subject to a valid and perfected
first priority Lien in favor of the Agent for the
benefit of the Agent and the Banks; or




		
	 	     (f) it is Inventory located at a Store which is
being closed; provided however that such Inventory
will be deemed eligible for the first four (4) weeks
after the commencement of the Store Closure Sale for
that Store; or




		
	 	     (g) it is consigned from a vendor or is at a
customer location but still accounted for in the
Borrower’s or the





8







 






		
	 	Guarantors’ inventory balance, or is
scanned-based trading (such as greeting cards); or




		
	 	     (h) it is in-transit from a vendor, and has not
yet been received into a DC or Store; or




		
	 	     (i) it is identified in the stockledger of the
Borrower or any Guarantor as any of the following
departments or consists of Inventory which is
ordinarily classified by the Borrower or such
Guarantor consistent with its historical practices as
the following: bakery; dairy; deli; digital imaging,
photofinishing and 1 hour lab; floral; gasoline; home
fragrances and party supplies; live plants; meat;
miscellaneous or other as classified on the Borrower’s
or such Guarantor’s stockledger; produce; books;
magazines; restaurant operations; or seafood; or




		
	 	     (j) it is Inventory that is packed-away and
stored at a DC or a Store for future sale; or




		
	 	     (k) from and after the delivery by the Borrower
of the first weekly Borrowing Base Certificate after a
specified holiday or event has occurred, any Inventory
(other than seasonal apparel) identified as seasonal
per the Borrower’s and the Guarantors’ stockledger for
sale for such specific holiday or event; or




		
	 	     (l) it is identified as wholesaler freight fees;
or




		
	 	     (m) from and after any date that is more than
four (4) weeks past a specified selling season, any
Inventory that is seasonal apparel and that the
Borrower or the Guarantors have identified, in
accordance in all material respects with the
Borrower’s and Guarantors’ current or historical
accounting practices, as related to such specific
selling season; or




		
	 	     (n) it is identified per the Borrower’s and the
Guarantors’ stockledger as candy, provided that it
will only be considered ineligible to the extent that
the Inventory Value thereof is greater than 2% of
Gross Inventory Value; or




		
	 	     (o) it is identified per the Borrower’s and the
Guarantors’ stockledger as Inventory on layaway, or a
third party has placed a deposit on the specific
Inventory; or




		
	 	     (p) it is identified by the Borrower and the
Guarantors as Inventory in a vending machine based on
their reasonable estimate of the Inventory Value of
such Inventory from time to time; or





9







 






		
	 	     (q) it is identified per the Borrower’s and the
Guarantors’ stockledger as Inventory that is in a
leased department; or




		
	 	     (r) it is otherwise deemed ineligible by the
Agent in its reasonable discretion acting at the
direction of the Co-Collateral Monitors on at least
five (5) Business Days’ notice to the Borrower.



     “Environmental Lien” shall mean a Lien in favor of any Governmental
Authority for (i) any liability under federal or state environmental laws or
regulations, or (ii) damages arising from or costs incurred by such
Governmental Authority in response to a release or threatened release of a
hazardous or toxic waste, substance or constituent, or other substance into the
environment.





     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.





     “ERISA Affiliate” shall mean each person (as defined in Section 3(9) of
ERISA) which together with the Borrower or a Subsidiary of the Borrower would
be deemed to be a single employer within the meaning of Section 414(b), (c),
(m), or (o) of the Code.





     “Eurocurrency Liabilities” shall have the meaning assigned thereto in
Regulation D issued by the Board, as in effect from time to time.





     “Eurodollar Borrowing” shall mean a Borrowing comprised of Eurodollar
Loans.





     “Eurodollar Loan” shall mean any Loan bearing interest at a rate
determined by reference to the Adjusted LIBOR Rate in accordance with the
provisions of Section 2.





     “Event of Default” shall have the meaning given such term in Section 7.





     “Excluded Entities” shall collectively mean Kmart of Indiana, an Indiana
partnership and Kmart of Pennsylvania LP, a Pennsylvania limited partnership.





     “Excluded Taxes” means, with respect to the Agent, any Bank, the Fronting
Bank or any other recipient of any payment to be made by or on account of any
obligation of the Borrower hereunder, (a) income or franchise taxes imposed on
(or measured by) its net income by the United States of America, or by the
jurisdiction under the laws of which such recipient is organized or in which
its principal office is located or, in the case of any Bank, in which its
applicable lending office is located, (b) any branch profits taxes imposed by
the United States of America or any similar tax imposed by any other
jurisdiction in which the Borrower is located and (c) in the case of a Foreign
Bank, any withholding tax that is imposed by any jurisdiction other than the
United States of America or any state thereof or is imposed by the United
States of America on amounts payable to such Foreign Bank at the time such
Foreign Bank becomes a party to this Agreement (or designates a new lending
office) or is attributable to such Foreign Bank’s failure to comply with
Section 2.18(e), except to the extent that such Foreign Bank (or its assignor,
if any) was entitled, at the time of designation of a new lending office (or
assignment),





10







 


to receive additional amounts from the Borrower with respect to such
withholding tax pursuant to Section 2.18(a).





     “Fees” shall collectively mean the Commitment Fees, Letter of Credit Fees
and other fees referred to in Sections 2.19, 2.20 and 2.21.





     “Filing Date” shall mean January 22, 2002.





     “Final Order” shall have the meaning given such term in Section 4.02(d).





     “Financial Officer” shall mean the Chief Financial Officer, Chief
Restructuring Officer, Principal Accounting Officer, Controller, a Treasurer or
Assistant Treasurer of the Borrower.





     “Fleet” shall mean Fleet Retail Finance Inc.





     “Foreign Bank” means any Bank that is organized under the laws of a
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.






     “Fronting Bank” shall mean JPMorgan Chase (or any of its banking
affiliates) or such other Bank (which other Bank shall be reasonably
satisfactory to the Borrower) as may agree to act in such capacity.





     “GAAP” shall mean generally accepted accounting principles applied in
accordance with Section 1.02.





     “GECC” shall mean General Electric Capital Corporation.





     “Governmental Authority” shall mean any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
or any court, in each case whether of the United States or foreign.





     “Gross Available Inventory Amount” shall be equal to (a) Adjusted Eligible
Inventory Amount multiplied by (b) the advance rate of 60%, which may be
modified from time to time at the Agent’s reasonable discretion acting at the
direction of the Co-Collateral Monitors on at least five (5) Business Days’
notice to the Borrower.





     “Gross Inventory Value” shall mean, at any week end, the Inventory Value
of the Inventory for Stores and DCs per the Borrower’s and the Guarantors’
stockledger.





     “Guarantor” shall have the meaning set forth in the Introduction.





     “Indebtedness” shall mean, at any time and with respect to any Person, (i)
all indebtedness of such Person for borrowed money, (ii) all indebtedness of
such Person for the deferred purchase price of property or services (other than
property, including inventory, and services purchased, and expense accruals and
deferred compensation items arising, in the





11







 


ordinary course of business), (iii) all obligations of such Person
evidenced by notes, bonds, debentures or other similar instruments (other than
performance, surety and appeal bonds arising in the ordinary course of
business), (iv) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (v) all obligations of such Person under Capitalized
Leases, (vi) all reimbursement, payment or similar obligations of such Person,
contingent or otherwise, under acceptance, letter of credit or similar
facilities and all obligations of such Person in respect of (x) currency swap
agreements, currency future or option contracts and other similar agreements
designed to hedge against fluctuations in foreign interest rates and (y)
interest rate swap, cap or collar agreements and interest rate future or option
contracts; (vii) all Indebtedness referred to in clauses (i) through (vi) above
guaranteed directly or indirectly by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (A) to pay or
purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (B) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss in respect of such Indebtedness, (C)
to supply funds to or in any other manner invest in the debtor (including any
agreement to pay for property or services irrespective of whether such property
is received or such services are rendered) or (D) otherwise to assure a
creditor against loss in respect of such Indebtedness, and (viii) all
Indebtedness referred to in clauses (i) through (vii) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in property (including, without
limitation, accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness.





     “Indemnified Taxes” means Taxes other than Excluded Taxes.





     “Initial Banks” shall mean JPMorgan Chase, Fleet, GECC and CSFB.





     “Insufficiency” shall mean, with respect to any Plan, its “amount of
unfunded benefit liabilities” within the meaning of Section 4001(a)(18) of
ERISA, if any.





     “Interim Order” shall have the meaning given such term in Section 4.01(b).





     “Interest Payment Date” shall mean (i) as to any Eurodollar Loan, the last
day of each consecutive 30 day period running from the commencement of the
applicable Interest Period, and (ii) as to all ABR Loans, the last calendar day
of each month and the date on which any ABR Loans are refinanced with
Eurodollar Loans pursuant to Section 2.12.





     “Interest Period” shall mean, as to any Borrowing of Eurodollar Loans, the
period commencing on the date of such Borrowing (including as a result of a
refinancing of ABR Loans) or on the last day of the preceding Interest Period
applicable to such Borrowing and ending on the numerically corresponding day
(or if there is no corresponding day, the last day) in the calendar month that
is one, three or six months thereafter, as the Borrower may elect in the
related notice delivered pursuant to Sections 2.06(b) or 2.12; provided,
however, that (i) if any Interest Period would end on a day which shall not be
a Business Day, such Interest Period shall





12







 


be extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day, and (ii) no
Interest Period shall end later than the Termination Date.





     “Inventory” shall mean (a) as of any date of determination, “inventory”,
as defined in the Uniform Commercial Code as in effect in the State of New York
and (b) all finished goods, ware and merchandise, finished or unfinished parts,
components, assemblies held for sale to third party customers based on
stockledgers or perpetual inventory reports, defined and classified by the
Borrower and the Guarantors on a basis consistent in all material respects with
current and historical accounting practice in accordance with GAAP.





     “Inventory Reserves” shall mean the following:





     (a) a reserve for shrink, or discrepancies that arise between Inventory
quantities on hand per the Borrower’s or the Guarantors’ unit inventory system,
and physical counts of the Inventory which will be equal to the greater of (i)
$75,000,000; (ii) the mathematical average of the shrink results from the past
three year’s physical inventories expressed as a percent of sales, multiplied
by sales for the relevant year-to-date period and adjusted for the cost
complement for the relevant year-to-date period; but only to the extent such
amount exceeds reserves already netted out of the Gross Inventory Value per the
stockledger; or (iii) an amount determined by the Agent in its reasonable
discretion acting at the direction of the Co-Collateral Monitors on five (5)
Business Days’ notice to the Borrower (such reserve for shrink to be
recalculated by the tenth day after each month end and reflected on each
Borrowing Base Certificate delivered by the Borrower after such date until the
amount of such reserve is recalculated pursuant hereto); and





     (b) a reserve for intracompany profit, equal to the most recent three (3)
fiscal months of capitalized cost of the foreign buying offices owned and
operated by the Borrower or any Guarantor, with the time frame subject to
change on five (5) Business Days’ notice to the Borrower based on Inventory
performance, or the Agent’s reasonable discretion acting at the direction of
the Co-Collateral Monitors (such reserve for intercompany profit to be
recalculated by the tenth day after each month end and reflected on each
Borrowing Base Certificate delivered by the Borrower after such date until the
amount of such reserve is recalculated pursuant hereto); and





     (c) a general reserve which may be modified on five (5) Business Days’
notice to the Borrower at the Agent’s reasonable discretion acting at the
direction of the Co-Collateral Monitors including but not limited to a reserve,
without duplication, for (i) POS markdowns, calculated as (a) the rolling six
month average of POS markdowns to sales expressed as a percentage less (b) 5%
multiplied by (c) 50% of the Eligible Inventory Amount until further notice
given by the Agent in its reasonable discretion acting at the direction of the
Co-Collateral Monitors (such reserve for POS markdowns to be recalculated by
the 10th day after each month end and to be reflected on each Borrowing Base
Certificate delivered by the Borrower after such date until the amount of such
reserve is recalculated pursuant hereto); (ii) hard (permanent) markdowns;
(iii) seasonal merchandise; (iv) discontinued and clearance merchandise; (v)
change in product mix of





13







 


merchandise; (vi) change in pricing strategy or markon percentages; (vii)
damaged merchandise; (viii) price changes; or (ix) other adjustments as deemed
appropriate; and





     (d) a reserve for Inventory returned (other than as a result of
reclamations) to either the return goods center (“RGC”), the vendor, given to
charity, or otherwise considered non-saleable, whether defective or
non-defective. This reserve is to be calculated as the monthly average for the
most recent rolling 12 fiscal month period of return (other than as a result of
reclamations) activity to the vendors, the RGC, given to charity, or otherwise
considered non-saleable, whether defective or non-defective, both from the
Stores and DCs, and is subject to change on five (5) Business Days’ notice to
the Borrower at the Agent’s reasonable discretion acting at the direction of
the Co-Collateral Monitors; and such reserve to be recalculated by the 10th day
after each month-end and to be reflected on each Borrowing Base Certificate
delivered by the Borrower after such date until the amount of such reserve is
recalculated pursuant hereto.





      “Inventory Value” shall mean, with respect to any Inventory of the

Borrower and the Guarantors, the value of such Inventory valued at cost on a
basis consistent with the Borrower’s current and historical accounting practice
per the stockledger (without giving effect to LIFO reserves and general ledger
reserves for discontinued inventory, markdowns, intercompany profit, rebates
and discounts, any cut off adjustments, revaluation adjustments, purchase price
adjustments or adjustments with respect to the capitalization of buying,
occupancy, distribution and other overhead costs reflected on the balance sheet
of the Borrower and the Guarantors in respect of Inventory). The value of the
Inventory as set forth above will, without duplication for any Inventory
Reserves, be calculated net of the reserve established by the Borrower or any
Guarantor on a basis consistent with the Borrower’s current and historical
practice in respect of lost, misplaced or stolen Inventory at such time.






     “Investments” shall have the meaning given such term in Section 6.10.





     “Joint Commitment Letter” shall mean that certain Joint Commitment Letter
dated January 21, 2002 among the Agent, J.P. Morgan Securities Inc., Fleet,
GECC, CSFB and the Borrower.





     “JPMorgan Chase” shall have the meaning set forth in the Introduction.





      “Kmart Gift Card Liability Reserve” shall mean, at any fiscal week end or
month end, as the case may be, a reserve equal to the total value of all gift
cards and cash cards outstanding (such reserve to be reported on a monthly
basis until the delivery of the first Borrowing Base Certificate in August
2002, from which time such reserve will be reported weekly).






     “Letter of Credit” shall mean any irrevocable letter of credit issued
pursuant to Section 2.03, which letter of credit shall be (i) a standby or
import documentary letter of credit, (ii) issued for purposes that are
consistent with the ordinary course of business of the Borrower or any
Guarantor, or for such other purposes as are reasonably acceptable to the
Agent, (iii) denominated in Dollars and (iv) otherwise in such form as may be
reasonably approved from





14







 


time to time by the Agent and the applicable Fronting Bank. Subject to
Sections 2.10 and 2.13(b), Letters of Credit shall be either (x) Tranche B
Letters of Credit to the extent of Letter of Credit Outstandings not exceeding
$200,000,000 in the aggregate or (y) Tranche A Letters of Credit to the extent
of Letter of Credit Outstandings that exceed $200,000,000 in the aggregate.






     “Letter of Credit Account” shall mean the account established by the
Borrower under the sole and exclusive control of the Agent maintained at the
office of the Agent at 270 Park Avenue, New York, New York 10017 designated as
the “Kmart Letter of Credit Account” that shall be used solely for the purposes
set forth in Sections 2.03(b) and 2.13.





     “Letter of Credit Fees” shall mean the fees payable in respect of Letters
of Credit pursuant to Section 2.21.





     “Letter of Credit Outstandings” shall mean, at any time, the sum of (i)
the aggregate undrawn stated amount of all Letters of Credit then outstanding
plus (ii) all amounts theretofore drawn under Letters of Credit and not then
reimbursed.





     “Lien” shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind whatsoever (including any conditional sale or other
title retention agreement or any lease in the nature thereof).





     “Loan” shall have the meaning given such term in Section 2.01; it being
understood that for all purposes hereunder and under the other Loan Documents,
the term “Loan” shall be deemed to include all “Preliminary Borrowings” as such
term is defined in the Interim Order dated January 22, 2002.





     “Loan Documents” shall mean this Agreement, the Letters of Credit, the
Security and Pledge Agreement, and any other instrument or agreement executed
and delivered to the Agent or any Bank in connection herewith, in each case, as
the same may be amended, modified, supplemented, extended or restated from time
to time.





      “Martha Stewart Reserve” shall mean, at any fiscal week end, a reserve
equal to the sum of (a) the current unpaid royalty earned for Martha Stewart
merchandise sold plus (b) (i) the retail value of all Inventory identified as
Martha Stewart multiplied by (ii) the royalty rate of 2.73% or the rate
currently in effect multiplied by (iii) the cost complement plus (c) a reserve
for exclusive contracts, royalties or other such agreements as deemed necessary
by the Agent in its reasonable discretion acting at the direction of the
Co-Collateral Monitors on five (5) Business Days’ notice to the Borrower plus
(d) any additional amount determined by the Agent in its reasonable discretion
acting with the consent of the Co-Collateral Monitors on five (5) Business
Days’ notice to the Borrower.






     “Maturity Date” shall mean April 22, 2004.





     “Multiemployer Plan” shall mean a “multiemployer plan” as defined in
Section 4001(a)(3) of ERISA, which is maintained or contributed to by (or to
which there is an obligation to contribute of) the Borrower or a Subsidiary of
the Borrower or an ERISA Affiliate, and each such plan for the five-year period
immediately following the latest date on which the







15







 



Borrower, or a Subsidiary of the Borrower or an ERISA Affiliate
maintained, contributed to or had an obligation to contribute to such plan.





     “Multiple Employer Plan” shall mean a Single Employer Plan, which (i) is
maintained for employees of the Borrower or an ERISA Affiliate and at least one
person (as defined in Section 3(9) of ERISA) other than the Borrower and its
ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower
or an ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA
in the event such Plan has been or were to be terminated.





     “Net Available Inventory Amount” shall be equal to (a) the Gross
Available Inventory Amount, less (b) the sum of the following reserves: (i) the
Martha Stewart Reserve, (ii) the Kmart Gift Card Liability Reserve, and (iii)
any other reserve that the Agent deems necessary in the Agent’s reasonable
discretion acting at the direction of the Co-Collateral Monitors on five (5)
Business Days’ notice to the Borrower.





     “Net Proceeds” shall mean, in respect of any sale of assets, the cash
proceeds of such sale after the payment of or reservation for (x) expenses
that are directly related to (or the need for which arises as a result of) the
transaction of sale, including, but not limited to, related severance costs,
taxes payable, brokerage commissions, professional expenses, other similar
costs that are directly related to the sale (all of which expenses shall be
satisfactory to the Agent in its reasonable judgment), (y) the amount secured
by valid and perfected Liens, if any, that are senior to the Liens on such
assets held by the Agent on behalf of the Banks and (z) the reasonable costs
and expenses of any repairs, alterations or improvements made by the Borrower
or any Guarantor to the assets sold to the extent such repairs, alterations or
improvements were required pursuant to the terms of such sale.





     “Obligations” shall mean (a) the due and punctual payment of principal of
and interest on the Loans, the reimbursement to the Tranche B Lenders of an
amount equal to the Tranche B Reimbursement Amount and the reimbursement of all
amounts drawn under Letters of Credit, and (b) the due and punctual payment of
the Fees and all other present and future, fixed or contingent, monetary
obligations of the Borrower and the Guarantors to the Banks and the Agent under
the Loan Documents.





     “Orders” shall mean the Interim Order and the Final Order of the
Bankruptcy Court referred to in Sections 4.01(b) and 4.02(d).





     “Other Taxes” means any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement.





     “PACA” shall mean the Perishable Agricultural Commodities Act of 1930, as
amended, 7 U.S.C. §§499a et seq.





     “PASA” shall mean the Packers and Stockyards Act of 1921, as amended, 7
U.S.C. §§181 et seq.





16







 


     “PBGC” shall mean the Pension Benefit Guaranty Corporation, or any
successor agency or entity performing substantially the same functions.





     “Pension Plan” shall mean a defined benefit plan (as defined in Section
414(j) of the Code and Section 3(35) of ERISA) which meets and is subject to
the requirements of Section 401(a) of the Code.





     “Permitted Investments” shall mean:





     (a)  direct obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by, the United States of America (or by
any agency thereof to the extent such obligations are backed by the full faith
and credit of the United States of America), in each case maturing within
twelve months from the date of acquisition thereof;





     (b)  without limiting the provisions of paragraph (d) below, investments in
commercial paper maturing within six months from the date of acquisition
thereof and having, at such date of acquisition, a rating of at least “A-2” or
the equivalent thereof from Standard & Poor’s Corporation or of at least “P-2”
or the equivalent thereof from Moody’s Investors Service, Inc.;





     (c)  investments in certificates of deposit, banker’s acceptances and time
deposits (including Eurodollar time deposits) maturing within six months from
the date of acquisition thereof issued or guaranteed by or placed with (i) any
domestic office of the Agent or the bank with whom the Borrower and the
Guarantors maintain their cash management system, or (ii) any domestic office
of any other commercial bank of recognized standing organized under the laws of
the United States of America or any State thereof that has a combined capital
and surplus and undivided profits of not less than $250,000,000 and is the
principal banking Subsidiary of a bank holding company having a long-term
unsecured debt rating of at least “A-2” or the equivalent thereof from Standard
& Poor’s Corporation or at least “P-2” or the equivalent thereof from Moody’s
Investors Service, Inc.;





     (d)  investments in commercial paper maturing within six months from the
date of acquisition thereof and issued by (i) the holding company of the Agent
or (ii) the holding company of any other commercial bank of recognized standing
organized under the laws of the United States of America or any State thereof
that has (A) a combined capital and surplus in excess of $250,000,000 and (B)
commercial paper rated at least “A-2” or the equivalent thereof from Standard &
Poor’s Corporation or of at least “P-2” or the equivalent thereof from Moody’s
Investors Service, Inc.;





     (e)  investments in repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (a) above
entered into with any office of a bank or trust company meeting the
qualifications specified in clause (c) above;





     (f)  investments in money market funds substantially all the assets of
which are comprised of securities of the types described in clauses (a) through
(e) above; and





     (g)  to the extent owned on the Filing Date, investments by the Borrower or
any Guarantor in the capital stock of any direct or indirect Subsidiary.





17







 


     “Permitted Liens” shall mean (i) Liens imposed by law (other than
Environmental Liens and any Lien imposed under ERISA) for taxes, assessments or
charges of any Governmental Authority for claims not yet due or which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves or other appropriate provisions are being maintained in
accordance with GAAP; (ii) Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens (other than Environmental
Liens and any Lien imposed under ERISA) in existence on the Filing Date or
thereafter imposed by law and created in the ordinary course of business; (iii)
Liens (other than any Lien imposed under ERISA) incurred or deposits
(including, without limitation, surety bonds and appeal bonds) in connection
with workers’ compensation, unemployment insurance and other types of social
security benefits or to secure the performance of tenders, bids, leases,
contracts (other than for the repayment of Indebtedness), statutory obligations
and other similar obligations or arising as a result of progress payments under
government contracts; (iv) easements (including, without limitation, reciprocal
easement agreements and utility agreements), rights-of-way, covenants,
consents, reservations, encroachments, variations and zoning and other
restrictions, charges or encumbrances (whether or not recorded) and interest of
ground lessors, which do not interfere materially with the ordinary conduct of
the business of the Borrower or any Guarantor, as the case may be, and which do
not materially detract from the value of the property to which they attach or
materially impair the use thereof to the Borrower or any Guarantor, as the case
may be; (v) purchase money Liens (including Capitalized Leases) upon or in any
property acquired or held in the ordinary course of business to secure the
purchase price of such property or to secure Indebtedness permitted by Section
6.03(v) solely for the purpose of financing the acquisition of such property;
(vi) letters of credit or deposits in the ordinary course to secure leases; and
(vii) extensions, renewals or replacements of any Lien referred to in
paragraphs (i) through (vi) above, provided that the principal amount of the
obligation secured thereby is not increased and that any such extension,
renewal or replacement is limited to the property originally encumbered
thereby.





     “Person” shall mean any natural person, corporation, division of a
corporation, partnership, limited liability company, trust, joint venture,
association, company, estate, unincorporated organization or government or any
agency or political subdivision thereof.





     “Plan” shall mean a Single Employer Plan or a Multiemployer Plan.





     “Prepayment Amount” shall have the meaning set forth in Section 2.13(b).





     “Prepayment Date” shall mean forty-five (45) days after the entry of the
Interim Order by the Bankruptcy Court if the Final Order has not been entered
by the Bankruptcy Court prior to the expiration of such forty-five (45) day
period.





     “Pre-Petition Payment” shall mean a payment (by way of adequate protection
or otherwise) of principal or interest or otherwise on account of any
pre-petition Indebtedness or trade payables (including, without limitation, in
respect of reclamation claims) or other pre-petition claims against the
Borrower or any Guarantor.





     “Recovery Rate” shall, at the time of any determination thereof, be stated
as a percentage equal to, as the case may be, (x) until the conclusion of the
first round of Store Closure Sales undertaken by the Borrower after the date
hereof involving 10% or more of






18







 


the total number of Stores of the Borrower and the Guarantors as of the
Filing Date (the “First Round”) and the completion of the analysis conducted
immediately following the First Round that is required by Section 5.09 (the
“First Round Analysis”), (i) the estimated net recovery stated in dollars as
determined on a net orderly liquidation basis by the most recent analysis
conducted by outside inventory consultants/appraisers retained or approved by
the Agent and the Co-Collateral Monitors and disclosed to the Borrower on at
least five (5) Business Days’ prior notice divided by (ii) Appraisal Inventory
Value as of the date of such most recent analysis (both subclause (i) and (ii)
of this clause (x) to be calculated in a manner consistent with the initial
appraisal performed in January- February 2002); or (y) following the conclusion
of the First Round and the completion of the First Round Analysis, and until
clause (z) of this definition becomes applicable, (i) the estimated net
recovery stated in dollars as determined on a net orderly liquidation basis by
the First Round Analysis and disclosed to the Borrower on at least five (5)
Business Days’ prior notice divided by (ii) Appraisal Inventory Value as of the
date of the First Round Analysis (both subclause (i) and (ii) of this clause
(y) to be calculated in a manner consistent with the First Round Analysis); or
(z) following the conclusion after the First Round of any subsequent round of
Store Closure Sales undertaken by the Borrower involving 5% or more of the
total number of Stores of the Borrower and the Guarantor as of the commencement
of such subsequent round (each a “Subsequent Round”) and the completion of the
analysis conducted immediately following such Subsequent Round that is required
by Section 5.09 (each, a “Subsequent Round Analysis”), the lesser of (A) (i)
the estimated net recovery stated in dollars as determined on a net orderly
liquidation basis by the most recent Subsequent Round Analysis divided by (ii)
Appraisal Inventory Value as of the date of such Subsequent Round Analysis
(calculated in a manner consistent with such Subsequent Round Analysis) and (B)
provided that the Inventory mix in the Stores that are closed in such
Subsequent Round is materially consistent with the Inventory mix in the other
Stores of the Borrower and the Guarantors (as determined by the Agent in its
reasonable discretion acting at the direction of the Co-Collateral Monitors),
the actual net recovery yielded on Inventory sold during such Subsequent Round
calculated in a manner consistent with subclause (A) of this clause (z).
Notwithstanding anything to the contrary set forth in this definition, the
Agent (acting at the direction of the Co-Collateral Monitors and on five (5)
Business Days’ notice to the Borrower) shall at all times have the right to
fix, for purposes of the calculations required hereby, “estimated net recovery
stated in dollars as determined on a net orderly liquidation basis” in reliance
on the most-recently concluded evaluations and appraisals of the assets
included in the Borrowing Base that are conducted from time to time pursuant to
Section 5.09 rather than in reliance on the initial appraisal performed in
January-February 2002, the First Round Analysis or any Subsequent Round
Analysis.





