AMENDED AND RESTATED CREDIT AGREEMENT

EXHIBIT 10.3

AMENDED AND RESTATED CREDIT AGREEMENT

Dated as of May 21, 2009

among

SEARS HOLDINGS CORPORATION

and

SEARS ROEBUCK ACCEPTANCE CORP.

and

KMART CORPORATION,

as Borrowers

and

THE LENDERS NAMED HEREIN,

and

THE ISSUING LENDERS NAMED HEREIN,

and

BANK OF AMERICA, N.A.,

as Administrative Agent, Co-Collateral Agent and Swingline Lender

and

WELLS FARGO RETAIL FINANCE, LLC,

and

GENERAL ELECTRIC CAPITAL CORPORATION

as Co-Syndication Agents and Co-Collateral Agents

and

JPMORGAN CHASE BANK, N.A.

and

BARCLAYS BANK PLC,

as co-Documentation Agents

and

BANC OF AMERICA SECURITIES LLC, WELLS FARGO RETAIL FINANCE, LLC and GE CAPITAL

MARKETS, INC ., as Joint Lead Arrangers and Joint Bookrunners

TABLE OF CONTENTS

 

 

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AMENDED AND RESTATED AGREEMENT (this “ Agreement ”) dated as of May 21, 2009, among SEARS HOLDINGS CORPORATION, a Delaware corporation (“ Holdings ”), SEARS ROEBUCK ACCEPTANCE CORP., a Delaware corporation (“ SRAC ”), KMART CORPORATION, a Michigan corporation (“ Kmart Corp. ”), the banks, financial institutions and other institutional lenders listed on the signature pages hereof (the “ Lenders ”), the ISSUING LENDERS party hereto, BANK OF AMERICA, N.A. (the “ Bank ”), as administrative agent (the “ Agent ”), Co-Collateral Agent, and Swingline Lender, WELLS FARGO RETAIL FINANCE, LLC (“ WFRF ”) and GENERAL ELECTRIC CAPITAL CORPORATION (“ GECC ”), as co-collateral agents (collectively, with the Bank in such capacity, the “ Co-Collateral Agents ”) and as Co-Syndication Agents, JPMORGAN CHASE BANK, N.A. and BARCLAYS BANK PLC, as co-documentation agents (the “ Co-Documentation Agents ”), and BANC OF AMERICA SECURITIES LLC (“ BAS ”), WELLS FARGO RETAIL FINANCE, LLC and GE CAPITAL MARKETS, INC., as joint lead arrangers and joint bookrunners (collectively, the “ Lead Arrangers ”).

W I T N E S S E T H :

WHEREAS, Holdings, SRAC, Kmart Corp., the Lenders, Citicorp USA, Inc. and Bank of America, N.A., as syndication agents, Barclays Bank PLC, Lehman Commercial Paper Inc., HSBC Bank USA, Merrill Lynch Bank USA, Morgan Stanley Senior Funding, Inc., The Royal Bank of Scotland, PLC and Wachovia Bank National Association, as documentation agents, J.P. Morgan Securities Inc., Citigroup Global Marketers Inc., and Banc of America Securities LLC, as lead arrangers and joint bookrunners, and JPMorgan Chase Bank, N.A., as administrative agent (the “ Original Agent ”), are party to that certain U.S. $4,000,000,000 Five-Year Credit Agreement dated as of February 22, 2005 (as amended from time to time and in effect, the “ Existing Credit Agreement ”);

WHEREAS, in accordance with Section 8.09 of the Existing Credit Agreement, (i) the Original Agent desires to resign as Agent under the Existing Credit Agreement and the other Loan Documents, (ii) the Required Lenders desire to appoint Bank of America, N.A. as successor Agent, and (iii) the Borrowers desire to approve the Bank’s appointment as successor Agent, each as provided herein; and

WHEREAS, in accordance with Section 9.01 of the Existing Credit Agreement, the Borrowers, Holdings, the Required Lenders (as defined in the Existing Credit Agreement) and the Agent desire to amend and restate the Existing Credit Agreement as provided herein.

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby agree that the Existing Credit Agreement shall be amended and restated, in its entirety to read as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01. Certain Defined Terms . As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“ Accelerated Borrowing Base Delivery Event ” means either (i) the occurrence and continuance of any Event of Default, or (ii) the failure of the Borrowers for three (3) days (whether or not consecutive) during any thirty (30) day period to maintain Capped Excess Availability equal to at least 25% of the Line Cap. For purposes of this Agreement, the occurrence of an Accelerated Borrowing Base Delivery Event shall be deemed continuing at the Co-Collateral Agents’ option (x) so long as such Event of Default shall be continuing, and/or (y) (1) if the Accelerated Borrowing Base Delivery Event arises as a result of the Borrowers’ failure to maintain Capped Excess Availability as required hereunder during the Holiday

Season, until the first day Capped Excess Availability exceeds 25% of the Line Cap, in which case an Accelerated Borrowing Base Delivery Event shall no longer be deemed to be continuing for purposes of this Agreement, and (2) if the Accelerated Borrowing Base Delivery Event arises as a result of the Borrowers’ failure to maintain Capped Excess Availability as required hereunder during any time other than the Holiday Season, until Capped Excess Availability has exceeded 25% of the Line Cap for thirty (30) consecutive calendar days, in which case an Accelerated Borrowing Base Delivery Event shall no longer be deemed to be continuing for purposes of this Agreement. The termination of an Accelerated Borrowing Base Delivery Event as provided herein shall in no way limit, waive or delay the occurrence of a subsequent Accelerated Borrowing Base Delivery Event in the event that the conditions set forth in clauses (i) or (ii) hereof again arise.

“ ACH ” means automated clearing house transfers.

“ Acquisition ” means, with respect to any Person (a) a purchase of a controlling interest in, the equity interests of any other Person, (b) a purchase or other acquisition of all or substantially all of the assets or properties of, another Person or of any business unit of another Person, or (c) any merger or consolidation of such Person with any other Person or other transaction or series of transactions resulting in the acquisition of all or substantially all of the assets, or a controlling interest in the equity interests, of any Person, in each case in any transaction or group of transactions which are part of a common plan.

“ Additional Commitment Lender ” shall have the meaning provided therefor in Section 2.18(d).

“ Adjusted Consolidated EBITDA ” means, for any period, Consolidated Net Income for such period plus (a) without duplication and to the extent deducted in determining Consolidated Net Income for such period, the sum of (i) Consolidated Interest Expense for such period, (ii) income tax expense for such period, (iii) all amounts attributable to depreciation and amortization expense for such period, (iv) any items of loss resulting from the sale of assets other than in the ordinary course of business for such period, (v) any non-cash charges for tangible or intangible impairments or asset write downs for such period (excluding any write downs or write-offs of Inventory other than write-downs or write-offs of Inventory related to up to 100 store closings in any four consecutive fiscal quarters), and (vi) any other non-cash charges for such period (including non-cash charges arising from share-based payments to employees or directors, but excluding (1) any non-cash charge already added back to Consolidated Net Income in the calculation of Adjusted Consolidated EBITDA in a prior period, (2) any non-cash charge that relates to the write-down or write-off of Inventory other than write-downs or write-offs of Inventory related to up to 100 store closings in any four consecutive fiscal quarters, and (3) non-cash charges for which a cash payment is required to be made in that or any other period), minus (b) without duplication and to the extent included in Consolidated Net Income for such period, (i) any items of gain resulting from the sale of assets other than in the ordinary course of business for such period, (ii) any cash payments made during such period in respect of non-cash charges described in clause (a)(vi) taken in a prior period and (iii) any non-cash items of income for such period, all calculated on a Consolidated basis in accordance with GAAP (excluding any non-cash income already deducted from Consolidated Net Income in the calculation of Adjusted Consolidated EBITDA in a prior period).

“ Adjustment Date ” shall have the meaning provided therefor in Schedule IA .

“ Advance ” means any advance by a Lender to any Borrower as part of a Borrowing.

“ Affiliate ” means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term “control” (including the terms “controlling”, “controlled by” and “under common control with”) of a Person means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person by contract or otherwise.

“ Agent ” has the meaning provided in the Preamble, or any successor thereto.

 

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“ Agent’s Account ” means the account of the Agent maintained by the Agent at Bank of America, N.A., Account No. [Omitted].

“ Aggregate Commitments ” means the Commitments of all the Lenders. As of the Effective Date the Aggregate Commitments are $4,118,620,000.

“ Applicable Lending Office ” means, with respect to each Lender, such Lender’s Domestic Lending Office in the case of a Base Rate Advance and such Lender’s Eurodollar Lending Office in the case of a Eurodollar Rate Advance.

“ Applicable Margin ” means, initially, (a) 0.875% per annum for Eurodollar Rate Advances and (b) 0% per annum for Base Rate Advances; provided , that on and after the first Adjustment Date occurring after the Effective Date, the Applicable Margin will be determined pursuant to the Pricing Grid.

“ Application ” means an application, in such form as the Issuing Lender may specify from time to time, requesting the Issuing Lender to open a Letter of Credit.

“ Approved Fund ” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

“ Assignment and Acceptance ” means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of Exhibit B hereto.

“ Authorized Officer ” means, as to Holdings, any Borrower or any other Loan Party, its president, chief executive officer, chief financial officer, vice president and controller, vice president and treasurer, vice president, finance, executive vice president, finance or any other person designated by it and acceptable to the Agent. Any document delivered hereunder that is signed by an Authorized Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Authorized Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

“ Availability Reserves ” means, without duplication of any other reserves or items that are otherwise addressed or excluded through eligibility criteria, such reserves as any Co-Collateral Agent from time to time determines in its Permitted Discretion as being appropriate (a) to reflect the impediments to the Co-Collateral Agents’ ability to realize upon the Collateral, (b) to reflect claims and liabilities that such Co-Collateral Agent determines will need to be satisfied in connection with the realization upon the Collateral, (c) to reflect criteria, events, conditions, contingencies or risks which adversely affect any component of the Borrowing Base, or (d) to reflect that a Default or an Event of Default then exists. Without limiting the generality of the foregoing, Availability Reserves may include, in any Co-Collateral Agent’s Permitted Discretion (but are not limited to) reserves based on: (i) customs duties, and other costs to release Inventory which is being imported into the United States, (ii) outstanding Taxes and other governmental charges, including, without limitation, ad valorem, real estate, personal property, sales, and other Taxes and claims of the PBGC, which may have priority over the interests of the Co-Collateral Agents in the Collateral, (iii) salaries, wages and benefits due to employees of any Loan Party, (iv) reasonably anticipated changes in the Net Orderly Liquidation Value between appraisals, (v) warehousemen’s or bailees’ charges and other Permitted Encumbrances which may have priority over the interests of the Co-Collateral Agents in the Collateral, (vi) after the occurrence and during the continuance of a Cash Dominion Event, Cash Management Reserves, (vii) after the occurrence and during the continuance of a Cash Dominion Event, Bank Products Reserves, (viii) after the occurrence and during the continuance of a Cash Dominion Event, amounts due to vendors on account of consigned goods and commissions due to Persons which operate Dealer Stores, (ix) rent expense at leased Stores and DC locations, (x) royalties payable to non-Loan Parties in respect of licensed merchandise (other than the Martha Stewart Reserve), (xi) the Martha Stewart Reserve, (xii) the Gift Card Liability Reserve, (xiii) Customer Deposits Reserve, (xiv) PACA Liability Reserves, (xv) PASA Liability Reserves, (xvi) after the occurrence and during the continuance of a Cash

 

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Dominion Event, amounts due to any state’s lottery commission or other equivalent agency, authority or entity, or to any other Governmental Authority involved in the administration or regulation of lotteries, (xvii) Credit Card Receivables owed to Sears Protection Company (PR), Inc. and its Subsidiaries, provided that, until the Co-Collateral Agents have received the initial commercial finance examination after the Effective Date (at which time the Co-Collateral Agents may adjust such reserve), such Availability Reserve shall not exceed 1% of all Credit Card Receivables of the Loan Parties, and (xviii) the Debt Maturity Reserve. Upon the determination by any Co-Collateral Agent that an Availability Reserve should be established or modified, such Co-Collateral Agent shall notify the Agent in writing and the Agent shall thereupon establish or modify such Availability Reserve, subject to the expiration of the Reserve Notice Period.

“ Available Cash ” means, on any date, (a) the aggregate amount of cash and Cash Equivalents of Holdings and its Subsidiaries on such date (determined on a Consolidated basis and in accordance with GAAP) minus (b) $125,000,000.

“ Available Commitment ” means as to any Lender at any time, an amount equal to the excess, if any, of (a) such Lender’s Commitment then in effect over (b) such Lender’s Extensions of Credit then outstanding; provided , that in calculating any Lender’s Extensions of Credit for the purpose of determining such Lender’s Available Commitment pursuant to Section 2.05(a), the aggregate principal amount of Swingline Advances then outstanding shall be deemed to be zero.

“ Bank ” has the meaning provided in the Preamble and its successors.

“ Bank Products ” means any services or facilities provided to any Loan Party by any Lender or any of its Affiliates on account of (a) each Swap Contract that (x) is in effect on the Effective Date with a counterparty that is a Credit Party as of the Effective Date or (y) is entered into after the Effective Date with any counterparty that is a Credit Party at the time such Swap Contract is entered into, and (b) leasing (but only to the extent that the Borrowers and the Credit Party furnishing such lease notify the Agent in writing that such leases are to be deemed Bank Products hereunder), but excluding Cash Management Services.

“ Bank Product Reserves ” means such reserves as any Co-Collateral Agent may from time to time determine in its Permitted Discretion as being appropriate to reflect the liabilities and obligations of the Loan Parties with respect to Bank Products then provided or outstanding; provided that in the event that any counterparty to a Swap Contract requires that the Loan Parties provide cash collateral to secure such Swap Contract, the amount of the Bank Product Reserve imposed by the Co-Collateral Agents with respect to such Swap Contract shall take into consideration the amount of such cash collateral.

