EXECUTION COPY U.S. $4,000,000,000 FIVE-YEAR CREDIT AGREEMENT

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EXECUTION COPY

U.S. $4,000,000,000

FIVE-YEAR CREDIT AGREEMENT

Dated as of February 22, 2005

Among

SEARS HOLDINGS CORPORATION

and

SEARS ROEBUCK ACCEPTANCE CORP.

and

KMART CORPORATION,

as Borrowers

and

THE INITIAL LENDERS NAMED HEREIN,

as Initial Lenders

and

CITICORP USA, INC.

and

BANK OF AMERICA, N.A.,

as Syndication Agents

and

BARCLAYS BANK PLC,

LEHMAN COMMERCIAL PAPER INC.,

HSBC BANK USA,

MERRILL LYNCH BANK USA,

MORGAN STANLEY BANK,

THE ROYAL BANK OF SCOTLAND, PLC

AND

WACHOVIA BANK NATIONAL ASSOCIATION,

as Documentation Agents

and

J.P. MORGAN SECURITIES INC.,

CITIGROUP GLOBAL MARKETS INC.

and

BANC OF AMERICA SECURITIES LLC,

as Lead Arrangers and Joint Bookrunners

and

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent

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TABLE OF CONTENTS

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PAGE

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ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01. Certain Defined Terms............................................................................ 1

SECTION 1.02. Computation of Time Periods...................................................................... 19

SECTION 1.03. Accounting Terms................................................................................. 19

ARTICLE II

AMOUNTS AND TERMS OF THE ADVANCES

SECTION 2.01. The Revolving Advances........................................................................... 19

SECTION 2.02. Making the Revolving Advances.................................................................... 19

SECTION 2.03. The Swingline Advances........................................................................... 20

SECTION 2.04. Making the Swingline Advances.................................................................... 21

SECTION 2.05. Fees............................................................................................. 22

SECTION 2.06. Optional Termination or Reduction of the Commitments............................................. 22

SECTION 2.07. Repayment of Advances............................................................................ 22

SECTION 2.08. Interest on Advances............................................................................. 22

SECTION 2.09. Interest Rate Determination...................................................................... 23

SECTION 2.10. Optional Conversion of Revolving Advances........................................................ 23

SECTION 2.11. Optional and Mandatory Prepayments of Advances................................................... 23

SECTION 2.12. Increased Costs.................................................................................. 24

SECTION 2.13. Illegality....................................................................................... 25

SECTION 2.14. Payments and Computations........................................................................ 25

SECTION 2.15. Taxes............................................................................................ 25

SECTION 2.16. Sharing of Payments, Etc......................................................................... 27

SECTION 2.17. Use of Proceeds of Advances...................................................................... 28

ARTICLE III

AMOUNT AND TERMS OF THE LETTERS OF CREDIT

SECTION 3.01. L/C Commitment................................................................................... 28

SECTION 3.02. Procedure for Issuance of Letter of Credit....................................................... 28

SECTION 3.03. Fees and Other Charges........................................................................... 28

SECTION 3.04. Letter of Credit Participations.................................................................. 29

SECTION 3.05. Reimbursement Obligation of the Borrowers........................................................ 29

SECTION 3.06. Obligations Absolute............................................................................. 30

SECTION 3.07. Letter of Credit Payments........................................................................ 30

SECTION 3.08. Applications..................................................................................... 30

SECTION 3.09. Use of Letters of Credit......................................................................... 30

ARTICLE IV

CONDITIONS TO EFFECTIVENESS

SECTION 4.01. Conditions Precedent to Effectiveness............................................................ 30

SECTION 4.02. Conditions Precedent to Each Extension of Credit................................................. 32

SECTION 4.03. Effective Date................................................................................... 32

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ARTICLE V

REPRESENTATIONS AND WARRANTIES

SECTION 5.01. Representations and Warranties of the Borrowers.................................................. 32

ARTICLE VI

COVENANTS

SECTION 6.01. Affirmative Covenants............................................................................ 35

SECTION 6.02. Negative Covenants............................................................................... 38

SECTION 6.03. Financial Covenant............................................................................... 41

ARTICLE VII

EVENTS OF DEFAULT

SECTION 7.01. Events of Default................................................................................ 41

RTICLE VIII

THE AGENT

SECTION 8.01. Appointment...................................................................................... 43

SECTION 8.02. Delegation of Duties............................................................................. 43

SECTION 8.03. Exculpatory Provisions........................................................................... 43

SECTION 8.04. Reliance by Agent................................................................................ 44

SECTION 8.05. Notice of Default................................................................................ 44

SECTION 8.06. Non-Reliance on Agents and Other Lenders......................................................... 44

SECTION 8.07. Indemnification.................................................................................. 44

SECTION 8.08. Agent in Its Individual Capacity................................................................. 45

SECTION 8.09. Successor Agent.................................................................................. 45

SECTION 8.10. Documentation Agents and Syndication Agents...................................................... 45

ARTICLE IX

MISCELLANEOUS

SECTION 9.01. Amendments, Etc.................................................................................. 45

SECTION 9.02. Notices, Etc..................................................................................... 46

SECTION 9.03. No Waiver; Remedies.............................................................................. 47

SECTION 9.04. Costs and Expenses............................................................................... 47

SECTION 9.05. Right of Set-off................................................................................. 48