     “Register” shall have the meaning set forth in Section 10.03(d).





     “Reorganization Plan” shall mean a plan of reorganization in any of the
Cases.





     “Required Banks” shall mean, at any time, (x) Banks having Tranche A
Commitments and Tranche B Credit-Linked Deposits representing in the aggregate
in excess of 50% of the Total Commitment or (y) if the Tranche A Commitments
have terminated or expired, Banks holding Loans, Tranche A Letter of Credit
Outstandings and





19







 


Tranche B Letter of Credit Outstandings representing in the aggregate in
excess of 50% of the aggregate principal amount of such Loans outstanding or,
if no Loans are outstanding, Banks having Commitments representing in excess of
50% of the Total CommitmentTranche A Letter of Credit Outstandings and Tranche
B Letter of Credit Outstandings.





     “Security and Pledge Agreement” shall have the meaning set forth in
Section 4.01(c).





     “Single Employer Plan” shall mean a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (i) is maintained for employees of the
Borrower or an ERISA Affiliate or (ii) was so maintained and in respect of
which the Borrower could have liability under Title IV of ERISA in the event
such Plan has been or were to be terminated.





     “Statutory Reserves” shall mean on any date the percentage (expressed as a
decimal) established by the Board and any other banking authority which is (i)
for purposes of the definition of Base CD Rate, the then stated maximum rate of
all reserves (including, but not limited to, any emergency, supplemental or
other marginal reserve requirement) for a member bank of the Federal Reserve
System in New York City, for new three month negotiable nonpersonal time
deposits in dollars of $100,000 or more or (ii) for purposes of the definition
of Adjusted LIBOR Rate, the then stated maximum rate for all reserves
(including but not limited to any emergency, supplemental or other marginal
reserve requirements) applicable to any member bank of the Federal Reserve
System in respect of Eurocurrency Liabilities (or any successor category of
liabilities under Regulation D issued by the Board, as in effect from time to
time). Such reserve percentages shall include, without limitation, those
imposed pursuant to said Regulation. The Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in such percentage.





     “Store” shall mean any store owned or leased and operated by the Borrower
or any Guarantor.





     “Store Closure Sale” shall mean a store closure sale that is properly
advertised and professionally managed over a defined period that is anticipated
by the Borrower not to exceed 12 weeks (on average) from the date of the sale
commencement.





     “Subsidiary” shall mean, with respect to any Person (herein referred to as
the “parent”), any corporation, association or other business entity (whether
now existing or hereafter organized) of which at least a majority of the
securities or other ownership interests having ordinary voting power for the
election of directors is, at the time as of which any determination is being
made, owned or controlled by the parent or one or more subsidiaries of the
parent or by the parent and one or more subsidiaries of the parent.





     “Super-majority Banks” shall have the meaning given such term in Section
10.10(b).





     “Superpriority Claim” shall mean a claim against the Borrower and any
Guarantor in any of the Cases which is an administrative expense claim having
priority over any or all administrative expenses of the kind specified in
Sections 503(b) or 507(b) of the Bankruptcy Code.





20







 


     “Syndication Agents” shall mean GECC and CSFB.





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





     “Termination Date” shall mean the earliest to occur of (i) the Prepayment
Date, (ii) the Maturity Date, (iii) the Consummation Date and (iv) the
acceleration of the Loans and the termination of the Total Commitment in
accordance with the terms hereof.





     “Termination Event” shall mean (i) a “reportable event”, as such term is
described in Section 4043(c) of ERISA (other than a “reportable event” as to
which the 30-day notice is waived under subsection .22, .23, .25, .27 or .28 of
PBGC Regulation Section 4043) or an event described in Section 4068 of ERISA
and excluding events which would not be reasonably likely (as reasonably
determined by the Agent) to have a material adverse effect on the financial
condition, operations, business, properties or assets of the Borrower and the
Guarantors taken as a whole, or (ii) the withdrawal of the Borrower or any
ERISA Affiliate from a Multiple Employer Plan during a plan year in which it
was a “substantial employer,” as such term is defined in Section 4001(a)(2) of
ERISA, the incurrence of liability by the Borrower or any ERISA Affiliate under
Section 4064 of ERISA upon the termination of a Multiple Employer Plan, the
imposition of Withdrawal Liability, or (iii) providing notice of intent to
terminate a Plan pursuant to Section 4041(c) of ERISA or the treatment of a
Plan amendment as a termination under Section 4041 of ERISA, if such amendment
requires the provision of security, or (iv) the institution of proceedings to
terminate a Plan by the PBGC under Section 4042 of ERISA, or (v) any other
event or condition (other than the commencement of the Cases and the failure to
have made any contribution accrued as of the Filing Date but not paid) which
would reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any
Plan, or the imposition of any liability under Title IV of ERISA (other than
for the payment of premiums to the PBGC in the ordinary course).





     “364 Day Credit Agreement” shall mean Borrower’s 364 Day Credit Agreement,
dated November 13, 2001.





     “Total
Commitment” shall mean, at any time, the sum of the
Tranche A
Commitments at such time.“ plus the Total Tranche B Credit-Linked Deposits.





     “Total Commitment Percentage” shall mean at any time, with respect to each
Bank, the percentage obtained by dividing its Tranche A Commitment, or, in the
case of a Tranche B Lender, its Tranche B Credit-Linked Deposit, by the Total
Commitment at such time.





     “Total Tranche A Commitment Usage” shall mean at any time, the sum of (i)
the aggregate outstanding principal amount of all Loans, and (ii) the aggregate
Tranche A Letter of Credit Outstandings.





     “Total Tranche B Credit-Linked Deposit” shall mean, at any time, the sum
of all Tranche B Lenders’ Tranche B Credit-Linked Deposits as the same may be
reduced from time to time.





21







 


     “Tranche A Banks” shall mean Banks having the Tranche A Commitments set
forth opposite their names on Annex A hereto under the heading “Tranche A
Commitment Amount”.





     “Tranche A Commitment” shall mean, with respect to each Tranche A Bank,
the commitment of each Tranche A Bank hereunder in the amount set forth
opposite its name on Annex A hereto under the heading “Tranche A” or as may
subsequently be set forth in the Register from time to time, as the same may be
reduced from time to time pursuant to this Agreement.





     “Tranche A Commitment Percentage” shall mean at any time, with respect to
each Tranche A Bank, the percentage obtained by dividing its Tranche A
Commitment at such time by the aggregate Tranche A Commitments at such time.





     “Tranche A Letter of Credit Outstandings” shall mean, at any time, that
portion of the Letter of Credit Outstandings in excess of $200,000,000 in the
aggregate, subject to adjustment in accordance with Section 2.10 and Section
2.13(b).





     “Tranche A Letters of Credit” shall mean, at any time, the Letters of
Credit issued hereunder which are not Tranche B Letters of Credit.





     “Tranche B Credit-Linked Deposit” shall have the meaning set forth in
Section 2.04A(a).





     “Tranche B Credit-Linked Deposit Account” shall mean the account
established by the Agent under its sole and exclusive control maintained at the
office of the Agent at 270 Park Avenue, New York, New York 10017, designated as
the “Kmart Tranche B Credit-Linked Deposit Account” that shall be used solely
for the purposes set forth in Sections 2.04A and 2.04B.





     “Tranche B Credit-Linked Deposit Percentage” shall mean, at any time, with
respect to each Tranche B Lender, the percentage obtained by dividing its
Tranche B Credit-Linked Deposit at such time by the Total Tranche B
Credit-Linked Deposit or, in the event the Total Tranche B Credit-Linked
Deposit shall have been reduced to $0, such percentage in effect immediately
prior to such reduction.





     “Tranche B Effective Date” shall mean the date on which each of the
Tranche B Lenders shall have funded its Tranche B Participation in the Tranche
B Credit-Linked Deposit Account pursuant to Section 2.04A(a).





     “Tranche B Lenders” shall mean Banks having a Tranche B Credit-Linked
Deposit set forth opposite their names on Annex A hereto under the heading
“Tranche B Credit-Linked Deposit”.





     “Tranche B Letter of Credit Outstandings” shall mean, at any time, Letter
of Credit Outstandings not exceeding the amount of $200,000,000 in the
aggregate, subject to adjustment in accordance with Section 2.10 and Section
2.13(b).





22







 


     “Tranche B Letters of Credit” shall mean, at any time, all Letters of
Credit as to which the Letter of Credit Outstandings do not exceed $200,000,000
in the aggregate, subject to adjustment in accordance with Section 2.10 and
Section 2.13(b).





     “Tranche B Participation” shall have the meaning set forth in Section
2.04A(a).





     “Tranche B Reimbursement Amount” shall have the meaning set forth in
Section 2.04A(a).





     “Transferee” shall have the meaning given such term in Section 2.18.





     “Type” when used in respect of any Loan or Borrowing shall refer to the
Rate of interest by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, “Rate” shall
mean the Adjusted LIBOR Rate and the Alternate Base Rate.





     “Unused Total Tranche A Commitment” shall mean, at any time, (i) the Total
Commitmentaggregate Tranche A Commitments less (ii) the sum of (x) the
aggregate outstanding principal amount of all Loans and (y) the aggregate
Tranche A Letter of Credit Outstandings.





     “Withdrawal Liability” shall have the meaning given such term under Part I
of Subtitle E of Title IV of ERISA.





   SECTION 1.02 Terms Generally. The definitions in Section 1.01 shall apply
equally to both 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. All references herein to Sections, Exhibits and
Schedules shall be deemed references to Sections of, and Exhibits and Schedules
to, this Agreement unless the context shall otherwise require. Except as
otherwise expressly provided herein, all terms of an accounting or financial
nature shall be construed in accordance with GAAP, as in effect from time to
time; provided, however, that for purposes of determining compliance with any
covenant set forth in Section 6, such terms shall be construed in accordance
with GAAP as in effect on the date of this Agreement applied on a basis
consistent with the application used in the Borrower’s audited financial
statements referred to in Section 3.04.






SECTION 2. AMOUNT AND TERMS OF CREDIT







   SECTION 2.01 Commitment of the
Banks; Total Tranche A Commitment Usage.





     (a)  Each Tranche A Bank severally and not jointly with the other Tranche A
Banks agrees, upon the terms and subject to the conditions herein set forth, to
make revolving credit loans (each a “Loan” and collectively, the “Loans”) to
the Borrower at any time and from time to time during the period commencing on
the date hereof and ending on the Termination Date in an aggregate principal
amount not to exceed, when added to such Bank’s Tranche A Commitment Percentage
of the then aggregate Tranche A Letter of Credit Outstandings, the Tranche A
Commitment of such Tranche A Bank, which Loans may be repaid and reborrowed





23







 


in accordance with the provisions of this Agreement. At no time following
the date upon which the Final Order shall have been entered by the Bankruptcy
Court shall the sum of the then outstanding aggregate principal amount of the
Loans plus the then aggregate Tranche A Letter of Credit Outstandings exceed
the lesser of (i) the Total Commitmentaggregate Tranche A Commitments of
$2,000,000,000 (or, if less, the amount shown on Schedule A),1,800,000,000, as
the same may be reduced from time to time pursuant to Section 2.10 or Section
2.13 and (ii) the amount by which the Borrowing Base exceeds the aggregate
Tranche B Letter of Credit Outstandings.





     (b)  Each Loan shall be made by the Tranche A Banks pro rata in accordance
with their respective Tranche A Commitments; provided, however, that the
failure of any Tranche A Bank to make any Loan shall not in itself relieve the
other Tranche A Banks of their obligations to lend.





     (c)  Notwithstanding anything herein to the contrary, at no time shall the
sum of Total Tranche A Commitment Usage plus Tranche B Letter of Credit
Outstandings exceed, in the aggregate, the lesser of (i) an amount that is
equal to 95% of the lesser of (A) 95% of the Total Commitment as at any time in
effect and (B) 95% of the Borrowing Base and (ii) until the successful
syndication of the Commitments hereunder shall have occurred, $1,750,000,000
(it being understood that a successful syndication of the Commitments hereunder
shall have occurred at such time as the Commitments of each of the Initial
Banks hereunder shall have been reduced by assignment to no more than
$250,000,000).






   SECTION 2.02 Borrowing BaseIntentionally Omitted. Notwithstanding any
other provision of this Agreement to the contrary, the aggregate principal
amount of all outstanding Loans plus the then aggregate Letter of Credit
Outstandings (in excess of the amount of cash then held in the Letter of Credit
Account pursuant to Section 2.03(b)) shall not at any time following the date
upon which the Final Order shall have been entered by the Bankruptcy Court
exceed the Borrowing Base and no Loan shall be made or Letter of Credit issued
in violation of the foregoing.






   SECTION 2.03 Letters of
Credit; Participations of Tranche A Banks.





     (a)  Upon the terms and subject to the conditions herein set forth, the
Borrower may request a Fronting 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, such Fronting Bank shall issue, for
the account of the Borrower or a Guarantor 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
$850,000,000 (which Letters of Credit shall be, subject to Section 2.10 and
Section 2.13(b), Tranche B Letters of Credit to the extent the Letter of Credit
Outstandings do not exceed $200,000,000 in the aggregate or Tranche A Letters
of Credit to the extent the Letter of Credit Outstandings exceed $200,000,000
in the aggregate) or (ii) the aggregate Letter of Credit Outstandings, when
added to the aggregate outstanding principal amount of the Loans, would exceed
the amounts provided for in Section 2.01(c) and, provided further that no
Letter of Credit shall be issued if the Fronting Bank shall have received
notice from the Agent or the Required Banks that the conditions to such
issuance have not been met.





24







 


     (b)  No Letter of Credit shall expire later than the Maturity Date,
provided that if any Letter of Credit shall be outstanding on the Termination
Date, the Borrower shall, at or prior to the Termination Date, except as the
Agent may otherwise agree in writing, (i) cause all Letters of Credit which
expire after the Termination Date to be returned to the Fronting Bank undrawn
and marked “cancelled” or (ii) if the Borrower is unable to do so in whole or
in part, either (x) provide a “back-to-back” letter of credit to one or more
Fronting Banks in a form satisfactory to such Fronting Bank and the Agent (in
their sole discretion), issued by a bank satisfactory to such Fronting Bank and
the Agent (in their sole discretion), and in an amount equal to 105% of the
then undrawn stated amount of all outstanding Letters of Credit issued by such
Fronting Banks (less the amount, if any, then on deposit in the Letter of
Credit Account) and/or (y) deposit cash in the Letter of Credit Account in an
amount equal to 105% of the then undrawn stated amount of all Letter of Credit
Outstandings (less the amount, if any, then on deposit in the Letter of Credit
Account) as collateral security for the Borrower’s reimbursement obligations in
connection therewith, such cash to be remitted to the Borrower upon the
expiration, cancellation or other termination or satisfaction of such
reimbursement obligations and the other Obligations hereunder and under the
other Loan Documents.





     (c)  The Borrower shall pay to each Fronting Bank, in addition to such
other fees and charges as are specifically provided for in Section 2.21 hereof,
such fees and charges in connection with the issuance and processing of the
Letters of Credit issued by such Fronting Bank as are customarily imposed by
such Fronting Bank from time to time in connection with letter of credit
transactions.





     (d)  Drafts drawn under each Letter of Credit shall be deemed to be drafts
drawn under Tranche B Letters of Credit for so long as there are any undrawn
Tranche B Letters of Credit and thereafter shall be deemed to be drafts drawn
under Tranche A Letters of Credit, and shall be reimbursed by the Borrower in
Dollars not later than the first Business Day following the date of draw in the
case of Tranche A Letters of Credit and as set forth in the third sentence of
this subsection in the case of Tranche B Letters of Credit. Unreimbursed
drafts under each Letter of Credit shall bear interest from the date of draw
until the first Business Day following the date of draw at a rate per annum
equal to the Alternate Base Rate plus 2.5% and thereafter on the reimbursed
portion until reimbursed in full at a rate per annum equal to the Alternate
Base Rate plus 4.5% (computed on the basis of the actual number of days elapsed
over a year of 360 days or when the Alternate Base Rate is based on the Prime
Rate, a year with 365 days or 366 days in a leap year). The Borrower shall
effect such reimbursement (x) if such draw occurs prior to the Termination
Date, (i) in the case of Tranche A Letters of Credit, in cash, or through a
Borrowing without the satisfaction of the conditions precedent set forth in
Section 4.024.02, on the date set forth in the first sentence of this
subsection or (ii) in the case of Tranche B Letters of Credit, in cash on or
before the Termination Date; or (y) if such draw occurs on or after the
Termination Date, in cash. Each Tranche A Bank agrees to make the Loans
described in clause (x)(i) of the preceding sentence notwithstanding a failure
to satisfy the applicable lending conditions thereto.





     (e)  Immediately upon the issuance of any Tranche A Letter of Credit by any
Fronting Bank, such Fronting Bank shall be deemed to have sold to each Tranche
A Bank other than such Fronting Bank and each such other Tranche A Bank shall
be deemed unconditionally and irrevocably to have purchased from such Fronting
Bank, without recourse or warranty, an





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undivided interest and participation, to the extent of such Tranche A Bank’s
Tranche A Commitment Percentage, in such Tranche A Letter of Credit,
each drawing thereunder and the obligations of the Borrower and the Guarantors
under this Agreement with respect thereto. Upon any change in the Tranche A Commitments
pursuant to Section 10.03, it is hereby agreed that with respect to
all Tranche A Letter of Credit Outstandings, there shall be an automatic
adjustment to the participations hereby created to reflect the new Tranche A Commitment
Percentages of the assigning and assignee Banks. Any action taken
or omitted by a Fronting Bank under or in connection with a Letter of Credit (whether
a Tranche A Letter of Credit or a Tranche B Letter of Credit), if
taken or omitted in the absence of gross negligence or willful misconduct,
shall not create for such Fronting Bank any resulting liability to any other
Bank.





     (f)  In the event that a Fronting Bank makes any payment under any Tranche
A Letter of Credit and the Borrower shall not have reimbursed such amount in
full to such Fronting Bank pursuant to this Section, the Fronting Bank shall
promptly notify the Agent, which shall promptly notify each Tranche A Bank of
such failure, and each Tranche A Bank shall promptly and unconditionally pay to
the Agent for the account of the Fronting Bank the amount of such Tranche A Bank’s
Tranche A Commitment Percentage of such unreimbursed payment in Dollars
and in same day funds. If the Fronting Bank so notifies the Agent, and the
Agent so notifies the Tranche A Banks prior to 11:00 a.m. (New York City time)
on any Business Day, such Tranche A Banks shall make available to the Fronting
Bank such BankBanks’s Tranche A Commitment Percentage of the amount of such
payment on such Business Day in same day funds, and if the Agent so notifies
the Tranche A Banks after 11:00 a.m. (New York City time), on the next Business
Day. If and to the extent such Tranche A Bank shall not have so made its
Tranche A Commitment Percentage of the amount of such payment available to the
Fronting Bank, such Tranche A Bank agrees to pay to such Fronting Bank,
forthwith on demand such amount, together with interest thereon, for each day
from such date until the date such amount is paid to the Agent for the account
of such Fronting Bank at the Federal Funds Effective Rate. The failure of any
Tranche A Bank to make available to the Fronting Bank its Tranche A Commitment
Percentage of any payment under any Tranche A Letter of Credit shall not
relieve any other Tranche A Bank of its obligation hereunder to make available
to the Fronting Bank its Tranche A Commitment Percentage of any payment under
any Tranche A Letter of Credit on the date required, as specified above, but no
Tranche A Bank shall be responsible for the failure of any other Tranche A Bank
to make available to such Fronting Bank such other Tranche A Bank’s Tranche A
Commitment Percentage of any such payment. Whenever a Fronting Bank receives a
payment of a reimbursement obligation as to which it has received any payments
from the Tranche A Banks pursuant to this paragraph, such Fronting Bank shall
pay to each Tranche A Bank which has paid its Tranche A Commitment Percentage
thereof, in Dollars and in same day funds, an amount equal to such Tranche A Bank’s Tranche A
Commitment Percentage thereof.






   SECTION 2.04 Issuance. Whenever the Borrower desires a Fronting Bank to
issue a Letter of Credit, it shall give to such Fronting Bank and the Agent
prior written (including telegraphic, telex, facsimile or cable communication)
notice reasonably in advance of the requested date of issuance specifying the
date on which the proposed Letter of Credit is to be issued (which shall be a
Business Day), the stated amount of the Letter of Credit so requested, the
expiration date of such Letter of Credit and the name and address of the
beneficiary thereof.





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   SECTION 2.04A Tranche B Letter of Credit Participations.





     (a) Effective on the Tranche B Effective Date, the Fronting Bank
irrevocably agrees to grant and hereby grants to each Tranche B Lender, and
each Tranche B Lender irrevocably agrees to accept and purchase and hereby
accepts and purchases from the Fronting Bank, on the terms and conditions
hereinafter stated, for such Tranche B Lender’s own account and risk an
undivided interest equal to its Tranche B Credit-Linked Deposit Percentage in
the Fronting Bank’s obligations and rights with respect to the Tranche B
Letters of Credit (as to each Tranche B Lender, its “Tranche B Participation”).
The purchase price for the Tranche B Participation of each Tranche B Lender
shall equal the amount set forth opposite such Tranche B Lender’s name in Annex
A under the heading “Tranche B Credit-Linked Deposit” (the “Tranche B
Credit-Linked Deposit”). Each Tranche B Lender shall pay to the Agent its
Tranche B Credit-Linked Deposit in full on the Tranche B Effective Date. Each
Tranche B Lender unconditionally and irrevocably agrees with the Agent and the
Fronting Bank that, if a draft is paid under any Tranche B Letter of Credit for
which such Fronting Bank is not reimbursed in full by the Borrower in cash (the
amount of the reimbursement required in respect thereof, the “Tranche B
Reimbursement Amount”), such Tranche B Lender shall authorize, and hereby
authorizes, the Agent to reimburse to the Fronting Bank the Tranche B
Reimbursement Amount solely from such Tranche B Lender’s Tranche B
Credit-Linked Deposit on deposit with the Agent in the Tranche B Credit-Linked
Deposit Account. In the event the Tranche B Credit-Linked Deposit Account is
charged by the Agent to reimburse the Fronting Bank for a draft paid under a
Tranche B Letter of Credit that has not been reimbursed by the Borrower in
cash, the Borrower shall have the right but not the obligation, prior to the
Termination Date, to pay over to the Agent in reimbursement thereof an amount
equal to the amount so charged for deposit in the Tranche B Credit-Linked
Deposit Account, and such payment by the Borrower shall correspondingly reduce
or satisfy, as applicable, the Borrower’s reimbursement obligations pursuant to
Section 2.03(d). Each Tranche B Lender hereby agrees that its obligation to
participate in the Tranche B Letters of Credit and to pay or to reimburse the
Fronting Bank for its participating share of the drafts drawn or amounts
otherwise paid thereunder, is absolute, irrevocable and unconditional and shall
not be affected by any circumstances whatsoever (including, without limitation,
the occurrence or continuance of any Event of Default), and that each such
payment shall be made without offset, abatement, withholding or other reduction
whatsoever.





     (b) The Tranche B Credit-Linked Deposits shall be held by the Agent in the
Tranche B Credit-Linked Deposit Account and invested by the Agent as set forth
in Section 2.04B and no party other than the Agent shall have a right of
withdrawal from the Tranche B Credit-Linked Deposit Account nor any other right
or power with respect to the Tranche B Credit-Linked Deposits, except as
expressly provided in Sections 2.04A(a), 2.10 or 2.13(b). Notwithstanding
anything in this Agreement to the contrary, the sole funding obligation of each
Tranche B Lender in respect of its Tranche B Participation shall be satisfied
upon funding of its Tranche B Credit-Linked Deposit.





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   SECTION 2.04B Earnings on Tranche B Credit-Linked Deposit.





     (a) The Borrower hereby acknowledges and agrees that each Tranche B Lender
is funding its Tranche B Credit-Linked Deposit to the Agent for application in
the manner contemplated by Section 2.04A and that the Agent has agreed to
invest the Tranche B Credit-Linked Deposits so as to earn a return (until such
time as such Tranche B Credit-Linked Deposits are used to cover unreimbursed
drawings) for the Tranche B Lenders at a rate per annum, reset daily on each
Business Day for the period until the next following Business Day, equal to (i)
the rate for one month LIBOR deposits (the “Benchmark LIBOR Rate”) minus (ii)
0.10%. Such interest will be paid to the Tranche B Lenders by the Agent
monthly in arrears when Letter of Credit fees are payable pursuant to Section
2.21. In addition to the foregoing payments by the Agent, the Borrower agrees
to make payments to the Tranche B Lenders monthly in arrears when Letter of
Credit fees are payable pursuant to Section 2.21 (and together with the payment
of such fees) in an amount equal to the difference between the rate of return
earned by the Tranche B Lenders on the Tranche B Credit-Linked Deposits and the
rate of return that would have been earned by the Tranche B Lenders thereon had
the interest rate applicable thereto been equal to the Benchmark LIBOR Rate.
The Agent shall compute all amounts due under this Section 2.04B and shall
notify the Borrower and such Tranche B Lender of each such amount due.





     (b) The Borrower hereby unconditionally promises to pay the Agent for the
account of the Tranche B Lenders on the Termination Date the positive
difference between the Total Tranche B Credit-Linked Deposit and any amounts on
deposit in the Tranche B Credit-Linked Deposit Account on the Termination Date
to the extent such difference exists as a result of drawings under Tranche B
Letters of Credit that have not been reimbursed by the Borrower prior to the
Termination Date.