“ Banker’s Acceptance ” means a time draft or bill of exchange or other deferred payment obligation relating to a Commercial Letter of Credit which has been accepted by the Issuing Lender.

“ BAS ” has the meaning provided in the Preamble.

“ Base Rate ” means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of (a) the rate of interest announced publicly by JPMorgan Chase Bank, N.A. in New York, New York, from time to time, as its prime rate, and (b) one half of one percent per annum above the Federal Funds Rate.

“ Base Rate Advance ” means an Advance that bears interest as provided in Sections 2.08(a)(i) and 2.08(b)(i), as applicable.

“ Blocked Accounts ” means the Blocked Accounts described in Section 6.01(m)(i) and any additional deposit accounts that become subject to Blocked Account Agreements pursuant to Section 6.01(i)(iv).

 

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“ Blocked Account Agreement ” means with respect to a Blocked Account established by a Loan Party, an agreement, in form and substance reasonably satisfactory to the Co-Collateral Agents, establishing control (as defined in the UCC) of such account by the Bank (as “Control Co-Collateral Agent”) and whereby the bank maintaining such account agrees, upon the occurrence and during the continuance of a Cash Dominion Event, to comply only with the instructions originated by the Bank (or any other Co-Collateral Agent which shall succeed the Bank as “Control Co-Collateral Agent” thereunder), without the further consent of any other Person.

“ Blocked Account Bank ” means JPMorgan Chase Bank, N.A., Bank of New York, Bank of America, N.A., and each other bank with whom deposit accounts are maintained in which funds of any of the Loan Parties are concentrated and with whom a Blocked Account Agreement has been, or is required to be, executed in accordance with the terms hereof.

“ Borrower Information ” has the meaning specified in Section 9.08.

“ Borrowers ” means, collectively, SRAC and Kmart Corp.; provided that in the event SRAC is dissolved, merged with and into Holdings or any Subsidiary of Holdings or otherwise ceases to exist in accordance with Section 6.01(d), then Holdings shall designate that Holdings or a direct wholly owned Domestic Subsidiary of Holdings become a Borrower for all purposes of the Loan Documents.

“ Borrowing ” means a borrowing consisting of simultaneous Advances of the same Type made by each of the applicable Lenders pursuant to Section 2.01 or Section 2.03.

“ Borrowing Base ” means, at any time, an amount equal to (a) 85% of the aggregate outstanding Eligible Credit Card Accounts Receivable at such time plus (b) 85% of the Eligible Pharmacy Receivables at such time plus (c) the lesser of (i) 70% of the Net Eligible Inventory at such time and (ii) 80% of the Net Orderly Liquidation Value at such time, minus (d) 100% of the then Availability Reserves. The Agent may, in its Permitted Discretion after the expiration of the Reserve Notice Period, adjust Availability Reserves and Inventory Reserves used in computing the Borrowing Base.

“ Borrowing Base Certificate ” means a certificate, signed by an Authorized Officer of Holdings, substantially in the form of Exhibit C or another form which is reasonably acceptable to the Co-Collateral Agents in their Permitted Discretion.

“ Business Day ” means a day of the year on which banks are not required or authorized by law to close in New York, New York or Boston, Massachusetts or, in the case of matters relating to SRAC, Greenville, Delaware or, in the case of matters relating to Kmart Corp., Detroit, Michigan, and, if the applicable Business Day relates to any Eurodollar Rate Advances, a day of the year on which dealings are carried on in the London interbank market.

“ Capital Expenditures ” means, with respect to any Person for any period, all cash expenditures made or costs incurred for the acquisition or improvement of fixed or capital assets of such Person, in each case that are (or should be) set forth as capital expenditures in a consolidated statement of cash flows of such Person for such period, in each case prepared in accordance with GAAP.

“ Capital Lease Obligations ” means, with respect to any Person for any period, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as liabilities on a balance sheet of such Person under GAAP and the amount of which obligations shall be the capitalized amount thereof determined in accordance with GAAP.

“ Capped Excess Availability ” means, at any time, an amount equal to (a) the Line Cap, minus (b) the Total Extensions of Credit.

 

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“ Cash Dominion Event ” means either (a) the occurrence and continuance of an Event of Default, or (b)(i) Capped Excess Availability at any time (other than during the Holiday Season) is less than the greater of 20% of the Line Cap and $250,000,000 for three (3) days (whether or not consecutive) during any thirty (30) day period, or (ii)(A) Capped Excess Availability at any time during the Holiday Season is less than the greater of 10% of the Line Cap and $100,000,000 for three (3) days (whether or not consecutive) during any thirty (30) day period, or (B) Uncapped Excess Availability at any time during the Holiday Season is less than 30% of the Borrowing Base. For purposes hereof, the occurrence of a Cash Dominion Event shall be deemed continuing at the Co-Collateral Agents’ option (i) so long as such Event of Default is continuing, and/or (ii) if the Cash Dominion Event arises as a result of the Borrowers’ failure to achieve Capped Excess Availability or Uncapped Excess Availability at the times and in the amounts described in the preceding sentence, until Capped Excess Availability and/or Uncapped Excess Availability, as applicable, has exceeded such amounts, in each case for thirty (30) consecutive Business Days, in which case a Cash Dominion Event shall no longer be deemed to be continuing for purposes of this Agreement; provided that a Cash Dominion Event shall be deemed continuing (even if Capped Excess Availability and/or Uncapped Excess Availability exceeds such amount for thirty (30) consecutive Business Days) after a Cash Dominion Event has occurred on two (2) occasions during any twelve month period after the Effective Date if the first such Cash Dominion Event has been discontinued and shall continue until the expiration of the twelve month period ending after the commencement of the second Cash Dominion Event. The termination of a Cash Dominion Event as provided herein shall in no way limit, waive or delay the occurrence of a subsequent Cash Dominion Event in the event that the conditions set forth in this definition again arise.

“ Cash Equivalents ” means investments of Holdings and its Subsidiaries recorded as cash or cash equivalents in accordance with GAAP.

“ Cash Management Reserves “ means such reserves as any Co-Collateral Agent, from time to time, determines in its Permitted Discretion as being appropriate to reflect the reasonably anticipated liabilities and obligations of the Loan Parties with respect to Cash Management Services then provided or outstanding.

“ Cash Management Services ” means any one or more of the following types of services or facilities provided to any Loan Party by any Lender or any of its Affiliates: (a) ACH transactions, (b) cash management services, including, without limitation, controlled disbursement services, treasury, depository, overdraft, and electronic funds transfer services, (c) foreign exchange facilities, (d) credit card processing services, (e) credit or debit cards and (f) purchase cards (but only to the extent that, prior to the occurrence and continuance of any Default or Event of Default, the Borrowers and the Credit Party issuing such purchase cards notify the Agent in writing that such purchase cards are to be deemed Cash Management Services hereunder).

“ Co-Collateral Agents ” has the meaning provided in the Preamble and any successors thereto.

“ Co-Documentation Agents ” has the meaning provided in the Preamble and any successors thereto.

“ Collateral ” means all property of the Loan Parties, now owned or hereafter acquired, upon which a Lien (excluding any license granted to the Co-Collateral Agents (and deemed to be a Lien pursuant to the definition thereof) for the sole purpose of enabling the Co-Collateral Agents to exercise rights and remedies with respect to the Liens granted on the Collateral set forth in Section 3.1 of the Guarantee and Collateral Agreement) is purported to be created by any Security Document.

“ Commercial L/C ” means a commercial documentary Letter of Credit under which the Issuing Lender agrees to make payments in Dollars for the account of any Borrower, on behalf of any Group Member, in respect of obligations of such Group Member in connection with the purchase of goods or services in the ordinary course of business.

 

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“ Commitment ” means, as to any Lender, the obligation of such Lender to make Revolving Advances and participate in Swingline Advances and Letters of Credit in an aggregate principal amount and/or face amount up to (a) the amount set forth opposite such Lender’s name on Schedule 1.01 or (b) if such Lender has entered into any Assignment and Acceptance, the amount set forth for such Lender in the Register maintained by the Agent pursuant to Section 9.07(d), as such amount may be reduced or increased pursuant to Section 2.06 or Section 2.18.

“ Commitment Fee Rate ” means, initially, 0.175% per annum; provided , that on and after the first Adjustment Date occurring after the Effective Date, the Commitment Fee Rate will be determined pursuant to the Pricing Grid.

“ Commitment Percentage ” means, as to any Lender at any time, the percentage which such Lender’s Commitment then constitutes of the Aggregate Commitments or, at any time after all of the Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Lender’s Advances then outstanding plus such Lender’s participation in Swingline Loans and L/C Obligations constitutes of the aggregate principal amount of the Advances, Swingline Loans and L/C Obligations then outstanding, provided , that , after the Commitment of any Non-Extending Lender shall have expired or terminated (other than as a result of the termination of all Commitments pursuant to Section 2.06 hereof or the exercise of remedies pursuant to Article VII hereof) and all Obligations owed to such Non-Extending Lender have been paid in full, (x) the Commitment Percentage of such Non-Extending Lender for purposes of Section 8.09 hereof shall be its Commitment Percentages immediately prior to such date, and (y) the Commitment Percentages of the Extending Lenders shall be appropriately adjusted for all other purposes to reflect the termination of the Commitments of the Non-Extending Lenders.

“ Commonly Controlled Entity ” means an entity, whether or not incorporated, that is under common control with any Borrower within the meaning of Section 4001 of ERISA or is part of a group that includes any Borrower and that is treated as a single employer under Section 414 of the Internal Revenue Code.

“ Consolidated ” refers to the consolidation of accounts of Holdings and its Subsidiaries, excluding Sears Canada and OSH, in accordance with GAAP and as presented on a GAAP basis.

“ Consolidated Average Net Debt ” means, as of the last day of any period, (a) the sum of (i) Consolidated Net Debt as of such day and (ii) the sum of Consolidated Net Debt as of the end of each of the three immediately preceding fiscal quarters divided by (b) 4.

“ Consolidated EBITDA ” means for any period, Consolidated Net Income for such period plus , without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) provision for income taxes, (b) interest expense, (c) depreciation and amortization expense, (d) results attributable to the minority interest owned by any Person in a non-wholly owned Subsidiary of Holdings to the extent such Subsidiary is a Loan Party, (e) expenses relating to the Kmart Corp. bankruptcy case in an amount not to exceed $12,000,000 in any twelve month period, (f) the impact of conforming accounting policies as a result of the Merger through the first full fiscal year following the Merger, (g) all nonrecurring expenses and special charges related to the Merger incurred within twelve months after the date of the Merger, (h) non-cash charges arising from share-based payments (as defined in accordance with GAAP) to employees or directors and (i) any extraordinary or other non-recurring non-cash expenses or losses, and minus , to the extent included in the statement of such Consolidated Net Income for such period, any cash payments made during such period in respect of items added back pursuant to clause (i) above subsequent to the fiscal quarter in which the relevant non-cash expenses or losses were reflected as a charge in the statement of Consolidated Net Income, all as determined on a Consolidated basis. For the purposes of calculating Consolidated EBITDA for any fiscal quarter pursuant to any determination of the Consolidated Leverage Ratio, (i) if at any time during such fiscal quarter, Holdings or any of its Subsidiaries (other than Sears Canada) shall have made any Material Disposition, the Consolidated EBITDA for such fiscal quarter shall be reduced by an amount equal to the

 

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Consolidated EBITDA (if positive) attributable to the property that is the subject of such Material Disposition for such fiscal quarter or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such fiscal quarter and (ii) if during such fiscal quarter Holdings or any of its Subsidiaries (other than Sears Canada) shall have made a Material Acquisition, Consolidated EBITDA for such fiscal quarter shall be calculated after giving pro forma effect thereto as if such Material Acquisition occurred on the first day of such fiscal quarter. As used in this definition, “ Material Acquisition ” means any acquisition of property or series of related acquisitions of property that (a) constitutes assets comprising all or substantially all of an operating unit of a business or constitutes all or substantially all of the common stock of a Person and (b) involves the payment of consideration by Holdings and its Subsidiaries (other than Sears Canada) in excess of $100,000,000; and “ Material Disposition ” means any Disposition of property or series of related Dispositions of property that yields gross proceeds to Holdings or any of its Subsidiaries in excess of $100,000,000.

“ Consolidated Interest Expense ” means for any period for any Person, total interest expense of such Person (including that attributable to Capital Lease Obligations and other expenses classified as interest expense in accordance with GAAP) on a Consolidated basis with respect to all outstanding Debt of such Person, as determined in accordance with GAAP.

“ Consolidated Leverage Ratio ” means, as of any given day, the ratio of (a) Consolidated Average Net Debt on such day to (b) Consolidated EBITDA for the four immediately preceding fiscal quarters for which financial statements are available.

“ Consolidated Net Debt ” means, on any date, Consolidated Total Debt minus Available Cash.

“ Consolidated Net Income ” means, for any period, the consolidated net income (or loss) of Holdings and its Subsidiaries, determined on a Consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of Holdings or is merged into or consolidated with Holdings or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than a Subsidiary of Holdings) in which Holdings or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by Holdings or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary of Holdings (other than a Loan Party) to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any contractual obligation (other than under any Loan Document) or Requirement of Law applicable to such Subsidiary.

“ Consolidated Total Debt ” means, at any date, the aggregate principal amount of all Debt of Holdings and its Subsidiaries at such date, determined on a Consolidated basis in accordance with GAAP, but excluding (i) issued but not funded letters of credit, (ii) reimbursement obligations which are characterized as trade payables and are not overdue with respect to trade letters of credit (other than Letters of Credit issued hereunder) and (iii) contingent obligations.

“ Convert ”, “ Conversion ” and “ Converted ” each refers to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.09 or 2.10.