SECTION 9.06. Binding Effect; Effectiveness.................................................................... 48

SECTION 9.07. Assignments and Participations................................................................... 48

SECTION 9.08. Confidentiality.................................................................................. 50

SECTION 9.09. Governing Law.................................................................................... 50

SECTION 9.10. Execution in Counterparts........................................................................ 50

SECTION 9.11. Jurisdiction, Etc................................................................................ 51

SECTION 9.12. WAIVER OF JURY TRIAL............................................................................. 51

SECTION 9.13. Release of Collateral............................................................................ 51

SECTION 9.14. USA PATRIOT Act Notice........................................................................... 52

SECTION 9.15. Integration...................................................................................... 52

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Schedules

Schedule IA - Pricing Grid

Schedule 5.01(r) -UCC Filing Jurisdictions

Schedule 6.02(a) -Existing Liens

Exhibits

Exhibit A - Form of Notice of Borrowing

Exhibit B - Form of Assignment and Acceptance

Exhibit C - Form of Borrowing Base Certificate

Exhibit D - Form of Guarantee and Collateral Agreement

Exhibit E-1 - Form of Opinion of Counsel for the Borrowers (Sears Law

Department)

Exhibit E-2 - Form of Opinion of Counsel for the Borrowers (Kmart Law

Department)

Exhibit E-3 - Form of Opinion of Special Counsel for the Borrowers

(Wachtell, Lipton, Rosen & Katz)

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FIVE-YEAR CREDIT AGREEMENT

Dated as of February 22, 2005

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 (the "Initial Lenders") listed on

the signature pages hereof, 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 BANK, THE ROYAL BANK OF SCOTLAND,

PLC and WACHOVIA BANK NATIONAL ASSOCIATION, as documentation agents, J.P. MORGAN

SECURITIES INC., CITIGROUP GLOBAL MARKETS INC. and BANC OF AMERICA SECURITIES

LLC, as lead arrangers and joint bookrunners (the "Lead Arrangers"), and

JPMORGAN CHASE BANK, N.A. ("JPMorgan Chase Bank"), as administrative agent (the

"Agent") for the Lenders (as hereinafter defined), agree 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):

"Adjustment Date" has the meaning set forth in the Pricing Grid.

"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's Account" means the account of the Agent maintained by the

Agent at JPMorgan Chase Bank at its office at 270 Park Avenue, New York,

New York 10017, Account No. 304288446, Attention: Bank Loan Syndications.

"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.

"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 or any Borrower, its

president, chief executive officer, chief financial officer, vice

president and controller, vice president and treasurer, vice president,

finance,

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executive vice president, finance or any other person designated by it and

acceptable to the Required Lenders.

"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.

"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 in New York, New York, from time to time, as its prime

rate; and

(b) 1/2 of one percent per annum above the Federal Funds

Rate.

"Base Rate Advance" means an Advance that bears interest as provided

in Section 2.08(a)(i).

"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 Sears shall designate that Sears or a direct wholly

owned Domestic Subsidiary of Sears 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) the lesser of (i) 70% of the Net Eligible Inventory at such

time minus 100% of Other Borrowing Base Reserves and (ii) 85% of the Net

Orderly Liquidation Value at such time. The Agent may, in its Permitted

Discretion and with 5 days notice to the Borrowers, reduce the advance

rates set forth above or adjust one or more of the other elements used in

computing the Borrowing Base.

"Borrowing Base Certificate" means a certificate, signed by an

Authorized Officer of Holdings, in the form of Exhibit C or another form

which is acceptable to the Agent in its 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, 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.

"Cash Equivalents" means investments of Holdings and its

Subsidiaries recorded as cash or cash equivalents in accordance with GAAP.

"Collateral" means all property of the Loan Parties, now owned or

hereafter acquired, upon which a Lien is purported to be created by any

Security Document.

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"Collateral Release Date" means the date on which the Collateral is

released from the Liens of the Agent pursuant to Section 9.13(c).

"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.

"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 the signature

pages hereof 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 pursuant to Section 2.06.

"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 of all Lenders or, at any time after the Commitments

shall have expired or terminated, the percentage which the aggregate

principal amount of such Lender's Advances then outstanding constitutes of

the aggregate principal amount of the Advances then outstanding, provided,

that, in the event that the Advances are paid in full prior to the

reduction to zero of the Total Extensions of Credit, the Commitment

Percentage shall be determined in a manner designed to ensure that the

other outstanding Extensions of Credit shall be held by the Lenders on a

comparable basis.

"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,

excluding Sears Canada, in accordance with GAAP and as presented on a GAAP

basis.

"Consolidated Adjusted Leverage Ratio" means, as of any given day,

the ratio of (a) the sum of (i) Consolidated Average Net Debt on such day

and (ii) the product of Consolidated Rent Expense for the four immediately

preceding fiscal quarters for which financial statements are available and

6 to (b) Consolidated EBITDAR for the four immediately preceding fiscal

quarters for which financial statements are available.

"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 non-recurring 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-

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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 Adjusted Leverage Ratio

or 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 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 EBITDAR" means, for any period, the sum of (a)

Consolidated EBITDA for such period plus (b) Consolidated Rent Expense for

such period.

"Consolidated Inventory Coverage Ratio" means, as of the last day of

any period, the ratio of (a) Gross Domestic Inventory on such day to (b)

Total Net Extensions of Credit on such day.