     (c) Subject to the Borrower’s compliance with the cash-collateralization
or “back-to-back” standby letter of credit requirements set forth in Section
2.03(b), the Agent shall return any remaining Tranche B Credit-Linked Deposits
to the Tranche B Lenders following the occurrence of the Termination Date.






   SECTION 2.05 Nature of Letter of Credit Obligations Absolute. The
obligations of the Borrower to reimburse the Banks for drawings made under any
Letter of Credit shall be unconditional and irrevocable and shall be paid
strictly in accordance with the terms of this Agreement under all
circumstances, including, without limitation (it being understood that any such
payment by the Borrower shall be without prejudice to, and shall not constitute
a waiver of, any rights the Borrower might have or might acquire as a result of
the payment by the Fronting Bank of any draft or the reimbursement by the
Borrower thereof): (i) any lack of validity or enforceability of any Letter of
Credit; (ii) the existence of any claim, setoff, defense or other right which
the Borrower or any Guarantor may have at any time against a beneficiary of any
Letter of Credit or against any of the Banks, whether in connection with this
Agreement, the transactions contemplated herein or any unrelated transaction;
(iii) any draft, demand, certificate or other document presented under any
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;
(iv) payment by a Fronting Bank of any Letter of Credit against presentation of
a demand, draft





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or certificate or other document which does not comply with the
terms of such Letter of Credit; (v) any other circumstance or happening
whatsoever, which is similar to any of the foregoing; or (vi) the fact that any
Event of Default shall have occurred and be continuing.






   SECTION 2.06 Making of Loans.





     (a)  Except as contemplated by Section 2.11, Loans shall be either ABR
Loans or Eurodollar Loans as the Borrower may request subject to and in
accordance with this Section, provided, that all Loans made pursuant to the
same Borrowing shall, unless otherwise specifically provided herein, be Loans
of the same Type and, provided, further, that during the period commencing on
the Closing Date and ending on the later to occur of (i) the date upon which
the Final Order shall have been entered by the Bankruptcy Court and (ii) the
date that is 45 days after the date upon which the Interim Order shall have
been entered by the Bankruptcy Court, all Loans shall be ABR Loans. Each Bank
may fulfill its Tranche A Commitment with respect to any Eurodollar Loan or ABR
Loan by causing any lending office of such Bank to make such Loan; provided
that any such use of a lending office shall not affect the obligation of the
Borrower to repay such Loan in accordance with the terms of this Agreement.
Each Bank shall, subject to its overall policy considerations, use reasonable
efforts (but shall not be obligated) to select a lending office which will not
result in the payment of increased costs by the Borrower pursuant to Section
2.15. Subject to the other provisions of this Section and the provisions of
Section 2.12, Borrowings of Loans of more than one Type may be incurred at the
same time, provided that no more than fifteen (15) Borrowings of Eurodollar
Loans may be outstanding at any time.





     (b)  The Borrower shall give the Agent prior notice of each Borrowing
hereunder of at least three Business Days for Eurodollar Loans and one Business
Day for ABR Loans (subject, in the case of ABR Loans, to the last sentence of
this Section); such notice shall be irrevocable and shall specify the amount of
the proposed Borrowing (which shall not be less than $5,000,000 (and integral
multiples of $1,000,000) in the case of Eurodollar Loans and $1,000,000 (and
integral multiples of $100,000) in the case of ABR Loans) and the date thereof
(which shall be a Business Day) and shall contain disbursement instructions.
Such notice, to be effective, must be received by the Agent not later than 1:00
p.m., New York City time, on the third Business Day in the case of Eurodollar
Loans and 12:00 noon, New York City time on the first Business Day in the case
of ABR Loans, preceding the date on which such Borrowing is to be made except
as provided in the last sentence of this Section 2.06(b). Such notice shall
specify whether the Borrowing then being requested is to be a Borrowing of ABR
Loans or Eurodollar Loans. If no election is made as to the Type of Loan, such
notice shall be deemed a request for Borrowing of ABR Loans. The Agent shall
promptly notify each Bank of its proportionate share of such Borrowing, the
date of such Borrowing, the Type of Borrowing or Loans being requested and the
Interest Period or Interest Periods applicable thereto, as appropriate. On the
borrowing date specified in such notice, each Bank shall make its share of the
Borrowing available at the office of the Agent at 270 Park Avenue, New York,
New York 10017, no later than 12:00 noon, New York City time, in immediately
available funds. Upon receipt of the funds made available by the Banks to fund
any borrowing hereunder, the Agent shall disburse such funds in the manner
specified in the notice of borrowing delivered by the Borrower and shall use
reasonable efforts to make the funds so received from the Banks available to
the Borrower no later than 2:00 p.m. New York City time (other than as provided
in the following sentence). With respect to





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ABR Loans of $50,000,000 or less, the Banks shall make such Borrowings
available to the Agent and the Agent shall disburse such Borrowings in
accordance with the Borrower’s instructions consistent with this Agreement by
3:00 p.m., New York City time, on the same Business Day that the Borrower gives
notice to the Agent of such Borrowing by 1:00 p.m., New York City time.






   SECTION 2.07 Repayment of Loans; Evidence of Debt.





     (a)  The Borrower hereby unconditionally promises to pay to the Agent for
the account of each Bank the then unpaid principal amount of each Loan on the
Termination Date.





     (b)  Each Bank shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Bank
resulting from each Loan made by such Bank, including the amounts of principal
and interest payable and paid to such Bank from time to time hereunder.





     (c)  The Agent shall maintain accounts in which it shall record (i) the
amount of each Loan made hereunder, the Type thereof and the Interest Period
applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Bank hereunder
and (iii) the amount of any sum received by the Agent hereunder for the account
of the Banks and each Bank’s share thereof.





     (d)  The entries made in the accounts maintained pursuant to paragraph (b)
or (c) of this Section shall be prima facie evidence of the existence and
amounts of the obligations recorded therein; provided that the failure of any
Bank or the Agent to maintain such accounts or any error therein shall not in
any manner affect the obligation of the Borrower to repay the Loans in
accordance with the terms of this Agreement.





     (e)  Any Bank may request that Loans made by it be evidenced by a
promissory note. In such event, the Borrower shall execute and deliver to such
Bank a promissory note payable to the order of such Bank (or, if requested by
such Bank, to such Bank and its registered assigns) in a form furnished by the
Agent and reasonably acceptable to the Borrower. Thereafter, the Loans
evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 10.03) be represented by one or
more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and
its registered assigns).






   SECTION 2.08 Interest on Loans.





     (a)  Subject to the provisions of Section 2.09, each ABR Loan shall bear
interest (computed on the basis of the actual number of days elapsed over a
year of 360 days or, when the Alternate Base Rate is based on the Prime Rate, a
year with 365 days or 366 days in a leap year) at a rate per annum equal to the
Alternate Base Rate plus 2.5%.





     (b)  Subject to the provisions of Section 2.09, each Eurodollar Loan shall
bear interest (computed on the basis of the actual number of days elapsed over
a year of 360 days) at a rate per annum equal, during each Interest Period
applicable thereto, to the Adjusted LIBOR Rate for such Interest Period in
effect for such Borrowing plus 3.5%.





30







 


     (c)  Accrued interest on all Loans shall be payable monthly in arrears on
each Interest Payment Date applicable thereto, on the Termination Date, after
the Termination Date on demand and (with respect to Eurodollar Loans) upon any
repayment or prepayment thereof (on the amount prepaid).






   SECTION 2.09 Default Interest. If the Borrower or any Guarantor, as the
case may be, shall default in the payment of the principal of or interest on
any Loan or in the payment of any other amount becoming due hereunder
(including, without limitation, the reimbursement pursuant to Section 2.03(d)
of any draft drawn under a Letter of Credit), whether at stated maturity, by
acceleration or otherwise, the Borrower or such Guarantor, as the case may be,
shall on demand from time to time pay interest, to the extent permitted by law,
on such defaulted amount up to (but not including) the date of actual payment
(after as well as before judgment) at a rate per annum (computed on the basis
of the actual number of days elapsed over a year of 360 days or when the
Alternate Base Rate is applicable and is based on the Prime Rate, a year with
365 days or 366 days in a leap year) equal to (x) in the case of Borrowings
consisting of Eurodollar Loans, the Adjusted LIBOR Rate in effect for such
Borrowing plus 5.5% and (y) in the case of all other amounts, the Alternate
Base Rate plus 4.5%.






   SECTION 2.10 Optional Termination or Reduction of Commitment. Upon at
least two Business Days’ prior written notice to the Agent, the Borrower may at
any time in whole permanently terminate, or from time to time in part
permanently reduce, the Unused Total CommitmentTranche A Commitment and the
Total Tranche B Credit-Linked Deposit, pro rata based on each Bank’s Total
Commitment Percentage at such time. Each such reduction of the Commitments
shall be in the principal amount of $5,000,000 or any integral multiple
thereof. Simultaneously with each reduction or termination of the Commitment,
the Borrower shall pay to the Agent for the account of each Tranche A Bank the
Commitment Fee accrued and unpaid on the amount of the Tranche A Commitment of
such Tranche A Bank so terminated or reduced through the date thereof. Any
reduction of the Total Commitment pursuant to this Section shall be applied pro
rata to reduce the Tranche A Commitment of each Tranche A Bank and the Tranche
B Credit-Linked Deposit of each Tranche B Lender, in each case pro rata in
accordance with the Total Commitment Percentages of the Tranche A Banks and
Tranche B Lenders. Upon any such reduction, the Agent shall promptly remit to
each Tranche B Lender the amount of the reduction in its Tranche B
Credit-Linked Deposit.






   SECTION 2.11 Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Loan, the Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower absent manifest
error) that reasonable means do not exist for ascertaining the applicable
Adjusted LIBOR Rate, the Agent shall, as soon as practicable thereafter, give
written, facsimile or telegraphic notice of such determination to the Borrower
and the Banks, and any request by the Borrower for a Borrowing of Eurodollar
Loans (including pursuant to a refinancing with Eurodollar Loans) pursuant to
Section 2.06 or 2.12 shall be deemed a request for a Borrowing of ABR Loans.
After such notice shall have been given and until the circumstances giving rise
to such notice no longer exist, each request for a Borrowing of Eurodollar
Loans shall be deemed to be a request for a Borrowing of ABR Loans.





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   SECTION 2.12 Refinancing of Loans. The Borrower shall have the right, at
any time, on three Business Days’ prior irrevocable notice to the Agent (which
notice, to be effective, must be received by the Agent not later than 1:00
p.m., New York City time, on the third Business Day preceding the date of any
refinancing), (x) to refinance (without the satisfaction of the conditions set
forth in Section 4 as a condition to such refinancing) any outstanding
Borrowing or Borrowings of Loans of one Type (or a portion thereof) with a
Borrowing of Loans of the other Type or (y) to continue an outstanding
Borrowing of Eurodollar Loans for an additional Interest Period, subject to the
following:





     (a)  as a condition to the refinancing of ABR Loans with Eurodollar Loans
and to the continuation of Eurodollar Loans for an additional Interest Period,
no Event of Default shall have occurred and be continuing at the time of such
refinancing;





     (b)  if less than a full Borrowing of Loans shall be refinanced, such
refinancing shall be made pro rata among the Banks in accordance with the
respective principal amounts of the Loans comprising such Borrowing held by the
Banks immediately prior to such refinancing;





     (c)  the aggregate principal amount of Loans being refinanced shall be at
least $5,000,000, provided that no partial refinancing of a Borrowing of
Eurodollar Loans shall result in the Eurodollar Loans remaining outstanding
pursuant to such Borrowing being less than $5,000,000 in aggregate principal
amount;





     (d)  each Bank shall effect each refinancing by applying the proceeds of
its new Eurodollar Loan or ABR Loan, as the case may be, to its Loan being
refinanced;





     (e)  the Interest Period with respect to a Borrowing of Eurodollar Loans
effected by a refinancing or in respect to the Borrowing of Eurodollar Loans
being continued as Eurodollar Loans shall commence on the date of refinancing
or the expiration of the current Interest Period applicable to such continuing
Borrowing, as the case may be;





     (f)  a Borrowing of Eurodollar Loans may be refinanced only on the last day
of an Interest Period applicable thereto; and





     (g)  each request for a refinancing with a Borrowing of Eurodollar Loans
which fails to state an applicable Interest Period shall be deemed to be a
request for an Interest Period of one month.





In the event that the Borrower shall not give notice to refinance any Borrowing
of Eurodollar Loans, or to continue such Borrowing as Eurodollar Loans, or
shall not be entitled to refinance or continue such Borrowing as Eurodollar
Loans, in each case as provided above, such Borrowing shall automatically be
refinanced with a Borrowing of ABR Loans at the expiration of the then-current
Interest Period. The Agent shall, after it receives notice from the Borrower,
promptly give each Bank notice of any refinancing, in whole or part, of any
Loan made by such Bank.





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   SECTION 2.13 Mandatory Prepayment; Commitment Termination; Cash
Collateral.





     (a)  If at any time the aggregate principal amount of the outstanding Loans
plus the Letter of Credit Outstandings exceeds the lesser of (x) 95% of the
Total Commitment and (y) on or after the first date as of which a Borrowing
Base Certificate is required to be delivered to the Agent, 95% of the Borrowing
Base, the Borrower will immediately (i) prepay the Loans in an amount necessary
to cause the aggregate principal amount of the outstanding Loans plus the
aggregate Letter of Credit Outstandings to be equal to or less than the 95% of
Total Commitment and/or 95% of the Borrowing Base, as the case may be, and (ii)
if, after giving effect to the prepayment in full of the Loans, the undrawn
amount of outstanding Letter of Credit Outstandings in excess of the amount of
cash held in the Letter of Credit Account exceeds 95% of the Total Commitment
and/or 95% of the Borrowing Base, as the case may be, deposit into the Letter
of Credit Account an amount equal to 105% of the amount by which the aggregate
Letter of Credit Outstandings in excess of the amount of cash held in the
Letter of Credit Account so exceeds 95% of the Total Commitment or 95% of the
Borrowing Base, as the case may be.





     (b)  Upon the sale or other disposition (including as a result of casualty
loss or condemnation occurring after the occurrence and continuation of an
Event of Default) of any leasehold interests or fixed assets (other than in the
case of(1) ordinary course sales of fixtures and equipment (that are not in
connection with any going-out-of-business salesStore Closure Sales) or(2)
transfers permitted pursuant to Section 6.11(iii), (3) sale/leasebacks of new
stores referred to in Section 6.01(v)(x) or (4) sales or other dispositions of
the Borrower’s aircraft referred to in paragraph 1 of Schedule 6.11) of the
Borrower or the Guarantors (including, without limitation, the termination or
assignment of leases), at such times as the cumulative Net Proceeds thereof
exceed an amount$150,000,000 in the aggregate to be agreed upon by the Initial
Banks on or prior to the date of the entry of the Final
Order, the Borrower shall apply a percentage to be agreed upon by the Initial Banks on or prior to
the date of the entry of the Final Order50% of the Net Proceeds thereof
received thereafter (each, a “Prepayment Amount”) to the prepayment of the
Loans, it being understood and agreed that with respect to any such sale or
disposition occurring prior to the entryreduction of the Final OrderTotal
Tranche B Credit-Linked Deposit, pro rata based on the Borrower shall apply
100%Total Commitment Percentages of the Net Proceeds thereof toTranche A Banks
and the prepayment of the LoanTranche B Lenders. Upon any such prepayment, the
Total Commitment shall be automatically and permanently reduced in an amount
equal to the amount so prepaid and (in the event that there are no Loans
outstanding at the time of the receipt of a Prepayment Amount by the Borrower
or a Guarantor or a Prepayment Amount is in excess of the outstanding principal
amount of the Loans at the time of such receipt) shall be further automatically
and permanently reduced pro rata to the extent that the portion of the
Prepayment Amount exceeds the outstanding principal amount of the Loans and the
Tranche B Letter of Credit Outstandings at the time of the receipt of such
Prepayment Amount. Upon any such reduction, the Agent shall promptly remit to
each Tranche B Lender its pro rata portion of the reduction of the Total
Tranche B Credit-Linked Deposit.





     (c)  Upon the Termination Date, the Total Commitment shall be terminated in
full and the Borrower shall pay the Loans in full (plus any accrued but unpaid
interest and Fees





33







 


thereon) and, except as the Agent may otherwise agree in writing, if any
Letter of Credit remains outstanding, deposit into the Letter of Credit Account
an amount equal to 105% of the amount by which the Letter of Credit
Outstandings exceeds the amount of cash held in the Letter of Credit Account,
such cash to be remitted to the Borrower upon the expiration, cancellation,
satisfaction or other termination of such reimbursement obligations, or
otherwise comply with Section 2.03(b).






   SECTION 2.14 Optional Prepayment of Loans; Reimbursement of Banks.





     (a)  The Borrower shall have the right at any time and from time to time to
prepay any Loans, in whole or in part, (x) with respect to Eurodollar Loans,
upon at least three Business Days’ prior written or facsimile notice to the
Agent and (y) with respect to ABR Loans on the same Business Day if written or
facsimile notice is received by the Agent prior to 12:00 noon, New York City
time, and thereafter upon at least one Business Day’s prior written or
facsimile notice to the Agent; provided, however, that (i) each such partial
prepayment shall be in multiples of $1,000,000, (ii) no prepayment of
Eurodollar Loans shall be permitted pursuant to this Section 2.14(a) other than
on the last day of an Interest Period applicable thereto unless such prepayment
is accompanied by the payment of the amounts described in clause (i) of the
first sentence of Section 2.14(b), and (iii) no partial prepayment of a
Borrowing of Eurodollar Loans shall result in the aggregate principal amount of
the Eurodollar Loans remaining outstanding pursuant to such Borrowing being
less than $5,000,000. Each notice of prepayment shall specify the prepayment
date, the principal amount of the Loans to be prepaid and in the case of
Eurodollar Loans, the Borrowing or Borrowings pursuant to which made, shall be
irrevocable and shall commit the Borrower to prepay such Loan by the amount and
on the date stated therein. The Agent shall, promptly after receiving notice
from the Borrower hereunder, notify each Bank of the principal amount of the
Loans held by such Bank which are to be prepaid, the prepayment date and the
manner of application of the prepayment.





     (b)  The Borrower shall reimburse each Bank on demand for any loss incurred
or to be incurred by it in the reemployment of the funds released (i) resulting
from any prepayment (for any reason whatsoever, including, without limitation,
by acceleration, or by refinancing with ABR Loans) of any Eurodollar Loan
required or permitted under this Agreement, if such Loan is prepaid other than
on the last day of the Interest Period for such Loan (including, without
limitation, any such prepayment in connection with the syndication of the
credit facility evidenced by this Agreement) or (ii) in the event that after
the Borrower delivers a notice of borrowing under Section 2.06 in respect of
Eurodollar Loans, such Loans are not made on the first day of the Interest
Period specified in such notice of borrowing for any reason other than a breach
by such Bank of its obligations hereunder. Such loss shall be the amount as
reasonably determined by such Bank as the excess, if any, of (A) the amount of
interest which would have accrued to such Bank on the amount so paid or not
borrowed at a rate of interest equal to the Adjusted LIBOR Rate for such Loan,
for the period from the date of such payment or failure to borrow to the last
day (x) in the case of a payment or refinancing with ABR Loans other than on
the last day of the Interest Period for such Loan, of the then current Interest
Period for such Loan, or (y) in the case of such failure to borrow, of the
Interest Period for such Loan which would have commenced on the date of such
failure to borrow, over (B) the amount of interest which would have accrued to
such Bank on such amount by placing such amount on deposit for a comparable
period with leading banks in the London interbank market. Each Bank shall





34







 


deliver to the Borrower from time to time one or more certificates setting
forth the amount of such loss as determined by such Bank.





     (c)  In the event the Borrower fails to prepay any Loan on the date
specified in any prepayment notice delivered pursuant to Section 2.14(a), the
Borrower on demand by any Bank shall pay to the Agent for the account of such
Bank any amounts required to compensate such Bank for any loss incurred by such
Bank as a result of such failure to prepay, including, without limitation, any
loss, cost or expenses incurred by reason of the acquisition of deposits or
other funds by such Bank to fulfill deposit obligations incurred in
anticipation of such prepayment, but without duplication of any amounts paid
under Section 2.14(b). Each Bank shall deliver to the Borrower from time to
time one or more certificates setting forth the amount of such loss as
determined by such Bank.





     (d)  Any partial prepayment of the Loans by the Borrower pursuant to
Sections 2.13 or 2.14 shall be applied as specified by the Borrower or, in the
absence of such specification, as provided for in Section 8.02(b), provided
that in the latter case no Eurodollar Loans shall be prepaid pursuant to
Section 2.13 to the extent that such Loan has an Interest Period ending after
the required date of prepayment unless and until all outstanding ABR Loans and
Eurodollar Loans with Interest Periods ending on such date have been repaid in
full.





     (e)  The obligations of the Borrower and the Guarantors under this Section
shall survive the termination of this Agreement and/or the payment of the
Loans.






   SECTION 2.15 Reserve Requirements; Change in Circumstances.





     (a)  Notwithstanding any other provision herein, if after the date of this
Agreement any change in applicable law or regulation or in the interpretation
or administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Bank of the
principal of or interest on any Eurodollar Loan made by such Bank or any fees
or other amounts payable hereunder (other than changes in respect of Taxes,
Other Taxes and taxes imposed on, or measured by, the net income or overall
gross receipts or franchise taxes of such Bank by the national jurisdiction in
which such Bank has its principal office or in which the applicable lending
office for such Eurodollar Loan is located or by any political subdivision or
taxing authority therein, or by any other jurisdiction or by any political
subdivision or taxing authority therein other than a jurisdiction in which such
Bank would not be subject to tax but for the execution and performance of this
Agreement), or shall 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 such Bank (except any such reserve requirement
which is reflected in the Adjusted LIBOR Rate) or shall impose on such Bank or
the London interbank market any other condition affecting this Agreement or the

Eurodollar Loans made by such Bank, and the result of any of the foregoing
shall be to increase the cost to such Bank of making or maintaining any
Eurodollar Loan or to reduce the amount of any sum received or receivable by
such Bank hereunder (whether of principal, interest or otherwise) by an amount
deemed by such Bank to be material, then the Borrower will pay to such Bank in
accordance with paragraph (c) below such additional amount or amounts as will
compensate such Bank for such additional costs incurred or reduction suffered.







35







 



     (b)  If any Bank shall have determined that the adoption or effectiveness
after the date hereof of any law, rule, regulation or guideline regarding
capital adequacy, or any change in any of the foregoing or in the
interpretation or administration of any of the foregoing by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or any lending office of
such Bank) or any Bank’s holding company with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on such Bank’s capital or on the capital of such
Bank’s holding company, if any, as a consequence of this Agreement, the Loans
made by such Bank pursuant hereto, such Bank’s Tranche A Commitment or Tranche
B Credit-Linked Deposit hereunder or the issuance of, or participation in, any
Letter of Credit by such Bank to a level below that which such Bank or such
Bank’s holding company could have achieved but for such adoption, change or
compliance (taking into account Bank’s policies and the policies of such Bank’s
holding company with respect to capital adequacy) by an amount deemed by such
Bank to be material (except to the extent that such amount is reflected in the
Adjusted LIBOR Rate), then from time to time the Borrower shall pay to such
Bank such additional amount or amounts as will compensate such Bank or such
Bank’s holding company for any such reduction suffered.





     (c)  A certificate of each Bank setting forth such amount or amounts as
shall be necessary to compensate such Bank or its holding company as specified
in paragraph (a) or (b) above, as the case may be, shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
each Bank the amount shown as due on any such certificate delivered to it
within 10 days after its receipt of the same. Any Bank receiving any such
payment shall promptly make a refund thereof to the Borrower if the law,
regulation, guideline or change in circumstances giving rise to such payment is
subsequently deemed or held to be invalid or inapplicable.





     (d)  Failure on the part of any Bank to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period shall not constitute a waiver of
such Bank’s right to demand compensation with respect to such period or any
other period, provided that the Borrower shall not be required to compensate a
Bank pursuant to this Section for any increased costs or reductions incurred
more than 270 days prior to the date that such Bank notifies the Borrower of
the circumstance giving rise to such increased costs or reductions and of such
Bank’s intention to claim compensation therefor. The protection of this Section
shall be available to each Bank regardless of any possible contention of the
invalidity or inapplicability of the law, rule, regulation, guideline or other
change or condition which shall have occurred or been imposed.





     (e)  The obligations of the Borrower and the Guarantors under this Section
shall survive the termination of this Agreement and/or the payment of the
Loans.





     SECTION 2.16 Change in Legality.





     (a)  Notwithstanding anything to the contrary contained elsewhere in this
Agreement, if (x) any change after the date of this Agreement in any law or
regulation or in the interpretation thereof by any Governmental Authority charged
with the administration thereof





36







 


shall make it unlawful for a Bank to make or maintain a Eurodollar Loan or
to give effect to its obligations as contemplated hereby with respect to a
Eurodollar Loan or (y) at any time any Bank determines that the making or
continuance of any of its Eurodollar Loans has become impracticable as a result
of a contingency occurring after the date hereof which adversely affects the
London interbank market or the position of such Bank in such market, then, by
written notice to the Borrower, such Bank may (i) declare that Eurodollar Loans
will not thereafter be made by such Bank hereunder, whereupon any request by
the Borrower for a Eurodollar Borrowing shall, as to such Bank only, be deemed
a request for an ABR Loan unless such declaration shall be subsequently
withdrawn; and (ii) require that all outstanding Eurodollar Loans made by it be
converted to ABR Loans, in which event all such Eurodollar Loans shall be
automatically converted to ABR Loans as of the effective date of such notice as
provided in paragraph (b) below. In the event any Bank shall exercise its
rights under clause (i) or (ii) of this paragraph (a), all payments and
prepayments of principal which would otherwise have been applied to repay the
Eurodollar Loans that would have been made by such Bank or the converted
Eurodollar Loans of such Bank shall instead be applied to repay the ABR Loans
made by such Bank in lieu of, or resulting from the conversion of, such
Eurodollar Loans.





     (b)  For purposes of this Section 2.16, a notice to the Borrower by any
Bank pursuant to paragraph (a) above shall be effective, if lawful, and if any
Eurodollar Loans shall then be outstanding, on the last day of the then-current
Interest Period, otherwise, such notice shall be effective on the date of
receipt by the Borrower.






   SECTION 2.17 Pro Rata Treatment, etc.