“ Covenant Compliance Event ” means (i) Capped Excess Availability at any time (other than during the Holiday Season) is less than the greater of 15% of the Line Cap and $250,000,000, or (ii)(A) Capped Excess Availability at any time during the Holiday Season is less than the greater of 10% of the Line Cap and $175,000,000, or (B) Uncapped Excess Availability at any time during the Holiday Season is less than 30% of the Borrowing Base.

“ Credit Card Accounts Receivable ” means each Account (as defined in the UCC) together with all income, payments and proceeds thereof, owed by a credit card payment processor or an issuer of credit cards to a Loan Party resulting from charges by a customer of a Group Member (other than Sears Canada)

 

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on credit cards issued by such issuer in connection with the sale of goods by a Group Member (other than Sears Canada), or services performed by a Group Member (other than Sears Canada), in each case in the ordinary course of its business.

“ Credit Card Notification ” has the meaning specified in Section 6.01(m)(i)(A).

“ Credit Card Processors ” has the meaning specified in Section 6.01(m)(i)(A).

“ Credit Party ” or “ Credit Parties ” means (a) individually, (i) each Lender and its Affiliates, (ii) the Agent, (iii) each Co-Collateral Agent, (iv) each Issuing Lender, (v) each Lead Arranger, and (vi) the successors and assigns of each of the foregoing, and (b) collectively, all of the foregoing.

“ Customer Deposits Reserve ” shall mean, at any time, a reserve equal to the aggregate outstanding amount of customer deposits of the Loan Parties at such time.

“ Customs Broker Agreement ” means an agreement in substantially the form attached hereto as Exhibit H , or such other form as the Co-Collateral Agents may reasonably agree, among a Loan Party, a customs broker or other carrier, and the Co-Collateral Agents, in which the customs broker or other carrier acknowledges that it has control over and holds the documents evidencing ownership of the subject Inventory for the benefit of the Co-Collateral Agents and agrees, upon notice from the Co-Collateral Agents (which shall not be furnished unless an Event of Default is continuing), to hold and dispose of the subject Inventory solely as directed by the Co-Collateral Agents.

“ DC ” means any distribution center owned or leased and operated by any Loan Party.

“ DDA ” means each checking, savings or other demand deposit account maintained by any of the Loan Parties.

“ Dealer Store ” means any store constituting a “Sears Authorized Retail Dealer” store, owned or leased and operated by a Person (other than a Loan Party or any of its Subsidiaries) pursuant to a “Sears Authorized Retail Dealer Agreement “ or a “Sears Hometown Store Agreement.”

“ Debt ” of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money (excluding interest payable thereon unless such interest has been accrued and added to the principal amount of such indebtedness), (b) all obligations of such Person for the deferred purchase price of property or services (other than (i) trade payables incurred in the ordinary course of such Person’s business and (ii) any such obligations which are due less than twelve months from the date of incurrence), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments (other than performance, surety and appeals bonds arising in the ordinary course of business and other than the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business) or in respect of bankers’ acceptances or letters of credit, (d) all obligations 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), (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) all direct recourse payment obligations of such Person in respect of any accounts receivable sold by such Person, (g) all Debt of others referred to in clauses (a) through (f) above or clause (h) below and other payment obligations guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (1) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (2) 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 Debt or to assure the holder of such Debt against loss, (3) 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

 

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(4) otherwise to assure a creditor against loss, and (h) all Debt referred to in clauses (a) through (g) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt.

“ Debt Maturity Reserve ” means an Availability Reserve in an amount not to exceed the outstanding balance of Debt of the Loan Parties for borrowed money maturing (A) prior to the Extended Termination Date and (B) within sixty (60) days of any date of determination of the Debt Maturity Reserve; provided that such Debt Maturity Reserve shall be eliminated when (i) such Debt is repaid, refinanced or extended as provided herein or (ii) provision for the repayment or refinancing of such Debt (other than through proceeds of Revolving Advances) shall have been made to the satisfaction of the Co-Collateral Agents in their Permitted Discretion.

“ Default ” means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both.

“ Defaulting Lender ” means any Lender (as reasonably determined by the Agent) that (a) has failed to fund any portion of the Advances, participations in Letters of Credit or participations in Swingline Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, (c) has failed, within three (3) Business Days after request by the Agent, to confirm that it will comply with the terms of this Agreement relating to its Commitments, provided that such Lender shall cease to be a Defaulting Lender under this clause (c) upon the Agent’s receipt of such confirmation, or (d) has been deemed insolvent by any Governmental Authority or become the subject of a bankruptcy or insolvency proceeding.

“ Deteriorating Lender ” means any Defaulting Lender or any Lender as to which (a) any of the Issuing Lenders or the Swingline Lender has a good faith belief that such Lender or its Subsidiary has defaulted in fulfilling its obligations under one or more other syndicated credit facilities, or (b) such Lender or a Person that controls such Lender has been deemed insolvent by any Governmental Authority or become the subject of a bankruptcy, insolvency or similar proceeding; provided that a Lender shall not be a Deteriorating Lender solely by virtue of the ownership or acquisition of any equity interest in such Lender or the Person controlling such Lender by a Governmental Authority.

“ Disposition ” means any sale or transfer of property other than goods held for sale in the ordinary course of business.

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

“ Domestic Lending Office ” means, with respect to any Lender, the office of such Lender specified as its “Domestic Lending Office” on the signature pages hereof or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrowers and the Agent.

“ Domestic Subsidiary ” means any Subsidiary organized under the laws of the United States of America, any State thereof or the District of Columbia.(excluding, for the avoidance of doubt, any Subsidiary organized under the laws of Puerto Rico).

“ Effective Date ” means the date on which the conditions precedent set forth in Section 4.01 shall have been satisfied.

“ Eligible Assignee ” means (a) a commercial bank or any other Person engaged in the business of making asset based or commercial loans, which bank or Person, together with its Affiliates, has a combined capital and surplus in excess of $300,000,000 and which bank or Person is approved by the Agent, and,

 

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unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with Section 9.07, the Borrowers, in each case such approval not to be unreasonably withheld or delayed, (b) an existing Lender or an Affiliate of an existing Lender or an Approved Fund, (c) any Permitted Holder Lender, or (d) with respect to Additional Commitment Lenders only, the United States of America or any agency thereof, the U.S. Treasury Department’s Troubled Asset Relief Program or any Person whose participation in this Agreement is financed by the Federal Reserve’s Term Asset-Backed Securities Loan Facility; provided that neither the Borrowers nor an Affiliate of the Borrowers (other than a Permitted Holder Lender) shall qualify as an Eligible Assignee.

“ Eligible Credit Card Accounts Receivable ” means at the time of any determination thereof, each Credit Card Account Receivable that satisfies the following criteria at the time of its creation and continues to meet the same at the time of such determination: such Credit Card Account Receivable (i) has been earned and represents the bona fide amounts due to a Loan Party from a credit card payment processor and/or credit card issuer, and in each case originated in the ordinary course of business of the applicable Loan Party and (ii) is not ineligible for inclusion in the calculation of the Borrowing Base pursuant to any of clauses (a) through (j) below. Without limiting the foregoing, to qualify as an Eligible Credit Card Account Receivable, an Account shall indicate no person other than a Loan Party as payee or remittance party. In determining the amount to be so included, the face amount of an Account shall be reduced by, without duplication, to the extent not reflected in such face amount, (i) the amount of all accrued and actual discounts, claims, credits or credits pending, promotional program allowances, price adjustments, finance charges, credit card processor fees or other allowances (including any amount that the applicable Loan Party may be obligated to rebate to a customer, a credit card payment processor, or credit card issuer pursuant to the terms of any agreement or understanding (written or oral)) and (ii) the aggregate amount of all cash received in respect of such Account but not yet applied by the applicable Loan Party to reduce the amount of such Credit Card Account Receivable. Unless otherwise approved from time to time in writing by the Co-Collateral Agents in their Permitted Discretion, no Credit Card Account Receivable shall be Eligible Credit Card Account Receivable if, without duplication:

(a) such Credit Card Account Receivable is not owned by a Loan Party and such Loan Party does not have good or marketable title to such Credit Card Account Receivable;

(b) such Credit Card Account Receivable does not constitute “Accounts” (as defined in the UCC) or such Credit Card Account Receivable has been outstanding for more than five (5) Business Days;

(c) the issuer or payment processor of the applicable credit card with respect to such Credit Card Account Receivable is the subject of any bankruptcy or insolvency proceedings;

(d) such Credit Card Account Receivable is not the valid, legally enforceable obligation of the applicable issuer with respect thereto;

(e) such Credit Card Account Receivable is subject to any Lien whatsoever other than Liens in favor of the Co-Collateral Agents, Permitted Liens and Liens permitted pursuant to Section 6.02(a)(vi);

(f) such Credit Card Account Receivable is not subject to a valid and perfected Lien in favor of the Co-Collateral Agents, for the benefit of the Credit Parties, senior in priority to all other Liens other than Permitted Liens which have priority over the Liens of the Co-Collateral Agents by operation of applicable law and Liens of the type specified in clause (h) of the definition of Permitted Liens;

(g) the Credit Card Account Receivable does not conform to all representations, warranties, covenants or other provisions in the Loan Documents relating to Credit Card Accounts Receivable;

 

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(h) such Credit Card Account Receivable is subject to risk of set-off, non-collection or not being processed due to unpaid and/or accrued credit card processor fee balances, limited to the lesser of the balance of Credit Card Account Receivable or unpaid credit card processor fees;

(i) such Credit Card Account Receivable is evidenced by “chattel paper” or an “instrument” of any kind unless such “chattel paper” or “instrument” is subject to the perfected security interest of the Co-Collateral Agents; or

(j) such Credit Card Account Receivable does not meet such other reasonable eligibility criteria for Credit Card Accounts Receivable as the Agent (or any Co-Collateral Agent upon written notice to the Agent) may determine from time to time in its Permitted Discretion.

“ Eligible In-Transit Inventory ” means, as of any date of determination thereof, without duplication of other Eligible Inventory, Inventory:

(a) for which full payment has been delivered to the vendor of such Inventory and evidence of such payment has been received by the Agent; provided that in transit Inventory purchased under “private label” letters of credit issued by SRAC or Letters of Credit issued hereunder shall be deemed Eligible In-Transit Inventory, subject to an Inventory Reserve equal to 25% of the Inventory Value of such Inventory and satisfaction of all of the other conditions of this definition;

(b) which has been shipped from a location outside of the United States, Puerto Rico or the U.S. Virgin Islands for receipt by any Loan Party, but which has not yet been delivered to such Loan Party, which Inventory has been in transit for sixty (60) days or less from the date of shipment of such Inventory;

(c) for which the purchase order is in the name of any Loan Party and title has passed to such Loan Party;

(d) for which the document of title reflects a Loan Party as consignee or, if requested by a Co-Collateral Agent, names the Co-Collateral Agents as consignee, and in each case as to which a Co-Collateral Agent has control over the documents of title which evidence ownership of the subject Inventory (such as, if requested by a Co-Collateral Agent, by the delivery of a Customs Broker Agreement);

(e) which is insured as required pursuant to Section 6.01 hereof; and

(f) which would not be excluded from the definition of “Eligible Inventory” by any of clauses (a), (c) through (g) or (i) through (r) of the definition thereof.

provided that the Agent, or any Co-Collateral Agent upon written notice to the Agent, may, in its Permitted Discretion, exclude any particular Inventory from the definition of “Eligible In-Transit Inventory” in the event the Agent or Co-Collateral Agent determines that such Inventory is subject to any Person’s right or claim which is (or is capable of being) senior to, or pari passu with, the Lien of the Co-Collateral Agents (such as, without limitation, a right of stoppage in transit) or may otherwise adversely impact the ability of the Co-Collateral Agents to realize upon such Inventory.

“ Eligible Inventory ” means at any time, without duplication (i) Eligible In-Transit Inventory, and (ii) items of Inventory of any Loan Party that are held for retail sale to the public in the ordinary course of business, merchantable, and readily saleable to the public in the ordinary course of business, 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” no Person other than the Loan Parties shall have any direct or indirect ownership, interest or title to such Inventory and no Person other than the Loan Parties 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 (or any Co-Collateral Agent upon written notice to the Agent) in its Permitted Discretion, no Inventory shall be deemed Eligible Inventory if, without duplication:

(a) the Loan Parties do not have sole and good, valid and unencumbered title thereto (except for Liens of the type described in clauses (a), (b), (c) and (e) of the definition of Permitted Liens); or

 

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

(c) it is not located at property owned or leased by the Loan Parties (except to the extent such Inventory is (i) in transit between such locations, (ii) is located at a Dealer Store, provided that if requested by the Co-Collateral Agents, the Co-Collateral Agents have received evidence reasonably acceptable to the Co-Collateral Agents, that the Loan Parties have filed appropriate UCC financing statements against the Person operating the Dealer Store covering such Inventory, and provided further that the amount of Inventory located at all Dealer Stores which may constitute Eligible Inventory shall not exceed $300,000,000 in the aggregate, or (iii) is deemed eligible pursuant to clause (g)) or is located at a third party warehouse or is located at a closed Store (except pursuant to clause (e)) or is located at a closed DC; or

(d) it is not subject to a valid and perfected Lien in favor of the Co-Collateral Agents for the benefit of the Credit Parties, senior in priority to all other Liens other than Permitted Liens which have priority over the Liens of the Co-Collateral Agents by operation of applicable law, including Liens of the types described in clauses (a) through (c) and (g) of the definition of Permitted Liens;

(e) it is subject to any Lien whatsoever other than Liens in favor of the Co-Collateral Agents, Permitted Liens and Liens permitted pursuant to Section 6.02(a)(vi); or

(f) it is Inventory located at a Store which is being closed; provided , however that upon the Co-Collateral Agents receipt of, and satisfaction with, an initial commercial finance examination and appraisal of the Loan Parties and such other due diligence as they may reasonably deem necessary after the Effective Date, such Inventory will be deemed eligible for the first four (4) weeks after the commencement of the Store Closure Sale for that Store, provided further that the Inventory Value of such Inventory shall be reduced by the “closed store reserve” established by the Borrowers with respect to such Inventory consistent with past practices;