"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. For purposes of determining the

Consolidated Leverage Ratio as of the end of the first four fiscal

quarters following the Effective Date, Consolidated Average Net Debt and

Consolidated EBITDA shall be calculated to give pro forma effect to the

Merger as if the Merger had occurred on the first day of the relevant

period of four consecutive fiscal quarters.

"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 Rent Expense" means, for any period, the aggregate

amount of fixed and contingent rentals payable by Holdings and its

Subsidiaries for such period with respect to operating leases of real

estate, determined on a Consolidated basis in accordance with GAAP.

"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,

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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.

"Credit Card Accounts Receivable" means each "Account" (as defined

in the UCC) together with all income, payments and proceeds thereof, owed

by an issuer of credit cards to a Loan Party resulting from charges by a

customer of a Group Member (other than Sears Canada) 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.

"DC" means any distribution center owned or leased and operated by

any Loan Party.

"Debt" of any Person means, without duplication, (a) all

indebtedness of such Person for borrowed money (excluding interest payable

thereon unless such interest is to be 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 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 (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.

"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.

"Disposition" means any sale 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.

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"Domestic Subsidiary" means any Subsidiary organized under the laws

of any jurisdiction within the United States.

"Effective Date" means the date on which the conditions precedent

set forth in Section 4.01 shall have been satisfied.

"Eligible Assignee" means any Person approved by the Agent, the

Issuing Lender and, unless (a) an Event of Default has occurred and is

continuing at the time any assignment is effected in accordance with

Section 9.07 or (b) the assignee is an existing Lender or an Affiliate of

an existing Lender, the Borrowers, in each case such approval not to be

unreasonably withheld or delayed; provided that neither the Borrowers nor

an Affiliate of the Borrowers shall qualify as an Eligible Assignee.

"Eligible Credit Card Accounts Receivable" means at the time of any

determination thereof, each Credit Card Accounts Receivable that satisfies

the following criteria at the time of 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

(i) 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 Agent, no Credit Card Accounts Receivable shall be

Eligible Credit Card Accounts Receivable if, without duplication:

(a) such Credit Card Accounts Receivable are not

owned by a Loan Party and such Loan Party does not have

good or marketable title to such Credit Card Accounts

Receivable free and clear of any Lien of any Person other

than the Agent;

(b) such Credit Card Accounts Receivable do not

constitute "Accounts" (as defined in the UCC) or such

Credit Card Accounts Receivable have been outstanding for

more than seven (7) business days;

(c) the issuer or payment processor of the

applicable credit card with respect to such Credit Card

Accounts Receivable is the subject of any bankruptcy or

insolvency proceedings;

(d) such Credit Card Accounts Receivable are not

valid, legally enforceable obligations of the applicable

issuer with respect thereto;

(e) such Credit Card Accounts Receivable are not

subject to a properly perfected security interest in favor

of the Agent, or are not in form and substance reasonably

satisfactory to the Agent, or are subject to any Lien

whatsoever other than Permitted Liens contemplated by the

processor agreements and for which appropriate reserves

(as determined by the Agent) have been established or

maintained by the Loan Parties;

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(f) the Credit Card Accounts Receivable do not

conform to all representations, warranties or other

provisions in the Loan Documents relating to Credit Card

Accounts Receivable;

(g) such Credit Card Accounts Receivable are

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 Accounts Receivable or unpaid

credit card processor fees;

(h) such Credit Card Accounts Receivable are

evidenced by "chattel paper" or an "instrument" of any

kind unless such "chattel paper" or "instrument" is in the

possession of the Agent, and to the extent necessary or

appropriate, endorsed to the Agent; or

(i) such Credit Card Accounts Receivable do not

meet such other usual and customary eligibility criteria

for Credit Card Accounts Receivable as the Agent may

determine from time to time in its Permitted Discretion.

"Eligible Inventory" means, at any time, the Inventory of any Loan

Party held for sale to third party customers that is not ineligible for

inclusion in the calculation of the Borrowing Base pursuant to any of

clauses (a) through (s) 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, 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

(b) it is not located in the United States, Puerto

Rico 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 in transit between such locations or is located at a

dealer's store or is deemed eligible pursuant to clause

(h)) or is located at a third party warehouse or is

located at a closed Store (except pursuant to clause (f))

or is located at a closed DC; or

(d) it is identified as accrued Inventory without

a receiver in the applicable Loan Party's stockledger; or

(e) it is not subject to a valid and perfected

first priority Lien in favor of the Agent for the benefit

of the Agent and the Lenders; or

(f) it is Inventory located at a Store which is

being closed; provided however that such Inventory will be

deemed eligible for the first four (4) weeks after the

commencement of the Store Closure Sale for that Store; or

(g) it is consigned from a vendor or is at a

customer location but still accounted for in the

applicable Loan Party's inventory balance; or

(h) it is in-transit from a vendor and has not yet

been received into a DC or Store; provided that in-transit

inventory purchased under "private label"