     (a)  Pro Rata Treatment, etc.   All payments and repayments of principal and
interest in respect of the Loans (except as provided in Sections 2.15 and 2.16)
shall be made pro rata among the Tranche A Banks in accordance with the then
outstanding principal amount of the Loans and/or participations in Tranche A Letter of
Credit Outstandings hereunder and all payments of Commitment Fees and
Letter of Credit Fees (other than those payable to a Fronting Bank) shall be
made pro rata among the Tranche A Banks in accordance with their Tranche A
Commitments. All payments by the Borrower hereunder shall be (i) net of any
tax applicable to the Borrower or Guarantor and (ii) made in Dollars in
immediately available funds at the office of the Agent by 12:00 noon, New York
City time, on the date on which such payment shall be due. Interest in respect
of any Loan hereunder shall accrue from and including the date of such Loan to
but excluding the date on which such Loan is paid in full or converted to a
Loan of a different Type.All payments and repayments of the Tranche B
Reimbursement Amounts and interest or earnings in respect of the Tranche B
Credit-Linked Deposits shall be made pro rata among the Tranche B Lenders in
accordance with the Tranche B Participations of such Tranche B Lenders.





     (b) Notwithstanding anything in Section 2.17(a) to the contrary, upon and
after the occurrence of the Termination Date, all payments and repayments
specified in Section 2.17(a) shall be made among the Banks pro rata in
accordance with each Bank’s Total Commitment Percentage (it being understood
that if following any such payment or repayment any portion thereof is required
to be restored to the Borrower or any Guarantor, appropriate adjustment will be
made among the Tranche A Banks and the Tranche B Lenders so that such
restoration will be applied among them pro rata).





37







 


     (c) All payments by the Borrower hereunder shall be (i) net of any tax
applicable to the Borrower or Guarantor and (ii) made in Dollars in immediately
available funds at the office of the Agent by 12:00 noon, New York City time,
on the date on which such payment shall be due. Interest in respect of any
Loan hereunder shall accrue from and including the date of such Loan to but
excluding the date on which such Loan is paid in full or converted to a Loan of
a different Type.






   SECTION 2.18 Taxes.



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





     (b)  In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.





     (c)  The Borrower will indemnify the Agent, each Bank and the Fronting
Bank, within 10 days after written demand therefor, for the full amount of any
Indemnified Taxes or Other Taxes paid by the Agent, such Bank or the Fronting
Bank, as the case may be, on or with respect to any payment by or on account of
any obligation of the Borrower hereunder (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to any amount payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the amount of such payment or liability
delivered to the Borrower by a Bank or the Fronting Bank, or by the Agent on
its own behalf or on behalf of a Bank or the Fronting Bank, shall be conclusive
absent manifest error.





     (d)  As soon as practicable after any payment of Indemnified Taxes or Other
Taxes by the borrower to a Governmental Authority, the Borrower shall deliver
to the Agent the original or a certified copy of a receipt issued by such
Governmental Authority evidencing such payment, a copy of the return reporting
such payment or other evidence of such payment reasonably satisfactory to the
Agent.





     (e)  Any Foreign Bank that is entitled to an exemption from or reduction of
withholding tax under the law of the jurisdiction in which the Borrower is
located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Agent), at the time or times prescribed by applicable law, such properly
completed and executed documentation prescribed by applicable law or reasonably
requested by the Borrower as will permit such payments to be made without
withholding or at a reduced rate.





38







 


     (f)  The obligations of the Borrower and the Guarantors under this Section
shall survive the termination of this Agreement and/or the payment of the
Loans.






   SECTION 2.19 Certain Fees. The Borrower shall pay to the Agent, for the
respective accounts of JPMorgan Chase, Fleet, GECC and CSFB (and each of their
respective Bank Affiliates), the respective fees set forth in that certain
Joint Fee Letter dated January 21, 2002 and that certain JPMorgan Chase Fee
Letter dated January 21, 2002.






   SECTION 2.20 Commitment Fee. The Borrower shall pay to the Tranche A Banks a
commitment fee (the “Commitment Fee”) for the period commencing on the
Closing Date to the Termination Date or the earlier date of termination of the
Tranche A Commitment, computed (on the basis of the actual number of days
elapsed over a year of 360 days) at the rate of (i) one percent (1%) per annum
on the average daily Unused Total Tranche A Commitment at all times during
which the average Total Tranche A Commitment Usage plus the Total Tranche B
Credit-Linked Deposit plus the amount of unreimbursed drafts drawn under
Tranche B Letters of Credit  is less than or equal to 33 1/3% of the average
Total Commitment, (ii) three-quarters of one percent (3/4%) per annum on the
average daily Unused Tranche A Total Commitment at all times during which the
average Total Tranche A Commitment Usage plus the Total Tranche B Credit-Linked
Deposit plus the amount of unreimbursed drafts drawn under Tranche B Letters of
Credit is more than 33 1/3% but less than or equal to 66 2/3% of the Total
Commitment and (iii) one-half of one percent (1/2%) per annum on the average
daily Unused Tranche A Total Commitment at all times during which the Total
Tranche A Commitment Usage plus the Total Tranche B Credit-Linked Deposit plus
the amount of unreimbursed drafts drawn under Tranche B Letters of Credit is
more than 66 2/3% of the Total Commitment. Such Commitment Fee, to the extent
then accrued, shall be payable (x) monthly, in arrears, on the last calendar
day of each month, (y) on the Termination Date and (z) as provided in Section
2.10 hereof, upon any reduction or termination in whole or in part of the Total
Commitment.






   SECTION 2.21 Letter of Credit Fees. The Borrower shall pay (i) with
respect to each Tranche A Letter of Credit (i), to the Agent on behalf of the
 Tranche A Banks a fee calculated (on the basis of the actual number of days
elapsed over a year of 360 days) at the rate of (x) 3 1/2% per annum on the
daily average Tranche A Letter of Credit Outstandings, (ii) with respect to
each Tranche B Letter of Credit, to the Agent on behalf of the Tranche B
Lenders a fee calculated (on the basis of the actual number of days elapsed
over a year of 360 days) at the rate of 3.25% per annum on the Total Tranche B
Credit-Linked Deposit and (iiiii) to the Fronting Bank such Fronting Bank’s
customary fees for issuance, amendments and processing referred to in Section
2.03. In addition, the Borrower agrees to pay each Fronting Bank for its
account a fronting fee of one quarter of one percent (1/4%) per annum in
respect of each Letter of Credit issued by such Fronting Bank, for the period
from and including the date of issuance of such Letter of Credit to and
including the date of termination of such Letter of Credit, and payable at
times by such Fronting Bank, the Borrower and the Agent. Accrued fees
described in clauseclauses (i) and (ii) of the first sentence of this paragraph
in respect of each Tranche A Letter of Credit and Tranche B Letter of Credit
shall be due and payable monthly in arrears on the last calendar day of each
month and on the Termination Date. Accrued fees described in clause (iiiii) of
the first sentence of this paragraph in respect of each Letter of Credit shall
be payable at times to be determined by the Fronting Bank, the Borrower and the
Agent.





39







 



   SECTION 2.22 Nature of Fees. All Fees shall be paid on the dates due, in
immediately available funds, to the Agent for the respective accounts of the
Agent and the Banks, as provided herein and in the fee letter described in
Section 2.19. Once paid, none of the Fees shall be refundable under any
circumstances.






   SECTION 2.23 Priority and Liens.






     (a)  The Borrower and each of the Guarantors hereby covenants, represents
and warrants that, upon entry of the Interim Order, the Obligations of the
Borrower and the Guarantors hereunder and under the Loan Documents and in
respect of Indebtedness arising after the Filing Date owed to any Bank (or any
of their respective Bank Affiliates) permitted by Section 6.03(vii): (i)
pursuant to Section 364(c)(1) of the Bankruptcy Code, shall at all times
constitute allowed administrative expense claims in the Cases having priority
over all administrative expenses of the kind specified in Sections 503(b) or
507(b) of the Bankruptcy Code; (ii) pursuant to Section 364(c)(2) of the
Bankruptcy Code, shall at all times be secured by a perfected first priority
Lien on all property of the Borrower and the Guarantors (limited, in the case
of leasehold interests, to the proceeds received upon any sale, disposition or
termination thereof) that is not subject to valid, perfected and non-avoidable
liens as of the Filing Date, including, without limitation, substantially all
Inventory of the Borrower and the Guarantors (excluding the Borrower’s and the
Guarantors’ rights in respect of avoidance actions under the Bankruptcy Code,
it being understood that, notwithstanding such exclusion of avoidance actions,
the proceeds of such actions shall be available to repay the Obligations), and
on all cash maintained in the Letter of Credit Account and any direct
investments of the funds contained therein; (iii) pursuant to Section 364(c)(3)
of the Bankruptcy Code, shall be secured by a perfected Lien upon all property
of the Borrower and the Guarantors (limited, in the case of leasehold
interests, to the proceeds received upon any sale, disposition or termination
thereof) that is subject to valid, perfected and non-avoidable Liens in
existence on the Filing Date or to valid Liens in existence on the Filing Date
that are perfected subsequent to the Filing Date as permitted by Section 546(b)
of the Bankruptcy Code or to Permitted Liens, junior to such valid and
perfected Liens, subject only to (x) in the event of the occurrence and during
the continuance of an Event of Default, the payment of allowed and unpaid
professional fees and disbursements incurred or accrued by the Borrower, the
Guarantors and any statutory committees appointed in the Cases in an aggregate
amount not in excess of $5,000,000 (plus all unpaid professional fees and
disbursements accrued or incurred prior to the occurrence of an Event of
Default to the extent allowed by the Bankruptcy Court at any time) and (y) the
payment of unpaid fees pursuant to 28 U.S.C. § 1930 and to the Clerk of the
Bankruptcy Court (collectively, the “Carve-Out”), provided, that, no portion of
the Carve-Out shall be utilized to fund litigation against the Agent or the
Banks. The Banks agree that so long as no Event of Default shall have occurred
and be continuing, the Borrower and the Guarantors shall be permitted to pay
compensation and reimbursement of expenses allowed and payable under 11 U.S.C.
§ 330 and 11 U.S.C. § 331, as the same may be due and payable, and the same
shall not reduce the Carve-Out. Notwithstanding anything to the contrary set
forth herein, but subject to the “provided” clause of this sentence during the
period described in such clause, the claims and Liens referred to above in
favor of the Banks (or their respective Bank Affiliates) in respect of the
obligations of the Borrower permitted by Section 6.03(vii) arising after the
Filing Date shall be (A) pari passu with the Superpriority Claims and Liens in
respect of the other Obligations hereunder and under the other Loan Documents
to the extent of $200,000,000 and (B) junior to the Superpriority Claims and





40







 


Liens in respect of the other Obligations hereunder and under the other
Loan Documents to the extent the obligations of the Borrower owed to Banks (or
their respective Bank Affiliates) that are permitted by Section 6.03(vii)
arising after the Filing Date exceed $200,000,000, provided that during the
period ending upon the entry of the Final Order, Bank One and its banking
Affiliates (or another cash management institution satisfactory to the Borrower
and the BanksCo-Collateral Monitors) shall be entitled to the benefit of the
pari passu claims and Liens to the extent of $190,000,000 and Banks (and their
respective Bank Affiliates) shall be entitled to the benefit of the pari passu
claims and Liens to the extent of $10,000,000, in each case as referred to in
clause (A) of this sentence in respect of overdrafts and related liabilities
arising from treasury, depository and cash management services or in connection
with any automated clearing house transfers of funds permitted by Section
6.03(vii), in each case to the extent arising after the Filing Date.





     (b)  Subject to the priorities set forth in subsection (a) above and to the
Carve-Out, as to all real property the title to which is held by the Borrower
or any of the Guarantors, or the possession of which is held by the Borrower or
any of the Guarantors pursuant to leasehold interest, the Borrower and each
Guarantor hereby assigns and conveys as security, grants a security interest
in, hypothecates, mortgages, pledges and sets over unto the Agent on behalf of
the Banks all of the right, title and interest of the Borrower and such
Guarantor in all of such owned real property and in all such leasehold
interests (limited, in the case of leasehold interests, to the proceeds
received upon any sale, disposition or termination thereof), together in each
case with all of the right, title and interest of the Borrower and such
Guarantor in and to all buildings, improvements, and fixtures related thereto,
any lease or sublease thereof, all general intangibles relating thereto and all
proceeds thereof. The Borrower and each Guarantor acknowledges that, pursuant
to the Orders, the Liens in favor of the Agent on behalf of the Banks in all of
such real property and leasehold instruments (limited, in the case of leasehold
interests, to the proceeds received upon any sale, disposition or termination
thereof) shall be perfected without the recordation of any instruments of
mortgage or assignment. The Borrower and each Guarantor further agrees that,
upon the request of the Agent, the Borrower and such Guarantor shall enter into
separate fee mortgages in recordable form with respect to such properties on
terms reasonably satisfactory to the Agent.






   SECTION 2.24 Right of Set-Off. Subject to the provisions of Section 7.01,
upon the occurrence and during the continuance of any Event of Default, the
Agent and each Bank is hereby authorized at any time and from time to time, to
the fullest extent permitted by law and without further order of or application
to the Bankruptcy Court, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Agent and each such Bank to or for the
credit or the account of the Borrower or any Guarantor against any and all of
the obligations of such Borrower or Guarantor now or hereafter existing under
the Loan Documents, irrespective of whether or not such Bank shall have made
any demand under any Loan Document and although such obligations may not have
been accelerated. Each Bank and the Agent agrees promptly to notify the
Borrower and Guarantors after any such set-off and application made by such
Bank or by the Agent, as the case may be, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of each Bank and the Agent under this Section are in addition to other
rights and remedies which such Bank and the Agent may have upon the occurrence
and during the continuance of any Event of Default.





41







 



   SECTION 2.25 Security Interest in Letter of Credit Account. Pursuant to
Section 364(c)(2) of the Bankruptcy Code, the Borrower and the Guarantors
hereby assign and pledge to the Agent, for its benefit and for the ratable
benefit of the Banks, and hereby grant to the Agent, for its benefit and for
the ratable benefit of the Banks, a first priority security interest, senior to
all other Liens, if any, in all of the Borrower’s and the Guarantors’ right,
title and interest in and to the Letter of Credit Account and any direct
investment of the funds contained therein. Cash held in the Letter of Credit
Account shall not be available for use by the Borrower, whether pursuant to
Section 363 of the Bankruptcy Code or otherwise and shall be released to the
Borrower as described in clause (ii)(y) of Section 2.03(b).






   SECTION 2.26 Payment of Obligations. Subject to the provisions of Section
7.01, upon the Termination Date, the Banks shall be entitled to immediate
payment of such Obligations without further application to or order of the
Bankruptcy Court.






   SECTION 2.27 No Discharge; Survival of Claims. Each of the Borrower and
the Guarantors agrees that (i) its obligations hereunder shall not be
discharged by the entry of an order confirming a Reorganization Plan (and each
of the Borrower and the Guarantors, pursuant to Section 1141(d)(4) of the
Bankruptcy Code, hereby waives any such discharge) and (ii) the Superpriority
Claim granted to the Agent and the Banks pursuant to the Orders and described
in Section 2.23 and the Liens granted to the Agent pursuant to the Orders and
described in Sections 2.23 and 2.25 shall not be affected in any manner by the
entry of an order confirming a Reorganization Plan.






SECTION 3. REPRESENTATIONS AND WARRANTIES






     In order to induce the Banks to make Loans and issue and/or participate in
Letters of Credit hereunder, the Borrower and each of the Guarantors jointly
and severally represent and warrant as follows:






   SECTION 3.01 Organization and Authority. Each of the Borrower and the
Guarantors, other than the Excluded Entities (i) is duly organized and validly
existing under the laws of the State of its organization and is duly qualified
as a foreign organization and is in good standing in each jurisdiction in which
the failure to so qualify would have a material adverse effect on the financial
condition, operations, business, properties, assets or prospects of the
Borrower and the Guarantors taken as a whole; (ii) subject to the entry by the
Bankruptcy Court of the Interim Order (or the Final Order, when applicable) has
the requisite corporate power and authority to effect the transactions
contemplated hereby, and by the other Loan Documents to which it is a party,
and (iii) subject to the entry by the Bankruptcy Court of the Interim Order (or
the Final Order, when applicable) has all requisite organizational power and
authority and, upon the entry of the Interim Order (or the Final Order, when
applicable) the legal right to own, pledge, mortgage and operate its
properties, and to conduct its business as now or currently proposed to be
conducted. Each of the Excluded Entities (i) based solely on the Interim Order
(or the Final Order, when applicable) has the requisite corporate power and
authority to effect the transactions contemplated hereby, and by the other Loan
Documents to which it is a party, and (ii) based solely on the Interim Order
(or the Final Order, when applicable) has all requisite organizational power
and authority and, upon the entry of the Interim Order (or the Final Order,





42







 


when applicable), the legal right to own, pledge, mortgage and operate its
properties, and to conduct its business as now or currently proposed to be
conducted.






   SECTION 3.02 Due Execution. Upon the entry by the Bankruptcy Court of the
Interim Order (or the Final Order, when applicable), the execution, delivery
and performance by each of the Borrower and the Guarantors other than the
Excluded Entities of each of the Loan Documents to which it is a party and
based solely on the Interim Order (or the Final Order, when applicable), the
execution, delivery and performance by each of the Excluded Entities of each of
the Loan Documents to which it is a party (i) are within the respective
organizational powers of each of the Borrower and the Guarantors, have been
duly authorized by all necessary organizational action including the consent of
equity holders where required, and do not (A) contravene the charter or by-laws
or other constituent documents of any of the Borrower or the Guarantors, (B)
violate any law (including, without limitation, the Securities Exchange Act of
1934) or regulation (including, without limitation, Regulations T, U or X of
the Board of Governors of the Federal Reserve System), or any order or decree
of any court or Governmental Authority, (C) conflict with or result in a breach
of, or constitute a default under, any material indenture, mortgage or deed of
trust entered into after the Filing Date or any material lease, agreement or
other instrument entered into after the Filing Date binding on the Borrower or
the Guarantors or any of their properties, or (D) result in or require the
creation or imposition of any Lien upon any of the property of any of the
Borrower or the Guarantors other than the Liens granted pursuant to this
Agreement, the other Loan Documents or the Orders; and (ii) do not require the
consent, authorization by or approval of or notice to or filing or registration
with any Governmental Authority other than the entry of the Orders. Upon the
entry by the Bankruptcy Court of the Interim Order (or the Final Order, when
applicable), this Agreement has been duly executed and delivered by each of the
Borrower and the Guarantors. Subject to the entry of the Interim Order (or
Final Order, if applicable), this Agreement is, and each of the other Loan
Documents to which the Borrower and each of the Guarantors, other than the
Excluded Entities, is or will be a party, when delivered hereunder or
thereunder, will be, a legal, valid and binding obligation of the Borrower and
each Guarantor, as the case may be, enforceable against the Borrower and the
Guarantors, as the case may be, in accordance with its terms and the Orders.
Based solely on the Interim Order (or the Final Order, when applicable), this
Agreement and each of the other Loan Documents to which each of the Excluded
Entities is or will be a party, when delivered hereunder or thereunder, will
be, a legal, valid and binding obligation of each Excluded Entity and
enforceable against each Excluded Entity, in accordance with its terms and the
Orders.






   SECTION 3.03 Statements Made. The information that has been delivered in
writing by the Borrower or any of the Guarantors to the Agent, the Banks or to
the Bankruptcy Court in connection with any Loan Document, and any financial
statement delivered pursuant hereto or thereto (other than to the extent that
any such statements constitute projections), taken as a whole and in light of
the circumstances in which made, contains no untrue statement of a material
fact and does not omit to state a material fact necessary to make such
statements not misleading; and, to the extent that any such information
constitutes projections, such projections were prepared in good faith on the
basis of assumptions, methods, data, tests and information believed by the
Borrower or such Guarantor to be reasonable at the time such projections were
furnished.





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   SECTION 3.04 Financial Statements. The Borrower has furnished the Banks
with copies of the audited consolidated financial statement and schedules of
the Borrower for the fiscal year ended January 31, 2001 and the unaudited
consolidated financial statements for the Borrower for the fiscal quarter ended
October 31, 2001. Such financial statements present fairly the financial
condition and results of operations of the Borrower and its Subsidiaries on a
consolidated basis as of such dates and for such periods; such balance sheets
and the notes thereto disclose all liabilities, direct or contingent, of the
Borrower and its Subsidiaries as of the dates thereof required to be disclosed
by GAAP and such financial statements were prepared in a manner consistent with
GAAP (subject in the case of quarterly financial statements to normal year-end
adjustments). No material adverse change in the operations, business,
properties, assets, prospects or condition (financial or otherwise) of the
Borrower and the Guarantors, taken as a whole, has occurred from the date of
the Joint Commitment Letter other than those which customarily occur as a
result of events leading up to and following the commencement of a proceeding
under Chapter 11 of the Bankruptcy Code and the commencement of the Cases
(including, without limitation, those reflected in the financial projections
heretofore made available to the Agent and the Banks).






   SECTION 3.05 Ownership. Other than as set forth on Schedule 3.05 (i) each
of the Persons listed on Schedule 3.05 is a wholly-owned, direct or indirect
Subsidiary of the Borrower, and (ii) the Borrower owns no other Subsidiaries,
whether directly or indirectly.






   SECTION 3.06 Liens. There are no Liens of any nature whatsoever on any
assets of the Borrower or any of the Guarantors other than: (i) Permitted
Liens; (ii) other Liens permitted pursuant to Section 6.01; and (iii) Liens in
favor of the Agent and the Banks, and (iv) obligations incurred prior to the
Filing Date secured by Liens on the Borrower’s or any Guarantor’s inventory
(excluding inventory that has been consigned or that is subject to PACA or PASA
claims) that do not exceed $50,000,000 in the aggregate. Neither the Borrower
nor the Guarantors are parties to any contract, agreement, lease or instrument
the performance of which, either unconditionally or upon the happening of an
event, will result in or require the creation of a Lien on any assets of the
Borrower or any Guarantor or otherwise result in a violation of this Agreement
other than the Liens granted to the Agent and the Banks as provided for in this
Agreement.






   SECTION 3.07 Compliance with Law.






     (a)  (i) The operations of the Borrower and the Guarantors comply in all
material respects with all applicable environmental, health and safety statutes
and regulations, including, without limitation, regulations promulgated under
the Resource Conservation and Recovery Act (42 U.S.C. §§ 6901 et seq.); (ii) to
the Borrower’s and each of the Guarantor’s knowledge, none of the operations of
the Borrower or the Guarantors is the subject of any Federal or state
investigation evaluating whether any remedial action involving a material
expenditure by the Borrower or any Guarantor is needed to respond to a release
of any Hazardous Waste or Hazardous Substance (as such terms are defined in any
applicable state or Federal environmental law or regulations) into the
environment; and (iii) to the Borrower’s and each of the Guarantor’s knowledge,
the Borrower and the Guarantors do not have any material contingent liability
in connection with any release of any Hazardous Waste or Hazardous Substance
into the environment.





44







 


     (b)  Neither the Borrower nor any Guarantor is, to the best of its
knowledge, in violation of any law, rule or regulation, or in default with
respect to any judgment, writ, injunction or decree of any Governmental
Authority the violation of which, or a default with respect to which, would
have a material adverse effect on the financial condition, operations,
business, properties, assets or prospects of the Borrower and the Guarantors
taken as a whole.






   SECTION 3.08 Insurance. All policies of insurance of any kind or nature
owned by or issued to the Borrower and the Guarantors, including, without
limitation, policies of life, fire, theft, product liability, public liability,
property damage, other casualty, employee fidelity, workers’ compensation,
employee health and welfare, title, property and liability insurance, are in
full force and effect and are of a nature and provide such coverage as is
customarily carried by companies of the size and character of the Borrower and
the Guarantors.






   SECTION 3.09 Use of Proceeds. The proceeds of the Loans shall be used for
working capital and for other general corporate purposes of the Borrower and
the Guarantors (including for the payment of fees and transaction costs
contemplated hereby and by the letters referred to in Section 2.19).






   SECTION 3.10 Litigation. Other than as set forth on Schedule 3.10, there
are no unstayed actions, suits or proceedings pending or, to the knowledge of
the Borrower or the Guarantors, threatened against or affecting the Borrower or
the Guarantors or any of their respective properties, before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which is reasonably likely to be determined adversely to
the Borrower or the Guarantors and, if so determined adversely to the Borrower
or the Guarantors would have a material adverse effect on the financial
condition, business, properties, prospects, operations or assets of the
Borrower and the Guarantors, taken as a whole.






   SECTION 3.11 Inventory Value. The value of the inventory of the Borrower
and the Guarantors as of December 31, 2001 was no less than $5,000,000,000.





   SECTION 3.12 Labor Relations.






     (a)  Except as disclosed on Schedule 3.12 hereto, the Borrower is not
presently a party to any collective bargaining or other similar contracts.





     (b)  Except for matters which, in the aggregate, if determined adversely to
the Borrower would not have a material adverse effect on the Borrower, there is
not presently pending and, to the Borrower’s knowledge, there is not threatened
any of the following:






		
	 	     (i) Any strike, slowdown, picketing, work stoppage, or employee
grievance process;
	 
	 	     (ii) Any proceeding against or affecting the Borrower relating to
the alleged violation of any applicable law pertaining to labor relations
or before the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable governmental body,
organizational activity, or other labor or employment dispute against or
affecting the Borrower;





45







 






		
	 	     (iii) Any lockout of any employees by the Borrower;
	 
	 	     (iv) Any application for the certification of a collective
bargaining agreement;
	 
	 	     (v) Any work stoppage or other labor dispute; or
	 
	 	     (vi) Any failure by the Borrower to comply with all applicable law
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment
of social security and similar taxes, occupational safety and health, and
plant closing.




SECTION 4. CONDITIONS OF LENDING






   SECTION 4.01 Conditions Precedent to Initial Loans and Initial Letters of
Credit. The obligation of the Banks to make the initial Loans or the Fronting
Bank to issue the initial Letter of Credit, whichever may occur first, is
subject to the following conditions precedent:





     (a)  Supporting Documents. The Agent shall have received for each of the
Borrower and the Guarantors:






		
	 	     (i) a copy of such entity’s certificate of incorporation, as
amended, certified as of a recent date by the Secretary of State of the
state of its incorporation;
	 
	 	     (ii) a certificate of such Secretary of State, dated as of a recent
date, as to the good standing of and payment of taxes by that entity and
as to the charter documents on file in the office of such Secretary of
State; and
	 
	 	     (iii) a certificate of the Secretary or an Assistant Secretary of
that entity dated the date of the initial Loans or the initial Letter of
Credit hereunder, whichever first occurs, and certifying (A) that
attached thereto is a true and complete copy of the by-laws of that
entity as in effect on the date of such certification, (B) that attached
thereto is a true and complete copy of resolutions adopted by the Board
of Directors of that entity authorizing the Borrowings and Letter of
Credit extensions hereunder, the execution, delivery and performance in
accordance with their respective terms of this Agreement, the Loan
Documents and any other documents required or contemplated hereunder or
thereunder and the granting of the security interest in the Letter of
Credit Account and other Liens contemplated hereby, (C) that the
certificate of incorporation of that entity has not been amended since
the date of the last amendment thereto indicated on the certificate of
the Secretary of State furnished pursuant to clause (i) above and (D) as
to the incumbency and specimen signature of each officer of that entity
executing this Agreement and the Loan Documents or any other document
delivered by it in connection herewith or therewith (such certificate to
contain a certification by another officer of that entity as to the
incumbency and signature of the officer signing the certificate referred
to in this clause (iii)).