(g) it is consigned from a vendor or is at a customer location but still accounted for in the applicable Loan Party’s inventory balance; or

(h) it is in-transit (other than Eligible In-Transit Inventory) from a vendor and has not yet been received into a DC or Store; or

(i) it is identified in the stockledger of the applicable Loan Party as any of the following departments or consists of Inventory which is ordinarily classified by such Loan Party consistent with its historical practices as the following: floral; gasoline; live plants; miscellaneous or other as classified on the Loan Party’s stockledger; produce; books; magazines; restaurant operations; or seafood; or it is identified per the applicable Loan Party’s stockledger as candy; or

(j) it is Inventory that has been packed-away and stored for more than 12 months at a DC or a Store for future sale, including merchandise of Sears and its Subsidiaries that has been carried over for more than 12 months as currently reported as “XOM” status per the RIM merchandising system; or

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

(l) it is Inventory on layaway or is Inventory which has been sold but not delivered or as to which any Loan Party has accepted a deposit from a third party; or

 

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(m) it is identified per the Loan Parties’ stockledger as Inventory that is in a leased department, including digital imaging, photofinishing and 1 hour lab; or

(n) it is otherwise deemed ineligible by the Co-Collateral Agents in their Permitted Discretion after the expiration of the Reserve Notice Period; or

(o) it is (i) operating supplies, packaging or shipping materials, cartons, labels or other such materials not considered used for sale in the ordinary course of business by the Agent in its Permitted Discretion (ii) work-in-process, raw materials, (iii) not in material compliance with all standards imposed by any Governmental Authority having regulatory authority over such Inventory, its use or sale, or (iv) bill and hold goods; or

(p) it is Inventory which exhibits, includes or is identified by any trademark, tradename or other Intellectual Property right which trademark, tradename or other Intellectual Property right (i) is subject to a restriction that could reasonably be expected to adversely affect the Agent’s ability to liquidate such Inventory or (ii) the relevant Loan Party does not have the right to use in connection with the sale of such Inventory, either through direct ownership or through a written license or sublicense; or

(q) it is Inventory that is not insured in compliance with the provisions of Section 6.01(c), or

(r) it is Inventory that does not conform to all representations, warranties, covenants or other provisions in the Loan Documents relating to Inventory; or

(s) it is Inventory acquired in a Permitted Acquisition and the Co-Collateral Agents have not completed their diligence with respect thereto, provided that such Inventory shall be deemed to constitute Eligible Inventory for a period of 30 days after the date of its acquisition notwithstanding that the Co-Collateral Agents have not completed such due diligence as long as such Inventory is of the same kind and quality as other of the Loan Parties’ Inventory and would otherwise constitute Eligible Inventory.

“ Eligible Pharmacy Receivables ” means each Pharmacy Receivable that satisfies the following criteria at the time of creation and continues to meet the same at the time of such determination: such Pharmacy Receivable (i) has been earned and represents the bona fide amounts due to a Loan Party from Third Party Payors, and other Persons reasonably acceptable to the Co-Collateral Agents, and in each case originated in the ordinary course of business of the applicable Loan Party (ii) is non-recourse to the Loan Parties and has been adjudicated or is otherwise due to the Borrower for pharmacy related services, and (iii) is not ineligible for inclusion in the calculation of the Borrowing Base pursuant to any of clauses (a) through (m) below. Without limiting the foregoing, to qualify as an Eligible Pharmacy Receivable, an Account shall indicate no person other than a Loan Party as payee or remittance party. In determining the amount to be so included, the face amount of an Account shall be reduced by, without duplication, to the extent not reflected in such face amount, (i) the amount of all accrued and actual discounts, claims, credits or credits pending, promotional program allowances, price adjustments, finance charges, processing fees or other allowances (including any amount that the applicable Loan Party may be obligated to rebate to a customer, or to pay to the Third Party Payors, direct customers or other Persons pursuant to the terms of any agreement or understanding (written or oral)) and (ii) the aggregate amount of all cash received in respect of such Account but not yet applied by the applicable Loan Party to reduce the amount of such Pharmacy Receivable. Unless otherwise approved from time to time in writing by the Co-Collateral Agents in their Permitted Discretion, none of the following Pharmacy Receivables shall be an Eligible Pharmacy Receivable:

(a) Pharmacy Receivables that have been outstanding for more than ninety (90) days past the invoice date or that are more than sixty (60) days past due;

 

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(b) Pharmacy Receivables due from any Third Party Payor to the extent that fifty percent (50%) or more of all Pharmacy Receivables from such Third Party Payor are not Eligible Pharmacy Receivables under clause (a), above;

(c) Pharmacy Receivables which do not constitute an “Account” (as defined in the UCC);

(d) Pharmacy Receivables with respect to which a Loan Party does not have good, valid and marketable title thereto;

(e) Pharmacy Receivables that are not subject to a valid and perfected Lien in favor of the Co-Collateral Agents, for the benefit of the Credit Parties, senior in priority to all other Liens other than Permitted Liens which have priority over the Liens of the Co-Collateral Agents by operation of applicable law;

(f) Pharmacy Receivables that are subject to any Lien whatsoever other than Liens in favor of the Co-Collateral Agents for the benefit of the Credit Parties, Permitted Liens, and Liens permitted pursuant to Section 6.02(a)(vi);

(g) Pharmacy Receivables which are disputed, are with recourse, or with respect to which a claim, counterclaim, offset or chargeback has been asserted (to the extent of such claim, counterclaim, offset or chargeback);

(h) Pharmacy Receivables due from Medicare, Medicaid and other Governmental Authorities;

(i) Pharmacy Receivables due from a Third Party Payor who is not duly authorized to conduct business in the United States of America, Puerto Rico, United States Virgin Islands or Guam, as applicable;

(j) Pharmacy Receivables which are acquired in a Permitted Acquisition unless and until the Co-Collateral Agents have completed an appraisal and audit of such Pharmacy Receivables and otherwise agree that such Pharmacy Receivables shall be deemed Eligible Pharmacy Receivables;

(k) Pharmacy Receivables as to which (i) the Loan Party making the sale giving rise to such Pharmacy Receivables does not have a valid and enforceable agreement with the Third Party Payor providing for payment to such Loan Party or there is a default thereunder that could be a basis for such Third Party Payor ceasing or suspending any payments to such Loan Party, or (ii) the prescription drugs sold giving rise to such Pharmacy Receivables are not of the type that are covered under the agreement with the Third Party Payor or the party receiving such goods is not entitled to coverage under such agreement, (iii) the Loan Party making the sale giving rise to such Pharmacy Receivables has not received confirmation from such Third Party Payor that the party receiving the prescription drugs is entitled to coverage under the terms of the agreement with such Third Party Payor and the Loan Party is entitled to reimbursement for such Pharmacy Receivables, (iv) the amount of such Pharmacy Receivables exceeds the amounts to which the Loan Party making such sale is entitled to reimbursement for the prescription drugs sold under the terms of such agreements (but solely to the extent of such excess), (v) there are contractual or statutory limitations or restrictions on the rights of the Loan Party making such sale to assign its rights to payment arising as a result thereof or to grant any security interest therein which limitations or restrictions have not been satisfied or waived, (vi) all authorization and billing procedures and documentation required in order for the Loan Party making such sale to be reimbursed and paid on such Pharmacy Receivables by the Third Party Payor have not been properly completed and satisfied to the extent required for such Loan

 

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Party to be so reimbursed and paid, and (vii) the terms of the sale giving rise to such Pharmacy Receivables and all practices of such Loan Party with respect to such Pharmacy Receivables do not comply in all material respects with applicable federal, state, and local laws and regulations;

(l) Pharmacy Receivables which do not conform to all representations, warranties, covenants, or other provisions in the Loan Documents relating to Pharmacy Receivables; or

(m) Pharmacy Receivables which the Co-Collateral Agents determine in their Permitted Discretion to be uncertain of collection or which do not meet such other reasonable eligibility criteria for Pharmacy Receivables as the Agent (or any Co-Collateral Agent upon written notice to the Agent) may determine in its Permitted Discretion.

provided that no Pharmacy Receivables shall constitute Eligible Pharmacy Receivables on or after the Effective Date until such time as the Co-Collateral Agents shall have received, and are reasonably satisfied with, an initial audit of the Loan Parties’ Pharmacy Receivables and shall have conducted such other due diligence with respect to the Pharmacy Receivables as the Co-Collateral Agents shall reasonably deem necessary.

“ Environmental Action ” means any action, suit, demand, demand letter, claim, notice of noncompliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, Environmental Permit or Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment, including (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or any third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief.

“ Environmental Law ” means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, judgment, decree or judicial or agency interpretation, policy or guidance relating to pollution or protection of the environment, health, safety or natural resources, including those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials.

“ Environmental Liability ” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of Holdings, the Borrowers, or any of their Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“ Environmental Permit ” means any permit, approval, identification number, license or other authorization required under any Environmental Law.

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

“ ERISA Affiliate ” means any Person that for purposes of Title IV of ERISA is a member of any Borrower’s controlled group, or under common control with such Borrower, within the meaning of Section 414 of the Internal Revenue Code.

“ ERISA Event ” means (a) (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC, or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA (without regard to Section 4043(b)(2)) are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13)

 

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of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of any Borrower or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by any Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for the imposition of a lien under Sections 303(k) or 4068(a) of ERISA shall have been met with respect to any Plan; (g) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, a Plan, or (h) the Borrowers or any ERISA Affiliate incur liabilities under Section 4069 of ERISA.

“ Eurocurrency Liabilities ” has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“ Eurodollar Lending Office ” means, with respect to any Lender, the office of such Lender specified as its “Eurodollar Lending Office” on the signature pages hereof or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrowers and the Agent.

“ Eurodollar Rate ” means, for any Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the “Eurodollar Rate” for such Interest Period shall be the rate per annum determined by the Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Advance being made, continued or converted by the Bank and with a term equivalent to such Interest Period would be offered by the Bank’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.

“ Eurodollar Rate Advance ” means an Advance that bears interest as provided in Sections 2.08(a)(ii) and 2.08(b)(ii), as applicable.

“ Eurodollar Rate Reserve Percentage ” for any Interest Period for a Eurodollar Rate Advance by any Lender means the reserve percentage applicable to such Lender two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the minimum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period.

“ Events of Default ” has the meaning specified in Section 7.01.

“ Excluded Accounts ” means payroll, trust and tax withholding accounts funded in the ordinary course of business.

 

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“ Existing Credit Agreement ” has the meaning set forth in the Preamble to the Agreement.

“ Existing Letters of Credit ” means each of the Letters of Credit described on Schedule 1.02 issued and outstanding under the Existing Credit Agreement immediately prior to the Effective Date.

“ Extended Term Applicable Margin ” means (a) 4.00% per annum for Eurodollar Rate Advances and (b) 3.00% per annum for Base Rate Advances.

“ Extended Term Base Rate ” means, for any day, a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus one-half of one percent (0.50%), (b) the Eurodollar Rate (calculated utilizing a one-month Interest Period) plus one percent (1.00%), or (c) the rate of interest in effect for such day as publicly announced from time to time by the Bank as its “prime rate.” The “prime rate” is a rate set by the Bank based upon various factors including the Bank’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by the Bank shall take effect at the opening of business on the day specified in the public announcement of such change.

“ Extended Term Commitment Fee Rate ” means, initially, 1.0% per annum; provided , that on and after the first Fee Adjustment Date occurring after the Effective Date, the Extended Term Commitment Fee Rate will be determined pursuant to the Restated Commitment Fee Grid.

“ Extended Termination Date ” means the earlier of (a) June 22, 2012 and (ii) the date of termination in whole of the Commitments pursuant to Section 2.06 or 7.01.

“ Extending Lender ” means each Lender listed on Schedule 1.01 under the heading Extending Lenders, whose Commitment shall terminate on the Extended Termination Date.

“ Extensions of Credit ” means as to any Lender at any time, an amount equal to the sum of (a) the aggregate principal amount of all Revolving Advances held by such Lender then outstanding, (b) such Lender’s Commitment Percentage of the aggregate principal amount of Swingline Advances then outstanding and (c) such Lender’s Commitment Percentage of the L/C Obligations then outstanding.

“ Fee Letter ” means collectively, (a) the Fee Letter dated April 17, 2009, among Holdings, the Bank, BAS and WFRF, and (b) the Commitment Letter dated April 29, 2009, among Holdings, the Borrowers, GECC and GE Capital Markets, Inc., each as amended from time to time.

“ Fee Adjustment Date ” shall have the meaning provided therefor in Schedule IB .

“ Federal Funds Rate ” means, for any period, a fluctuating interest rate per annum equal for each day during such period to 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 for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing reasonably selected by it.

“ Fixed Charge Ratio ” means, the ratio, determined as of the end of each fiscal quarter of the Borrowers for the most recently ended four fiscal quarters, of (a) Adjusted Consolidated EBITDA minus the unfinanced portion of Capital Expenditures (but including Capital Expenditures financed with proceeds of Advances hereunder) minus taxes paid in cash net of refunds, to (b) Fixed Charges, all calculated on a Consolidated basis in accordance with GAAP.

 

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“ Fixed Charges ” means, with reference to any period, without duplication, Consolidated Interest Expense paid or payable in cash, plus scheduled principal payments on Debt made during such period, plus Capital Lease Obligation payments made during such period, all calculated on a Consolidated basis.

“ Fund ” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

“ GAAP ” has the meaning specified in Section 1.03.

“ Gift Card Liability Reserve ” shall mean, at any time, and without duplication of any other Availability Reserves or Inventory Reserves, a reserve equal to the aggregate remaining value at such time of (i) outstanding gift certificates and gift cards of the Loan Parties entitling the holder thereof to use all or a portion of the certificate or gift card to pay all or a portion of the purchase price for any Inventory and (ii) outstanding merchandise credits.