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letters of credit issued by SRAC or Letters of Credit

issued hereunder shall be deemed Eligible Inventory,

subject to a 25% reserve, if (i) the relevant Loan Party

has sole title (including Inventory delivered on a FOB

shipping point basis and whether or not payment has been

made to the letter of credit beneficiary and/or the issuer

of such letter of credit), (ii) the relevant Loan Party

has possession or control over title documents relating to

such Inventory, (iii) the Inventory is fully insured and

(iv) the Inventory would not be deemed ineligible pursuant

to any other provision of this definition; or

(i) it is considered perishable goods or 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: bakery; dairy; deli; floral; gasoline; live

plants; meat; 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, provided

that it will only be considered ineligible to the extent

that the Inventory Value thereof is greater than 2% of

Gross Inventory Value; or

(j) it is Inventory that is packed-away and stored

at a DC or a Store for future sale, including merchandise

of Sears and its Subsidiaries that has been carried over

for more than 9 months as currently reported as XOM status

per the RIM merchandising system; or

(k) from and after the delivery by Holdings of the

first monthly Borrowing Base Certificate after a specified

holiday or event has occurred, any Inventory (other than

seasonal apparel) identified as seasonal per the Loan

Parties' stockledger for sale for such specific holiday or

event; or

(l) it is identified as wholesaler freight fees;

or

(m) from and after any date that is more than four

(4) weeks past a specified selling season, any Inventory

that is seasonal apparel and that the Loan Parties have

identified, in accordance in all material respects with

the Loan Parties' current or historical accounting

practices, as related to such specific selling season,

including merchandise of Sears and its Subsidiaries that

is currently reported by the SAMS database; or

(n) it is Inventory which is ordinarily classified

by such Loan Party consistent with its historical

practices as repair services, provided that 50% of the

value of such Inventory shall constitute Eligible

Inventory; or

(o) 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

(p) 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

(q) it is otherwise deemed ineligible by the Agent

in its Permitted Discretion on at least five (5) Business

Days' notice to Holdings; or

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(r) it is 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; or

(s) 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.

"Environmental Action" means any action, suit, demand, demand

letter, claim, notice of non-compliance 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 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 subsection (2) of such Section) 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) 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

9

<PAGE>

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 Section

302(f) of ERISA shall have been met with respect to any Plan; (g) the

adoption of an amendment to a Plan requiring the provision of security to

such Plan pursuant to Section 307 of ERISA; or (h) 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.

"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

determined on the basis of the rate for deposits in Dollars for a period

equal to such Interest Period commencing on the first day of such Interest

Period appearing on Page 3750 of the Telerate screen as of 11:00 A.M.,

London time, two Business Days prior to the beginning of such Interest

Period. In the event that such rate does not appear on Page 3750 of the

Telerate screen (or otherwise on such screen), the "Eurodollar Rate" shall

be determined by reference to such other comparable publicly available

service for displaying eurodollar rates as may be selected by the Agent

or, in the absence of such availability, by reference to the rate at which

the Agent is offered Dollar deposits at or about 11:00 A.M., New York City

time, two Business Days prior to the beginning of such Interest Period in

the interbank eurodollar market where its eurodollar and foreign currency

and exchange operations are then being conducted for delivery on the first

day of such Interest Period for the number of days comprised therein.

"Eurodollar Rate Advance" means an Advance that bears interest as

provided in Section 2.08(a)(ii).

"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 maximum 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.

"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.

"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

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<PAGE>

quotations for such day on such transactions received by the Agent from

three Federal funds brokers of recognized standing reasonably selected by

it.

"GAAP" has the meaning specified in Section 1.03.

"Gift Card Liability Reserve" shall mean, at any fiscal month end,

as the case may be, a reserve equal to the total value of all gift cards

outstanding.

"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).

"Gross Domestic Inventory" means, on any day, the cost of all

Inventory of Holdings and its Subsidiaries (determined on a

first-in-first-out basis either under the retail or average cost method)

located in the United States, Puerto Rico or U.S. Virgin Islands on such

day (other than consignment Inventory (including Inventory subject to

"sale or return" arrangements) and import Inventory that is in transit

from a location outside of the United States) less reserves taken in

accordance with GAAP, determined on a consolidated basis in accordance

with GAAP; provided that, until the Collateral Release Date, Inventory

shall only be included in the calculation of Gross Domestic Inventory if

such Inventory is subject to a perfected first-priority Lien in favor of

the Agent pursuant to the terms of the Security Documents.

"Gross Inventory Value" shall mean, at any month end, the Inventory

Value of the domestic Inventory for Stores and DCs per the Loan Parties'

stockledger as calculated in Exhibit C hereto under the heading of

"Inventory Subject to Net Recovery Rate".

"Group Members" means, collectively, Holdings, the Borrowers and

their respective Subsidiaries.

"Guarantee and Collateral Agreement" means the Guarantee and

Collateral Agreement to be executed and delivered by Holdings, Sears,

Kmart, Kmart Management Corporation, the Borrowers and each Subsidiary

Guarantor, 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.

"Information Memorandum" means the information memorandum dated

January 2005, as amended or supplemented from time to time, used by the

Agent in connection with the syndication of the Commitments.

"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" means the collective reference to all

rights, priorities and privileges relating to intellectual property,

whether arising under United States, multinational or foreign laws or

otherwise, including copyrights, copyright licenses, patents, patent

licenses, trademarks, trademark licenses, technology, know-how and

processes, and all rights to sue at law or in equity for any infringement

or other impairment thereof, including the right to receive all proceeds

and damages therefrom.