     (b) Interim Order. At the time of the making of the initial Loans or at
the time of the issuance of the initial Letters of Credit, whichever first
occurs, but in any event no later than


46







 





ten (10) days after the Filing Date, the Agent and the Banks shall have
received a certified copy of an order of the Bankruptcy Court in substantially
the form of Exhibit A-1 (the “Interim Order”) approving the Loan Documents and
granting the Superpriority Claim status and senior and other Liens described in
Section 2.23 which Interim Order (i) shall have been entered, upon an
application or motion of the Borrower reasonably satisfactory in form and
substance to the Initial Banks, on such prior notice to such parties as may in
each case be reasonably satisfactory to the Initial Banks, (ii) shall authorize
extensions of credit in amounts not in excess of $1,150,000,000 (which amount
may not be increased without the consent of the Initial Banks), (iii) shall
approve the payment by the Borrower of all of the Fees set forth in Section
2.19, (iv) shall be in full force and effect, and (v) shall not have been
stayed, reversed, modified or amended in any respect; and, if the Interim Order
is the subject of a pending appeal in any respect, neither the making of such
Loans nor the issuance of such Letter of Credit nor the performance by the
Borrower or any of the Guarantors of any of their respective obligations
hereunder or under the Loan Documents or under any other instrument or
agreement referred to herein shall be the subject of a presently effective stay
pending appeal.





     (c)  Security and Pledge Agreement. The Borrower and each of the
Guarantors shall have duly executed and delivered to the Agent a Security and
Pledge Agreement in substantially the form of Exhibit B (the “Security and
Pledge Agreement”).





     (d)  First Day Orders. All of the “first day orders” entered by the
Bankruptcy Court at the time of the commencement of the Cases shall be
reasonably satisfactory in form and substance to the Initial Banks.





     (e)  Opinion of Counsel. The Agent and the Banks shall have received the
favorable written opinion of in-house and outside counsel to the Borrower and
the Guarantors who shall be reasonably acceptable to the Agent, dated the date
of the initial Loans or the issuance of the initial Letter of Credit, whichever
first occurs, substantially in the form of Exhibit C.





     (f)  Payment of Fees. The Borrower shall have paid to the Agent the then
unpaid balance of all accrued and unpaid Fees due under and pursuant to this
Agreement and the letters referred to in Section 2.19.





     (g)  Corporate and Judicial Proceedings. All corporate and judicial
proceedings and all instruments and agreements in connection with the
transactions among the Borrower, the Guarantors, the Agent and the Banks
contemplated by this Agreement shall be reasonably satisfactory in form and
substance to the Initial Banks, and the Agent and the Initial Banks shall have
received all information and copies of all documents and papers, including
records of corporate and judicial proceedings, which the Agent may have
reasonably requested in connection therewith, such documents and papers where
appropriate to be certified by proper corporate, governmental or judicial
authorities.





     (h)  Information. The Initial Banks shall have received such information
(financial or otherwise) as may be reasonably requested by the Initial Banks
and shall have discussed the Borrower’s business plan heretofore delivered to
the Agent with the Borrower’s management and shall be satisfied with the nature
and substance of such discussions.





47







 


     (i)  Operating Plan. No later than 24 hours prior to the making of the
initial Loans or issuance of the initial Letter of Credit hereunder, the Agent
and the Banks shall have received from the Borrower drafts of the Borrower’s
projected operating plan (which shall include income statements, balance sheets
and cash flow statements, each integrated with relevant assumptions) for its
fiscal years ending on or about January 31, 2003 (on a monthly basis) and
January 31, 2004 (on a monthly or quarterly basis) and such drafts shall be
satisfactory in form and substance to the Agent and the Banks.





     (j)  Compliance with Laws. The Borrower and the Guarantors shall have
granted the Initial Banks access to and the right to inspect all reports,
audits and other internal information of the Borrower and the Guarantors
relating to environmental matters, and the Agent and the Initial Banks shall be
reasonably satisfied (x) that the Borrower and the Guarantors are in compliance
in all material respects with all applicable environmental laws and regulations
(except to the extent that such non-compliance could not reasonably be expected
to have a material adverse effect on the Borrower and the Guarantors taken as a
whole and (y) that the Borrower has made adequate provision for the costs of
maintaining such compliance.





     (k)  UCC Searches. The Agent shall have received UCC searches (including
tax liens and judgments) conducted in such jurisdictions in which the Borrower
and the Guarantors conduct business as may be satisfactory to the Initial Banks
(dated as of a date reasonably satisfactory to them), reflecting the absence of
Liens and encumbrances on the assets of the Borrower and the Guarantors other
than such Liens permitted hereunder and as may be satisfactory to the Initial
Banks.





     (l)  Closing Documents. The Agent shall have received all documents
required by Section 4.01 reasonably satisfactory in form and substance to the
Initial Banks.






   SECTION 4.02 Conditions Precedent to Each Loan and Each Letter of Credit.
The obligation of the Banks to make each Loan and of the Fronting Bank to issue
each Letter of Credit, including the initial Loan and the initial Letter of
Credit, is subject to the following conditions precedent:





     (a)  Notice. The Agent shall have received a notice with respect to such
borrowing or issuance, as the case may be, as required by Section 2.





     (b)  Representations and Warranties. All representations and warranties
contained in this Agreement and the other Loan Documents shall be true and
correct in all material respects on and as of the date of each Borrowing or the
issuance of each Letter of Credit hereunder with the same effect as if made on
and as of such date except to the extent such representations and warranties
expressly relate to an earlier date.





     (c)  No Default. On the date of each Borrowing hereunder or the issuance
of each Letter of Credit, no Event of Default or event which upon notice or
lapse of time or both would constitute an Event of Default shall have occurred
and be continuing.





     (d)  Orders. The Interim Order shall be in full force and effect and shall
not have been stayed, reversed, modified or amended in any respect without the
prior written consent of the Initial Banks, provided, that at the time of the
making of any Loan or the issuance of any





48







 


Letter of Credit the aggregate amount of either of which, when added to
the sum of the principal amount of all Loans then outstanding and the Letter of
Credit Outstandings, would exceed the amount authorized by the Interim Order
(collectively, the “Additional Credit”), the Agent and each of the Banks shall
have received a certified copy of an order of the Bankruptcy Court in
substantially the form of Exhibit A-2 (the “Final Order”), which, in any event,
shall have been entered by the Bankruptcy Court no later than 45 days after the
entry of the Interim Order and at the time of the extension of any Additional
Credit the Final Order shall be in full force and effect, and shall not have
been stayed, reversed, modified or amended in any respect (or as may reasonably
be required by (including with respect to claims under Section 506(c) of the
Bankruptcy Code), the Super-majority Banks) without the prior written consent
of the Super-majority Banks; and if either the Interim Order or the Final Order
is the subject of a pending appeal in any respect, neither the making of the
Loans nor the issuance of any Letter of Credit nor the performance by the
Borrower or any Guarantor of any of their respective obligations under any of
the Loan Documents shall be the subject of a presently effective stay pending
appeal.





     (e)  Payment of Fees. The Borrower shall have paid to the Agent the then
unpaid balance of all accrued and unpaid Fees then payable under and pursuant
to this Agreement and the letters referred to in Section 2.19.





     (f)  Borrowing Base Certificate. From and after the execution and delivery
of the Borrowing Base Amendment, the Agent shall have received the timely
delivery of the most recent Borrowing Base Certificate (dated no more than
seven (7) days prior to the making of a Loan or the issuance of a Letter of
Credit) required to be delivered hereunder.





The request by the Borrower for, and the acceptance by the Borrower of, each
extension of credit hereunder shall be deemed to be a representation and
warranty by the Borrower that the conditions specified in this Section have
been satisfied or waived at that time.






SECTION 5. AFFIRMATIVE COVENANTS






     From the date hereof and for so long as any Tranche A Commitment shall be
in effect or any Letter of Credit shall remain outstanding (in a face amount in
excess of the amount of cash then held in the Letter of Credit Account, or in
excess of the face amount of back-to-back letters of credit delivered, in each
case pursuant to Section 2.03(b)), or any amount shall remain outstanding or
unpaid under this Agreement, the Borrower and each of the Guarantors agree
that, unless the Required Banks shall otherwise consent in writing, the
Borrower and each of the Guarantors will:






   SECTION 5.01 Financial Statements, Reports, etc. In the case of the
Borrower and the Guarantors, deliver to the Agent and each of the Banks:





     (a)  as soon as possible, and in any event (x) within 120 days of the end
of the fiscal year of the Borrower ended January 31, 2002, and (y) within 90
days after the end of each fiscal year thereafter, the Borrower’s consolidated
balance sheet and related statement of income and cash flows, showing the
financial condition of the Borrower and its Subsidiaries on a consolidated
basis as of the close of such fiscal year and the results of their respective
operations





49







 


during such year, the consolidated statement of the Borrower to be audited
for the Borrower and its Subsidiaries by PricewaterhouseCoopers LLP or other
independent public accountants of recognized national standing and accompanied
by an opinion of such accountants (which shall not be qualified in any material
respect other than with respect to the Cases or a going concern qualification)
and to be certified by a Financial Officer of the Borrower to the effect that
such consolidated financial statements fairly present the financial condition
and results of operations of the Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP;





     (b)  within 45 days after the end of each of the first three fiscal
quarters, the Borrower’s consolidated balance sheets and related statements of
income and cash flows, showing the financial condition of the Borrower and its
Subsidiaries on a consolidated basis as of the close of such fiscal quarter and
the results of their operations during such fiscal quarter and the then elapsed
portion of the fiscal year, each certified by a Financial Officer as fairly
presenting the financial condition and results of operations of the Borrower
and its Subsidiaries on a consolidated basis in accordance with GAAP, subject
to normal year-end audit adjustments;





     (c)  (i) concurrently with any delivery of financial statements under (a)
and (b) above, a certificate of a Financial Officer certifying such statements
(A) certifying that no Event of Default or event which upon notice or lapse of
time or both would constitute an Event of Default has occurred, or, if such an
Event of Default or event has occurred, specifying the nature and extent
thereof and any corrective action taken or proposed to be taken with respect
thereto and (B) setting forth computations in reasonable detail satisfactory to
the Agent demonstrating compliance with the provisions of Sections 6.03, 6.04,
6.05 and 6.10 and (ii) concurrently with any delivery of financial statements
under (a) above, a certificate (which certificate may be limited to accounting
matters and disclaim responsibility for legal interpretations) of the
accountants auditing the consolidated financial statements delivered under (a)
above certifying that, in the course of the regular audit of the business of
the Borrower and its Subsidiaries, such accountants have obtained no knowledge
that an Event of Default has occurred and is continuing, or if, in the opinion
of such accountants, an Event of Default has occurred and is continuing,
specifying the nature thereof and all relevant facts with respect thereto;





     (d)  as soon as available, but no more than 30 days after the end of each
fiscal month (i) 45 days, or, with respect to the last fiscal month of each
fiscal year, 60 days, after the end of each fiscal month (x) the unaudited
monthly cash flow reports, consolidated balance sheets and related statements
of income of the Borrower and its Subsidiaries on a consolidated basis and as
of the close of such fiscal month and the results of their operations during
such month and the then elapsed portion of the fiscal quarter and
(y) an updated 13 week rolling cash flow projection together with a reconciliation of
such cash flows to actual results; and  (ii) 30 days after the end of each
fiscal month, a monthly report detailing professional fees and expenses that
have been billed and paid or billed but unpaid to date, the accumulated
“hold-back” of professional fees and expenses to date, material adverse events
or changes (if any) and material litigation (if any) and (iii) an updated
13-week rolling cash flow projection together with a reconciliation of such
cash flows to actual results;





     (e)  as soon as possible, and in any event within 50 days of the Closing
Date, a consolidated pro forma balance sheet of the Borrower’s and its
Subsidiaries’ financial condition





50







 


     as of the (i) Filing Date in the case of liabilities and (ii) last day of
the fiscal year ended on or about January 31, 2002 in the case of assets;





     (f)  promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by it
with the Securities and Exchange Commission, or any governmental authority
succeeding to any of or all the functions of said commission, or with any
national securities exchange, as the case may be;





     (g)  as soon as available and in any event (A) within 30 days after the
Borrower or any of its ERISA Affiliates knows or has reason to know that any
Termination Event described in clause (i) of the definition of Termination
Event with respect to any Single Employer Plan of the Borrower or such ERISA
Affiliate has occurred and (B) within 10 days after the Borrower or any of its
ERISA Affiliates knows or has reason to know that any other Termination Event
with respect to any such Plan has occurred, a statement of a Financial Officer
of the Borrower describing the full details of such Termination Event and the
action, if any, which the Borrower or such ERISA Affiliate is required or
proposes to take with respect thereto, together with any notices required or
proposed to be given to or filed with or by the Borrower, the ERISA Affiliate,
the PBGC, a Plan participant or the Plan administrator with respect thereto;





     (h)  promptly and in any event within 10 days after receipt thereof by the
Borrower or any of its ERISA Affiliates from the PBGC copies of each notice
received by the Borrower or any such ERISA Affiliate of the PBGC’s intention to
terminate any Single Employer Plan of the Borrower or such ERISA Affiliate or
to have a trustee appointed to administer any such Plan;





     (i)  if requested by the Agent, promptly and in any event within 30 days
after the filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with
respect to each Single Employer Plan of the Borrower or any of its ERISA
Affiliates;





     (j)  within 10 days after notice is given or required to be given to the
PBGC under Section 302(f)(4)(A) of ERISA of the failure of the Borrower or any
of its ERISA Affiliates to make timely payments to a Plan, a copy of any such
notice filed and a statement of a Financial Officer of the Borrower setting
forth (A) sufficient information necessary to determine the amount of the lien
under Section 302(f)(3), (B) the reason for the failure to make the required
payments and (C) the action, if any, which the Borrower or any of its ERISA
Affiliates proposed to take with respect thereto;





     (k)  promptly and in any event within 10 days after receipt thereof by the
Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor, a copy of
each notice received by the Borrower or any ERISA Affiliate concerning (A) the
imposition of Withdrawal Liability by a Multiemployer Plan, (B) the
determination that a Multiemployer Plan is, or is expected to be, in
reorganization within the meaning of Title IV of ERISA, (C) the termination of
a Multiemployer Plan within the meaning of Title IV of ERISA, or (D) the amount
of liability incurred, or which may be incurred, by the Borrower or any ERISA
Affiliate in connection with any event described in clause (A), (B) or (C)
above;





51







 


     (l)  promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of the Borrower or any
Guarantor, or compliance with the terms of any material loan or financing
agreements as the Agent, at the request of any Bank, may reasonably request;
and





     (m)  furnish to the Agent and its counsel promptly after the same is
available, copies of all pleadings, motions, applications, judicial
information, financial information and other documents filed by or on behalf of
the Borrower or any of the Guarantors with the Bankruptcy Court in the Cases,
or distributed by or on behalf of the Borrower or any of the Guarantors to any
official committee appointed in the Cases.





     Notwithstanding anything in Sections 5.01(a), (b) and (d)(i) to the contrary,
in the event the Securities and Exchange Commission shortens at any time the
periods within which annual and quarterly reports must be publicly filed, the
periods specified in Sections 5.01(a), (b) and (d)(i) shall be correspondingly
shortened.






   SECTION 5.02 Corporate Existence. Preserve and maintain in full force and
effect all governmental rights, privileges, qualifications, permits, licenses
and franchises necessary or desirable in the normal conduct of its business
except (i) if such failure to preserve the same could not, in the aggregate,
reasonably be expected to have a material adverse effect on the operations,
business, properties, assets, prospects or condition (financial or otherwise)
of the Borrower and the Guarantors, taken as a whole, and (ii) as otherwise
permitted in connection with sales of assets permitted by Section 6.11.






   SECTION 5.03 Insurance. (a) Keep its insurable properties insured at all
times, against such risks, including fire and other risks insured against by
extended coverage, as is customary with companies of the same or similar size
in the same or similar businesses; and maintain in full force and effect public
liability insurance against claims for personal injury or death or property
damage occurring upon, in, about or in connection with the use of any
properties owned, occupied or controlled by the Borrower or any Guarantor, as
the case may be, in such amounts (giving effect to self-insurance) and with
such deductibles as are customary with companies of the same or similar size in
the same or similar businesses and in the same geographic area; (b) maintain
such other insurance or self insurance as may be required by law; and (c) as
soon as possible, but in any event not later than the entry of the Final Order,
name the Agent as loss payee and additional insured (as its’ interest may
appear) on such policies of the Borrower and the Guarantors as the
Co-Collateral Monitors shall reasonably request.






   SECTION 5.04 Obligations and Taxes. With respect to the Borrower and each
Guarantor, pay all its material obligations arising after the Filing Date
promptly and in accordance with their terms and pay and discharge promptly all
material taxes, assessments and governmental charges or levies imposed upon it
or upon its income or profits or in respect of its property arising after the
Filing Date, before the same shall become in default, as well as all material
lawful claims for labor, materials and supplies or otherwise arising after the
Filing Date which, if unpaid, would become a Lien or charge upon such
properties or any part thereof; provided, however, that the Borrower and each
Guarantor shall not be required to pay and discharge or to cause to be paid and
discharged any such obligation, tax, assessment, charge, levy or claim so long
as the validity or amount thereof shall be contested in good faith by





52







 


appropriate proceedings (if the Borrower and the Guarantors shall have set
aside on their books adequate reserves therefor).






   SECTION 5.05 Notice of Event of Default, etc. Promptly give to the Agent
notice in writing of any Event of Default or the occurrence of any event or
circumstance which with the passage of time or giving of notice or both would
constitute an Event of Default.






   SECTION 5.06 Access to Books and Records. Maintain or cause to be
maintained at all times true and complete books and records in accordance with
GAAP of the financial operations of the Borrower and the Guarantors; and
provide the Agent and the Co-Collateral Monitors and their respective
representatives access to all such books and records during regular business
hours, in order that the Agent may upon reasonable prior notice examine and
make abstracts from such books, accounts, records and other papers for the
purpose of verifying the accuracy of the various reports delivered by the
Borrower or the Guarantors to the Agent or the Banks pursuant to this Agreement
or for otherwise ascertaining compliance with this Agreement; and at any
reasonable time and from time to time during regular business hours, upon
reasonable notice, permit the Agent and the Co-Collateral Monitors and any
agents or representatives (including, without limitation, appraisers) thereof
to visit the properties of the Borrower and the Guarantors and to conduct
examinations of and to monitor the Collateral held by the Agent.






   SECTION 5.07 Blocked Account Arrangements. ; Concentration Account.
Within forty-five (45) days following the date upon which the Agent shall have
provided a draft of a blocked account agreement to
the Closing DateBorrower,
establish blocked account arrangements between the Agent and the Borrower’s
principal concentration banks on terms satisfactory to the Agent, such
arrangements to be implemented upon the occurrence and continuation of an Event
of Default; and, whether or not such blocked accounts already have been
established, implement arrangements by no later than April 30, 2002 whereby the
Agent shall become the bank at which account balances from the Borrower’s other
principal concentration banks are concentrated.






   SECTION 5.08 Borrowing Base Certificate. Following the execution and
delivery of the Borrowing Base Amendment, furnishFurnish to the Agent and the
Co-Collateral Monitors as soon as available and in any event (i) on or before
the dayfifth Business Day (with supporting documentation to be so furnished no
later than the sixth Business Day) following the end of each fiscal week set
forth in the Borrowing Base Amendment, a weekly Borrowing Base Certificate as
of the last day of the immediately preceding fiscal week, (ii) if requested by
the Co-Collateral Monitors at any other time when the Co-Collateral Monitors
reasonably believe that the then existing Borrowing Base Certificate is
materially inaccurate, or at any time following the occurrence and continuation
of an Event of Default, as soon as reasonably available, but in no event later
than two (2) Business Days after such request, a Borrowing Base Certificate
showing the Borrowing Base as of the date so requested (or as of the date of
the most recent Borrowing Base Certificate in the case of an inaccuracy), in
each case with supporting documentation (including, without limitation, the
documentation described on Schedule 1 to Exhibit E) and (iii) such other
supporting documentation and additional reports with respect to the Borrowing
Base as the Co-Collateral Monitors shall reasonably request.





53







 



   SECTION 5.09 Collateral Monitoring and Review. At any time upon the
request of the Agent or the Co-Collateral Monitors through the Agent, permit
the Agent, the Co-Collateral Monitors or professionals (including consultants,
accountants and appraisers) retained by the Agent, the Co-Collateral Monitors
or their professionals to conduct evaluations and appraisals of (i) the
Borrower’s and/or the Guarantors’ practices in the computation of the Borrowing
Base and (ii) the assets included in the Borrowing Base (including, without
limitation, immediately following the First Round and each Subsequent Round of
Store Closure Sales that are referred to in the definition of the term
“Recovery Rate” herein), and pay the reasonable fees and expenses in connection
therewith (including, without limitation, the reasonable and customary fees and
expenses associated with the Agent’s Collateral Agent Services Group). In
connection with any collateral monitoring or review and appraisal relating to
the computation of the Borrowing Base, the Borrower shall make such adjustments
to the Borrowing Base as the Agent and the Co-Collateral Monitors shall
reasonably require based upon the terms of this Agreement and results of such
collateral monitoring, review or appraisal.






   SECTION 5.10 Operating Plan. By no later than 12:00 noon (New York City
time) on February 5, 2002 (with a view to holding a general syndication meeting
no later than February 7, 2002), deliver to the Initial Banks the Borrower’s
final projected operating plan through the Maturity Date, and make its senior
officers available to discuss such operating plan with the Agent and/or the
Initial Banks upon the their reasonable request; it being understood that it
shall be an Event of Default if such projected operating plan reflects that
during the following 12 months Total Tranche A Commitment Usage plus the Total
Tranche B Credit-Linked Deposit will exceed $1,700,000,000 or the Borrower will
not be in compliance with the Capital Expenditures covenant set forth in
Section 6.04.






   SECTION 5.11 Additional UCC Searches. By not later than the date upon
which the Final Order shall have been entered by the Bankruptcy Court, deliver
to the Agent such additional UCC searches as may have been requested and such
searches shall be satisfactory to the Initial Banks.





   SECTION 5.12 Delivery of Schedules; Supplemental Schedules.






     (a)  The Schedules referred to herein that are permitted to be delivered by
the Borrower on or before the entry of the Final Order or the date upon which
the Borrowing Base Amendment has been executed and delivered, shall, upon their
delivery, become part of this Agreement, provided, such Schedules are in form
and substance satisfactory to the Initial Banks. Pending such delivery, any
representation or warranty referredreferring to any such Schedules (the
“Affected Representations”) shall have no force or effect. The Borrowers and
the Guarantors shall be deemed to have made each Affected Representation on the
date that the Schedules hereto are delivered to the Agent.





     (b)  From time to time, the Borrower shall be permitted to deliver one or
more supplemental Schedules updating the disclosures set forth on the Schedules
hereto and upon such delivery, such supplemental Schedules shall replace in
their entirety such prior Schedules, as the case may be, provided, such
supplemental Schedules are in form and substance satisfactory to the Required
Banks.





54







 



SECTION 6. NEGATIVE COVENANTS






     From the date hereof and for so long as any Tranche A Commitment shall be
in effect or any Letter of Credit shall remain outstanding (in a face amount in
excess of the amount of cash then held in the Letter of Credit Account, or in
excess of the face amount of back-to-back letters of credit delivered, in each
case pursuant to Section 2.03(b)) or any amount shall remain outstanding or
unpaid under this Agreement, unless the Required Banks shall otherwise consent
in writing, the Borrower and each of the Guarantors will not (and will not
apply to the Bankruptcy Court for authority to):






   SECTION 6.01 Liens. Incur, create, assume or suffer to exist any Lien on
any asset of the Borrower or the Guarantors, now owned or hereafter acquired by
the Borrower or any of such Guarantors, other than (i) Liens which were
existing on the Filing Date that were permitted pursuant to the terms of the
364 Day Credit Agreement; (ii) Permitted Liens; (iii) Liens in favor of the
Agent and the Banks and any other cash management institution to the extent
contemplated by the last sentence of Section 2.23(a); (iv) Liens securing
purchase money Indebtedness or Capitalized Leases permitted by Section
6.03(ivv); (v) Liens incurred in connection with (x) obligations under
sale/leasebacks or other financings of new stores (such obligations not to
exceed $75,000,000 in the aggregate) and (y) obligations under sale/leasebacks
or other financings of existing owned stores (such obligations not to exceed
$125,000,000 in the aggregate); (vi) a junior Lien (subject and subordinate to
the Liens granted to the Agent on behalf of the Banks hereunder and under the
Orders) on inventory in favor of vendors who extend credit to the Borrower
following the Filing Date in amounts and bearing payment terms that are
satisfactory to the Borrower, and junior Liens (subject and subordinate to the
Liens granted to the Agent on behalf of the Banks hereunder and under the
Orders) on property of the Borrower and the Guarantors in favor of banking
institutions that were entitled to exercise set-off rights on the Filing Date,
provided, that (A) the holders of such LienLiens shall not be permitted to
exercise any remedies with respect thereto unless all of the Obligations (or
under any refinancing thereof) have been paid in full and the Banks (or the
lenders providing such refinancing) have no further Tranche A Commitment or
Tranche B Credit-Linked Deposit hereunder (or commitment thereunder) and (B)
the instruments and agreements pursuant to which such Lien is created are
satisfactory in form and substance to the Agent and the Initial Banks and;
(vii) other Liens securing Indebtedness permitted pursuant to Section
6.03(viii); and (viii) consignments and claims under PACA and PASA.






   SECTION 6.02 Merger, etc. Consolidate or merge with or into another
Person (other than mergers and consolidations among the Borrower and the
Guarantors provided, that if the Borrower is party to such merger, the
Borrower is the surviving entity).