“ Governmental Authority ” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization (including the National Association of Insurance Commissioners).

“ Group Members ” means, collectively, Holdings, the Borrowers and their respective Subsidiaries.

“ Guarantee and Collateral Agreement ” means the Amended and Restated Guarantee and Collateral Agreement to be executed and delivered by the Loan Parties, substantially in the form of Exhibit D .

“ Hazardous Materials ” means (a) petroleum and petroleum products, byproducts or breakdown products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law.

“ Holdings ” has the meaning provided in the Preamble.

“ Holiday Season ” means October 15 through and including December 15 of each calendar year.

“ Increase Effective Date ” shall have the meaning provided therefor in Section 2.18(f).

“ Insolvency ” means with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA.

“ Insolvent ” means pertaining to a condition of Insolvency.

“ Intellectual Property ” has the meaning set forth in the Guarantee and Collateral Agreement.

“ Interest Period ” means, for each Eurodollar Rate Advance comprising part of the same Borrowing of Revolving Advances, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance and ending on the last day of the period selected by the applicable Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the applicable Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two or three months, as the applicable Borrower may, upon notice received by the Agent not later than 12:00 noon on the third Business Day prior to the first day of such Interest Period, select; provided , however , that:

(a) a Borrower may not select any Interest Period that ends after the Termination Date or the Extended Termination Date, as applicable;

 

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(b) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Borrowing shall be of the same duration;

(c) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided , however , that, if such extension would cause the last day of such Interest Period of one month or longer to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and

(d) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month.

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

“ Inventory ” as defined in the UCC.

“ Inventory Reserves ” means the following:

(a) a reserve for shrink, or discrepancies that arise between Inventory quantities on hand per the Loan Parties’ unit inventory system, and physical counts of the Inventory which will be equal to the greater of (i) the mathematical average of the historical shrink results 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 Inventory Value per the stockledger; or (ii) an amount determined by the Agent in its Permitted Discretion or any Co-Collateral Agent in its Permitted Discretion upon written notice to the Agent, in each case, after the expiration of the Reserve Notice Period;

(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 any Loan Party, with the time frame subject to change after the expiration of the Reserve Notice Period based on Inventory performance, or the Agent’s (or any Co-Collateral Agent’s upon written notice to the Agent) Permitted Discretion;

(c) to the extent not already netted out of the Inventory Value per the stockledger or not treated as ineligible pursuant to the definition of Eligible Inventory, a reserve determined in the Agent’s (or any Co-Collateral Agent upon written notice to the Agent) Permitted Discretion for (i) hard (permanent) markdowns, (ii) seasonal merchandise (including, without limitation, seasonal apparel which is more than four weeks past a specified selling season, and Inventory for sale during a specified holiday or event (other than seasonal apparel), after the specified holiday or event has occurred), (iii) discontinued and clearance merchandise, (iv) change in product mix of merchandise, (v) change in pricing strategy or markon percentages, (vi) damaged merchandise, (vii) price changes, or (viii) other adjustments as deemed appropriate;

 

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(d) a reserve established in the Agent’s (or any Co-Collateral Agent’s upon written notice to the Agent) Permitted Discretion 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 after the expiration of the Reserve Notice Period at the Agent’s (or any Co-Collateral Agent’s upon written notice to the Agent) Permitted Discretion; 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 Holdings after such date until the amount of such reserve is recalculated pursuant hereto;

(e) without duplication of any Reserve imposed under clause (a) of the definition of “Eligible In-Transit Inventory”, a reserve for that in transit Inventory purchased under “private label” letters of credit issued by SRAC or Letters of Credit issued hereunder; and

(f) a reserve for Inventory ordinarily classified as repair services.

“ Inventory Value ” shall mean, with respect to any Inventory of the Loan Parties, the value of such Inventory valued at the lower of cost or market value on a basis consistent with the Loan Parties’ current and historical accounting practice in effect on the Effective Date, 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 Loan Parties 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 Loan Parties on a basis consistent with the Loan Parties’ current and historical practice, in effect on the Effective Date, in respect of lost, misplaced or stolen Inventory at such time.

“ Investment ” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of equity interests of another Person, (b) a loan, advance or capital contribution to, guarantee or assumption of debt of, or purchase or other acquisition of any other debt or interest in, another Person, or (c) any Acquisition.

“ Issuing Lender ” means, collectively, Bank of America, N.A., Wachovia Bank, N.A., Wells Fargo Bank, N.A., and any other Lender which at the request of any Borrower and with the consent of the Agent, not to be unreasonably withheld, agrees to become an Issuing Lender, it being understood that with the consent of the requesting Borrower (not to be unreasonably withheld) the Issuing Lender may arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Lender, in which case the term “Issuing Lender” shall include any such affiliate with respect to Letters of Credit issued by such Affiliate. Each reference herein to “the Issuing Lender” shall be deemed to be a reference to the relevant Issuing Lender with respect to the relevant Letter of Credit.

“ Kmart ” means Kmart Holding Corporation, a Delaware corporation.

“ Kmart Corp. ” has the meaning provided in the Preamble.

“ L/C Commitment ” means $1,500,000,000.

“ L/C Obligations ” means at any time, an amount equal to the sum of (a) the aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit that have not then been reimbursed or discharged pursuant to Section 3.05 (after giving effect to the proviso thereof).

 

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“ Lenders ” means, collectively, the Lenders under the Existing Credit Agreement, any other Persons signatory hereto as a Lender, and each Person that shall become a party hereto as a lender pursuant to Section 9.07.

“ Letters of Credit ” means the collective reference to Commercial L/Cs, Banker’s Acceptances, and Standby L/Cs; individually, a “ Letter of Credit ”. Without limiting the foregoing, the Existing Letters of Credit shall be deemed Letters of Credit issued under this Agreement.

“ Lien ” means any lien, security interest or other charge or encumbrance of any kind or any other type of preferential arrangement, including the lien or retained security title of a conditional vendor, and any easement, right of way or other encumbrance on title to real property, but excluding consignments or bailments of goods of third parties and the interests of lessors under operating leases.

“ Line Cap ” means, at any time of determination, the lesser of (i) the Aggregate Commitments, and (ii) the Borrowing Base.

“ Liquidation ” means the exercise by the Agent or the Co-Collateral Agents of those rights and remedies accorded to the Agent and/or the Co-Collateral Agents under the Loan Documents and applicable law as a creditor of the Loan Parties with respect to the realization on the Collateral, including (after the occurrence and continuation of an Event of Default) the conduct by the Loan Parties acting with the consent of the Agent and the Co-Collateral Agents, of any public, private or “going-out-of-business”, “store closing” or other similar sale or any other disposition of the Collateral for the purpose of liquidating the Collateral.

“ Loan Documents ” means this Agreement, the Security Documents, the Notes, Fee Letter, any Application and any amendment, waiver, supplement or other modification to any of the foregoing.

“ Loan Parties ” means each Group Member that is a party to a Loan Document.

“ Martha Stewart Reserve ” shall mean, at any fiscal month end, a reserve equal to the then current accrued and unpaid royalty in excess of $25,000,000 earned for Martha Stewart merchandise sold as reflected on the most recent Borrowing Base Certificate.

“ Material Adverse Effect ” means a material adverse effect on (a) the business, condition (financial or otherwise), operations or assets of Holdings and its Subsidiaries taken as a whole, or (b) the ability of the Loan Parties taken as a whole to perform their material obligations under the Loan Documents or (c) the validity or enforceability of the Loan Documents taken as a whole or the rights and remedies of the Agent, the Co-Collateral Agents or the Lenders thereunder taken as a whole (including, but not limited to, the enforceability or priority of any Liens granted to the Co-Collateral Agents under the Loan Documents).

“ Merger ” has the meaning set forth in the Existing Credit Agreement.

“ Multiemployer Plan ” means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which Holdings or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions.

“ Multiple Employer Plan ” means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of Holdings or any ERISA Affiliate and at least one Person other than Holdings and the ERISA Affiliates or (b) was so maintained and in respect of which Holdings or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated.

 

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“ Net Eligible Inventory ” means, at any time, an amount equal to the Inventory Value of Eligible Inventory less Inventory Reserves.

“ Net Proceeds ” means, (a) with respect to any Disposition by any Loan Party or any of its Subsidiaries of any property or any casualty or condemnation of such property, the excess, if any, of (i) the sum of cash and cash equivalents received in such transaction (including any cash or cash equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) over (ii) the sum of (A) the principal amount of any Debt that is secured by the applicable asset by a Lien permitted hereunder which is senior to the Co-Collateral Agents’ Lien, if any, on such asset and that is required to be repaid (or to establish an escrow for the future repayment thereof) in connection with such transaction (other than Debt under the Loan Documents), (B) the reasonable and customary out-of-pocket expenses incurred by such Loan Party or such Subsidiary in connection with such transaction (including, without limitation, attorneys’ fees, accountants’ fees, investment banking fees, appraisals, and brokerage, legal, title and recording or transfer tax expenses and commissions) paid by any Loan Party to third parties (other than Affiliates), (C) transfer Taxes paid as a result thereof, and (b) the excess of (i) the sum of the cash and cash equivalents received in connection with the issuance of any equity interests of any Loan Party or any Permitted Refinancing Debt over (ii) the underwriting discounts and commissions, and other reasonable and customary out-of-pocket expenses, incurred by such Loan Party in connection therewith.

“ Net Orderly Liquidation Value ” means the product of (i) Net Recovery Rate and (ii) the Net Eligible Inventory.

“ Net Recovery Rate ” means the appraised orderly liquidation value (on an “as is, where is” basis) of each Loan Party’s Eligible Inventory, net of costs and expenses estimated to be incurred in connection with such liquidation, which value is expressed as a percentage of the Inventory Value of Eligible Inventory and shall be determined by the Co-Collateral Agents from time to time based on the most recent appraisal provided by an independent third party appraiser retained by the Co-Collateral Agents in consultation with the Borrowers.

“ Non-Consenting Lender ” has the meaning specified in Section 9.16.

“ Non-Extending Lender ” means each Lender listed on Schedule 1.01 under the heading Non-Extending Lenders, who has not agreed to extend the Termination Date for its Commitment.

“ Note ” means a promissory note of any Borrower payable to the order of any Lender evidencing the Commitment of such Lender.

“ Notice of Borrowing ” has the meaning specified in Section 2.02(a).

“ Obligations ” has the meaning set forth in the Guarantee and Collateral Agreement.

“ Original Agent ” has the meaning provided in the Recitals.

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

“ Other Taxes ” has the meaning specified in Section 2.15.

“ Overadvance ” means any Advance to the extent that, immediately after its having been made, Capped Excess Availability is less than zero.

“ PACA ” means the Perishable Agricultural Commodities Act of 1930, as amended.

 

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“ PACA Liability Reserve ” means an amount calculated on a monthly basis by the Agent to provide for vendor liabilities pursuant to PACA.

“ PASA ” means the Packers and Stockyards Act of 1921, as amended.

“ PASA Liability Reserve ” means the liability for vendor liabilities pursuant to PASA.

“ PBGC ” means the Pension Benefit Guaranty Corporation (or any successor).

“ Pension Plan ” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by Holdings or any ERISA Affiliate or to which Holdings or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

“ Perfection Certificate ” means a certificate with respect to the Borrowers and the other Loan Parties in form reasonably satisfactory to the Co-Collateral Agents.

“ Permitted Acquisition ” means any Acquisition permitted under Section 6.02(c).

“ Permitted Debt ” means each of the following as long as no Default or Event of Default exists at the time of incurrence thereof or would arise from the incurrence thereof:

(a) Debt outstanding on the date hereof and listed in the Perfection Certificate;

(b) Debt of any Loan Party to any other Loan Party;

(c) Debt of Holdings or any Subsidiary of Holdings which is not a Loan Party to any Loan Party; provided, that (1) such Debt is incurred in the ordinary course of business consistent with past practices in connection with cash management, (2) such Debt shall not exceed $100,000,000 in the aggregate at any one time outstanding or (3) (i) at the time of incurrence of any such Debt and immediately after giving pro forma effect thereto, no Default or Event of Default shall have occurred and be continuing, and (ii) after giving effect to any such Debt (A) the Pro Forma and Projected Capped Excess Availability is at least 25% of the Line Cap other than during the Holiday Season, and (B) during the Holiday Season (x) the Pro Forma and Projected Capped Excess Availability is at least 15% of the Line Cap, and (y) the Pro Forma and Projected Uncapped Excess Availability is at least 30% of the Borrowing Base, and (C) the Pro Forma Fixed Charge Ratio shall be at least 1.1 to 1.0;

(d) Debt of any Group Member to any Subsidiary of Holdings which is not a Loan Party;

(e) (i) purchase money Debt used to finance the acquisition of any fixed or capital assets, including Capital Lease Obligations, and any Debt assumed in connection with the acquisition of any such assets or secured solely by a Lien on any such assets prior to the acquisition thereof, and (ii) Debt incurred in connection with sale-leaseback transactions with respect to assets not constituting Collateral;

(f) Debt of any Person that becomes a Subsidiary in an Acquisition permitted in accordance with Section 6.02(c), which Debt is existing at the time such Person becomes a Subsidiary (other than Debt incurred solely in contemplation of such Person’s becoming a Subsidiary);

(g) the Obligations;

(h) Other Debt in an amount not to exceed $500,000,000 in the aggregate outstanding at any time;

 

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(i) Debt described in Section 6.02(a)(vi), provided , that such Debt (i) does not have a maturity date which is earlier than the Extended Termination Date, (ii) is incurred on arm’s-length terms, (iii) is subject to an intercreditor agreement in the form of either Exhibit F or Exhibit G, as applicable (or such other forms as the Co-Collateral Agents may agree in their Permitted Discretion), and (iv) the security documents, if any, with respect to such Debt are reasonably satisfactory to the Co-Collateral Agents in their Permitted Discretion;

(j) any other Debt, provided , that such Debt (i) does not require the repayment of principal prior to the Extended Termination Date in excess of 1.0% of the original principal amount thereof per annum (excluding, for the avoidance of doubt, repayments required as a result of the sale of assets and repayments required in connection with an event that would constitute an Event of Default under Section 7.01(g) hereof) (ii) does not have a maturity date which is earlier than the Extended Termination Date and (iii) is incurred on arm’s-length terms;

(k) Debt of the type specified in clause (g) of the definition thereof to the extent such Debt constitutes a Permitted Investment;

(l) Debt in respect of performance bonds, bid bonds, appeal bonds, surety bonds and completion guarantees and similar obligations, in each case provided in the ordinary course of business, including those incurred to secure health, safety and environmental obligations in the ordinary course of business;

(m) Debt arising from overdraft facilities and/or the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business or other cash management services (including, but not limited to, intraday, ACH and purchasing card/T&E services) in the ordinary course of business; provided , that (x) such Debt (other than credit or purchase cards) is extinguished within ten Business Days of notification to the applicable Loan Party of its incurrence and (y) such Debt in respect of credit or purchase cards is extinguished within 60 days from its incurrence;

(n) Debt arising from agreements of Holdings or any Subsidiary providing for indemnification, adjustment of purchase or acquisition price or similar obligations, in each case, incurred or assumed in connection with any Permitted Acquisition or the disposition of any business, assets or any Subsidiary not prohibited by this Agreement, other than guarantees of Debt incurred by any Person acquiring all or any portion of such business, assets or any Subsidiary for the purpose of financing such Acquisition;

(o) Debt consisting of (i) the financing of insurance premiums or (ii) take or pay obligations contained in supply arrangements, in each case, in the ordinary course of business; and

(p) Permitted Refinancing Debt.