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<PAGE>

"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, three or six months, or, subject to clause (c) of this definition, 7

days or nine or twelve 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;

(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) in the case of any such Borrowing, a Borrower shall not

be entitled to select an Interest Period having duration of 7 days

or nine or twelve months unless, by 2:00 P.M. on the third Business

Day prior to the first day of such Interest Period, each Lender

notifies the Agent that such Lender will be providing funding for

such Borrowing with such Interest Period (the failure of any Lender

to so respond by such time being deemed for all purposes of this

Agreement as an objection by such Lender to the requested duration

of such Interest Period); provided that, if any or all of the

Lenders object to the requested duration of such Interest Period,

the duration of the Interest Period for such Borrowing shall be one,

two, three or six months, as specified by the applicable Borrower in

the applicable Notice of Borrowing as the desired alternative to an

Interest Period of 7 days or nine or twelve months;

(d) 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

(e) whenever the first day of any Interest Period of one

month or longer 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 Uniform Commercial Code as from time

to time in effect in the State of New York.

"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 Gross Inventory Value per the stockledger; or (ii)

an amount

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<PAGE>

determined by the Agent in its Permitted Discretion on five (5)

Business Days' notice to Holdings; and

(b) a reserve for intracompany profit, equal to the most

recent three (3) fiscal months of capitalized cost of the foreign

buying offices owned and operated by any Loan Party, with the time

frame subject to change on five (5) Business Days' notice to

Holdings based on Inventory performance, or the Agent's Permitted

Discretion; and

(c) to the extent not already netted out of the Gross

Inventory Value per the stockledger or not treated as ineligible

pursuant to the definition of Eligible Inventory, a reserve for (i)

hard (permanent) markdowns, (ii) seasonal merchandise, (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; and

(d) a reserve for Inventory returned (other than as a result

of reclamations) to either the return goods center ("RGC"), the

vendor, given to charity, or otherwise considered non-saleable,

whether defective or non-defective. This reserve is to be calculated

as the monthly average for the most recent rolling 12 fiscal month

period of return (other than as a result of reclamations) activity

to the vendors, the RGC, given to charity, or otherwise considered

non-saleable, whether defective or non-defective, both from the

Stores and DCs, and is subject to change on five (5) Business Days'

notice to Holdings at the Agent's 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.

"Inventory Value" shall mean, with respect to any Inventory of the

Loan Parties, the value of such Inventory valued at cost on a basis

consistent with the Loan Parties' current and historical accounting

practice per the stockledger (without giving effect to LIFO reserves and

general ledger reserves for discontinued inventory, markdowns,

intercompany profit, rebates and discounts, any cut off adjustments,

revaluation adjustments, purchase price adjustments or adjustments with

respect to the capitalization of buying, occupancy, distribution and other

overhead costs reflected on the balance sheet of the 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 respect of lost,

misplaced or stolen Inventory at such time.

"Investment Grade Ratings" shall consist of ratings of at least (i)

Baa3 from Moody's, (ii) BBB- from S&P or (iii) BBB- from Fitch Ratings;

provided that solely in the case that the rating at issue is the minimum

rating provided under this definition, such rating shall, in addition,

have a stable or better outlook.

"Issuing Lender" means, collectively, JPMorgan Chase Bank, Bank of

America, N.A. or Fleet National Bank, Citibank, N.A. (provided that any

reimbursement or payment on account of a Letter of Credit issued by

Citibank, N.A. hereunder shall be made to Citicorp USA, Inc.), 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.

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<PAGE>

"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).

"Lenders" means the Initial Lenders and each Person that shall

become a party hereto pursuant to Section 9.07.

"Letters of Credit" means the collective reference to Commercial

L/Cs and Standby L/Cs; individually, a "Letter of Credit".

"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.

"Loan Documents" means this Agreement, the Security Documents, the

Notes, 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 Change" means a material adverse change in the

business, condition (financial or otherwise) or operations of Holdings and

its Subsidiaries taken as a whole.

"Material Adverse Effect" means a material adverse effect on (a) the

business, condition (financial or otherwise) or operations of Holdings and

its Subsidiaries taken as a whole or (b) the validity or enforceability of

any of the Loan Documents or the rights and remedies of the Agent and the

Lenders thereunder.

"Merger" has the meaning specified in Section 4.01(a).

"Moody's" means Moody's Investors Service, Inc.

"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.

"Net Eligible Inventory" means, at any time, an amount equal to the

Inventory Value of Eligible Inventory less Inventory Reserves.

"Net Orderly Liquidation Value" means the product of (i) Net

Recovery Rate and (ii) the Gross Inventory Value.

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"Net Recovery Rate" means the quotient of (x) the estimated net

income, payments and proceeds (net of expenses) which could reasonably be

realized in connection with an orderly liquidation of each Loan Party's

Inventory given a reasonable period of time for soliciting offers for the

sale of such Inventory on an "as is, where is" basis based on an appraisal

provided by an independent third party appraiser retained or approved by

the Agent in consultation with the Borrowers and (y) the Gross Inventory

Value as of the effective date of the estimate provided pursuant to clause

(x) of this definition

"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).