   SECTION 6.03 Indebtedness. Contract, create, incur, assume or suffer to
exist any Indebtedness, except for (i) Indebtedness under the Loan Documents;
(ii) Indebtedness incurred prior to the Filing Date (including existing
Capitalized Leases); (iii) intercompany Indebtedness between the Borrower and
the Guarantors, (iv) Indebtedness incurred subsequent to the Filing Date which
arose in connection with sale/leaseback transactions and other financings
permitted pursuant to Section 6.01(v) hereof; (v) Indebtedness incurred
subsequent to the Filing Date secured by purchase money Liens or Capitalized
Leases in an aggregate amount not to exceed an amount to be agreed upon between
the Borrower and the Initial Banks prior to the entry of the







55








 



Final Order$50,000,000; (vi) Indebtedness arising from Investments among
the Borrower and the Guarantors that are permitted pursuant to Section 6.10
hereof; (vii) Indebtedness owed to banks or other financial institutions in
respect of any overdrafts and related liabilities arising from treasury,
depository and cash management services or in connection with any automated
clearing house transfers of funds (including, without limitation, the
Borrower’s “purchasing card agreement” arrangements with JPMorgan Chase); and
(viii) other Indebtedness incurred subsequent to the Filing Date in an
aggregate amount not to exceed $10,000,000 in the aggregate.






   SECTION 6.04 Capital Expenditures. Make Capital Expenditures in an
aggregate amount in excess of $650,000,000 during the fiscal year of the
Borrower ending on or about January 31, 2003, (y) $800,000,000 during the
fiscal year of the Borrower ending on or about January 31, 2004 or (z)
$212,000,000 during the period commencing on or about February 1, 2004 and
ending on the Maturity Date, provided that (i) no more than 55% of the Capital
Expenditures permitted in any fiscal year of the Borrower may be made in the
first two fiscal quarters thereof and (ii) 20% of the unused portion of
permitted Capital Expenditures in any fiscal year of the Borrower may be
carried forward to and used in the following fiscal year of the Borrower.






   SECTION 6.05 EBITDA.





     (a) Permit cumulative EBITDA for the Borrower and the Guarantors for each
suchfiscal
periodsperiod beginning on MayFebruary 1, 2002 and ending on or
about each of the dates listed below to be less than the amount specified
opposite such date (provided that such cumulative EBITDA shall not be tested as
of June 30, 2002 or July 31, 2002 to beunless the Unused Total Tranche A
Commitment on either of such dates is less than such amounts as may be mutually
agreed to by the Borrower and the Initial Banks on or prior to the entry of the
Final Order.$1,000,000,000):






	 	 	 	 	 
	Period Ending	 	EBITDA	 
	
	 	
	 
	June 30, 2002
	 	 	($100,000,000)	 
	July 31, 2002
	 	 	($100,000,000)	 
	August 31, 2002
	 	 	($100,000,000)	 
	September 30, 2002
	 	 	($100,000,000)	 
	October 31, 2002
	 	 	($100,000,000)	 
	November 30, 2002
	 	 	$50,000,000	 
	December 31, 2002
	 	 	$450,000,000	 
	January 31, 2003
	 	 	$450,000,000	 



     (b) Permit cumulative EBITDA for the Borrower and the Guarantors for each
rolling twelve (12) fiscal month period ending on or about each of the dates
listed below to be less than the amount specified opposite such date:






	 	 	 	 	 
	February 28, 2003
	 	 	$500,000,000	 
	March 31, 2003
	 	 	$500,000,000	 



56







 



	 	 	 	 	 
	April 30, 2003
	 	 	$600,000,000	 
	May, 31, 2003
	 	 	$600,000,000	 
	June 30, 2003
	 	 	$600,000,000	 
	July 31, 2003
	 	 	$600,000,000	 
	August 31, 2003
	 	 	$625,000,000	 
	September 30, 2003
	 	 	$625,000,000	 
	October 31, 2003
	 	 	$625,000,000	 
	November 30, 2003
	 	 	$625,000,000	 
	December 31, 2003
	 	 	$650,000,000	 
	January 31, 2004
	 	 	$650,000,000	 
	February 29, 2004
	 	 	$650,000,000	 
	March 31, 2004
	 	 	$650,000,000	 




   SECTION 6.06 Guarantees and Other Liabilities. Purchase or repurchase (or
agree, contingently or otherwise, so to do) the Indebtedness of, or assume,
guarantee (directly or indirectly or by an instrument having the effect of
assuring another’s payment or performance of any obligation or capability of so
doing, or otherwise), endorse or otherwise become liable, directly or
indirectly, in connection with the obligations, stock or dividends of any
Person, except (i) for any guaranty of Indebtedness or other obligations of any
Borrower or Guarantor if the Guarantor could have incurred such Indebtedness or
obligations under this Agreement, (ii) by endorsement of negotiable instruments
for deposit or collection in the ordinary course of business, (iii) for
liabilities under leasehold interests that are assigned by the Borrower or any
Guarantor to the extent permitted by this Agreement and (iv) to the extent
existing on the Filing Date.






   SECTION 6.07 Chapter 11 Claims. Incur, create, assume, suffer to exist or
permit any other Super-Priority Claim which is pari passu with or senior to the
claims of the Agent and the Banks against the Borrower and the Guarantors
hereunder, except for the Carve-Out.






   SECTION 6.08 Dividends; Capital Stock. Declare or pay, directly or
indirectly, any dividends or make any other distribution or payment, whether in
cash, property, securities or a combination thereof, with respect to (whether
by reduction of capital or otherwise) any shares of capital stock (or any
options, warrants, rights or other equity securities or agreements relating to
any capital stock), or set apart any sum for the aforesaid purposes, provided
that any Guarantor may pay dividends to the Borrower and to any other Guarantor
that is its direct parent.






   SECTION 6.09 Transactions with Affiliates. Sell or transfer any property
or assets to, or otherwise engage in any other material transactions with, any
of its Affiliates (other than the Borrower and the Guarantors), other than in
the ordinary course of business at prices and on terms and conditions not less
favorable to the Borrower or such Guarantor than could be obtained on an
arm’s-length basis from unrelated third parties and investments in
non-Guarantor Subsidiaries of the Borrower that are permitted hereunder.






   SECTION 6.10 Investments, Loans and Advances. Purchase, hold or acquire
any capital stock, evidences of indebtedness or other securities of, make or
permit to exist any loans or advances to, or make or permit to exist any
investment in, any other Person (all of the foregoing, “Investments”), except
for (i) ownership by the Borrower and the Guarantors of the





57







 


capital stock of each of the Subsidiaries listed on Schedule 3.05; (ii)
Permitted Investments; (iii) advances and loans among the Borrower and the
Guarantors in the ordinary course of business; (iv) loans, advances and other
investments not in excess of $25,000,000 at any one time outstanding (net of
dividends, returns of capital and repayments of loans and advances received
after the Filing Date) to or in Subsidiaries of the Borrower that are not
Guarantors; and (v) Investments existing on the Filing Date and described on
Schedule 6.10 hereto (it being understood that Schedule 6.10 shall be permitted
to be delivered prior to the entry of the Final Order).






   SECTION 6.11 Disposition of Assets. Sell or otherwise dispose of any
assets (including, without limitation, the capital stock of any subsidiary)
except for (i) sales of assets in the ordinary course of business (including
the sale or other disposition of surplus inventory); (ii) dispositions of
surplus, obsolete or damaged equipment and assets no longer used in the
business of the Borrower and the Guarantors; (iii) dispositions of assets among
the Borrower and the Guarantors; (iv) sales of real property in conjunction
with permitted sale/leaseback transactions; (v) the rejection of unexpired
leases and other executory contracts; and (vi) sales of assets set forth on
Schedule 6.11 hereto.






   SECTION 6.12 Nature of Business. Enter into any business that is
materially different from those conducted by the Borrower and the Guarantors on
the Filing Date.






SECTION 7. EVENTS OF DEFAULT






   SECTION 7.01 Events of Default. In the case of the happening of any of
the following events and the continuance thereof beyond the applicable period
of grace if any (each, an “Event of Default”):





     (a)  any representation or warranty made by the Borrower or any Guarantor
in this Agreement or in any Loan Document or in connection with this Agreement
or the credit extensions hereunder or any statement or representation made in
any report, financial statement, certificate or other document furnished by the
Borrower or any Guarantors to the Banks under or in connection with this
Agreement, shall prove to have been false or misleading in any material respect
when made or delivered; or





     (b)  default shall be made in the payment of any (i) Fees or interest on
the Loans when due, and such default shall continue unremedied for more than
two (2) Business Days or (ii) principal of the Loans or other amounts payable
by the Borrower hereunder (including, without limitation, reimbursement
obligations or cash collateralization in respect of Letters of Credit), when
and as the same shall become due and payable, whether at the due date thereof
(including the Prepayment Date) or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise; or





     (c)  default shall be made by the Borrower or any Guarantor in the due
observance or performance of any covenant, condition or agreement contained in
Section 6 or Section 2.23 hereof; or





     (d)  default shall be made by the Borrower or any Guarantor in the due
observance or performance of any other covenant, condition or agreement to be
observed or performed





58







 


pursuant to the terms of this Agreement, any of the Orders or any of the
other Loan Documents and such default shall continue unremedied for more than
ten (10) days; or





     (e)  any of the Cases shall be dismissed or converted to a case under
Chapter 7 of the Bankruptcy Code or the Borrower or any Guarantor shall file a
motion or other pleading seeking the dismissal of any of the Cases under
Section 1112 of the Bankruptcy Code or otherwise; a trustee under Chapter 7 or
Chapter 11 of the Bankruptcy Code, a responsible officer or an examiner with
enlarged powers relating to the operation of the business (powers beyond those
set forth in Section 1106(a)(3) and (4) of the Bankruptcy Code) under Section
1106(b) of the Bankruptcy Code shall be appointed in any of the Cases; the
Borrower’s Board of Directors shall authorize a liquidation of the Borrower’s
business; or an application shall be filed by the Borrower or any Guarantor for
the approval of any other Superpriority Claim (other than the Carve-Out) in any
of the Cases which is pari passu with or senior to the claims of the Agent and
the Banks against the Borrower or any Guarantor hereunder, or there shall arise
or be granted any such pari passu or senior Superpriority Claim; or





     (f)  the Bankruptcy Court shall enter an order or orders granting relief
from the automatic stay applicable under Section 362 of the Bankruptcy Code to
the holder or holders of any security interest to permit foreclosure (or the
granting of a deed in lieu of foreclosure or the like) on any assets of the
Borrower or any of the Guarantors which have a value in excess of $5,000,000 in
the aggregate; or





     (g)  a Change of Control shall occur; or





     (h)  the Borrower shall fail to deliver a certified Borrowing Base
Certificate when due and such default shall continue unremedied for more than
three (3) Business Days; or





     (i)  any material provision of any Loan Document shall, for any reason,
cease to be valid and binding on the Borrower or any of the Guarantors, or the
Borrower or any of the Guarantors shall so assert in any pleading filed in any
court or any Lien intended to be created by the Loan Documents or the Orders
shall cease to be or shall not be a valid and perfected Lien having the
priorities contemplated hereby or thereby; or





     (j)  an order of the Bankruptcy Court shall be entered reversing, staying
for a period in excess of 10 days, vacating or (without the written consent of
the Required Banks) otherwise amending, supplementing or modifying any of the
Orders or any Loan Document; or





     (k)  any judgment or order as to a post-petition liability or debt for the
payment of money in excess of $5,000,000 not covered by insurance shall be
rendered against the Borrower or any of the Guarantors and the enforcement
thereof shall not have been stayed, vacated or discharged within 30 days; or





     (l)  any judgment or order with respect to a post-petition event shall be
rendered against the Borrower or any of the Guarantors which does or would
reasonably be expected to (i) cause a material adverse change in the financial
condition, business, prospects, operations or assets of the Borrower and the
Guarantors taken as a whole on a consolidated basis, (ii) have a material
adverse effect on the ability of the Borrower or any of the Guarantors to
perform their respective obligations under any Loan Document, or (iii) have a
material adverse effect on the





59







 


rights and remedies of the Agent or any Bank under any Loan Document, and
there shall be any period of 10 consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or





     (m)  other than payments authorized by the Bankruptcy Court pursuant to
“first-day” orders in amounts not in excess of any applicable amounts set forth
on Schedule 7.01(m) hereto (it being understood that Schedule 7.01(m) shall be
permitted to be delivered on or prior to the execution and delivery of the
Borrowing Base Amendment) or amounts approved by the Bankruptcy Court and paid
prior to the delivery of such Schedule 7.01(m), the Borrower or any Guarantor
shall make any Pre-Petition Payment (excluding (i) payments on reclamation
claims up toin an amount to be agreed upon bynot in excess of $200,000,000 in
the Agent and the Initial Banksaggregate, (ii) payments on claims in respect of
consigned inventory, (iii) cure payments in respect of the assumption of leases
and other contracts and the application of proceeds of collateral to validly
perfected secured pre-petition claims, (iv) payments in an aggregate amount,
not in excess of $35,000,000 per fiscal quarter amounts to be agreed upon Agent
and the Initial Banks, for other secured pre-petition claims, payments made
pursuant to an order of the Bankruptcy Court approved by the Initial Banks and (v) other Pre-Petition
Payments up toin an amount to be agreed uponnot in
excess of $200,000,000 in the aggregate); or





     (n)  any Termination Event described in clauses (iii) or (iv) of the
definition of such term shall have occurred and shall continue unremedied for
more than 10 days and the sum (determined as of the date of occurrence of such
Termination Event) of the Insufficiency of the Plan in respect of which such
Termination Event shall have occurred and be continuing and the Insufficiency
of any and all other Plans with respect to which such a Termination Event
(described in such clauses (iii) or (iv)) shall have occurred and then exist is
equal to or greater than $5,000,000; or





     (o)  (i) the Borrower or any ERISA Affiliate thereof shall have been
notified by the sponsor or trustee of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan, (ii) the Borrower or such
ERISA Affiliate does not have reasonable grounds, in the opinion of the Agent,
to contest such Withdrawal Liability and is not in fact contesting such
Withdrawal Liability in a timely and appropriate manner, and (iii) the amount
of such Withdrawal Liability specified in such notice, when aggregated with all
other amounts required to be paid to Multiemployer Plans in connection with
Withdrawal Liabilities (determined as of the date of such notification),
exceeds $5,000,000 allocable to post-petition obligations or requires payments
exceeding $500,000 per annum in excess of the annual payments made with respect
to such Multiemployer Plans by the Borrower or such ERISA Affiliate for the
plan year immediately preceding the plan year in which such notification is
received; or





     (p)  the Borrower or any ERISA Affiliate thereof shall have been notified
by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
if as a result of such reorganization or termination the aggregate annual
contributions of the Borrower and its ERISA Affiliates to all Multiemployer
Plans that are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Multiemployer Plans for the plan
years that include the date hereof by an amount exceeding $5,000,000; or





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     (q)  the Borrower or any ERISA Affiliate shall have committed a failure
described in Section 302(f)(1) of ERISA (other than the failure to make any
contribution accrued and unpaid as of the Filing Date) and the amount
determined under Section 302(f)(3) of ERISA is equal to or greater than
$5,000,000; or





     (r)  it shall be determined (whether by the Bankruptcy Court or by any
other judicial or administrative forum) that the Borrower or any Guarantor is
liable for the payment of claims arising out of any failure to comply (or to
have complied) with applicable environmental laws or regulations the payment of
which will have a material adverse effect on the financial condition, business,
properties, operations, assets or prospects of the Borrower or the Guarantors,
taken as a whole, and the enforcement thereof shall not have been stayed,
vacated or discharged within 30 days;





then, and in every such event and at any time thereafter during the continuance
of such event, and without further order of or application to the Bankruptcy
Court, the Agent may, and at the request of the Required Banks, shall, by
notice to the Borrower (with a copy to counsel for the Official Creditors’
Committee appointed in the Cases, and to the United States Trustee for the
District in which the Cases are pending), take one or more of the following
actions, at the same or different times (provided, that with respect to clause
(iv) below and the enforcement of Liens or other remedies with respect to the
Collateral under clause (v) below, the Agent shall provide the Borrower and its
counsel (with a copy to counsel for the Official Creditors’ Committee in the
Cases, and to the United States Trustee for the District in which the Cases are
pending), with five (5) Business Days’ written notice prior to taking the
action contemplated thereby and provided, further, that upon receipt of notice
referred to in the immediately preceding clause with respect to the accounts
referred to in clause (iv) below, the Borrower may continue to make ordinary
course disbursements from such accounts (other than the Letter of Credit
Account) but may not withdraw or disburse any other amounts from such accounts;
in any hearing after the giving of the aforementioned notice, the only issue
that may be raised by any party in opposition thereto being whether, in fact,
an Event of Default has occurred and is continuing): (i) terminate forthwith
the Total Commitment; (ii) declare the Loans then outstanding to be forthwith
due and payable, whereupon the principal of the Loans together with accrued
interest thereon and any unpaid accrued Fees and all other liabilities of the
Borrower accrued hereunder and under any other Loan Document, shall become
forthwith due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived by the Borrower
and the Guarantors, anything contained herein or in any other Loan Document to
the contrary notwithstanding; (iii) require the Borrower and the Guarantors
upon demand to forthwith deposit in the Letter of Credit Account cash in an
amount which, together with any amounts then held in the Letter of Credit
Account, is equal to the sum of 105% of the then Letter of Credit Outstandings
(and to the extent the Borrower and the Guarantors shall fail to furnish such
funds as demanded by the Agent, the Agent shall be authorized to debit the
accounts of the Borrower and the Guarantors maintained with the Agent in such
amount five (5) Business Days after the giving of the notice referred to
above); (iv) set-off amounts in the Letter of Credit Account or any other
accounts maintained with the Agent and apply such amounts to the obligations of
the Borrower and the Guarantors hereunder and in the other Loan Documents; and
(v) exercise any and all remedies under the Loan Documents and under applicable
law available to the Agent and the Banks.





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SECTION 8. THE AGENT






   SECTION 8.01 Administration by Agent. The general administration of the
Loan Documents shall be by the Agent. Each Bank hereby irrevocably authorizes
the Agent, at its discretion, to take or refrain from taking such actions as
agent on its behalf and to exercise or refrain from exercising such powers
under the Loan Documents as are delegated by the terms hereof or thereof, as
appropriate, together with all powers reasonably incidental thereto (including
the release of Collateral in connection with any transaction that is expressly
permitted by the Loan Documents). The Agent shall have no duties or
responsibilities except as set forth in this Agreement and the remaining Loan
Documents.






   SECTION 8.02 Advances and Payments.





     (a)  On the date of each Loan to be made in accordance with the terms
hereof, the Agent shall be authorized (but not obligated) to advance, for the
account of each of the Banks, the amount of the Loan to be made by it in
accordance with its Tranche A Commitment hereunder. Should the Agent do so,
each of the Banks agrees forthwith to reimburse the Agent in immediately
available funds for the amount so advanced on its behalf by the Agent, together
with interest at the Federal Funds Effective Rate if not so reimbursed on the
date due from and including such date but not including the date of
reimbursement.





     (b)  Any amounts received by the Agent in connection with this Agreement
(other than amounts to which the Agent is entitled pursuant to Sections 2.19,
8.06, 10.05 and 10.06), the application of which is not otherwise provided for
in this Agreement shall be applied, first, in accordance with each Bank’s Total 
Commitment Percentage to pay accrued but unpaid expenses, Commitment Fees or
Letter of Credit Fees, and second, in accordance with each Bank’s Total
Commitment Percentage to pay accrued but unpaid interest and the principal
balance outstanding and all unreimbursed Letter of Credit drawings and to cash
collateralization of Letters of Credit. All amounts to be paid to a Bank by
the Agent shall be credited to that Bank, after collection by the Agent, in
immediately available funds either by wire transfer or deposit in that Bank’s
correspondent account with the Agent, as such Bank and the Agent shall from
time to time agree.






   SECTION 8.03 Sharing of Setoffs. Each Bank agrees that if it shall,
through the exercise of a right of banker’s lien, setoff or counterclaim
against the Borrower or a Guarantor, including, but not limited to, a secured
claim under Section 506 of the Bankruptcy Code or other security or interest
arising from, or in lieu of, such secured claim and received by such Bank under
any applicable bankruptcy, insolvency or other similar law, or otherwise,
obtain payment in respect of its Loans or unreimbursed drafts drawn under
Tranche B Letters of Credit as a result of which the unpaid portion of its
Loans or unreimbursed drafts drawn under Tranche B Letters of Credit is
proportionately less than the unpaid portion of the Loans or unreimbursed
drafts drawn under Tranche B Letters of Credit of any other Bank (a) it shall
promptly purchase at par (and shall be deemed to have thereupon purchased) from
such other Bank a participation in the Loans or unreimbursed drafts drawn under
Tranche B Letters of Credit of such other Bank, so that the aggregate unpaid
principal amount of each Bank’s Loans and unreimbursed drafts drawn under
Tranche B Letters of Credit and its participation in Loans and unreimbursed
drafts drawn under Tranche B Letters of Credit of the other





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Banks shall be in the same proportion to the aggregate unpaid principal
amount of all Loans then outstanding and unreimbursed drafts drawn under
Tranche B Letters of Credit as the principal amount of its Loans and
unreimbursed drafts drawn under Tranche B Letters of Credit prior to the
obtaining of such payment was to the principal amount of all Loans outstanding
and unreimbursed drafts drawn under Tranche B Letters of Credit prior to the
obtaining of such payment and (b) such other adjustments shall be made from
time to time as shall be equitable to ensure that the Banks share such payment
pro-rata, provided that if any such non-pro-rata payment is thereafter
recovered or otherwise set aside such purchase of participations shall be
rescinded (without interest). The Borrower expressly consents to the foregoing
arrangements and agrees that any Bank holding (or deemed to be holding) a
participation in a Loan or unreimbursed drafts drawn under Tranche B Letters of
Credit may exercise any and all rights of banker’s lien, setoff (in each case,
subject to the same notice requirements as pertain to clause (iv) of the
remedial provisions of Section 7.01) or counterclaim with respect to any and
all moneys owing by the Borrower to such Bank as fully as if such Bank was the
original obligee thereon, in the amount of such participation.






   SECTION 8.04 Agreement of Required Banks and Super-majority Banks. Upon
any occasion requiring or permitting an approval, consent, waiver, election or
other action on the part of the Required Banks or the Super-majority Banks (as
the case may be), action shall be taken by the Agent for and on behalf or for
the benefit of all Banks upon the direction of the Required Banks or the
Super-majority Banks (as the case may be), and any such action shall be binding
on all Banks. No amendment, modification, consent, or waiver shall be
effective except in accordance with the provisions of Section 10.10.






   SECTION 8.05 Liability of Agent.





     (a)  The Agent when acting on behalf of the Banks, may execute any of its
respective duties under this Agreement by or through any of its respective
officers, agents, and employees, and neither the Agent nor its directors,
officers, agents, employees or Affiliates shall be liable to the Banks or any
of them for any action taken or omitted to be taken in good faith, or be
responsible to the Banks or to any of them for the consequences of any
oversight or error of judgment, or for any loss, unless the same shall happen
through its gross negligence or willful misconduct. The Agent and its
respective directors, officers, agents, employees and Affiliates shall in no
event be liable to the Banks or to any of them for any action taken or omitted
to be taken by them pursuant to instructions received by them from the Required
Banks or in reliance upon the advice of counsel selected by it. Without
limiting the foregoing, neither the Agent, nor any of its respective directors,
officers, employees, agents or Affiliates shall be responsible to any Bank for
the due execution, validity, genuineness, effectiveness, sufficiency, or
enforceability of, or for any statement, warranty, or representation in, this
Agreement, any Loan Document or any related agreement, document or order, or
shall be required to ascertain or to make any inquiry concerning the
performance or observance by the Borrower of any of the terms, conditions,
covenants, or agreements of this Agreement or any of the Loan Documents.





     (b)  Neither the Agent nor any of its respective directors, officers,
employees, agents or Affiliates shall have any responsibility to the Borrower
or the Guarantors on account of the failure or delay in performance or breach
by any Bank or by the Borrower or the Guarantors





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of any of their respective obligations under this Agreement or any of the
Loan Documents or in connection herewith or therewith.





     (c)  The Agent, in its capacity as Agent hereunder, shall be entitled to
rely on any communication, instrument, or document reasonably believed by such
person to be genuine or correct and to have been signed or sent by a person or
persons believed by such person to be the proper person or persons, and such
person shall be entitled to rely on advice of legal counsel, independent public
accountants, and other professional advisers and experts selected by such
person.






   SECTION 8.06 Reimbursement and Indemnification. Each Bank agrees (i) to
reimburse (x) the Agent (and the Co-Collateral Monitors) for such Bank’s Total Commitment
Percentage of any expenses and fees incurred for the benefit of the
Banks under this Agreement and any of the Loan Documents, including, without
limitation, counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Banks, and any other expense incurred in
connection with the operations or enforcement thereof not reimbursed by the
Borrower or the Guarantors and (y) the Agent (and the Co-Collateral Monitors)
for such Bank’s Total Commitment Percentage of any expenses of the Agent (or
the Co-Collateral Monitors, if any) incurred for the benefit of the Banks that
the Borrower has agreed to reimburse pursuant to Section 10.05 and has failed
to so reimburse and (ii) to indemnify and hold harmless the Agent and any of
its directors, officers, employees, agents or Affiliates, on demand, in the
amount of its proportionate share, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against it or any of them in any way
relating to or arising out of this Agreement or any of the Loan Documents or
any action taken or omitted by it or any of them under this Agreement or any of
the Loan Documents to the extent not reimbursed by the Borrower or the
Guarantors (except such as shall result from their respective gross negligence
or willful misconduct).






   SECTION 8.07 Rights of Agent. For so long as JPMorgan Chase is a Bank, it
is understood and agreed that JPMorgan Chase shall have the same rights and
powers hereunder (including the right to give such instructions) as the other
Banks and may exercise such rights and powers, as well as its rights and powers
under other agreements and instruments to which it is or may be party, and
engage in other transactions with the Borrower or any Guarantor, as though it
were not the Agent of the Banks under this Agreement.






   SECTION 8.08 Independent Banks. Each Bank acknowledges that it has
decided to enter into this Agreement and to make the Loans and fund the Tranche
B Credit-Linked Deposit Account, as the case may be, hereunder based on its own
analysis of the transactions contemplated hereby and of the creditworthiness of
the Borrower and the Guarantors and agrees that the Agent shall bear no
responsibility therefor.






   SECTION 8.09 Notice of Transfer. The Agent may deem and treat a Bank
party to this Agreement as the owner of such Bank’s portion of the Loans or
portion of the Tranche B Credit-Linked Deposit Amount, as the case may be, for
all purposes, unless and until a written notice of the assignment or transfer
thereof executed by such Bank or Tranche B Lender shall have been received by
the Agent.