“ Permitted Discretion ” means a determination made in good faith and in the exercise of commercially reasonable business judgment.

“ Permitted Dispositions ” means any of the following:

(a) transfers and Dispositions of Inventory in the ordinary course of business;

(b) transfers and Dispositions among the Loan Parties;

(c) transfers and Dispositions by any Subsidiary of Holdings which is not a Loan Party to any Loan Party;

 

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(d) transfers and Dispositions by any Subsidiary of Holdings which is not a Loan Party to other Subsidiaries which are not Loan Parties;

(e) transfers and Dispositions (other than transfers and Dispositions of Inventory, Credit Card Accounts Receivable, Pharmacy Receivables or any other Collateral (as defined in the Guarantee and Collateral Agreement on the Effective Date)) to any Subsidiary of Holdings which is not a Loan Party by any Loan Party provided , that any such Disposition of Collateral shall be (i) undertaken in the ordinary course of business or (ii) on terms that are fair and reasonable and no less favorable to the Loan Party than it would obtain in a comparable arm’s length transaction with a Person that is not a Subsidiary of Holdings;

(f) the sale of surplus, obsolete or worn out equipment or other property in the ordinary course of business by the Borrowers or any Subsidiary;

(g) transfers and Dispositions of all or any portion of any Loan Party’s assets, including any equity interests of its Subsidiaries (other than the equity interests or substantially all of the assets of either Borrower), provided , that immediately after giving effect to any such disposition, (i) no Default or Event of Default then exists, and (ii) either (A) the Pro Forma and Projected Capped Excess Availability is at least 15% of the Line Cap, or (B) such Loan Party uses the Net Proceeds of such Disposition to repay Advances in an amount equal to the lesser of (x) 100% of such Net Proceeds and (y) an amount sufficient to cause Pro Forma and Projected Capped Excess Availability to be 15% or more of the Line Cap, and (iii) if the Disposition is to a Subsidiary or Affiliate of a Loan Party which is not a Loan Party, such Disposition shall be on terms that are fair and reasonable and no less favorable to the Loan Party than it would obtain in a comparable arm’s length transaction with a Person that is not a Subsidiary or Affiliate of a Loan Party;

(h) transfers and Dispositions which constitute Restricted Payments, that are otherwise permitted hereunder;

(i) Dispositions permitted pursuant to Section 6.02(b) hereof;

(j) the sale of other Policy Investments in the ordinary course of business;

(k) the sale or Disposition of defaulted receivables and the compromise, settlement and collection of receivables in the ordinary course of business or in bankruptcy or other proceedings concerning the other account party thereon and not as part of an accounts receivable financing transaction;

(l) leases, licenses or subleases or sublicenses of any real or personal property not constituting Collateral in the ordinary course of business;

(m) any surrender or waiver of contract rights or the settlement, release, recovery on or surrender of contract, tort or other claims of any kind (other than, in each case, with respect to rights to license the Related Intellectual Property, unless the limited license granted to the Co-Collateral Agents in such Related Intellectual Property pursuant to the Loan Documents remains in effect and is acknowledged by the licensee) to the extent that any of the foregoing could not reasonably be expected to have a Material Adverse Effect;

(n) sales of Inventory (other than Eligible Inventory) determined by the management of the applicable Loan Party not to be saleable in the ordinary course of business of such Loan Party or any of the Loan Parties; and

(o) transfers of assets, including Inventory, in connection with Store closings (and/or department closings within Stores) permitted pursuant to Section 6.02(l).

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

 

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“ Permitted Holder Lender ” means the Permitted Holder, provided , that , such Permitted Holder executes a waiver in form and substance reasonably satisfactory to the Agent that it shall have no right whatsoever with respect to that portion of the Commitments which it holds (a) to consent to any amendment, modification, waiver, consent or other such action with respect to any of the terms of any Loan Document, (b) otherwise to vote on any matter related to any Loan Document, (c) to require Agents or any Lender to undertake any action (or refrain from taking any action) with respect to any Loan Document, (d) to attend any meeting with the Agent or any Lender or receive any information from the Agent or any Lender, (e) to the benefit of any advice provided by counsel to the Agents or the other Lenders or to challenge the attorney-client privilege of the communications between the Agents, such other Lenders and such counsel, or (f) make or bring any claim, in its capacity as Lender, against any Agent with respect to the fiduciary duties of such Agent or Lender and the other duties and obligations of the Agents hereunder; except, that, no amendment, modification or waiver to any Loan Document shall, without such Permitted Holder Lender’s consent, deprive any Permitted Holder Lender of its pro rata share of any payments to which the Lenders as a group are otherwise entitled hereunder or otherwise single out, or intentionally discriminate against the Permitted Holder Lender, as such.

“ Permitted Investments ” means each of the following as long as no Default or Event of Default exists at the time of the making such of Investment or would arise from the making of such Investment:

(a) Investments existing on, or contractually committed as of, the Effective Date, and set forth in the Perfection Certificate;

(b) (i) Investments by any Loan Party and its Subsidiaries in their respective Subsidiaries and in OSH outstanding on the Effective Date, (ii) Investments by any Loan Party and its Subsidiaries in Loan Parties, and (iii) Investments by Subsidiaries that are not Loan Parties in Holdings or any Subsidiary;

(c) other Investments of any Loan Party in any other Subsidiary of Holdings which is not a Loan Party; provided , that (1) such Investment is incurred in the ordinary course of business consistent with past practices in connection with cash management, (2) such Investments shall not exceed $100,000,000 in the aggregate at any one time outstanding or (3) (a) at the time of any such Investment and immediately after giving pro forma effect thereto, no Default or Event of Default shall have occurred and be continuing, and (b) after giving effect to any such Investment (A) the Pro Forma and Projected Capped Excess Availability is at least 25% of the Line Cap other than during the Holiday Season, and (B) during the Holiday Season (x) the Pro Forma and Projected Capped Excess Availability is at least 15% of the Line Cap, and (y) the Pro Forma and Projected Uncapped Excess Availability is at least 30% of the Borrowing Base, and (C) the Pro Forma Fixed Charge Ratio shall be at least 1.1 to 1.0;

(d) Investments of any Loan Party in any other Person not constituting an Acquisition; provided that (a) at the time of any such Investment and immediately after giving pro forma effect thereto, no Default or Event of Default shall have occurred and be continuing, and (b) after giving effect to any such Investment (A) the Pro Forma and Projected Capped Excess Availability is at least 25% of the Line Cap other than during the Holiday Season, and (B) during the Holiday Season (x) the Pro Forma and Projected Capped Excess Availability is at least 15% of the Line Cap, and (y) the Pro Forma and Projected Uncapped Excess Availability is at least 30% of the Borrowing Base, and (C) the Pro Forma Fixed Charge Ratio shall be at least 1.1 to 1.0;

(e) Investments constituting a Permitted Acquisition and Investments held by the Person acquired in such Acquisition at the time of such Acquisition (and not acquired in contemplation of such Acquisition);

(f) Investments arising out of the receipt of noncash consideration for the sale of assets otherwise permitted under this Agreement;

(g) Policy Investments;

 

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(h) Investments in Swap Contracts not entered into for speculative purposes;

(i) to the extent not prohibited by applicable law, advances to officers, directors and employees and consultants of the Group Members made for travel, entertainment, relocation and other ordinary business purposes;

(j) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with or judgments against, customers and suppliers, in each case in the ordinary course of business or Investments acquired by any Group Member as a result of a foreclosure by any Loan Party with respect to any secured Investments or other transfer of title with respect to any secured Investment in default;

(k) Investments held by any Person at the time such Person is acquired in accordance with Section 6.02(c);

(l) Investments made with the common stock of Holdings;

(m) accounts receivable, security deposits and prepayments arising and trade credit granted in the ordinary course of business;

(n) Guarantees by Holdings or any Subsidiary of operating leases (other than Capital Lease Obligations) or of other obligations that do not constitute Debt, in each case entered into by Holdings or any Subsidiary in the ordinary course of business;

(o) advances in the form of a prepayment of expenses, so long as such expenses are being paid in accordance with customary trade terms of the applicable Group Member;

(p) Investments consisting of the licensing or contribution of Intellectual Property pursuant to joint marketing arrangements with other Persons, provided that no such Investment shall impair in any manner the limited license granted to the Co-Collateral Agents in such Intellectual Property pursuant to the Loan Documents;

(q) Investments in joint ventures that own real properties upon which Stores are located existing as of the Effective Date and entered into hereafter in the ordinary course of business; and

(r) other Investments in an amount not to exceed $250,000,000 in the aggregate outstanding at any time; provided that no Investment pursuant to this clause (r) shall be made by any Loan Party in any Subsidiary of Holdings which is not a Loan Party.

“ Permitted Liens ” means:

(a) Liens for taxes, assessments and governmental charges or levies to the extent such taxes, assessments or governmental charges are being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained;

(b) Liens imposed by law, such as materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 30 days or that are being contested in good faith by appropriate proceedings and as to which appropriate reserves are being maintained;

(c) landlords’ Liens arising in the ordinary course of business securing (i) rents not yet due and payable, (ii) rent for Stores in an amount not to exceed the monthly base rent due for the immediately preceding calendar month and (iii) rents for Stores in excess of the amount set forth in the preceding clause (ii) so long as such amounts are being contested in good faith by appropriate proceedings and as to which appropriate reserves are being maintained;

 

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(d) any attachment or judgment lien not constituting an Event of Default under Section 7.01(f);

(e) Liens presently existing or hereafter created in favor of the Co-Collateral Agents, on behalf of the Credit Parties;

(f) Liens arising by the terms of commercial letters of credit entered into in the ordinary course of business to secure reimbursement obligations thereunder, provided that such Liens only encumber the title documents and underlying goods relating to such letters of credit;

(g) claims under PACA and PASA;

(h) Liens in favor of issuers of credit cards arising in the ordinary course of business securing the obligation to pay customary fees and expenses in connection with credit card arrangements;

(i) Liens incurred or deposits made by any Group Member in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money);

(j) easements, rights-of-way, covenants, conditions, restrictions (including zoning restrictions), declarations, rights of reverter, minor defects or irregularities in title and other similar charges or encumbrances, whether or not of record, that do not, in the aggregate, interfere in any material respect with the ordinary course of business, or in respect of any real property which is part of the Collateral, any title defects, liens, charges or encumbrances (other than such prohibited monetary Liens) which the title company is prepared to endorse or insure by exclusion or affirmative endorsement reasonably acceptable to the Agent and which is included in any title policy;

(k) any interest or title of a lessor or sublessor under, and Liens arising from precautionary UCC financing statements (or equivalent filings, registrations or agreements in foreign jurisdictions) relating to, leases and subleases permitted by this Agreement;

(l) normal and customary rights of setoff upon deposits of cash or other Liens originating solely by virtue of any statutory or common law provision relating to bankers’ liens, rights of setoff or similar rights in favor of banks or other depository institutions;

(m) Liens on cash and cash equivalents securing obligations in respect of standby or trade letters of credit not constituting Obligations or trade-related bank guarantees;

(n) Liens granted to consignors who have properly perfected on consigned Inventory owned by such consignors and created in the ordinary course of business;

(o) Liens on premium rebates securing financing arrangements with respect to insurance premiums;

(p) deposits and other customary Liens to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than Capital Lease Obligations), statutory and regulatory obligations, surety and appeal bonds, performance and return of money bonds, bids, leases, government contracts, trade contracts, agreements with utilities, and other obligations of a like nature incurred in the ordinary course of business, including those incurred to secure health, safety and environmental obligations in the ordinary course of business;

 

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(q) Liens that are contractual rights of set-off (i) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness or (ii) relating to pooled deposit or sweep accounts of the Borrowers or any Subsidiary to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Borrowers or any Subsidiary;

(r) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;

(s) Liens solely on any cash earnest money deposits made by any Borrower or any of its Subsidiaries in connection with any letter of intent or purchase agreement in respect of any Investment permitted hereunder;

(t) Liens on securities that are the subject of repurchase agreements constituting Policy Investments;

(u) Liens on cash and cash equivalents securing Swap Contracts incurred in the ordinary course of business; and

(v) other Liens on cash and cash equivalents in an amount not to exceed $25,000,000 held by a third party as security for any obligation (other than Indebtedness, but including letters of credit) permitted to be incurred by any Group Member hereunder.