"Other Borrowing Base Reserves" means, to the extent that relevant

merchandise is not treated as ineligible pursuant to the definition of

Eligible Inventory, the following:

(a) a reserve in an amount to be determined by the Agent in

its Permitted Discretion for rent expense at leased Store and DC

locations;

(b) a reserve for royalties payable to non-Loan Parties in

respect of licensed merchandise (other than the Martha Stewart

Reserve);

(c) the Martha Stewart Reserve;

(d) the Gift Card Liability Reserve;

(e) PACA Liability Reserves; and

(f) PASA Liability Reserves.

"Other Taxes" has the meaning specified in Section 2.15.

"PACA" means the Perishable Agricultural Commodities Act of 1930, as

amended.

"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).

"Permitted Discretion" means a determination made in good faith and

in the exercise of commercially reasonable business judgment.

"Permitted Holder" means ESL Investments, Inc. and any of its

Affiliates other than a Group Member.

"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

15

<PAGE>

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; (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

Agent, on behalf of the Lenders; (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) consignments and claims under PACA and

PASA; and (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.

"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.

"Plan" means a Single Employer Plan or a Multiple Employer Plan.

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

"Pro Forma Financial Information" means the pro forma financial data

of Holdings contained in the Registration Statement.

"Refunded Swingline Advances" has the meaning specified in Section

2.04(b).

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

"Registration Statement" means the Registration Statement of

Holdings on Form S-4 filed with the SEC (Registration No. 333-120954) and

declared effective on February 18, 2005.

"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 the Borrowers and their Subsidiaries (other

than Sears Canada) as are reasonably necessary to permit the Agent to

enforce its 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 (i) 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. Section 4043 and (ii) any event that must be

reported solely as a result of the bankruptcy filing by Kmart Corp. and

certain of its Subsidiaries on January 22, 2002 in the Bankruptcy Court

for the Northern District of Illinois, Eastern Division.

"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

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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.

"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).

"S&P" means Standard & Poor's Ratings Services, a division of The

McGraw-Hill Companies, Inc.

"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 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 Agent granting a Lien on any property of any Person to

secure the obligations and liabilities of any Loan Party under any Loan

Document.

"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) the present fair saleable value of the assets

of such Person will, as of such date, be greater than the amount that will

be required to pay the liability of such Person on its debts as such debts

become absolute and matured, (c) such Person will not have, as of such

date, an unreasonably small amount of capital with which to conduct its

business, and (d) such Person will be able to pay its debts as they

mature. For purposes of this definition, (i) "debt" means liability on a

"claim", and (ii) "claim" means any (x) right to payment, whether or not

such a right is reduced to judgment, liquidated, unliquidated, fixed,

contingent, matured, unmatured, disputed, undisputed, legal, equitable,

secured or unsecured or (y) right to an equitable remedy for breach of

performance if such breach gives rise to a right to payment, whether or

not such right to an equitable remedy is reduced to judgment, fixed,

contingent, matured or unmatured, disputed, undisputed, secured or

unsecured.

"Standby L/C" means an irrevocable 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 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

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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 is properly

advertised and professionally managed 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 (a) the issued and outstanding capital stock having

ordinary voting power to elect a majority of the Board of Directors of

such corporation (irrespective of whether at the time capital stock of any

other class or classes of such corporation shall or might have voting

power upon the occurrence of any contingency), (b) the interest in the

capital or profits of such limited liability company, partnership or joint

venture or (c) the beneficial interest in such trust or estate is at the

time directly or indirectly owned or controlled 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.

"Subsidiary Guarantor" means each Domestic Subsidiary of Holdings

which owns Inventory or Credit Card Accounts Receivable.

"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.

"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 JPMorgan Chase Bank, in its capacity as the

lender of Swingline Advances.

"Swingline Participation Amount" has the meaning specified in

Section 2.04(c).

"Taxes" has the meaning specified in Section 2.15.

"Termination Date" means the earlier of (a) the date that is five

years after the Effective Date and (b) the date of termination in whole of

the Commitments pursuant to Section 2.06 or 7.01.

"Total Availability" means the amount at any time by which (a) the

lesser of (i) aggregate Commitments or (ii) the Borrowing Base, if

applicable, exceeds (b) the Total Extensions of Credit at such time.

"Total Extensions of Credit" means at any time, the aggregate amount

of the Extensions of Credit of the Lenders outstanding at such time.

"Total Net Extensions of Credit" means, on any day, (a) Total

Extensions of Credit on such day less (b) Available Cash on such day.

"Type" means either a Base Rate Advance or a Eurodollar Rate

Advance.

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"UCC" means the Uniform Commercial Code as from time to time in

effect in the State of New York.

"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.

SECTION 1.02. Computation of Time Periods. In this Agreement (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) unless otherwise specified, any reference to a time of day

means such time in New York City.

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

U.S. generally accepted accounting principles (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 U.S. generally accepted accounting principles 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 U.S. generally accepted accounting principles. For the avoidance

of doubt, no retroactive change in U.S. generally accepted accounting principles

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.

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 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 shall not exceed

the Total Availability 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) 12:00 noon 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

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the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest

Period for each such Revolving Advance. Each Lender shall, before 1:00 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) 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 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 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 shall not exceed the Total Availability at such time.

During the period from the Effective Date until the 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 be available as Base Rate Advances only.

(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

the Termination Date and 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

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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 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 12:00 noon, 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 1:00 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 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, (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.