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   SECTION 8.10 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Banks and the Borrower. Upon any such
resignation, the Required Banks shall have the right to appoint a successor
Agent, which shall be reasonably satisfactory to the Borrower. If no successor
Agent shall have been so appointed by the Required Banks and shall have
accepted such appointment, within 30 days after the retiring Agent’s giving of
notice of resignation, the retiring Agent may, on behalf of the Banks, appoint
a successor Agent, which shall be a commercial bank organized under the laws of
the United States of America or of any State thereof and having a combined
capital and surplus of a least $100,000,000, which shall be reasonably
satisfactory to the Borrower. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent’s resignation
hereunder as Agent, the provisions of this Section 8 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent under
this Agreement.






SECTION 9.GUARANTY






   SECTION 9.01 Guaranty.





     (a)  Each of the Guarantors unconditionally and irrevocably guarantees the
due and punctual payment by the Borrower of the Obligations. Each of the
Guarantors further agrees that the Obligations may be extended or renewed, in
whole or in part, without notice to or further assent from it, and it will
remain bound upon this guaranty notwithstanding any extension or renewal of any
of the Obligations. The Obligations of the Guarantors shall be joint and
several.





     (b)  Each of the Guarantors waives presentation to, demand for payment from
and protest to the Borrower or any other Guarantor, and also waives notice of
protest for nonpayment. The Obligations of the Guarantors hereunder shall not
be affected by (i) the failure of the Agent or a Bank to assert any claim or
demand or to enforce any right or remedy against the Borrower or any other
Guarantor under the provisions of this Agreement or any other Loan Document or
otherwise; (ii) any extension or renewal of any provision hereof or thereof;
(iii) any rescission, waiver, compromise, acceleration, amendment or
modification of any of the terms or provisions of any of the Loan Documents;
(iv) the release, exchange, waiver or foreclosure of any security held by the
Agent for the Obligations or any of them; (v) the failure of the Agent or a
Bank to exercise any right or remedy against any other Guarantor; or (vi) the
release or substitution of any Guarantor or any other Guarantor.





     (c)  Each of the Guarantors further agrees that this guaranty constitutes a
guaranty of payment when due and not just of collection, and waives any right
to require that any resort be had by the Agent or a Bank to any security held
for payment of the Obligations or to any balance of any deposit, account or
credit on the books of the Agent or a Bank in favor of the Borrower or any
other Guarantor, or to any other Person.





     (d)  Each of the Guarantors hereby waives any defense that it might have
based on a failure to remain informed of the financial condition of the
Borrower and of any other





65







 


Guarantor and any circumstances affecting the ability of the Borrower to
perform under this Agreement.





(e)  Each Guarantor’s guaranty shall not be affected by the genuineness,
validity, regularity or enforceability of the Obligations or any other
instrument evidencing any Obligations, or by the existence, validity,
enforceability, perfection, or extent of any collateral therefor or by any
other circumstance relating to the Obligations which might otherwise constitute
a defense to this Guaranty. Neither the Agent, nor any of the Banks makes any
representation or warranty in respect to any such circumstances or shall have
any duty or responsibility whatsoever to any Guarantor in respect of the
management and maintenance of the Obligations.





(f)  Subject to the provisions of Section 7.01, upon the Obligations
becoming due and payable (by acceleration or otherwise), the Banks shall be
entitled to immediate payment of such Obligations by the Guarantors upon
written demand by the Agent, without further application to or order of the
Bankruptcy Court.






   SECTION 9.02 No Impairment of Guaranty. The obligations of the Guarantors
hereunder shall not be subject to any reduction, limitation, impairment or
termination for any reason, including, without limitation, any claim of waiver,
release, surrender, alteration or compromise, 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.
Without limiting the generality of the foregoing, the obligations of the
Guarantors hereunder shall not be discharged or impaired or otherwise affected
by the failure of the Agent or a Bank to assert any claim or demand or to
enforce any remedy under this Agreement or any other agreement, by any waiver
or modification of any provision hereof or thereof, by any default, failure or
delay, willful or otherwise, in the performance of the Obligations, or by any
other act or thing or omission or delay to do any other act or thing which may
or might in any manner or to any extent vary the risk of the Guarantors or
would otherwise operate as a discharge of the Guarantors as a matter of law,
unless and until the Obligations are paid in full.






   SECTION 9.03 Subrogation. Upon payment by any Guarantor of any sums to
the Agent or a Bank hereunder, all rights of such Guarantor against the
Borrower arising as a result thereof by way of right of subrogation or
otherwise, shall in all respects be subordinate and junior in right of payment
to the prior final and indefeasible payment in full of all the Obligations. If
any amount shall be paid to such Guarantor for the account of the Borrower,
such amount shall be held in trust for the benefit of the Agent and the Banks
and shall forthwith be paid to the Agent and the Banks to be credited and
applied to the Obligations, whether matured or unmatured.






SECTION 10. MISCELLANEOUS






   SECTION 10.01 Notices. Notices and other communications provided for
herein shall be in writing (including facsimile communication) and shall be
mailed, transmitted by facsimile or delivered to the Borrower or any Guarantor
at






	c/o Kmart Corporation	 







66







 



	3100 West Big Beaver Road

Troy, Michigan 48084	 








		
	(a)	For all notices:




	 	Attention: Treasurer

Fax: (248) 614-0951









		
	(b)	For notices other than pursuant to Section 2:




	 	(1)	 	Attention: Chief Restructuring Officer
	 	 	 	Fax: (248) 463-5787






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	 	 	 	And
	 
	 	(2)	 	Attention: Chief Financial Officer
	 
	 	 	 	Fax: (248) 614-0951
	 
	 	 	 	And
	 
	 	(3)	 	Attention: General Counsel
	 
	 	 	 	Fax: (248) 614-1040



and to a Bank or the Agent to it at its address set forth on Annex A, or such
other address as such party may from time to time designate by giving written
notice to the other parties hereunder. 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 fifth Business Day after the date
when sent by registered or certified mail, postage prepaid, return receipt
requested, if by mail; or when receipt is acknowledged, if by any facsimile
equipment of the sender; or the Business Day following the day on which the
same has been delivered to a reputable national overnight air courier service;
in each case addressed to such party as provided in this Section 10.01 or in
accordance with the latest unrevoked written direction from such party;
provided, however, that in the case of notices to the Agent notices pursuant to
the preceding sentence with respect to change of address and pursuant to
Section 2 shall be effective only when received by the Agent.






   SECTION 10.02 Survival of Agreement, Representations and Warranties, etc.
All warranties, representations and covenants made by the Borrower or any
Guarantor herein or in any certificate or other instrument delivered by it or
on its behalf in connection with this Agreement shall be considered to have
been relied upon by the Banks and shall survive the making of the Loans herein
contemplated regardless of any investigation made by any Bank or on its behalf
and shall continue in full force and effect so long as any amount due or to
become due hereunder is outstanding and unpaid and so long as the Tranche A
Commitments have not been terminated. All statements in any such certificate
or other instrument shall constitute representations and warranties by the
Borrower and the Guarantors hereunder with respect to the Borrower.






   SECTION 10.03 Successors and Assigns.





     (a)  This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Agent and the Banks and their respective successors and assigns.
Neither the Borrower nor any of the Guarantors may assign or transfer any of
their rights or obligations hereunder without the prior written consent of all
of the Banks. Each Bank may sell participations to any Person in all or part
of any Loan, any interest in Tranche B Letters of Credit and its Tranche B
Credit-Linked Deposit, or all or part of its Tranche A Commitment or Tranche B
Credit-Linked Deposit, in which event, without limiting the foregoing, the
provisions of Section 2.15 shall inure to the benefit of each purchaser of a
participation (provided that such participant shall look solely to the seller
of such participation for such benefits and the Borrower’s and the Guarantors’
liability, if any, under Sections 2.15 and 2.18 shall not be increased as a
result of the sale of any such participation) and the pro rata treatment of
payments,





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as described in Section 2.17, shall be determined as if such Bank had not
sold such participation. In the event any Bank shall sell any participation,
such Bank shall retain the sole right and responsibility to enforce the
obligations of the Borrower and each of the Guarantors relating to the Loans and
the Tranche B Participations, including, without limitation, the right to
approve any amendment, modification or waiver of any provision of this
Agreement (provided that such Bank may grant its participant the right to
consent to such Bank’s execution of amendments, modifications or waivers which
(i) reduce any Fees payable hereunder to the Banks, (ii) reduce the amount of
any scheduled principal payment on any Loan or repayment obligation with
respect to any Tranche B Credit-Linked Deposit or reduce the principal amount
of any Loan or of any Tranche B Credit-Linked Deposit or the rate of interest
or earnings in lieu of interest payable hereunder or (iii) extend the maturity
of the Borrower’s obligations hereunder). The sale of any such participation
shall not alter the rights and obligations of the Bank selling such
participation hereunder with respect to the Borrower.





     (b)  Each Bank may assign to one or more Banks or Eligible Assignees all or
a portion of its interests, rights and obligations under this Agreement
(including, without limitation, all or a portion of its Tranche A Commitment
and the same portion of the related Loans at the time owing to it or all or a
portion of its Tranche B Credit-Linked Deposit), provided, however, that (i)
other than in the case of an assignment to a Person at least 50% owned by the
assignor Bank, or to a Bank Affiliate of such assignor Bank, or by a common
parent of both, or to another Bank, the Agent and the Fronting Bank must give
their respective prior written consent to such assignment, which consent will
not be unreasonably withheld, (ii) the aggregate amount of the Tranche A
Commitment and/or Loans of the assigning Bank and/or the interest in the
Tranche B Credit-Linked Deposit subject to each such assignment (determined as
of the date the Assignment and Acceptance with respect to such assignment is
delivered to the Agent) shall, unless otherwise agreed to in writing by the
Borrower and the Agent, in no event be less than $1,000,000 or the remaining
portion of such Bank’s Tranche A Commitment, Loans and/or LoansTranche B
Credit-Linked Deposit, if less and (iii) the parties to each such assignment
shall execute and deliver to the Agent, for its acceptance and recording in the
Register (as defined below), an Assignment and Acceptance with blanks
appropriately completed, together with a processing and recordation fee of
$3,500 (for which the Borrower shall have no liability). Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be within ten
Business Days after the execution thereof (unless otherwise agreed to in
writing by the Agent), (A) the assignee thereunder shall be a party hereto and,
to the extent provided in such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder and (B) the Bank thereunder shall, to the
extent provided in such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Bank’s rights
and obligations under this Agreement, such Bank shall cease to be a party
hereto).





     (c)  By executing and delivering an Assignment and Acceptance, the Bank
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, such Bank
assignor makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this





69







 


Agreement or any of the other Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement
or any of the other Loan Documents; (ii) such Bank assignor makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or any Guarantor or the performance or
observance by the Borrower or any Guarantor of any of its obligations under
this Agreement or any of the other Loan Documents or any other instrument or
document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement and the other Loan Documents, together with
copies of the financial statements referred to in Section 3.04 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (iv) such
assignee will, independently and without reliance upon the Agent, such Bank
assignor or any other Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement; (v) such assignee appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Agent by the
terms thereto, together with such powers as are reasonably incidental hereof;
and (vi) such assignee agrees that it will perform in accordance with their
terms all obligations that by the terms of this Agreement are required to be
performed by it as a Bank. Without the consent of the Agent, the Tranche B
Credit-Linked Deposit funded by any Tranche B Lender under Section 2.04A shall
not be released in connection with any assignment of its Tranche B
Credit-Linked Deposit, but shall instead be purchased by the relevant assignee
and continue to be held for application (if not already applied in accordance
with the terms of Section 2.04A or 2.04B) pursuant to Section 2.04A in respect
of such assignee’s obligations under the Tranche B Credit-Linked Deposit
assigned to it.





     (d)  The Agent shall maintain at its office a copy of each Assignment and
Acceptance delivered to it and a register for the recordation of the names and
addresses of the Banks and the Tranche A Commitments of, and principal amount
of the Loans and Tranche B Credit-Linked Deposits owing to, each Bank from time
to time (the “Register”). The entries in the Register shall be conclusive, in
the absence of manifest error, and the Borrower, the Guarantors, the Agent and
the Banks shall treat each Person the name of which is recorded in the Register
as a Bank hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or any Bank at any reasonable time and
from time to time upon reasonable prior notice.





     (e)  Upon its receipt of an Assignment and Acceptance executed by an
assigning Bank and the assignee thereunder together with the fee payable in
respect thereto, the Agent shall, if such Assignment and Acceptance has been
completed with blanks appropriately filled and consented to by the Agent and
the Fronting Bank (to the extent such consent is required hereunder), (i)
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt written notice thereof to the
Borrower (together with a copy thereof). No assignment shall be effective for
purposes of this Agreement unless it has been recorded in the Register as
provided in this paragraph.





     (f)  Any Bank may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 10.03, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Borrower or any





70







 


of the Guarantors furnished to such Bank by or on behalf of the Borrower
or any of the Guarantors; provided that prior to any such disclosure, each such
assignee or participant or proposed assignee or participant shall agree in
writing to be bound by the provisions of Section 10.04.





     (g)  The Borrower hereby agrees, to the extent set forth in the Joint
Commitment Letter, to actively assist and cooperate with the Agent in the
Agent’s efforts to sell participations herein (as described in Section
10.03(a)) and assign to one or more Banks or Eligible Assignees a portion of
its interests, rights and obligations under this Agreement (as set forth in
Section 10.03(b)).






   SECTION 10.04 Confidentiality. Each Bank agrees to keep any information
delivered or made available by the Borrower or any of the Guarantors to it
confidential from anyone other than persons employed or retained by such Bank
who are or are expected to become engaged in evaluating, approving, structuring
or administering the Loans; provided that nothing herein shall prevent any Bank
from disclosing such information (i) to any of its Affiliates or to any other
Bank, provided such Affiliate agrees to keep such information confidential to
the same extent required by the Banks hereunder, (ii) upon the order of any
court or administrative agency, (iii) upon the request or demand of any
regulatory agency or authority, (iv) which has been publicly disclosed other
than as a result of a disclosure by the Agent or any Bank which is not
permitted by this Agreement, (v) in connection with any litigation to which the
Agent, any Bank, or their respective Affiliates may be a party to the extent
reasonably required, (vi) to the extent reasonably required in connection with
the exercise of any remedy hereunder, (vii) to such Bank’s legal counsel and
independent auditors, and (viii) to any actual or proposed participant or
assignee of all or part of its rights hereunder subject to the proviso in
Section 10.03(f). Each Bank shall use commercially reasonable efforts to
notify the Borrower of any required disclosure under clause (ii) of this
Section.






        SECTION 10.05 Expenses. Whether or not the transactions hereby
contemplated shall be consummated, the Borrower and the Guarantors agree to pay
all reasonable out-of-pocket expenses incurred by the Agent (including but not
limited to the reasonable fees and disbursements of Morgan, Lewis & Bockius
LLP, special counsel for the Agent, any other counsel that the Agent shall
retain and any internal or third-party appraisers, consultants and auditors
advising the Agent and J.P. Morgan Securities Inc.) in connection with the
preparation, execution, delivery and administration of this Agreement and the
other Loan Documents, the making of the Loans and the issuance of the Letters
of Credit, the perfection of the Liens contemplated hereby, the syndication of
the transactions contemplated hereby, the reasonable and customary costs, fees
and expenses internally allocated charges and expenses relating to the Agent’s
initial and ongoing Borrowing Base examinations, of the Agent in connection
with its monthly and other periodic field audits, monitoring of assets
(including reasonable and customary internal collateral monitoring fees) and
publicity expenses, the reasonable fees and disbursements of respective counsel
for, and other reasonable expenses of, the Co-Collateral Monitors, Fleet, Fleet
Securities, Inc. GECC, CSFB and any Fronting Bank (and their respective Bank
Affiliates), and, following the occurrence of an Event of Default, all
reasonable out-of-pocket expenses incurred by the Banks and the Agent in the
enforcement or protection of the rights of any one or more of the Banks or the
Agent in connection with this Agreement or the other Loan Documents, including
but not limited to the reasonable fees and disbursements of any





71







 


counsel for the Banks or the Agent. Such payments shall be made on the
date of the Interim Order and thereafter on demand upon delivery of a statement
setting forth such costs and expenses. Whether or not the transactions hereby
contemplated shall be consummated, the Borrower and the Guarantors agree to
reimburse the Agent, J.P. Morgan Securities Inc., Fleet, GECC and CSFB (and
their respective Bank Affiliates) for the expenses set forth in the Joint
Commitment Letter and the reimbursement provisions thereof are hereby
incorporated herein by reference. The obligations of the Borrower and the
Guarantors under this Section shall survive the termination of this Agreement
and/or the payment of the Loans.






   SECTION 10.06 Indemnity. The Borrower and each of the Guarantors agree to
indemnify and hold harmless the Agent, J.P. Morgan Securities Inc., Fleet
Securities, Inc., the Co-Collateral Monitors, the Banks and any Fronting Bank
and their directors, officers, employees, agents and Affiliates (each an
“Indemnified Party”) from and against any and all expenses, losses, claims,
damages and liabilities incurred by such Indemnified Party arising out of
claims made by any Person in any way relating to the transactions contemplated
hereby, but excluding therefrom all expenses, losses, claims, damages, and
liabilities to the extent that they are determined by the final judgment of a
court of competent jurisdiction to have resulted from the gross negligence or
willful misconduct of such Indemnified Party. The obligations of the Borrower
and the Guarantors under this Section shall survive the termination of this
Agreement and/or the payment of the Loans.






   SECTION 10.07 CHOICE OF LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK AND (TO THE EXTENT APPLICABLE) THE BANKRUPTCY CODE.






   SECTION 10.08 No Waiver. No failure on the part of the Agent or any of
the Banks to exercise, and no delay in exercising, any right, power or remedy
hereunder or any of the other Loan Documents shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy. All remedies hereunder are cumulative and are not
exclusive of any other remedies provided by law.






   SECTION 10.09 Extension of Maturity. Should any payment of principal of
or interest or any other amount due hereunder become due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, in the case of principal, interest shall be
payable thereon at the rate herein specified during such extension.






   SECTION 10.10 Amendments, etc.





     (a)  No modification, amendment or waiver of any provision of this
Agreement (including, without limitation, the provisions of Section 2.01(c)) or
the Security and Pledge Agreement, and no consent to any departure by the
Borrower or any Guarantor therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Required Banks, and then such waiver
or consent shall be effective only in the specific instance and for the
purpose for which given; provided, however, that no such modification or
amendment shall





72







 


without the written consent of (1) the Bank affected thereby (x) increase
the Tranche A Commitment of a Bank (it being understood that a waiver of an
Event of Default shall not constitute an increase in the Tranche A Commitment
of a Tranche A Bank), or (y) reduce the principal amount of any Loan or the
rate of interest payable thereon, or the rate of return on the Tranche B
Credit-Linked Deposits pursuant to Section 2.04B(a) or extend any date for the
payment of interest hereunder or reduce any Fees payable hereunder or extend
the final maturity of the Borrower’s obligations hereunder, or release any
portion of the Tranche B Credit-Linked Deposit Account; or (2) Tranche B
Lenders holding Tranche B Credit-Linked Deposits representing in excess of 50%
of the Total Tranche B Credit-Linked Deposit, amend Sections 2.04A or 2.04B; or
(3) (x) Banks holding Tranche A Commitments and Tranche B Credit-Linked
Deposits representing in excess of 75% of the aggregate principal amount of the
Total Commitment or (y) if the Tranche A Commitments have terminated or
expired, providedBanks holding Loans, further, that noTranche A Letter of
Credit Outstandings and Tranche B Letter of Credit Outstandings representing in
excess of 75% of the aggregate principal amount of such modification or
amendment shall withoutLoans, Tranche A Letter of Credit Outstandings and
Tranche B Letter of Credit Outstandings, increase the written consent ofTotal
Commitment; or (4) all of the Banks (i) amend or modify any provision of this
Agreement which provides for the unanimous consent or approval of the Banks,
(ii) amend this Section 10.10 or the definition of Required Banks, (iii) amend
or modify the Super-Priority Claim status of the Banks contemplated by Section
2.23, (iv) except in connection with a disposition permitted by this Agreement,
release all or any substantial portion of the Liens granted to the Agent
hereunder, under the Orders or under any other Loan Document, or release all or
substantially all of the Guarantors or (v) increase the advance rates set forth
in the definition of the term “Borrowing Base” or the addition of new asset
categories other than inventory to the Borrowing Base. No such amendment or
modification may adversely affect the rights and obligations of the Agent, the
Co-Collateral Monitors or any Fronting Bank hereunder or any Bank in the
capacity referred to in Section 6.03(vivii) without its prior written consent.
No notice to or demand on the Borrower or any Guarantor shall entitle the
Borrower or any Guarantor to any other or further notice or demand in the same,
similar or other circumstances. Each assignee under Section 10.03(b) shall be
bound by any amendment, modification, waiver, or consent authorized as provided
herein, and any consent by a Bank shall bind any Person subsequently acquiring
an interest on the Loans held by such Bank. No amendment to this Agreement
shall be effective against the Borrower or any Guarantor unless signed by the
Borrower or such Guarantor, as the case may be.





     (b)  Notwithstanding anything to the contrary contained in Section
10.10(a), in the event that the Borrower requests that this Agreement be
modified or amended in a manner which would require the unanimous consent of
all of the Banks and such modification or amendment is agreed to by the
Super-majority Banks (as hereinafter defined), then with the consent of the
Borrower and the Super-majority Banks, the Borrower and the Super-majority
Banks shall be permitted to amend the Agreement without the consent of the Bank
or Banks which did not agree to the modification or amendment requested by the
Borrower (such Bank or Banks, collectively the “Minority Banks”) to provide for
(w) the termination of the Tranche A Commitment or the payment in full of the
Tranche B Credit-Linked Deposit of each of the Minority Banks, (x) the addition
to this Agreement of one or more other financial institutions (each of which
shall be an Eligible Assignee), or an increase in the Tranche A Commitment or
Tranche B Credit-Linked Deposit of one or more of the Super-majority Banks, so
that the Total Commitment after





73







 


giving effect to such amendment shall be in the same amount as the Total
Commitment immediately before giving effect to such amendment, (y) if any Loans
are outstanding at the time of such amendment, the making of such additional
Loans by such new financial institutions or Super-majority Bank or Banks, as
the case may be, as may be necessary to repay in full the outstanding Loans
(together with any accrued but unpaid interests, Fees or expenses) of the
Minority Banks immediately before giving effect to such amendment and (z) such
other modifications to this Agreement as may be appropriate. As used herein,
the term “Super-majority Banks” shall mean, at any time, Banks holding Loans
representing at least 662/3% of the aggregate principal amount of the Loans
outstanding, or if no Loans are outstanding, Banks having Tranche A Commitments
and Tranche B Credit-Linked Deposits representing at leastin the aggregate in
excess of 66 2/3% of the Total Commitment.





     (c)  Nothing contained in this Agreement shall prevent or limit any Bank
from pledging all or any portion of that Bank’s interest and rights under this
Agreement and the other Loan Documents to any of the twelve Federal Reserve
Banks organized under §4 of the Federal Reserve Act (12 U.S.C. §341) ,
provided, however, neither such pledge nor the enforcement thereof shall
release the pledging Bank from any of its obligations hereunder or under any of
the Loan Documents.






   SECTION 10.11 Severability. Any provision of this Agreement 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, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.






   SECTION 10.12 Headings. Section headings used herein are for convenience
only and are not to affect the construction of or be taken into consideration
in interpreting this Agreement.






   SECTION 10.13 Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall constitute an original, but
all of which taken together shall constitute one and the same instrument.






   SECTION 10.14 Prior Agreements. This Agreement represents the entire
agreement of the parties with regard to the subject matter hereof and the terms
of any letters and other documentation entered into between the Borrower or a
Guarantor and any Bank or the Agent prior to the execution of this Agreement
which relate to Loans to be made hereunder shall be replaced by the terms of
this Agreement (except as otherwise expressly provided herein with respect to
the Joint Commitment Letter and the fee letters referred to herein and therein,
including without limitation, the Borrower’s agreement to actively assist the
Agent and the Initial Banks in the syndication of the transactions contemplated
hereby referred to in Section 10.03(g) and including also the provisions of
Section 2.19).






   SECTION 10.15 Further Assurances. Whenever and so often as reasonably
requested by the Agent, the Borrower and the Guarantors will promptly execute
and deliver or cause to be executed and delivered all such other and further
instruments, documents or assurances, and promptly do or cause to be done all
such other and further things as may be necessary and reasonably required in
order to further and more fully vest in the Agent all rights, interests,





74







 


powers, benefits, privileges and advantages conferred or intended to be
conferred by this Agreement and the other Loan Documents.






   SECTION 10.16 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE GUARANTORS,
THE AGENT AND EACH BANK HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY OF THE
LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.







75








 



     IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and the year first written.