“ Permitted Overadvance ” means an Overadvance made by the Agent, in its Permitted Discretion, or at the direction of any Co-Collateral Agent, which:

(a) is made to maintain, protect or preserve the Collateral and/or the Credit Parties’ rights under the Loan Documents or which is otherwise for the benefit of the Credit Parties;

(b) is made to enhance the likelihood of, or to maximize the amount of, repayment of the Obligations;

(c) is made to pay any other amount chargeable to any Loan Party hereunder; and

(d) together with all other Permitted Overadvances then outstanding, shall not (i) exceed five percent (5%) of the Borrowing Base at any time or (ii) unless a Liquidation is occurring, remain outstanding for more than thirty (30) consecutive Business Days, unless in each case, the Required Lenders otherwise agree;

provided , however , that the foregoing shall not (i) modify or abrogate any of the provisions of Article III regarding any Lender’s obligations with respect to Letters of Credit, or (ii) result in any claim or liability against the Agent or the Co-Collateral Agents (regardless of the amount of any Overadvance) for “inadvertent Overadvances” (i.e. where an Overadvance results from changed circumstances beyond the control of the Agent or the Co-Collateral Agents (such as a reduction in the collateral value)), and such “inadvertent Overadvances” shall not reduce the amount of Permitted Overadvances allowed hereunder, and further , provided , that in no event shall the Agent make an Overadvance, if after giving effect thereto, the principal amount of the Extensions of Credit would exceed the Aggregate Commitments (as in effect prior to any termination of the Commitments pursuant to Section 2.06 hereof).

“ Permitted Refinancing Debt ” shall mean any Debt issued in exchange for, or the Net Proceeds of which are used to extend, refinance, renew, replace, defease or refund (collectively, to “ Refinance ”), the Debt being Refinanced (or previous refinancings thereof constituting Permitted Refinancing Debt); provided , that (a) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Debt does not exceed the principal amount (or accreted value, if applicable) of the Debt so Refinanced (plus unpaid accrued interest and premium (including tender premiums) thereon and underwriting

 

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discounts, defeasance costs, fees, commissions and expenses), (b) the maturity date of such Permitted Refinancing Debt shall not be earlier than the maturity date of the Debt being Refinanced and weighted average life to maturity of such Permitted Refinancing Debt shall be greater than or equal to the weighted average life to maturity of the Debt being Refinanced, (c) if the Debt being Refinanced is subordinated in right of payment to the Obligations under this Agreement, such Permitted Refinancing Debt shall be subordinated in right of payment to such Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Debt being Refinanced, (d) no Permitted Refinancing Debt shall have different obligors, or greater guarantees or security, than the Debt being Refinanced; and (e) the Permitted Refinancing Debt shall otherwise be on terms which would not reasonably likely result in a Material Adverse Effect.

“ Person ” means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof.

“ Pharmacy Receivables ” means Accounts arising from the sale of prescription drugs or other Inventory which can be dispensed only through an order of a licensed professional.

“ Plan ” means a Single Employer Plan or a Multiple Employer Plan.

“ Policy Investments ” means Investments made in accordance with the investment policy of the Loan Parties set forth on Schedule 6.02(k)(ii) , as such policy may be amended from time to time with the reasonable consent of the Agent, such consent not to be unreasonably withheld.

“ Pricing Grid ” means the pricing grid set forth on Schedule IA .

“ Pro Forma and Projected Capped Excess Availability ” shall mean, for any date of calculation, after giving effect to the applicable transaction or payment, the pro forma and projected Capped Excess Availability for the subsequent twelve (12) fiscal month period, determined as of the last day of each fiscal month in such period and based on Holdings’ good faith projections that are used to run the businesses of the Borrowers and prepared in accordance with past practice.

“ Pro Forma and Projected Uncapped Excess Availability ” shall mean, for any date of calculation, after giving effect to the applicable transaction or payment, the pro forma and projected Uncapped Excess Availability for the subsequent twelve (12) fiscal month period, determined as of the last day of each fiscal month in such period and based on Holdings’ good faith projections that are used to run the businesses of the Borrowers and prepared in accordance with past practice.

“ Pro Forma Fixed Charge Ratio ” shall mean, for any date of calculation, the Fixed Charge Ratio as of the last day of the most recently completed fiscal quarter for which financial statements pursuant to Section 6.01(j) are available (the “ Reference Date ”), after giving pro forma effect to any applicable transaction or payment as if such transaction or payment had occurred on the first day of the four fiscal quarter period ending on the Reference Date.

“ Pro Forma Uncapped Excess Availability ” shall mean, for any date of calculation, the pro forma Uncapped Excess Availability, after giving effect to the applicable transaction or payment.

“ Pro Forma Uncapped Excess Availability Condition ” shall mean, for any date of calculation with respect to any transaction, the Pro Forma Uncapped Excess Availability immediately before, and after giving effect to, such transaction, will be equal to or greater than 25% of the Borrowing Base.

“ Refunded Swingline Advances ” has the meaning specified in Section 2.04(b).

“ Register ” has the meaning specified in Section 9.07(d).

 

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“ Reimbursement Obligation ” means the obligation of the Borrowers to reimburse the Issuing Lender pursuant to Section 3.05 for amounts drawn under Letters of Credit.

“ Related Intellectual Property ” means such rights with respect to the Intellectual Property of Holdings and its Subsidiaries (other than Sears Canada) as are reasonably necessary to permit the Co-Collateral Agents to enforce their rights and remedies under the Loan Documents with respect to the Collateral.

“ Reorganization ” means with respect to any Multiemployer Plan, the condition that such Plan is in reorganization within the meaning of Section 4241 of ERISA.

“ Reportable Event ” means any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg. § 4043.

“ Required Lenders ” means, at any time, the holders of more than 50% of the Commitments then in effect or, if the Commitments have been terminated, the holders of more than 50% of the Total Extensions of Credit then outstanding.

“ Requirements of Law ” means as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“ Reserve Notice Period ” means one day prior notice to the Borrowers, unless a Cash Dominion Event has occurred and is continuing, in which case the Reserve Notice Period shall mean any notice period (including no notice) determined by any Co-Collateral Agent in its Permitted Discretion to be necessary or desirable to protect the interests of the Credit Parties.

“ Restated Commitment Fee Grid ” means the pricing grid set forth on Schedule IB .

“ Restricted Payment ” means any dividend or other distribution (whether in cash, securities or other property) with respect to any equity interests in Holdings or any Subsidiary of Holdings, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such equity interests in Holdings or any Subsidiary of Holdings or any option, warrant or other right to acquire any such equity interests in Holdings or any Subsidiary of Holdings.

“ Revolving Advance ” has the meaning specified in Section 2.01. A Revolving Advance may be a Base Rate Advance or a Eurodollar Rate Advance (each of which shall be a “ Type ” of Revolving Advance).

“ Sears ” means Sears, Roebuck and Co., a New York corporation.

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

“ SEC ” means the United States Securities and Exchange Commission.

“ Security Documents ” means the collective reference to the Guarantee and Collateral Agreement, and all other security documents hereafter delivered to the Co-Collateral Agents granting a Lien on any property of any Person to secure the obligations and liabilities of any Loan Party under any Loan Document.

 

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“ Single Employer Plan ” means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any Borrower or any ERISA Affiliate and no Person other than such Borrower and the ERISA Affiliates or (b) was so maintained and in respect of which any Borrower or any ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated.

“ Solvent ” means, when used with respect to any Person, that, as of any date of determination, (a) the amount of the “present fair saleable value” of the assets of such Person will, as of such date, exceed the amount of all “liabilities of such Person, contingent or otherwise”, as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (c) such Person will be able to pay its debts as they mature.

“ SRAC ” has the meaning provided in the Preamble.

“ Standby L/C ” means an irrevocable letter of credit or similar instrument under which the Issuing Lender agrees to make payments in Dollars for the account of any Borrower, on behalf of any Group Member in respect of obligations of such Group Member incurred pursuant to contracts made or performances undertaken or to be undertaken or like matters relating to contracts to which such Group Member is or proposes to become a party, including, without limiting the foregoing, for insurance purposes or in respect of advance payments or as bid or performance bonds or for any other purpose for which a standby letter of credit might be issued.

“ Store ” means any store owned or leased and operated by any Loan Party.

“ Store Closure Sale ” means a store closure sale that, if including more than twenty (20) stores (whether in one transaction or a series of related transactions), is properly managed by an independent, nationally recognized, professional retail inventory liquidation firm reasonably acceptable to the Co-Collateral Agents, over a defined period that is anticipated by the Borrowers not to exceed 12 weeks (on average) from the date of the same commencement.

“ Subsidiary ” of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of the issued and outstanding capital stock or other equity interest having ordinary voting power to elect a majority of the Board of Directors or other governing body of such corporation, partnership, joint venture, limited liability company, trust or estate (irrespective of whether at the time capital stock or other equity interests of any other class or classes of such corporation, partnership, joint venture, limited liability company, trust or estate shall or might have voting power upon the occurrence of any contingency), is at the time directly or indirectly owned by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person’s other Subsidiaries; provided , that Unrestricted Subsidiaries shall be deemed not to constitute “Subsidiaries” for the purposes of this Agreement (other than the definition of “Unrestricted Subsidiary” and the first and second usage of the term “Subsidiary” in Section 7.01(k)).

“ Subsidiary Guarantor ” means each direct and indirect wholly owned Domestic Subsidiary of Holdings, that owns Inventory, Credit Card Accounts Receivable, Pharmacy Receivables, or other Collateral (as defined in the Guarantee and Collateral Agreement).

“ Supermajority Lenders ” means, at any time, the holders of 66-  ² / 3 % or more of Commitments then in effect or, if the Commitments have been terminated, the holders of 66-  ² / 3 % or more of the Total Extensions of Credit then outstanding.

“ Swap Contract ” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or

 

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forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “ Master Agreement ”), including any such obligations or liabilities under any Master Agreement.

“ Swingline Advances ” has the meaning specified in Section 2.03.

“ Swingline Commitment ” means the obligation of the Swingline Lender to make Swingline Advances pursuant to Section 2.03 in an aggregate principal amount at any one time outstanding not to exceed $100,000,000.

“ Swingline Lender ” means the Bank, in its capacity as the lender of Swingline Advances.

“ Swingline Participation Amount ” has the meaning specified in Section 2.04(c).

“ Syndication Agent ” has the meaning provided in the Preamble and any successors thereto.

“ Taxes ” has the meaning specified in Section 2.15.

“ Termination Date ” means the earlier of (a) March 24, 2010 and (ii) the date of termination in whole of the Commitments pursuant to Section 2.06 or 7.01.

“ Third Party Payor Notification ” has the meaning specified in Section 6.01(m)(i)(C).

“ Third Party Payors ” means any private health insurance company that is obligated to reimburse or otherwise make payments to pharmacies which sell prescription drugs to eligible patients under any insurance contract with such private health insurer.

“ Total Extensions of Credit ” means at any time, the aggregate amount of the Extensions of Credit of the Lenders outstanding at such time.

“ Type ” means either a Base Rate Advance or a Eurodollar Rate Advance.

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

“ Uncapped Excess Availability ” means the excess of the Borrowing Base over the Total Extensions of Credit.

“ Unfunded Pension Liability ” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Internal Revenue Code for the applicable plan year.

 

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“ Unrestricted Subsidiary ” means OSH and its Subsidiaries, provided , that in each case, (i) at no time shall any creditor of any such Person have any claim (whether pursuant to a guarantee or otherwise) against Holdings or any of its other Subsidiaries (other than another Unrestricted Subsidiary) in respect of any Debt or other obligation (except for obligations arising by operation of law, including joint and several liabilities for taxes, ERISA and similar items) of any such Person, other than (a) claims arising or relating to the period, or any transaction effected prior to November 23, 2005, and (b) claims of trade vendors incurred in the ordinary course; (ii) neither Holdings nor any of its Subsidiaries (other than another Unrestricted Subsidiary) shall become a general partner of any such Person; (iii) no default with respect to any Debt of any such Person (including any right which the holders thereof may have to take enforcement action against any such Person) shall permit, solely as a result of such Debt being in default or accelerated (upon notice, lapse of time or both), any holder of any Debt of Holdings or its other Subsidiaries (other than another Unrestricted Subsidiary) to declare a default on such other Debt or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity; and (iv) no such Person shall own any equity interests of, or own or hold any Lien on any property of, any other Subsidiary of Holdings (other than another Unrestricted Subsidiary).

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

“ WFRF ” has the meaning provided in the Preamble.

SECTION 1.02. Computation of Time Periods . In this Agreement, unless otherwise specified, (a) in the computation of periods of time from a specified date to a later specified date, the word “ from ” means “ from and including ” and the words “ to ” and “ until ” each mean “ to but excluding ” (b) “ including ” means “ including without limitation ”; and (c) any reference to a time of day means Eastern time.

SECTION 1.03. Accounting Terms . All accounting terms not specifically defined herein or in the other Loan Documents shall be construed in accordance with U.S. generally accepted accounting principles (“GAAP”) which for purposes of Section 6.03 shall be consistently applied. If at any time any change in U.S. generally accepted accounting principles would affect the computation of any financial ratio or requirement set forth herein, and either the Borrowers or the Required Lenders shall so request, the Agent, the Lenders and the Borrowers shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders which shall not be unreasonably withheld), provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change in principles and (ii) the Borrowers shall provide to the Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. For the avoidance of doubt, no retroactive change in GAAP shall apply to the construction of accounting terms under this Agreement in the absence of an amendment hereto in accordance with the terms of this Section 1.03.