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SECTION 2.05. Fees. (a) Commitment Fee. The Borrowers jointly and

severally agree to pay to the Agent for the account of each Lender a commitment

fee commencing on the Effective Date on the average daily amount of the

Available Commitment of such 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, payable in arrears quarterly on the 5th day subsequent to the last day of

each April, July, October and January, commencing April 30, 2005, and on the

Termination Date.

(b) Agent's Fees. The Borrowers shall pay to the Agent for its own

account such fees as may from time to time be agreed between the Borrowers and

the Agent.

SECTION 2.06. Optional Termination or Reduction of the Commitments.

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 ratably 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 thereof 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.

SECTION 2.07. Repayment of Advances. Each Borrower shall repay to

the Agent for the ratable account of the Lenders on the Termination Date the

aggregate principal amount of the Advances made to it then outstanding.

SECTION 2.08. Interest on Advances. (a) Scheduled Interest. Each

Borrower shall pay interest on the unpaid principal amount of each Advance made

to it and owing to each 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

in effect from time to time, payable (I) in the case of any Base Rate

Advance other than a Swingline Advance, in arrears quarterly on the 5th

day subsequent to the last day of each April, July, October and January

during such periods and on the date such Base Rate Advance shall be

Converted or paid in full and (II) in the case of any Swingline Advance,

on the date that such Swingline Advance is required to be repaid.

(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 to the sum of (x) the Eurodollar

Rate for such Interest Period for such Advance plus (y) the Applicable

Margin in effect from time to time, payable in arrears on the last day of

such Interest Period and, if such Interest Period has a duration of more

than three months, on each day that occurs during such Interest Period

every three months from the first day of such Interest Period and on the

date such Eurodollar Rate Advance shall be Converted or paid in full.

(b) Default Interest. Upon the occurrence and during the

continuance of an Event of Default under Section 7.01(a) in respect of principal

amounts, the Borrowers shall pay interest on the unpaid principal amount of each

Advance and Reimbursement Obligation owing to each Lender, payable in arrears on

the dates referred to in clause (a)(i) or (a)(ii) above, at a rate per annum

equal to 2% per annum above the rate per annum required to be paid on such

Advance or Reimbursement Obligation pursuant to clause (a)(i) or (a)(ii) above.

Further, the Borrowers shall pay interest, to the fullest extent permitted by

law, on the amount of any interest, fee or other amount (other than principal)

payable hereunder that is not paid when due, from the date such amount shall be

due until such amount shall be paid in full, payable in arrears on the date such

amount shall be paid in full and on demand, at a rate per annum equal to 2% per

annum above the rate per annum required to be paid on Base Rate Advances

pursuant to clause (a)(i) above.

(c) Regulation D Compensation. Each Lender that is subject to

reserve requirements of the Board of Governors of the Federal Reserve System (or

any successor) may require the Borrowers to pay,

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contemporaneously with each payment of interest on the Eurodollar Rate Advances,

additional interest on the related Eurodollar Rate Advances of such Lender at

the rate per annum equal to the excess of (i) (A) the applicable Eurodollar Rate

divided by (B) one minus the Eurodollar Rate Reserve Percentage over (ii) the

applicable Eurodollar Rate. Any Lender wishing to require payment of such

additional interest (x) shall so notify the Agent and the Borrowers, in which

case such additional interest on the Eurodollar Rate Advances of such Lender

shall be payable to such Lender at the place indicated in such notice with

respect to each Interest Period commencing at least five Business Days after the

giving of such notice and (y) shall notify the Agent and the Borrowers at least

five Business Days prior to each date on which interest is payable on the amount

then due it under this Section. Each such notification shall be accompanied by

such information as the Borrowers may reasonably request.

SECTION 2.09. Interest Rate Determination. (a) The Agent shall give

prompt notice to the Borrowers and the Lenders of the applicable interest rate

determined by the Agent for purposes of Section 2.08(a)(i) or (ii).

(b) If, with respect to any Eurodollar Rate Advances, the Required

Lenders notify the Agent at least one Business Day before the date of any

proposed Eurodollar Rate Advance that the Eurodollar Rate for any Interest

Period for such Advances will not adequately reflect the cost to such Required

Lenders of making, funding or maintaining their respective Eurodollar Rate

Advances for such Interest Period, the Agent shall forthwith so notify the

Borrowers and the Lenders, whereupon (i) each Eurodollar Rate Advance will

automatically, on the last day of the then existing Interest Period therefor,

Convert into a Base Rate Advance, and (ii) the obligation of the Lenders to

make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended

until the Agent shall notify the Borrowers and the Lenders that the

circumstances causing such suspension no longer exist.

(c) If any Borrower shall fail to select the duration of any

Interest Period for any Eurodollar Rate Advances in accordance with the

provisions contained in the definition of "Interest Period" in Section 1.01, the

Agent will forthwith so notify such Borrower and the Lenders and such Advances

will automatically, on the last day of the then existing Interest Period

therefor, Convert into Base Rate Advances.

(d) On the date on which the aggregate unpaid principal amount of

Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment

or prepayment or otherwise, to less than $5,000,000, such Advances shall

automatically Convert into Base Rate Advances.

(e) Upon the occurrence and during the continuance of any Event of

Default under Section 7.01(a), (i) each Eurodollar Rate Advance will

automatically, on the last day of the then existing Interest Period therefor,

Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make,

or to Convert Revolving Advances into, Eurodollar Rate Advances shall be

suspended.

SECTION 2.10. Optional Conversion of Revolving Advances. The

Borrowers may on any Business Day, upon notice given to the Agent not later than

12:00 noon on the third Business Day prior to the date of the proposed

Conversion and subject to the provisions of Sections 2.09 and 2.13, Convert all

Revolving Advances of one Type comprising the same Borrowing into Revolving

Advances of the other Type; provided, however, that any Conversion of Eurodollar

Rate Advances into Base Rate Advances shall be made only on the last day of an

Interest Period for such Eurodollar Rate Advances, any Conversion of Base Rate

Advances into Eurodollar Rate Advances shall be in an amount not less than the

minimum amount specified in Section 2.02(b) and no Conversion of any Revolving

Advances shall result in more separate Borrowings than permitted under Section

2.02(b). Each such notice of a Conversion shall, within the restrictions

specified above, specify (i) the date of such Conversion, (ii) the Revolving

Advances to be Converted, and (iii) if such Conversion is into Eurodollar Rate

Advances, the duration of the initial Interest Period for each such Revolving

Advance. Each notice of Conversion shall be irrevocable and binding on the

applicable Borrower.

SECTION 2.11. Optional and Mandatory Prepayments of Advances. (a)

Any Borrower may, without penalty or premium and upon notice given not later

than 12:00 noon on the date of such prepayment to the Agent stating the proposed

date and aggregate principal amount of the prepayment, and if such notice is

given such Borrower shall, prepay the outstanding principal amount of the

Advances comprising part of the same Borrowing in whole or ratably in part,

together with accrued interest to the date of such prepayment on the principal

amount prepaid; provided, however, that (x) each partial prepayment shall be in

an aggregate principal amount of

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$5,000,000 or an integral multiple of $1,000,000 in excess thereof (or, in the

case of partial prepayments of Swingline Advances, $100,000 or a whole multiple

thereof) and (y) in the event of any such prepayment of a Eurodollar Rate

Advance, the applicable Borrower shall be obligated to reimburse the Lenders in

respect thereof pursuant to Section 9.04(c).

(b) On the date of delivery of any Borrowing Base Certificate, if

the amount described in clause (b) of the definition of Total Availability

exceeds the amount described in clause (a) of such definition, the Borrowers

shall prepay Advances in an amount equal to such excess, provided that if the

aggregate principal amount of Advances then outstanding is less than the amount

of such excess (because L/C Obligations constitute a portion thereof), the

Borrowers shall, to the extent of the balance of such excess, replace

outstanding Letters of Credit and/or deposit an amount in cash in a cash

collateral account established with the Agent for the benefit of the Lenders on

terms and conditions satisfactory to the Agent. Any prepayment of Loans pursuant

to this Section 2.11(b) shall be applied, first, to any Base Rate Advances then

outstanding and the balance of such prepayment, if any, to the Eurodollar Rate

Advances then outstanding.

SECTION 2.12. Increased Costs. (a) If, due to either (i) after the

date of this Agreement the introduction of or any change in or in the

interpretation of any law or regulation or (ii) the compliance with any

guideline or request from any central bank or other governmental authority

(whether or not having the force of law) made or issued after the date of this

Agreement, there shall be any increase in the cost to any Lender of agreeing to

make or making, funding or maintaining Eurodollar Rate Advances or issuing or

participating in Letters of Credit (excluding for purposes of this Section 2.12

any such increased costs resulting from (i) Taxes or Other Taxes (as to which

Section 2.15 shall govern) and (ii) changes in the basis of taxation of overall

net income or overall gross income by the United States or by the foreign

jurisdiction or state under the laws of which such Lender is organized or has

its Applicable Lending Office or any political subdivision thereof), then the

Borrowers shall from time to time, upon demand by such Lender (with a copy of

such demand to the Agent), pay to the Agent for the account of such Lender

additional amounts sufficient to compensate such Lender for such increased cost;

provided that a Lender claiming additional amounts under this Section 2.12(a)

agrees to use reasonable efforts (consistent with its internal policy and legal

and regulatory restrictions) to designate a different Applicable Lending Office

and/or take other commercially reasonable action if the making of such a

designation or the taking of such actions would avoid the need for, or reduce

the amount of, such increased cost that may thereafter accrue and would not, in

the reasonable judgment of such Lender, be otherwise disadvantageous to such

Lender. A certificate as to the amount of such increased cost, submitted to the

Borrowers and the Agent by such Lender, shall be entitled to a presumption of

correctness. If any Borrower so notifies the Agent after any Lender notifies the

Borrowers of any increased cost pursuant to the foregoing provisions of this

Section 2.12(a), such Borrower may, upon payment of such increased cost to such

Lender, replace such Lender with a Person that is an Eligible Assignee in

accordance with the terms of Section 9.07 (and the Lender being so replaced

shall take all action as may be necessary to assign its rights and obligations

under this Agreement to such Eligible Assignee).

(b) If any Lender determines that compliance with any change after

the date of this Agreement in law or regulation or any guideline or request

after the date of this Agreement from any central bank or other governmental

authority (whether or not having the force of law) affects or would affect the

amount of capital required or expected to be maintained by such Lender or any

entity controlling such Lender and that the amount of such capital is increased

by or based upon the