	 	 	 
	 	 	
BORROWER:
	 	 	 
	 	 	
KMART CORPORATION
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
GUARANTORS:
	 	 	 
	 	 	
BIG BEAVER DEVELOPMENT CORPORATION
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
BIG BEAVER OF CAGUAS

DEVELOPMENT CORPORATION
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
BIG BEAVER OF FLORIDA DEVELOPMENT, LLC
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
BIG BEAVER OF GUAYNABO

DEVELOPMENT CORPORATION
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
BLUELIGHT.COM LLC
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:



Signature Page to Credit and Guaranty Agreement






 







 



	 	 	 
	 	 	
KMART HOLDINGS, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
KMART MICHIGAN PROPERTY SERVICES, L.L.C.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
KMART OF AMSTERDAM, NY DISTRIBUTION

CENTER, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
KMART OF MICHIGAN, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
KMART OF NORTH CAROLINA LLC
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
S.F.P.R.KLC, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
KMART CORPORATION OF ILLINOIS, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:



Signature Page to Credit and Guaranty Agreement






 







 



	 	 	 
	 	 	
BLUELIGHT.COM, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
KMART STORES OF INDIANA, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
KMART STORES OF TNCP, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
TC GROUP I LLC
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
TROY CMBS PROPERTY, L.L.C.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
KMART OVERSEAS CORPORATION
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:



Signature Page to Credit and Guaranty Agreement






 







 



	 	 	 
	 	 	
JAF, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
VTA, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
BIG BEAVER OF CAGUAS DEVELOPMENT

CORPORATION II
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
BIG BEAVER OF CAROLINA DEVELOPMENT

CORPORATION
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
KMART PHARMACIES, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
KMART PHARMACIES OF MINNESOTA, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
BUILDERS SQUARE, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:



Signature Page to Credit and Guaranty Agreement






 







 



	 	 	 
	 	 	
KMART CMBS FINANCING, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
KMART INTERNATIONAL SERVICES, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
PMB, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
SOURCING & TECHNICAL SERVICES, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
ILJ, INC.
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
STI MERCHANDISING, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
KBL HOLDING INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:



Signature Page to Credit and Guaranty Agreement






 







 



	 	 	 
	 	 	
KMART OF INDIANA
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
KMART OF PENNSYLVANIA LP
	 	 	 
	 	 	
By:
	 	 	


	 	 	 
	 	 	
KMART OF TEXAS L.P.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
KMART OF MICHIGAN, INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:



Signature Page to Credit and Guaranty Agreement






 







 



	 	 	 
	 	 	
JPMORGAN CHASE BANK,
individually and as Agent
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:



Signature Page to Credit and Guaranty Agreement






 







 



	 	 	 
	 	 	
FLEET RETAIL FINANCE INC.
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:



Signature Page to Credit and Guaranty Agreement






 







 



	 	 	 
	 	 	
GENERAL ELECTRIC CAPITAL CORPORATION
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:



Signature Page to Credit and Guaranty Agreement






 







 



	 	 	 
	 	 	
CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	 
	 	 	
By:
	 	 	


	 	 	
Title:
	 	 	
Title:



Signature Page to Credit and Guaranty Agreement






 







 


ANNEX A

to

REVOLVING CREDIT AND GUARANTY AGREEMENT






Dated as of January 22, 2002







	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Tranche B	 
	 	 	 	Tranche A	 	 	Tranche A	 	 	Tranche B	 	 	Credit-Linked	 
	 	 	 	Commitment	 	 	Commitment	 	 	Credit-Linked	 	 	Deposit	 
	Bank	 	Amount	 	 	Percentage	 	 	Deposit	 	 	Percentage	 
	
	 	
	 	 	
	 	 	
	 	 	
	 
	JPMorgan Chase Bank
	 	$	500,000,000.00	 	 	 	25.0000	%	 	 	 	 	 	 	 	 
	380 Madison Avenue
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	New York, New York 10017
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Attn: Agnes L. Levy
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Managing Director
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fleet Retail Finance Inc.
	 	$	500,000,000.00	 	 	 	25.0000	%	 	 	 	 	 	 	 	 
	40 Broad Street, 10th Floor
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Boston, Massachusetts 02109
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Attn: James Dore
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Director
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	General Electric Capital
	 	$	500,000,000.00	 	 	 	25.0000	%	 	 	 	 	 	 	 	 
	Corporation
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	550 West Monroe Street
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Chicago, Illinois 60661
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Attn: Tom Sullivan
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Senior Vice President
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Credit Suisse First Boston,
	 	$	500,000,000.00	 	 	 	25.0000	%	 	 	 	 	 	 	 	 
	Cayman Islands Branch
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	11 Madison Avenue
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	New York, New York 10010
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Attn: Carol Flaton
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Director
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	$2,000,000,000.00$1,800,000,000.00	 	 	 	100.0000	%	 	 	$200,000,000.00	 	 	 	100.0000%	 





 







 


Exhibit A-1 to the

Revolving Credit and

Guaranty Agreement


FORM OF INTERIM ORDER






 







 


Exhibit A-2 to the

Revolving Credit and

Guaranty Agreement


FORM OF FINAL ORDER






[To be substantially in the form of the Interim Order

and as described in Section 4.02(d)]






 







 


Exhibit B to the

Revolving Credit and

Guaranty Agreement


FORM OF SECURITY AND

PLEDGE AGREEMENT






 







 


Exhibit C to the

Revolving Credit and

Guaranty Agreement


FORM OF OPINION OF COUNSEL






 







 


Exhibit D to the

Revolving Credit and

Guaranty Agreement


FORM OF ASSIGNMENT AND ACCEPTANCE






 







 


Exhibit E to the

Revolving Credit and

Guaranty Agreement


FORM OF BORROWING BASE CERTIFICATE








 







 




 Exhibit E

Page 1 of 3 



 Kmart Corporation

Form of Weekly Borrowing Base Certificate*

For the Week Ended _________ 




	 	 	 	 	 
	Section I. Calculation of Excess Availability	 	 	 	 
	 	 	 	 	 
	A. Net Available Inventory Amount (from Section II, line I) 	 	 	 	 
	 	 	 		

	 	 	 	 	 
	B. Effective Advance Rate (from Section II, line J) 	 	 	 	 
	 	 	 		

	 	 	 	 	 
	C. Recovery Rate 
 X 75% 	 	 	 	 
	 	 	

	 	 
	 	 	 	 	 
	 	 	 		

	D. If line B is less than line C, enter amount from line A and leave line E blank	 	 	 	 
	 	 	 		

	 	 	 	 	 
	E. If line B is greater than or equal to line C, leave line D blank and multiply 
line C 
 by Gross Inventory Value per stockledger (see Section II, line A) 	 	 	 	 
	 	 	

	 	 
	 	 	 	 	 
	 	 	

		

	F. Reserve for pari passu cash management claims of $200MM plus $25MM 	 	 	 	 
	 	 	 		

	 	 	 	 	 
	G. Other availability reserves 	 	 	 	 
	 	 	 		

	 	 	 	 	 
	H. Borrowing Base (either line D or line E, as applicable, minus line F minus	 	 	 	 
	line G)	 	 	 	 
	 	 	 		

	 	 	 	 	 
	I. Total Commitment	 	 	 	 
	 	 	 		

	 	 	 	 	 
	J. Lesser of line H or line I	 	 	 	 
	 	 	 		

	 	 	 	 	 
	K. Line J x 95% (per Section 2.01 (c) of Agreement)	 	 	 	 
	 	 	 		

	 	 	 	 	 
	L. Letters of Credit Outstanding	 	
$	 	 
	 	 	

	 	 
	 	 	 	 	 
	M. Outstanding principal amount of all Loans	 	
$	 	 
	 	 	

	 	 
	 	 	 	 	 
	N. Total Commitment Usage (lines L + M)	 	 		$
	 	 	 		

	 	 	 	 	 
	O. Excess availability/(overadvance) (line K — line N)	 	 		$
	 	 	 		





	 	 	 	Officer’s Certification:
	 
	 	 	 	Pursuant to the Revolving Credit and Guaranty Agreement dated as of
January 22, 2002, as amended (capitalized terms and categories used
herein shall have the meanings assigned to such terms and categories in
the Agreement), the undersigned certifies solely on behalf of the
Borrower and in his/her capacity as an officer thereof that the
information provided in this





 







 






	 	 	 	certificate to the JPMorgan Chase Bank, as Administrative Agent and
Co-Collateral Monitor, is accurate and complete based on the accounting
records of Kmart Corporation.
	 
	 	 	 	Kmart Corporation
	 
	 	 	 	
By:                                        &nbs
p;                                    





		
	 	      Signature & Title
                                         &nbs
p;                          
Date




	 	 	 	* The Borrowing Base Certificate is to be accompanied by the documentation
outlined in Schedule 1 to Exhibit E.
**Borrowing Base Certificates are to be submitted weekly, 5 business days
subsequent to each fiscal week end.





 







 





 Exhibit E

Page 2 of 3



Kmart Corporation

Form of Weekly Borrowing Base Certificate*

For the Week Ended _________




	 	 	 
	Section II. Calculation of Net Available Inventory Amount	 	 
	 	 	
Current Week
	         Inventory Value of Inventory at Stores per ILR report 	 	 
	 	 	


	        Inventory Value of Inventory at DCs per stockledger 	 	 
	 	 	


	A.  Gross Inventory Value (a)	 	 
	 	 	


	B.  Less Inventory Value of ineligibles: 	 	 
	 	 	
 
	             Accrued Inventory without a receiver 	 	 
	 	 	


	             Closed store inventory 	 	 
	 	 	


	             Consigned 	 	 
	 	 	


	             In-transit from vendors 	 	 
	 	 	


	             Guam 	 	 
	 	 	


	             Bakery 	 	 
	 	 	


	             Candy (in excess of 2% of Gross Inventory Value) 	 	 
	 	 	


	             Dairy 	 	 
	 	 	


	             Deli 	 	 
	 	 	


	             Digital imaging, photofinishing and 1 hour lab 	 	 
	 	 	


	             Floral 	 	 
	 	 	


	             Gasoline 	 	 
	 	 	


	             Home fragrances and party supplies 	 	 
	 	 	


	             Live plants 	 	 
	 	 	


	             Meat 	 	 
	 	 	


	             Produce 	 	 
	 	 	


	             Reader’s market — books and magazines 	 	 
	 	 	


	            Restaurant operations 	 	 
	 	 	


	             Seafood 	 	 
	 	 	


	             Packaway 	 	 
	 	 	


	             Seasonal (other than apparel) 	 	 
	 	 	


	             Seasonal apparel 	 	 
	 	 	


	             Vending machine inventory 	 	 
	 	 	


	             Wholesaler freight fees 	 	 
	 	 	


	             No perfected security interest 	 	 
	 	 	


	             Not solely owned 	 	 
	 	 	


	             Layaway (b) 	 	 
	 	 	


	             Leased departments 	 	 
	 	 	


	             Greeting cards (b) 	 	 
	 	 	


	             Not located at a Store or DC 	 	 
	 	 	


	             Other (per terms of Agreement, as amended) 	 	 
	 	 	


	B.  Total ineligibles 	 	 
	 	 	


	C.  Eligible Inventory Amount (before Inventory Reserves) (line A — line
B) 	 	 
	 	 	





 (continued on page 3 of 3) 






(a) Must agree to Section III Weekly Inventory Rollforward end of fiscal week
Inventory per stockledger at cost. 





(b) To the extent included in Gross Inventory Value. 





* The Borrowing Base Certificate is to be accompanied by the documentation
outlined in Schedule 1 to Exhibit E. 





 







 


     **Borrowing Base Certificates are to be submitted weekly, 5 business days
subsequent to each fiscal week end. 





 







 


 Exhibit E

Page 3 of 3 



 Kmart Corporation

Form of Weekly Borrowing Base Certificate*

For the Week Ended __________ 




	 	 	 	 	 
	C.	 	
Eligible Inventory Amount (before Inventory Reserves) (from page 2 of
3)	 	 
	D.	 	
Less Inventory Reserves:	 	 
	 	 	 	

	 	 	
    Shrink reserve	 	 
	 	 	 	

	 	 	
    Intracompany profit reserve	 	 
	 	 	 	

	 	 	
    General reserve	 	 
	 	 	 	

	 	 	
    RTV and charity reserve	 	 
	 	 	 	

	E.	 	
Adjusted Eligible Inventory Amount (line C minus line D)	 	 
	 	 	 	

	F.	 	
 Advance rate
	 	60%
	G.	 	
 Gross Available Inventory Amount (line E multiplied by line F)	 	 
	 	 	 	

	H.	 	
 Less additional reserves:	 	 
	 	 	 	 
	 	 	
    Martha Stewart Reserve	 	 
	 	 	 	

	 	 	
    Kmart Gift Card Liability Reserve	 	 
	 	 	 	

	 	 	
    Other reserves	 	 
	 	 	 	

	I.	 	
Net Available Inventory Amount (line G minus line H)	 	 
	 	 	 	

	J.	 	
 Effective Advance Rate (line I divided by line A)	 	 
	 	 	 	





	 	 	 	 	 
	Section III. Weekly Inventory Rollforward	 	 	 	 
	 	 	
Retail
	 	 Cost
	 	 	
Store      DC
	 	Store      DC
	Prior fiscal week’s ending Inventory per prior week’s Borrowing
Base Certificate	 	
$
	 	$
	 	 	


	

	Reconciling items (provide description)	 	
$
	 	$
	 	 	


	

	Beginning of current fiscal week Inventory per stockledger	 	
$
	 	$
	 	 	


	

	 	 	 	 	 
	      Plus: Purchases	 	 	 	 
	 	 	


	

	      Plus: Markups	 	 	 	N/A
	 	 	

	 	 
	      Plus: Invoice and receiver accruals	 	 	 	 
	 	 	


	

	      Plus: other (provide description)	 	 	 	 
	 	 	


	

	 	 	 	 	 
	      Less: Sales	 	 	 	N/A
	 	 	

	 	 
	      Less: POS markdowns	 	 	 	N/A
	 	 	

	 	 
	      Less: Permanent/hard markdowns	 	 	 	N/A
	 	 	

	 	 
	      Less: Markup cancellations	 	 	 	N/A
	 	 	

	 	 
	      Less: Shrink/waste actual	 	 	 	N/A
	 	 	

	 	 
	      Less: Shrink/waste accrual	 	 	 	N/A
	 	 	

	 	 
	Less: Other (provide description)	 	 	 	N/A
	 	 	

	 	 
	End of current fiscal week Inventory per stockledger	 	
$
	 	$
	 	 	


	

	Less: Reconciling items — activity after Friday of current fiscal
week (provide description)	 	
$
	 	$
	 	 	


	

	Ending inventory per ILR report as of Friday of current fiscal
week	 	 	 	 
	 	 	


	

		 	
$
	 	$
	 	 	


	




* The Borrowing Base Certificate is to be accompanied by the documentation
outlined in Schedule 1 to Exhibit E.





**Borrowing Base Certificates are to be submitted weekly, 5 business days
subsequent to each fiscal week end.





 







 


 Kmart Corporation

Collateral Monitoring Reporting Requirements



Documents to be Submitted to the
Bank


Unless otherwise noted, the following information is to be submitted on a
weekly or monthly basis for the Kmart Corporation by the 5th business day
subsequent to each fiscal week end or the 10th business day subsequent to each
fiscal month end:





	 
	 •	 		Weekly Borrowing Base Certificate in form of Exhibit E including:
	 
	 •	 	 	    Section I — Calculation of Excess Availability
	 
	 •	 	 	    Section II — Calculation of Net Available Inventory Amount
	 
	 •	 	 	    Section III — Weekly Inventory Rollforward (including a description of
reconciling items)
	 
	 •	 	 	    Supporting documentation (system-generated extract report where
applicable) for the Inventory balances, ineligibles and reserves per
the Agreement and Borrowing Base Certificate, the Weekly Inventory
Rollforward, and calculated amounts (to be submitted by the 6th
business day subsequent to each fiscal week end.)
	 
	 •	 	 	Inventory (weekly): (to be submitted by the 6th business day
subsequent to each fiscal week end)
	 
	 1)	 	 	Makoro Key Inventory Statistics report from stockledger by division, and
reconciliation from stockledger to Makoro (containing the information
available on such report as of the Closing Date, and, if such Key
Inventory Statistics reports are not available or no longer contain such
information, other reports containing such information) for total company
and by division, detailing sales, ending inventory at retail, ending
inventory at cost, markon %, POS and hard (permanent) markdowns, gross
margin in dollars and as a percent of sales both before and after shrink
and allowances, and inventory turns.
	 
	 2)	 	 	Reconciliation between the prior fiscal week’s ending inventory balance
per the prior week’s Borrowing Base Certificate and the current fiscal
week’s beginning inventory balance per the stockledger.
	 
	 3)	 	 	Total page per ILR report; reconciliation between the ILR report and the
stockledger .
	 
	 4)	 	 	Inventory by location per stockledger — in aggregate for stores,
distribution centers and geographic region.
	 
	 5)	 	 	Supporting documentation and analysis for accrued invoices.
	 
	 6)	 	 	Inventory by division (at cost and retail).
	 
	 7)	 	 	Listing of closed stores including date store was closed and inventory
(product mix) by division (at cost and retail), or for stores in process
of closing, date Store Closure Sale begins and inventory (product mix) by
division (at cost and retail).
	 
	 8)	 	 	Inventory balance at cost and retail for Martha Stewart inventory on
hand.
	 
	 9)	 	 	Import 2000 in-transit inventory report at cost.
	 
	 10)	 	 	Discontinued inventory report at retail.





 







 






	 	 	 	11) Seasonal apparel aging inventory report at retail.
	 
	 	 	 	• Inventory (monthly):
	 
	 	 	 	1) Reconciliation of inventory balance at cost per stockledger to general
ledger and balance sheet.
	 
	 	 	 	2) Inventory by location per stockledger — detailed by store, distribution
center and geographic region.
	 
	 	 	 	3) Consigned inventory at cost and retail by vendor.
	 
	 	 	 	4) Return to vendor and RGC from stores and DCs at cost and retail.
	 
	 	 	 	5) Physical test count results and comparison to accruals.
	 
	 	 	 	6) List of open and closed stores by geographic region.
	 
	 	 	 	7) Plan to actual results by merchandising division.





 







 






		 	 	 • Other (weekly unless otherwise noted):
	 
	 	 	 	1) Total aged accounts payable balances.
	 
	 	 	 	2) Top twenty five vendor payable balances (including terms and product
supplied).
	 
	 	 	 	3) Cash/gift card liabilities (provided monthly until August 2002 then
weekly).
	 
	 	 	 	4) Net profit reports for the top ten and bottom ten performing stores based
on store contribution. (monthly)
	 
	 	 	 	5) Results of GOB sales.
	 
	 	 	 	6) DC operating statements and performance statistics.(monthly)
	 
	 	 	 	7) Comparable stores sales % (monthly).
	 
	 	 	 	8) Financial statements (monthly).
	 
	 	 	 	9) Detail listing of accrued expenses and expenses paid to date pursuant to
Section 2.23 of the Agreement (monthly).
	 
	 	 	 	10) Fiscal week accounting calendar (annually).
	 
	 	 	 	11) Cash at Stores
	 
	 	 	 	12) Other cash available
	 
	 	 	 	13) Trade payable disbursements




	 	 	 
	 Submit to:	 	
JPMorgan
	 	 	
Collateral Agent Services Group
	 	 	
270 Park Avenue, 29th floor
	 	 	
New York, NY 10017
	 	 	
Attention: Jason Schick
	 	 	
Telephone: (212) 270-7130
	 	 	
Fax: (212) 270-7449 (or 6229)
	 	 	
E-mail: jason.schick@jpmorgan.com





 







 


SCHEDULE 3.05






SUBSIDIARIES






 







 


SCHEDULE 3.10






LITIGATION






 







 


SCHEDULE 3.12






LABOR RELATIONS






 







 


SCHEDULE 6.10






INVESTMENTS, LOANS AND ADVANCES







	 
	Arc Light Systems LLC
	Burbank Joint Venture
	Martha Stewart Living Omnimedia, Inc.
	Meldisco Corporations
	Naple Joint Venture
	Red Road Joint Venture
	Penske Auto Centers LLC
	Plaza Guaynabo L.P.
	Troy CMBS LLC
	Woodridge Joint Venture
	Worldwide Retail Exchange LLC
	3016269 Nova Scotia Co.





 







 


SCHEDULE 6.11






ASSET SALES






 







 


 SCHEDULE 7.01(m)



 Payments of Prepetition Claims Pursuant to the First-Day Orders



2. Motion for an Order Pursuant to 11 U.S.C. §§ 105(a), 365 and 507(a)(6)
Authorizing Continuation of Certain Customer Practices and Payment of Certain
Customer Service Providers






	 	 	 	 Type of Expenditure                            Permitted
Amount
	 
	 	 	 	 a. Gift Certificates:               
                    actual (no limit)
	 
	 	 	 	 b. Warranties:                        
                   actual (no limit)
	 
	 	 	 	 c. Layaway Program:
                                actual (no limit)
	 
	 	 	 	 d. Returns, Refunds and Exchanges:      actual (no limit)
	 
	 	 	 	 e. Rain Checks:
                                        actual
(no limit)
	 
	 	 	 	 f. Customer Service Providers:                     $70 million
	 
	 	 	 	 (defined as certain individuals or
entities, who (a) provide services
to the Debtors’ customers on behalf
of the Debtors under licenses or other
agreements (including, without
limitation, internet service providers),
(b) have direct contact with the Debtors’
customers or take possession of
customers’ goods or property, (c) are
perceived by customers to be employees
of the Debtors, and/or (d) are compensated
by the Debtors, who, in turn, receive
customer payments for those services)
	 
	 	 	 	 g. Coupons, Rebates and Certificates:             actual (no limit)



3. Motion for Order (I) Authorizing the Debtors To Pay Prepetition Wages,
Salaries, and Employee Benefits; (II) Authorizing the Debtors to Continue
The Maintenance of Employee Benefit Programs In the Ordinary Course; and
(III) Directing All Banks to Honor Prepetition Checks for Payment of
Prepetition Employee Obligations






	 	 	 	 Type of Expenditure
                                         &nbs
p;      Permitted Amount
	 
	 	 	 	 a. Wages, Salaries, and
Commissions:                     Actual (no limit)





 







 






	 	 	 	 b. Other Compensation: Vacation,

Personal, Sick Time, Bonus,

Business Expenses, and
Severance Payments:           
                  Actual (no limit)
	 
	 	 	 	 c. Employee Benefit Plans:  
              
              
              
      
           Actual
(no limit)
	 
	 	 	 	 d. Savings and Retirement Plans:  
                 
               
               
 Actual (no limit)
	 
	 	 	 	 e. Workers’
Compensation:           
               
               
               
     Actual (no limit)
	 
	 	 	 	 f. Other Benefits:     
                    
                
                
                
     Actual (no limit)
	 
	 	 	 	 g. Social Security, Income

Taxes, and Other Withholding:                
                
        
                
Actual (no limit)
	 
	 	 	 	 h. Administration of
Employee Benefit:        
           
           
           
Actual (no limit)



4. Motion for an Order Pursuant to 11 U.S.C. §§ 105(a), 541, and 507(a)(8)
Authorizing the Debtors to Pay Prepetition Sales, Use, Trust Fund and
Other Taxes and Related Obligations






	 	 	 	 Type of Expenditure      
                
                
                
         Permitted Amount
	 
	 	 	 	 a. State and Local
Sales and Use Tax:            
           
              
Actual (no limit)
	 
	 	 	 	 b. Other “Trust Fund” Taxes
Including with respect to

Liquor Sales, Fishing Licenses,

Postage and Lottery Tickets:          
                 
               
        Actual (no limit)



5. Motion for Entry of Order Pursuant to 11 U.S.C. §§ 105(a), 366, 503, and 507
of the Bankruptcy Code (I) Prohibiting Utilities from Altering, Refusing or
Discontinuing Services on Account of Prepetition Invoices and (II) Establishing
Procedures for Determining Requests for Additional Assurance






	 	 	 	 Type of Expenditure   
                
                
                
     Permitted Amount
	 
	 	 	 	 a. Utility Deposits:     
                
                
                
     Actual (no limit)



6. Motion for an Order Pursuant to 11 U.S.C. § 105 Authorizing Payment of
Prepetition Claims of Consignment Vendors and Customer Service Providers and
Approving Procedures Concerning Consigned Goods





 







 



	 	 Type of Expenditure	 	 Permitted Amount
	 		
	 	 a. Consignment Vendors: 	 	 Actual (no limit, but estimated at $135
million for goods sold Prepetition)
	 		
	 	 b. Customer Service
Providers: 	 	 $70 million (same as item 1f
above)




	 	 	 	 (defined as certain individuals or
entities, who: (a) provide services
to the Debtors’ customers on behalf
of the Debtors under licenses or other
agreements, (b) have direct contact
with the Debtors’ customers or take
possession of customers’ goods or property,
(c) are perceived by customers to be
employees of the Debtors, and/or (d) are
compensated by the Debtors, who, in turn,
receive customer payments for those services;
e.g., Footstar, Inc., auto service and repair
providers, greeting card companies, film
developers, food service providers, ticket
service providers and cash transfer service providers)



7. Motion for Order under 11 U.S.C. § 105(a) Authorizing the Payment of
Prepetition Claims of Certain Critical Trade Vendors






	 	 	 	 Type of Expenditure                      Permitted Amount
	 
	 	 	 	 a. Fleming Companies, Inc.:                  $76.0 million
	 
	 	 	 	 b. Handleman Company:                      $64.0 million
	 
	 	 	 	 c. Egg and Dairy Vendors:                      $25 million
	 
	 	 	 	 d. Advertising Vendors:                      $135 million




	 	 	 	 (Defined as parties necessary to
the continuation of the entire circular
advertising program, including circular
layout and development, commodity paper
procurement, circular printing, and newspaper
placement and distribution)





 







 





8. Motion for an Order Pursuant to 11 U.S.C. § 105(a) Authorizing Payment of
Certain Shipping and Delivery Charges






	 	 	 	Type of Expenditure                      Permitted Amount
	 
	 	 	 	a. Shippers                      Actual (no limit)




	 	 	 	 (Defined as approximately 200
regional, domestic and foreign
commercial common carriers,
movers, shippers, freight
forwarders/consolidators, customers
brokers, shipping auditing services,
deconsolidators, distributors and
certain other third-party service providers)




	 	 	 	b. Armored Car Carriers: Actual (no limit)



9. Motion Pursuant to 11 U.S.C. §§ 105, 362, 503 and 546 for Entry of Interim
and Final Orders (I) Providing Administrative Expense Treatment for Certain
Holders of Valid Reclamation Claims and (II) Establishing Procedures for
Resolution and Payment of Reclamation Claims






	 	 	 	 Type of Expenditure                      Permitted Amount
	 
	 	 	 	 a. Reclamation Claims                      Actual (no limit)



10. Motion for an Order Pursuant to 11 U.S.C. §§ 105(a), 503(b) and 546(b)
Authorizing Payment of Contractors and Service Providers in Satisfaction of
Liens






	 	 	 	Type of Expenditure                      Permitted Amount
	 
	 	 	 	a. Mechanics’ Liens                      Actual (no limit)


	 
	 	 	 	b. Service Providers                     
Actual (no limit)




	 	 	 	(defined as vendors who repair and
maintain Debtors’ equipment and may
have a possessory lien upon the Debtors’
property in their possession).



11. Motion for an Order Pursuant to 11 U.S.C. §§ 105(a) and 363 Authorizing
Payment of Prepetition Obligations Necessary to Obtain Imported Merchandise






	 	 	 	 Type of Expenditure                      Permitted Amount
	 
	 	 	 	 a. Foreign Vendors $20 million (estimated)





 







 





12. Motion for an Order Pursuant to 11 U.S.C. §§ 363 and 546(g)* Authorizing
Debtors to Implement a Vendor Return Program and Granting Related Relief






	 	 	 	Type of Expenditure                      Permitted Amount
	 
	 	 	 	a. Vendor Return Program                      Actual (no limit)




	 	 	 	 (defined as the return of goods to vendors
who extend the Debtors postpetition trade
terms for a credit against such vendors’ prepetition claims)



13. Motion for Entry of Interim and Final Orders (I) Providing Administrative
Expense Treatment for PACA and PASA Trust Claims and (II) Establishing
Procedures for Resolution and Payment of PACA and PASA Claims






	 	 	 	 Type of Expenditure                      Permitted Amount
	 
	 	 	 	 a. PACA/PASA Claims                      Actual (no limit)




	 	 	 	 (defined as prepetition claims under
the Perishable Agricultural Commodities
Act of 1930 and Packers and Stockyards
Act of 1921)