SECTION 1.04. Other Interpretive Provisions . With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document, the definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “ herein ,” “ hereof ” and “ hereunder ,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision

 

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thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “ asset ” and “ property ” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

ARTICLE II

AMOUNTS AND TERMS OF THE ADVANCES

SECTION 2.01. The Revolving Advances . Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make revolving advances (the “ Revolving Advances ”) to the Borrowers from time to time on any Business Day during the period from the Effective Date until the Termination Date in the case of Non-Extending Lenders or the Extended Termination Date in the case of Extending Lenders, as applicable, in an aggregate amount at any one time outstanding which, when added to such Lender’s Commitment Percentage of the sum of (i) the aggregate principal amount of the Swingline Advances then outstanding and (ii) the L/C Obligations then outstanding, equals the amount of such Lender’s Commitment; provided , that the aggregate principal amount of any Borrowing made at any time, when aggregated with all other then outstanding Extensions of Credit, shall not exceed the Line Cap at such time. Each Borrowing under this Section 2.01 shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof (provided, that the Swingline Lender may request, on behalf of the applicable Borrower, Borrowings that are Base Rate Advances in other amounts pursuant to Section 2.04(b)) and shall consist of Revolving Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Within the limits set forth in this Section 2.01, the Borrowers may borrow under this Section 2.01, prepay pursuant to Section 2.11 and reborrow under this Section 2.01.

SECTION 2.02. Making the Revolving Advances .

(a) Each Borrowing under Section 2.01 shall be made on notice, given not later than (x) 12:00 noon on the third Business Day prior to the date of the proposed Borrowing in the case of a Borrowing consisting of Eurodollar Rate Advances or (y) 1:00 p.m. on the date of the proposed Borrowing in the case of a Borrowing consisting of Base Rate Advances, by the applicable Borrower to the Agent, which shall give to each Lender prompt notice thereof by telecopier. Each such notice of a Borrowing (a “ Notice of Borrowing ”) shall be by telephone, confirmed immediately in writing, by email attachment or by telecopier, in substantially the form of Exhibit A hereto, specifying therein the requested (i) date of such Borrowing, (ii) Type of Revolving Advances comprising such Borrowing, (iii) aggregate amount of such Borrowing, and (iv) in the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Revolving Advance. Each Lender shall, before 2:00 P.M. on the date of such Borrowing make available for the account of its Applicable Lending Office to the Agent at the Agent’s Account, in same day funds, such Lender’s ratable (in accordance with its Commitment Percentage) portion of such Borrowing. After the Agent’s receipt of such funds and upon fulfillment of the applicable conditions set forth in Article IV, the Agent will make such funds available to the Borrower requesting such Borrowing at the Agent’s address referred to in Section 9.02.

(b) Anything in subsection (a) above to the contrary notwithstanding, (i) a Borrower may not select Eurodollar Rate Advances for any Borrowing if the aggregate amount of such Borrowing is less than $5,000,000 or if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.09 or 2.13 and (ii) (x) prior to the Termination Date, the Eurodollar Rate Advances may not be outstanding as part of more than seven separate Borrowings for Extending Lenders or more than seven separate Borrowings for Non-Extending Lenders, and (y) after the Termination Date until the Extended Termination Date, the Eurodollar Rate Advances may not be outstanding as part of more than ten separate Borrowings.

(c) Each Notice of Borrowing shall be irrevocable and binding on the applicable Borrower. In the case of any Borrowing that the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the applicable Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such

 

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Borrowing the applicable conditions set forth in Article IV, including any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Revolving Advance to be made by such Lender as part of such Borrowing when such Revolving Advance, as a result of such failure, is not made on such date.

(d) Unless the Agent shall have received notice from a Lender prior to the time of any Borrowing that such Lender will not make available to the Agent such Lender’s ratable portion of such Borrowing, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Borrowing in accordance with subsection (a) of this Section 2.02 and the Agent may, in reliance upon such assumption, make available to the applicable Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Agent, such Lender and the applicable Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid to the Agent, at (i) in the case of such Borrower, the interest rate applicable at the time to Revolving Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall be made available to the applicable Borrower and shall constitute such Lender’s Revolving Advance as part of such Borrowing for purposes of this Agreement.

(e) The failure of any Lender to make the Revolving Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Revolving Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Revolving Advance to be made by such other Lender on the date of any Borrowing.

SECTION 2.03. The Swingline Advances . (a) Subject to the terms and conditions hereof, the Swingline Lender agrees to make a portion of the credit otherwise available to the Borrowers under the Commitments from time to time during the period from the Effective Date until the Extended Termination Date by making swing line advances (“ Swingline Advances ”) to the Borrowers; provided that (i) the aggregate principal amount of Swingline Advances outstanding at any time shall not exceed the Swingline Commitment then in effect (notwithstanding that the Swingline Advances outstanding at any time, when aggregated with the Swingline Lender’s other outstanding Revolving Advances, may exceed the Swingline Commitment then in effect) and (ii) the amount of any Swingline Advance made at any time, when aggregated with all other then outstanding Extensions of Credit, shall not exceed the Line Cap at such time; provided that the Swingline Lender shall not be obligated to make any Swingline Loan at any time when any Lender is at such time a Defaulting Lender or Deteriorating Lender hereunder, unless the Swingline Lender has entered into satisfactory arrangements with the Borrowers or such Lender to eliminate the Swingline Lender’s risk with respect to such Lender. During the period from the Effective Date until the Extended Termination Date, the Borrowers may use the Swingline Commitment by borrowing, repaying and reborrowing, all in accordance with the terms and conditions hereof. Swingline Advances shall only be available as Base Rate Advances.

(b) Each Borrower shall repay to the Swingline Lender the then unpaid principal amount of each Swingline Advance made to it on the earlier of (i) the Extended Termination Date, and (ii) the first date after such Swingline Advance is made that is the 15th or last day of a calendar month and is at least two Business Days after such Swingline Advance is made; provided that on each date that a Revolving Advance is borrowed by a Borrower, such Borrower shall repay all Swingline Advances then outstanding, if any, and may use all or a portion of such Revolving Advance to fund such repayment.

SECTION 2.04. Making the Swingline Advances .

(a) Each Borrowing under Section 2.03 shall be made on notice, given not later than 1:00 p.m. on the date of the proposed Borrowing, by the applicable Borrower to the Agent and Swingline Lender. Each such Notice of a Borrowing shall be by telephone, confirmed immediately in writing, by email attachment or by telecopier, in substantially the form of Exhibit A hereto, specifying therein the requested (i) date of such Borrowing and (ii) aggregate amount of such Borrowing. Each Borrowing under the Swingline Commitment shall be in an amount equal to $500,000 or a whole multiple of $100,000 in excess thereof. Not later than 3:00 P.M. on the date of the proposed Borrowing, the Swingline Lender shall make available to the Agent at the Agent’s Account an amount

 

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in immediately available funds equal to the amount of the Swingline Advance to be made by the Swingline Lender. Upon fulfillment of the applicable conditions set forth in Article IV, the Agent shall make the proceeds of such Swingline Advance available to the Borrower requesting such Borrowing at the Agent’s address referred to in Section 9.02.

(b) The Swingline Lender, at any time and from time to time in its sole and absolute discretion may, on behalf of the Borrowers (which hereby irrevocably direct the Swingline Lender to act on their behalf), by notice given by the Swingline Lender no later than 1:00 p.m., request each Lender to make, and each Lender hereby agrees to make, a Revolving Advance, in an amount equal to such Lender’s Commitment Percentage of the aggregate amount of the Swingline Advances (the “ Refunded Swingline Advances ”) outstanding on the date of such notice, to repay the Swingline Lender. Each Lender shall make the amount of such Revolving Advance available to the Agent at the Agent’s Account in same day funds, not later than 2:00 P.M. on the date of such notice. The proceeds of such Revolving Advances shall be immediately made available by the Agent to the Swingline Lender for application by the Swingline Lender to the repayment of the Refunded Swingline Advances. Each Borrower irrevocably authorizes the Swingline Lender to charge such Borrower’s accounts with the Agent (up to the amount available in each such account) in order to immediately pay the amount of such Refunded Swingline Advances to the extent amounts received from the Lenders are not sufficient to repay in full such Refunded Swingline Advances.

(c) If prior to the time a Revolving Advance would have otherwise been made pursuant to Section 2.04(b), one of the events described in Section 7.01 shall have occurred and be continuing or if for any other reason, as determined by the Swingline Lender in its sole discretion, Revolving Advances may not be made as contemplated by Section 2.04(b), each Lender shall, on the date such Revolving Advance was to have been made pursuant to the notice referred to in Section 2.04(b), purchase for cash an undivided participating interest in the then outstanding Swingline Advances by paying to the Swingline Lender an amount (the “ Swingline Participation Amount ”) equal to (i) such Lender’s Commitment Percentage multiplied by (ii) the sum of the aggregate principal amount of Swingline Advances then outstanding that were to have been repaid with such Revolving Advances.

(d) Whenever, at any time after the Swingline Lender has received from any Lender such Lender’s Swingline Participation Amount, the Swingline Lender receives any payment on account of the Swingline Advances, the Swingline Lender will distribute to such Lender its Swingline Participation Amount (appropriately adjusted, in the case of interest payments, to reflect whether such payment is owed to a Non-Extending Lender or a Extending Lender and whether the corresponding interest rate owed to such Lender is calculated in accordance with Section 2.08(a) or 2.08(b), to reflect the period of time during which such Lender’s participating interest was outstanding and funded and, in the case of principal and interest payments, to reflect such Lender’s pro rata portion of such payment if such payment is not sufficient to pay the principal of and interest on all Swingline Advances then due); provided , however , that in the event that such payment received by the Swingline Lender is required to be returned, such Lender will return to the Swingline Lender any portion thereof previously distributed to it by the Swingline Lender.

(e) Each Lender’s obligation to make the Advances referred to in Section 2.04(b) and to purchase participating interests pursuant to Section 2.04(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right that such Lender or any Borrower may have against the Swingline Lender, any Borrower or any other Person for any reason whatsoever, (ii) the occurrence or continuance of a Default or an Event of Default or the failure to satisfy any of the other conditions specified in Article IV, (iii) any adverse change in the condition (financial or otherwise) of any Borrower or any other Loan Party, (iv) any breach of this Agreement or any other Loan Document by any Borrower, any other Loan Party or any other Lender or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.

SECTION 2.05. Fees .

(a) Commitment Fee . The Borrowers jointly and severally agree to pay to the Agent (i) for the account of each Non-Extending Lender a commitment fee commencing on the Effective Date on the average daily amount of the Available Commitment of such Non-Extending Lender during the period for which payment is made at a rate per annum equal to the Commitment Fee Rate in effect from time to time, and (ii) for the account of each Extending Lender a commitment fee commencing on the Effective Date on the average daily amount of the

 

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Available Commitment of such Extending Lender during the period for which payment is made at a rate per annum equal to the Extended Term Commitment Fee Rate in effect from time to time, in each case payable in arrears quarterly on the 5 ^th day subsequent to the last day of each April, July, October and January, commencing June 30, 2009, and on the Termination Date or the Extended Termination Date, as applicable.

(b) Other Fees . Holdings and the Borrowers shall pay to the Agent, the Co-Collateral Agents and the Lead Arrangers, as applicable, the fees set forth in the applicable Fee Letter in the amounts and at the times specified therein.

SECTION 2.06. Optional Termination or Reduction of the Commitments .

(a) On the Effective Date, (i) the Commitments of Aurora Bank FSB (formerly known as Lehman Brothers Bank, FSB) and its Affiliates (“Lehman”) shall be terminated, and all Obligations owing to Lehman shall be paid in full and Lehman shall be discharged from any liability with respect to any outstanding Letters of Credit and Swingline Advances, and (ii) the Commitments of certain Extending Lenders shall be reduced, in each case, without a pro rata reduction of the Commitments of any other Lenders. After such reduction, the Commitments of the Lenders shall be as set forth on Schedule 1.01 hereto.

(b) After the Effective Date, the Borrowers shall have the right, without penalty or premium and upon at least three Business Days’ notice to the Agent, to permanently terminate in whole or permanently reduce in part the unused portions of the respective Commitments of the Lenders, provided that no such termination or reduction of the Commitments shall be permitted if, after giving effect thereto and to any prepayments of the Advances made on the effective date thereof, the Total Extensions of Credit would exceed the aggregate amount of the Commitments as so reduced. Any partial reduction of the Commitments shall be in the aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof; provided further that, except for any reduction pursuant to Section 8.13, any such reduction shall first be applied ratably to the Commitments of the Non-Extending Lenders and after such Commitments have been terminated in full, shall be applied ratably to the Commitments of the Extending Lenders.

(c) In addition to the Borrowers’ rights under Section 2.06(b), at any time after July 22, 2009, the Commitment of any applicable Non-Extending Lenders shall be automatically terminated upon the repayment of the Obligations owed to such Non-Extending Lender in accordance with the provisions of Section 2.11(b) hereof.

SECTION 2.07. Repayment of Advances . Each Borrower shall repay to the Agent (i) for the ratable account of the Non-Extending Lenders on the Termination Date the aggregate principal amount of the Advances made to it by the Non-Extending Lenders then outstanding, and (ii) for the ratable account of the Extending Lenders on the Extended Termination Date the aggregate principal amount of the Advances made to it by the Extending Lenders then outstanding.

SECTION 2.08. Interest on Advances .

(a) Scheduled Interest Owed to Non-Extending Lenders . Each Borrower shall pay interest on the unpaid principal amount of each Advance made to it and owing to each Non-Extending Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum:

(i) Base Rate Advances . During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (x) the Base Rate in effect from time to time plus (y) the Applicable Margin for Base Rate Advances in effect from time to time, payable in the case of any Base Rate Advance (other than a Swingline Advance), in arrears monthly on the 5 ^th day subsequent to the last day of each month during such periods and on the date such Base Rate Advance shall be Converted or paid in full.

(ii) Eurodollar Rate Advances . During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance