10-Q

United States
Securities And Exchange Commission

Washington, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant To Section 13 Or 15(D) Of The Securities Exchange Act Of 1934 For The Quarterly Period Ended July 3, 2004
	Or
o	Transition Report Pursuant To Section 13 Or 15(D) Of The Securities Exchange Act Of 1934

Commission file number 1-416

SEARS, ROEBUCK AND CO.

(Exact name of registrant as specified in its charter)

New York	36-1750680
(State of Incorporation)	(I.R.S. Employer Identification No.)
3333 Beverly Road, Hoffman Estates, Illinois	60179
(Address of principal executive offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (847) 286-2500

Indicate by check mark whether the Registrant [1] has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and [2] has been subject to such filing requirements for the past 90 days.

Yes     x                    No     o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes     x                    No     o

As of July 31, 2004, the Registrant had 212,019,588 common shares, $.75 par value, outstanding.

SEARS, ROEBUCK AND CO.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
13 Weeks and 26 Weeks Ended July 3, 2004

PART I — FINANCIAL INFORMATION			Page
	Item 1.	Financial Statements
		Condensed Consolidated Statements of Operations (Unaudited) 13 and 26 Weeks Ended July 3, 2004 and June 28, 2003		1
		Condensed Consolidated Balance Sheets July 3, 2004 (Unaudited), June 28, 2003 (Unaudited) and January 3, 2004		2
		Condensed Consolidated Statements of Cash Flows (Unaudited) 26 Weeks Ended July 3, 2004 and June 28, 2003		3
		Notes to Condensed Consolidated Financial Statements (Unaudited)		4
		Report of Independent Registered Public Accounting Firm		17
	Item 2.	Management's Discussion and Analysis of Financial		18
		Condition and Results of Operations
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		29
	Item 4.	Controls and Procedures		29
PART II — OTHER INFORMATION
	Item 1.	Legal Proceedings		30
	Item 4.	Submission of Matters to a Vote of Security Holders		31
	Item 6.	Exhibits and Reports on Form 8-K		34
Asset Purchase Agreement
Master Services Agreement
Computation of Ratio of Income to Fixed Charges
Acknowledgement of Awareness from Deloitte & Touche LLP
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO and CFO Pursuant to Section 906

SEARS, ROEBUCK AND CO.
Condensed Consolidated Statements of Operations
(Unaudited)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

millions, except per common share data	13 Weeks Ended				26 Weeks Ended
	July 3,		June 28,		July 3,			June 28,
	2004		2003		2004			2003
Merchandise sales and services	$	8,700	$	8,851	$	16,403		$	16,325
Credit and financial products revenues		81		1,345		172			2,751
Total revenues		8,781		10,196		16,575			19,076
COSTS AND EXPENSES
Cost of sales, buying and occupancy		6,282		6,402		11,903			11,876
Selling and administrative		2,064		2,299		3,958			4,409
Provision for uncollectible accounts		11		461		27			944
Depreciation and amortization		262		230		490			455
Interest, net		68		287		144			566
Special charges		41		28		41			28
Total costs and expenses		8,728		9,707		16,563			18,278
Operating income		53		489		12			798
Other income, net		36		13		52			14
Income before income taxes, minority interest and cumulative effect of change in accounting principle		89		502		64			812
Income taxes		32		186		23			301
Minority interest		4		7		8			10
Income before cumulative effect of change in accounting principle		53		309		33			501
Cumulative effect of change in accounting principle		--		--		(839	)		--
NET INCOME/(LOSS)	$	53	$	309	$	(806	)	$	501
EARNINGS/(LOSS) PER COMMON SHARE
BASIC
Earnings per share before cumulative effect of change in accounting principle	$	0.25	$	1.04	$	0.15		$	1.63
Cumulative effect of change in accounting principle		--		--		(3.86	)		--
Earnings/(loss) per share	$	0.25	$	1.04	$	(3.71	)	$	1.63
DILUTED
Earnings per share before cumulative effect of change in accounting principle	$	0.24	$	1.04	$	0.15		$	1.63
Cumulative effect of change in accounting principle		--		--		(3.86	)		--
Earnings/(loss) per share	$	0.24	$	1.04	$	(3.71	)	$	1.63
Cash dividends declared per common share	$	0.23	$	0.23	$	0.46		$	0.46
Average common equivalent shares outstanding		216.5		298.0		217.1			307.9

See accompanying notes.

1

SEARS, ROEBUCK AND CO.
Condensed Consolidated Balance Sheets

	(Unaudited)
millions	July 3,			June 28,			January 3,
	2004			2003			2004
ASSETS
Current assets
Cash and cash equivalents	$	3,559		$	2,921		$	9,057
Domestic credit card receivables		--			29,465			--
Sears Canada credit card receivables		1,813			1,849			1,998
Less allowance for uncollectible accounts		31			1,953			42
Net credit card receivables		1,782			29,361			1,956
Other receivables		557			733			733
Merchandise inventories, net		5,543			5,447			5,335
Prepaid expenses, deferred charges and other current assets		891			620			407
Deferred income taxes		588			839			708
Total current assets		12,920			39,921			18,196
Property and equipment, net		6,565			6,909			6,788
Deferred income taxes		245			627			378
Goodwill		943			945			943
Tradenames and other intangible assets		709			703			710
Other assets		545			1,268			708
TOTAL ASSETS	$	21,927		$	50,373		$	27,723
LIABILITIES
Current liabilities
Short-term borrowings, primarily 90 days or less	$	770		$	5,464		$	1,033
Current portion of long-term debt and capitalized lease obligations		678			5,050			2,950
Merchandise payables		3,014			2,879			3,106
Income taxes payable		462			724			1,867
Other liabilities		2,408			3,156			2,950
Unearned revenues		1,256			1,256			1,244
Other taxes		496			496			609
Total current liabilities		9,084			19,025			13,759
Long-term debt and capitalized lease obligations		4,123			21,462			4,218
Pension and postretirement benefits		1,635			2,336			1,956
Minority interest and other liabilities		1,384			1,318			1,389
Total Liabilities		16,226			44,141			21,322
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS’ EQUITY
Common shares		323			323			323
Capital in excess of par value		3,516			3,501			3,519
Retained earnings		10,731			8,861			11,636
Treasury stock — at cost		(8,740	)		(5,463	)		(7,945	)
Deferred ESOP expense		(12	)		(34	)		(26	)
Accumulated other comprehensive loss		(117	)		(956	)		(1,106	)
Total Shareholders’ Equity		5,701			6,232			6,401
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	21,927		$	50,373		$	27,723
Total common shares outstanding		213.1			282.6			230.4

See accompanying notes.

2

SEARS, ROEBUCK AND CO.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

	26 Weeks Ended
millions	July 3,			June 28,
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/income	$	(806	)	$	501
Adjustments to reconcile net income/(loss) to net cash (used in) provided by operating activities
Depreciation and amortization		490			455
Cumulative effect of change in accounting principle		839			--
Provision for uncollectible accounts		27			944
Gain on sales of property and investments		(37	)		(4	)
Income tax benefit on nonqualified stock options		5			1
Change in:
Deferred income taxes		(325	)		46
Credit card receivables		110			717
Merchandise inventories		(219	)		(256	)
Other operating assets		169			49
Other operating liabilities (1)		(1,726	)		(1,039	)
Net cash (used in) provided by operating activities		(1,473	)		1,414
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of property and investments		73			19
Purchases of property and equipment		(306	)		(319	)
Purchases of investments		(321	)		(22	)
Net cash used in investing activities		(554	)		(322	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt		283			2,920
Repayments of long-term debt		(2,594	)		(2,846	)
(Decrease)/increase in short term borrowings, primarily 90 days or less		(256	)		919
Common shares repurchased		(852	)		(1,019	)
Common shares issued for employee stock plans		50			25
Dividends paid to shareholders		(99	)		(145	)
Net cash used in financing activities		(3,468	)		(146	)
Effect of exchange rate changes on cash and cash equivalents		(3	)		13
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS		(5,498	)		959
BALANCE AT BEGINNING OF YEAR		9,057			1,962
BALANCE AT END OF PERIOD	$	3,559		$	2,921
(1)For the 26 weeks ended July 3, 2004 and June 28, 2003, the Company paid income taxes of $1.3 billion and $0.3 billion, respectively.

See accompanying notes.

3

SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Condensed Consolidated Balance Sheets as of July 3, 2004 and June 28, 2003, the related Condensed Consolidated Statements of Operations for the 13 and 26 weeks ended July 3, 2004 and June 28, 2003, and the Condensed Consolidated Statements of Cash Flows for the 26 weeks ended July 3, 2004 and June 28, 2003, are unaudited. The interim financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Sears, Roebuck and Co. (“Sears”, and together with its consolidated subsidiaries, the “Company”) 2003 Annual Report on Form 10-K. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year. The Company typically earns a disproportionate share of its operating income in the fourth quarter due to seasonal customer buying patterns.

Certain reclassifications have been made to the 2003 financial statements to conform with the current year presentation.

NOTE 2 — DISPOSITIONS

On November 3, 2003, the Company completed the sale of its domestic Credit and Financial Products business, including its clubs and services business (“Credit”), to Citigroup. On November 29, 2003, the Company sold National Tire & Battery (“NTB”) to TBC Corporation. The following table illustrates the impact the estimated results of the divested businesses had on the reported results for the 13- and 26-week periods ended June 28, 2003:

	13 Weeks Ended June 28, 2003						26 Weeks Ended June 28, 2003
millions, except per share data	As		Divested				As		Divested
	Reported		Businesses		Pro forma		Reported		Businesses		Pro forma
Revenues	$	10,196	$	1,380	$	8,816	$	19,076	$	2,819	$	16,257
Net income		309		168		141		501		369		132
Diluted earnings per share		1.04		0.56		0.48		1.63		1.20		0.43

NOTE 3 — SECURITIZED ASSETS

A summary of the Company’s securitized assets at July 3, 2004, June 28, 2003 and January 3, 2004 is as follows:

millions	July 3,		June 28,		January 3,
	2004		2003		2004
Credit card receivables
Domestic	$	--	$	23,545	$	--
Sears Canada		997		976		1,093
Total credit card receivables		997		24,521		1,093
Property and equipment, net		496		--		500
Total securitized assets	$	1,493	$	24,521	$	1,593

The Company securitizes certain of its credit card receivables through master trusts (“trusts”). Under the Sears Canada securitization program, trusts purchase undivided interests in the receivable balances, funded by issuing short-term and long-term debt, primarily commercial paper and senior and subordinated receivables-backed notes. The trusts related to the domestic receivables securitized the receivable balances by issuing certificates representing undivided interests in the trusts’ receivables both to outside investors and to the Company. These certificates entitled the holder to a series of scheduled cash flows under preset terms and conditions, the receipt of

4

SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

which was dependent upon cash flows generated by the related trusts’ assets. The Company accounts for credit card securitizations as secured borrowings.

Certain real estate assets were transferred to a wholly-owned consolidated subsidiary of Sears and segregated into a trust owned by the consolidated subsidiary. These assets are related to an inter-company loan agreement.

NOTE 4 — INVESTMENTS

millions	July 3, 2004
	Cost		Fair Value
Available-for-sale securities:
State and political subdivisions obligations	$	298	$	298
U.S. treasury and federal agencies obligations		20		20
Corporate debt securities		2		2
Total available-for-sale securities	$	320	$	320

The fair value of the available-for-sale securities as of July 3, 2004 included unrealized losses of approximately $0.2 million.

The maturity distribution of available-for-sale securities outstanding is summarized in the following table. Actual maturities may differ from those scheduled as a result of prepayments by issuers.

millions	July 3, 2004
	Cost		Fair Value
Available-for-sale securities:
Due in one year or less	$	300	$	300
Due after one year through five years		20		20
Total available-for-sale securities	$	320	$	320

The available-for-sale securities due in one year or less are reported within prepaid expenses, deferred charges and other current assets on the balance sheet. The available-for-sale securities due after one year are reported within other assets on the balance sheet.

The Company did not have available-for-sale securities with maturities greater than 90 days during any period in 2003.

NOTE 5 — BORROWINGS

Total borrowings outstanding at July 3, 2004, June 28, 2003 and January 3, 2004 were $5.5 billion, $31.3 billion and $8.1 billion, respectively. Total borrowings are presented on the balance sheet as follows:

5

SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

	July 3,		June 28,		January 3,
millions	2004		2003		2004
Short-term borrowings:
Unsecured commercial paper	$	770	$	3,259	$	1,033
Asset-backed commercial paper		--		750		--
Asset-backed facility		--		1,400		--
Bank loans		--		55		--
Total short-term borrowings		770		5,464		1,033
Long-term debt(1):
Notes and debentures outstanding		3,371		14,410		5,825
Securitizations		880		10,892		756
Capital lease obligations		481		525		497
Total borrowings	$	5,502	$	31,291	$	8,111
SFAS No. 133 Hedge Accounting Adjustment		69		685		90
Total debt	$	5,571	$	31,976	$	8,201
Memo: Sears Canada debt	$	1,594	$	1,621	$	1,701

⁽¹⁾ Includes capitalized lease obligations and current portion of long-term debt.

The Company maintains committed credit facilities to support its unsecured commercial paper borrowings. On May 17, 2004, the Company’s domestic wholly-owned financing subsidiary, Sears Roebuck Acceptance Corp. (“SRAC”), through a syndicate of banks, obtained an unsecured, three-year revolving credit facility in the amount of $2.0 billion. The new facility replaced a 364-day facility, which expired in May 2004. The facility and related Sears guarantee require SRAC and the Company to maintain certain fixed charge ratios and a specified level of tangible net worth for the Company’s domestic segment. SRAC and the Company were in compliance with these covenants at July 3, 2004.

During the 13- and 26-week periods ended July 3, 2004, the Company retired approximately $0.6 billion and $2.4 billion of domestic term debt, respectively.

NOTE 6 — SPECIAL CHARGES AND IMPAIRMENTS

Following is a summary of the activity in the 2004 reserve established for employee termination and exit costs:

	Balance,
millions	Beginning		2004		Cash		Balance,
	of Year		Charge		Payments		July 3, 2004
2004 Employee termination costs	$	--	$	41	$	--	$	41

During the second quarter of 2004, the Company recorded a pretax charge of $41 million for the estimated costs of severance associated with the termination of approximately 3,300 associates related to the streamlining of the Company’s headquarters organization as well as other productivity initiatives identified in its field operations. The identified associates will be terminated by the end of 2004 and the related severance paid out by the end of 2005.

During the second quarter of 2003, the Company recorded a pretax charge of $28 million for the estimated cost of severance for approximately 650 associates. As of January 3, 2004, the remaining reserve was $9 million. As of July 3, 2004, all such severance had been paid out.

6

SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

During the third quarter of 2003, the Company announced a refinement of the business strategy for The Great Indoors (“TGI”) which included its decision to close three TGI stores and cease development of four future locations. Included within the total pretax charge of $141 million was $2 million related to employee termination costs and $11 million related to other contractual obligations for items such as reimbursement to licensed businesses for facility closures, lease termination costs and other exit costs. As of January 3, 2004, the three stores were closed, all related employees terminated, and the remaining severance reserves were $2 million. As of July 3, 2004, the remaining employee severance reserves were paid out. The remaining contractual obligation and other costs will be paid out over the remaining contractual terms.

NOTE 7 — SHAREHOLDERS’ EQUITY

Dividend Payments

Under an agreement pursuant to which the Company has provided a credit facility in support of certain tax increment revenue bonds issued by the Village of Hoffman Estates, Illinois, in connection with the construction of its headquarters facility, the Company cannot take specified actions, including the declaration of cash dividends, that would cause its unencumbered assets, as defined, to fall below 150% of its liabilities, as defined. At July 3, 2004, approximately $5.0 billion could be paid in dividends to shareholders under this covenant.

Share Repurchase Program

The Company repurchased 18.6 million common shares, at a cost of $852 million, during the 26 weeks ended July 3, 2004 under a common share repurchase program approved by the Board of Directors. The Company did not repurchase any common shares during the 13 weeks ended July 3, 2004. As of July 3, 2004, the Company had remaining authorization under the existing share repurchase program to repurchase up to $726 million of shares by December 31, 2006.

Comprehensive Income and Accumulated Other Comprehensive Income

The following table shows the computation of comprehensive income:

	13 Weeks Ended					26 Weeks Ended
millions	July 3,			June 28,		July 3,			June 28,
	2004			2003		2004			2003
Net income/(loss)	$	53		$	309		(806	)		501
Other comprehensive income/(loss):
Minimum pension liability (1)		--			--		999			--
Amounts amortized into interest expense from OCI		2			4		6			8
Change in fair value of cash flow hedges		--			--		--			1
Foreign currency translation adjustments		(6	)		50		(16	)		91
Total accumulated other comprehensive income/(loss)		(4	)		54		989			100
Total comprehensive income	$	49		$	363		183			601

7

SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The following table displays the components of accumulated other comprehensive loss:

millions	July 3,			June 28,			January 3,
	2004			2003			2004
Accumulated derivative loss	$	(3	)	$	(192	)	$	(9	)
Currency translation adjustments		(35	)		(53	)		(19	)
Minimum pension liability, net of tax(1)		(79	)		(711	)		(1,078	)
Accumulated other comprehensive loss	$	(117	)	$	(956	)	$	(1,106	)

⁽¹⁾ Minimum pension liability at July 3, 2004 reflects the effect of the change in accounting for domestic retirement benefits discussed in Note 9.

NOTE 8 — EARNINGS/(LOSS) PER SHARE

The following table sets forth the computations of basic and diluted earnings/(loss) per share:

	13 Weeks Ended				26 Weeks Ended
millions, except per share data	July 3,		June 28,		July 3,			June 28,
	2004		2003		2004			2003
Net income/(loss)(1)	$	53	$	309	$	(806	)	$	501
Average common shares outstanding		213.9		296.4		217.1			307.1
Dilutive effect of stock options		2.6		1.6		--			0.8
Average common equivalent shares outstanding		216.5		298.0		217.1			307.9
Earnings/(loss) per share
Basic	$	0.25	$	1.04	$	(3.71	)	$	1.63
Diluted	$	0.24	$	1.04	$	(3.71	)	$	1.63

⁽¹⁾ Net income/(loss) is the same for purposes of calculating basic and diluted earnings/(loss) per share.

In each period, certain options were excluded from the computation of diluted earnings per share because they would have been anti-dilutive. At July 3, 2004, options to purchase 14.5 million common shares at prices ranging from $40 to $64 per share were excluded from the 13-week 2004 calculation. Due to the net loss recognized for the 26-week period ended July 3, 2004, all options to purchase 33.1 million common shares were excluded from the 26-week 2004 calculation. At June 28, 2003, options to purchase 23.3 million common shares at prices ranging from $30 to $64 per share, and 23.5 million common shares at prices ranging from $27 to $64 per share, were excluded from the 13- and 26-week 2003 calculations, respectively.

The following table sets forth the computations of basic and diluted earnings per share before the cumulative effect of the change in accounting principle:

8

SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

	26 Weeks Ended
millions, except per share data	July 3,		June 28,
	2004		2003
Income before cumulative effect of change in accounting principle(1)	$	33	$	501
Average common shares outstanding		217.1		307.1
Dilutive effect of stock options		3.4		0.8
Average common and common equivalent shares outstanding		220.5		307.9
Earnings per share
Basic	$	0.15	$	1.63
Diluted	$	0.15	$	1.63

⁽¹⁾ Income before cumulative effect of change in accounting principle is the same for purposes of calculating basic and diluted earnings per share.

NOTE 9 — RETIREMENT BENEFIT PLANS

Certain domestic full-time and part-time employees are eligible to participate in noncontributory defined benefit plans after meeting age and service requirements. Substantially all full-time Canadian employees as well as some part-time employees are eligible to participate in contributory defined benefit plans. Pension benefits are based on length of service, compensation and, in certain plans, social security or other benefits. Funding for the various plans is determined using various actuarial cost methods.

In addition to providing pension benefits, the Company provides domestic and Canadian employees certain medical and life insurance benefits for retired employees. Employees may become eligible for medical benefits if they retire in accordance with the Company’s established retirement policy and are continuously insured under the Company’s group medical plans or other approved plans for 10 or more years immediately prior to retirement. The Company shares the cost of the retiree medical benefits with retirees based on years of service. Generally, the Company’s share of these benefit costs will be capped at the Company contribution calculated during the year of retirement. The Company’s postretirement benefit plans are not funded. The Company has the right to modify or terminate these plans. The Company does not expect to contribute to the domestic pension plan in 2004.

The components of net periodic benefit cost/(benefit) are as follows:

	13 Weeks Ended												26 Weeks Ended
	Pension						Postretirement						Pension						Postretirement
millions	Benefits						Benefits						Benefits						Benefits
	July 3,			June 28,			July 3,			June 28,			July 3,			June 28,			July 3,			June 28,
	2004			2003			2004			2003			2004			2003			2004			2003
Components of net periodic benefit cost/(benefit):
Benefits earned during the period	$	26		$	23		$	1		$	1		$	52		$	46		$	2		$	2
Interest cost		59			49			13			12			118			98			26			23
Expected return on plan assets		(63	)		(53	)		(1	)		—			(126	)		(106	)		(2	)		—
Amortization of unrecognized net prior service benefit		(2	)		(1	)		(19	)		(24	)		(4	)		(2	)		(38	)		(48	)
Recognized net (gain)/loss		(1	)		21			1			(5	)		(2	)		42			2			(10	)
Other		1			(2	)		—			—			(1	)		(4	)		(30	)(1)		—
Net periodic benefit cost/(benefit)	$	20		$	37		$	(5	)	$	(16	)	$	37		$	74		$	(40	)	$	(33	)

⁽¹⁾ Represents $30 million curtailment gain related to a change in retiree medical benefits.

9

SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Accounting Change

Subsequent to the sale of Credit, the Company initiated a project to review its domestic employee retirement benefits cost structure and programs. The Company assessed its retirement benefits programs in the context of comparable programs in the retail industry. As a result of this review, in January 2004, the Company announced a series of benefit plan changes which included the enhancement of the Company’s 401(k) defined contribution plan and the phasing out of participation in its domestic pension plan. Associates hired in 2004 and those under the age of 40 as of December 31, 2004, will receive an increased Company-matching contribution to the 401(k) plan of 110%, but will no longer earn additional pension benefits effective January 1, 2005. Pension benefits continue to accrue for associates age 40 and older as of December 31, 2004, unless they elect to participate in the enhanced 401(k) defined contribution plan.

In addition, the Company eliminated its domestic retiree medical insurance contribution for associates hired in 2004 and those under the age of 40 as of December 31, 2004, and capped the contribution at the 2004 level for associates age 40 and older. A curtailment gain of $30 million is included within selling and administrative costs for the 26-week period ended July 3, 2004 as a result of the change in the domestic retiree medical benefit.

In connection with the domestic pension and postretirement plan changes discussed above, the Company believed it was preferable to change its accounting methods, which under SFAS Nos. 87 and 106 delay recognition of past events. Therefore, in the first quarter of 2004, the Company changed its method for determining the market-related value of plan assets used in determining the expected return-on-assets component of annual net pension costs and its method for recognizing gains and losses for both its domestic pension and postretirement benefit plans. Under the previous accounting method, the market-related value of the domestic pension plan assets was determined by averaging the value of equity assets over a five-year period. The new method recognizes equity assets at fair value. Further, under its previous accounting method, all unrecognized gains and losses in excess of the 10% corridor were amortized over the expected working lifetime of active employees (approximately 10 years). Under the new methodology, the portion of the total gain or loss outside the 10% corridor will be immediately recognized. As a result of this accounting change, the Company recorded an after-tax charge of $839 million in the first quarter of 2004 for the cumulative effect of the change in accounting principle. The charge represents the recognition of unamortized experience losses at the beginning of 2004 in accordance with the new methods.

The new method of determining market-related value of plan assets and recognizing gains and losses is preferable because it produces results that more closely match the current economic position of the Company’s domestic retirement benefit plans by not delaying the recognition of past events.

The cumulative effect of the accounting changes related to fiscal 2004 is presented in the following table:

	2004
millions	Pretax			After-tax
Domestic Pension	$	1,574		$	999
Domestic Postretirement		(253	)		(160	)
Total	$	1,321		$	839
Loss per share				$	(3.86	)

10

SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Presented below is pro forma net income and earnings per share for the quarters ended March 29, 2003, June 28, 2003, September 27, 2003 and January 3, 2004 and for the full-year ended January 3, 2004 showing the estimated effects as if the accounting change were applied retroactively:

	2003
millions, except per share data	First Quarter		Second Quarter		Third Quarter		Fourth Quarter			Year
Net income — as reported	$	192	$	309	$	147	$	2,749		$	3,397
Impact of change in accounting for domestic retirement plans		10		11		11		(373	)		(341	)
Net income — pro forma	$	202	$	320	$	158	$	2,376		$	3,056
Earnings per share — basic:
As reported	$	0.60	$	1.04	$	0.53	$	11.06		$	11.95
Pro forma	$	0.63	$	1.08	$	0.57	$	9.56		$	10.75
Earnings per share — diluted:
As reported	$	0.60	$	1.04	$	0.52	$	10.84		$	11.86
Pro forma	$	0.63	$	1.08	$	0.56	$	9.37		$	10.67

The Company uses October 31 as the measurement date for determining retirement plan assets, obligations and experience gains or losses. Under the new accounting method for domestic plans, the Company will recognize the portion of experience gain or loss in excess of the 10% corridor at the measurement date, which falls in the fourth quarter of the fiscal year. Had the Company used this accounting method in 2003, an experience loss would have been recognized in the fourth quarter of 2003 which would have reduced net income by $373 million.

NOTE 10 - STOCK-BASED COMPENSATION

The Company has various stock-based employee compensation plans which are described more fully in Note 10 of the Notes to Consolidated Financial Statements in the Company’s 2003 Annual Report on Form 10-K. The Company accounts for those plans in accordance with Accounting Principles Board Opinion No. 25, “Accounting For Stock Issued to Employees”, and related Interpretations. No stock-based employee compensation cost is reflected in net income/(loss), as no options granted under those plans had an exercise price less than the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income/(loss) and earnings/(loss) per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”.

	13 Weeks Ended				26 Weeks Ended
	July 3,		June 28,		July 3,			June 28,
millions, except per share data	2004		2003		2004			2003
Net income/(loss) — as reported	$	53	$	309	$	(806	)	$	501
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related taxes		14		13		29			25
Net income/(loss) — pro forma	$	39	$	296	$	(835	)	$	476
Earnings/(loss) per share — basic
As reported	$	0.25	$	1.04	$	(3.71	)	$	1.63
Pro forma		0.18		1.00		(3.85	)		1.55
Earnings/(loss) per share — diluted
As reported	$	0.24	$	1.04	$	(3.71	)	$	1.63
Pro forma		0.18		0.99		(3.85	)		1.54

11

SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE 11 — LEGAL PROCEEDINGS

Pending against the Company and certain of its officers and directors are a number of lawsuits, described below, that relate to the credit card business and public statements about it. The Company believes that all of these claims lack merit and is defending against them vigorously.

§	On and after October 18, 2002, several actions were filed in the United States District Court for the Northern District of Illinois against the Company and certain current and former officers alleging that certain public announcements by the Company concerning its credit card business violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Court has consolidated the actions and certified the consolidated action as a class action. Discovery is underway. Trial is scheduled to begin on August 8, 2005.
§	On and after November 15, 2002, several actions were filed in the United States District Court for the Northern District of Illinois against the Company, certain officers and directors, and alleged fiduciaries of Sears’ 401(k) Savings Plan (the “Plan”), seeking damages and equitable relief under the Employee Retirement Income Security Act of 1974 (“ERISA”). The plaintiffs purport to represent participants in the Plan, and allege breaches of fiduciary duties under ERISA in connection with the Plan’s investment in the Company’s common shares and alleged communications made to Plan participants regarding the Company’s financial condition. These actions have been consolidated into a single action. Discovery is underway. No trial date has been set.
§	On October 23, 2002, a purported derivative action was filed in the Supreme Court of the State of New York against the Company (as a nominal defendant) and certain current and former directors seeking damages on behalf of the Company. The complaint purports to allege a breach of fiduciary duty by the directors with respect to the Company’s management of the credit card business. On June 21, 2004, the Court dismissed the complaint because the plaintiff had filed the suit without having demanded that the Board of Directors bring the suit. The plaintiff has filed a notice of appeal from that ruling. Two similar actions (the “Cook County actions”) were filed in the Circuit Court of Cook County, Illinois (the “Illinois state court”), and a third (the “federal derivative action”) was filed in the United States District Court for the Northern District of Illinois. All three actions were stayed pending the disposition of the action in New York. In light of the New York court’s decision, the Illinois state court has lifted the stay of the Cook County actions and has reinstated motions to dismiss which defendants had filed prior to the stay. The Illinois state court has ordered the parties to file supplemental briefs concerning the effect of the New York court’s decision on the motions to dismiss the Cook County actions. The plaintiffs in the federal derivative action appealed the stay order in that case to the United States Court of Appeals for the Seventh Circuit. On July 19, 2004, the Court of Appeals affirmed the stay of the federal derivative action, and that stay remains in effect.
§	On June 17, 2003, an action was filed in the Northern District of Illinois against the Company and certain officers, purportedly on behalf of a class of all persons who, between June 21, 2002 and October 17, 2002, purchased the 7% notes that SRAC issued on June 21, 2002. An amended complaint has been filed, naming as additional defendants certain former officers, SRAC and several investment banking firms who acted as underwriters for SRAC’s March 18, May 21 and June 21, 2002 notes offerings. The amended complaint alleges that the defendants made misrepresentations or omissions concerning its credit business during the class period and in the registration statements and prospectuses relating to the offerings. The amended complaint alleges that these misrepresentations and omissions violated Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder, and Sections 11, 12 and 15 of the Securities Act of 1933 and purports to be brought on behalf of a class of all persons who purchased any security of SRAC between October 24, 2001 and October 17, 2002, inclusive. Motions to dismiss the amended complaint are pending.

12

SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The Company is subject to various other legal and governmental proceedings, many involving litigation incidental to its businesses. Some matters contain class action allegations, environmental and asbestos exposure allegations and other consumer-based claims that involve compensatory, punitive or treble damage claims in very large amounts as well as other types of relief. The consequences of these matters are not presently determinable but, in the opinion of management of the Company after consulting with legal counsel, and taking into account insurance and reserves, the ultimate liability is not expected to have a material adverse effect on annual results of operations, financial position, liquidity or capital resources of the Company.

NOTE 12 — FINANCIAL GUARANTEES

The Company issues various types of guarantees in the normal course of business. As of July 3, 2004, the Company had the following guarantees outstanding:

millions
Parent guarantee of SRAC debt	$	3,544
Import letters of credit		268
Standby letters of credit		131
Secondary lease obligations		110
Performance guarantee		60

The debt obligations of SRAC are reflected in the Company’s consolidated balance sheets. As a result of the Company’s sale of Credit, Sears was required to issue a guarantee of SRAC’s outstanding public debt in order to maintain SRAC’s exemption from being deemed an “investment company” under the Investment Company Act of 1940, as amended. Sears also guarantees any outstanding borrowings under SRAC’s three-year, unsecured credit facility. As of July 3, 2004, no borrowings were outstanding under this facility. These guarantees would require Sears to repay such debt should SRAC default in payment.

The secondary lease obligations relate to certain store leases of previously divested businesses. The Company remains secondarily liable if the primary obligor defaults. As of July 3, 2004, the Company had a $10 million liability recorded in other liabilities which represents the Company’s current estimate of potential exposure related to these secondary lease obligations.

The performance guarantee relates to certain municipal bonds issued in connection with the Company’s headquarters building. This guarantee expires in 2007.

NOTE 13 — SIGNIFICANT EVENT

On June 30, 2004, the Company announced it had agreed to acquire an ownership or leasehold interest in up to 61 off-mall stores in key Sears markets from Kmart Holding Corporation and Wal-Mart Stores, Inc. The Company will pay a maximum purchase price of approximately $620 million in cash for up to 54 Kmart stores, plus the assumption of existing leases. Sears will make lease payments to Wal-Mart under subleases for up to seven Wal-mart stores. The acquisitions include real estate and Kmart store fixtures, but exclude inventory and liabilities not related to leases. Sears expects to take possession of four stores in 2004, up to 55 stores in 2005 and the remaining two stores in 2006. The acquisitions are subject to customary closing conditions.

13

SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE 14 — SEGMENT DISCLOSURES

With the sale of Credit, the Company’s financial reporting segments for fiscal 2004 have been changed to reflect two operating segments — a Domestic segment and a Sears Canada segment.

The Domestic segment consists of merchandise sales and related services, including product protection agreements, delivery and product installation and repair services. It includes all Sears selling channels, Specialty and Full-line Stores as well as Direct to Customer operations encompassing online, catalogs, and the Lands’ End online and catalog business. The results of operations for the divested businesses, Credit and Financial Products and NTB, are included within the Domestic segment for the 13- and 26-week periods ended June 28, 2003.

The Sears Canada segment includes retail, credit and corporate operations conducted by Sears Canada, a 54.3% owned subsidiary.

Prior to the sale of Credit, the Company organized its business into three domestic segments: Retail and Related Services, Credit and Financial Products and Corporate and Other; and one international segment: Sears Canada.

§	The Retail and Related Services segment consisted of merchandise sales and related services, including product protection agreements, delivery and product installation and repair services. It included all Sears selling channels, including Specialty and Full-line Stores as well as Direct to Customer operations which includes online, catalogs, and Lands’ End online and catalog business. Beginning November 3, 2003, this segment also included the revenues earned under the long-term marketing and servicing alliance with Citigroup.
§	The Credit and Financial Products segment managed the Company’s domestic portfolio of Sears Card and MasterCard receivables. This segment also included related financial products, such as credit protection and insurance products. The domestic Credit and Financial Products business was sold on November 3, 2003, and thus the segment results include its results of operations through November 2, 2003.
§	The Corporate and Other segment included activities that are of an overall holding company nature primarily consisting of administrative activities supporting the Domestic operations. This segment also included Home Improvement Services which installs siding and windows.
§	External revenues and expenses were allocated between the applicable segments. For zero-percent financing promotions in which customers received free financing, Retail and Related Services reimbursed Credit and Financial Products over the life of the financing period at a 10% annual rate. The cost was reported as selling expense by Retail and Related Services and an offsetting benefit was recognized by Credit and Financial Products. With the sale of the domestic Credit and Financial Products business, the allocation of these costs is included in the results of operations through November 2, 2003. Under the terms of the long-term marketing and servicing alliance with Citigroup, Citigroup will support the Company’s historical level zero-percent receivable balances at no cost to the Company.
§	The domestic segments participated in a centralized funding program. Interest expense was allocated to the Credit and Financial Products segment based on its funding requirements. Funding included unsecured debt reflected on the balance sheet and investor certificates related to credit card receivables transferred to trusts through securitizations. The remainder of net domestic interest expense was reported in the Retail and Related Services segment through November 3, 2003. Subsequent to the sale of Credit, the allocation of interest expense was changed such that net interest expense associated with approximately $3.8 billion of outstanding domestic term debt remaining from the Credit and Financial Products segment, also referred to as credit legacy debt, was allocated to the Corporate and Other Segment. As of July 3, 2004, approximately $1.4

14

SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

billion of domestic term debt related to the former Credit and Financial Products segment remained outstanding.

The 2003 segment information has been presented on the 2004 basis — Domestic and Sears Canada. In addition, the Company has provided, for 2003, information on the operating segments comprising the Domestic segment in 2003.

For the 13 weeks ended July 3, 2004

			Sears
millions	Domestic		Canada		Consolidated
Merchandise sales and services	$	7,673	$	1,027	$	8,700
Credit and financial products revenues		--		81		81
Total revenues		7,673		1,108		8,781
Costs and expenses
Cost of sales, buying and occupancy		5,536		746		6,282
Selling and administrative		1,776		288		2,064
Provision for uncollectible accounts		--		11		11
Depreciation and amortization		237		25		262
Interest, net		41		27		68
Special change		41		--		41
Total costs and expenses		7,631		1,097		8,728
Operating income	$	42	$	11	$	53
Total assets	$	17,962	$	3,965	$	21,927

For the 13 weeks ended June 28, 2003

	Domestic
	Retail and		Credit and Financial		Corporate			Total		Sears
millions	Related Services		Products		and Other			Domestic		Canada		Consolidated
Merchandise sales and services	$	7,771	$	--	$	100		$	7,871	$	980	$	8,851
Credit and financial products revenues		--		1,266		--			1,266		79		1,345
Total revenues		7,771		1,266		100			9,137		1,059		10,196
Costs and expenses
Cost of sales, buying and occupancy		5,662		--		41			5,703		699		6,402
Selling and administrative		1,707		215		109			2,031		268		2,299
Provision for uncollectible accounts		--		446		--			446		15		461
Depreciation and amortization		187		5		10			202		28		230
Interest, net		16		245		--			261		26		287
Special charge		16		--		12			28		--		28
Total costs and expenses		7,588		911		172			8,671		1,036		9,707
Operating income/(loss)	$	183	$	355	$	(72	)	$	466	$	23	$	489
Total assets	$	12,818	$	31,723	$	2,090		$	46,631	$	3,742	$	50,373

15

SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

For the 26 weeks ended July 3, 2004

millions	Domestic		Sears Canada		Consolidated
Merchandise sales and services	$	14,462	$	1,941	$	16,403
Credit and financial products revenues		--		172		172
Total revenues		14,462		2,113		16,575
Costs and expenses
Cost of sales, buying and occupancy		10,506		1,397		11,903
Selling and administrative		3,387		571		3,958
Provision for uncollectible accounts		--		27		27
Depreciation and amortization		435		55		490
Interest, net		90		54		144
Special charge		41		--		41
Total costs and expenses		14,459		2,104		16,563
Operating income	$	3	$	9	$	12
Total assets	$	17,962	$	3,965	$	21,927

For the 26 weeks ended June 28, 2003

	Domestic
	Retail and		Credit and
	Related		Financial		Corporate			Total		Sears
millions	Services		Products		and Other			Domestic		Canada		Consolidated
Merchandise sales and services	$	14,415	$	--	$	163		$	14,578	$	1,747	$	16,325
Credit and financial products revenues		--		2,596		--			2,596		155		2,751
Total revenues		14,415		2,596		163			17,174		1,902		19,076
Costs and expenses
Cost of sales, buying and occupancy		10,576		--		65			10,641		1,235		11,876
Selling and administrative		3,268		433		210			3,911		498		4,409
Provision for uncollectible accounts		--		917		--			917		27		944
Depreciation and amortization		370		9		21			400		55		455
Interest, net		25		487		--			512		54		566
Special charge		16		--		12			28		--		28
Total costs and expenses		14,255		1,846		308			16,409		1,869		18,278
Operating income/(loss)	$	160	$	750	$	(145	)	$	765	$	33	$	798
Total assets	$	12,818	$	31,723	$	2,090		$	46,631	$	3,742	$	50,373

16

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Sears, Roebuck and Co.

We have reviewed the accompanying Condensed Consolidated Balance Sheets of Sears, Roebuck and Co. as of July 3, 2004 and June 28, 2003, and the related Condensed Consolidated Statements of Income and Cash Flows for the thirteen-week and twenty-six-week periods ended July 3, 2004 and June 28, 2003. These interim condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the Consolidated Balance Sheet of Sears, Roebuck and Co. as of January 3, 2004, and the related Consolidated Statements of Income, Shareholders’ Equity, and Cash Flows for the year then ended (not presented herein); and in our report dated March 9, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying Condensed Consolidated Balance Sheet as of January 3, 2004, is fairly stated, in all material respects, in relation to the Consolidated Balance Sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP
Chicago, Illinois
August 10, 2004

17

SEARS, ROEBUCK AND CO.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

With the sale of the domestic Credit and Financial Products business in the fourth quarter of 2003, the Company’s financial reporting segments for fiscal 2004 were changed to reflect two operating segments — a Domestic segment and a Sears Canada segment.

 Domestic consisting of:

• Full-line Stores: includes merchandise sales as well as the operations of Sears Auto Centers, Sears Grands, and online revenues of sears.com

• Specialty Stores: includes the operations of Dealer Stores, Hardware Stores, The Great Indoors (“TGI”), Commercial Sales and Outlet stores. National Tire & Battery operations are reflected in the 2003 results through November 29, 2003

• Direct to Customer: includes Lands’ End online, catalog and retail store operations as well as direct marketing of goods and services through specialty catalogs and other direct channels

• Home Services: includes product repair services, product protection agreements and installation services for all major brands of home products; also includes home improvement services, primarily siding, windows and cabinet refacing, carpet cleaning and the installation and servicing of residential heating and cooling systems

• Sears Financial Services: includes revenues earned under the long-term marketing and servicing alliance with Citigroup

• Corporate: includes activities that are of an overall holding company nature of its Domestic operations, primarily consisting of administrative activities

• Credit and Financial Products: includes the 2003 results of operations of the domestic Credit and Financial Products business (sold on November 3, 2003)

Sears Canada conducts retail, credit and corporate operations though Sears Canada Inc. (“Sears Canada”), a consolidated, 54.3% owned subsidiary of Sears

OVERVIEW AND CONSOLIDATED OPERATIONS

Sears, Roebuck and Co. is one of the largest retailers in the United States and Canada with a 118-year history of providing high quality merchandise and related services to a broad array of customers. The Company’s vision is to be the preferred and most trusted resource for products and services that enhance our customers’ homes and family life. The Company’s mission is to grow the business by providing quality products and services at a great value. We aspire to make these products and services available to customers through a wide network of multiple channels, including 2,300 Sears-branded and affiliated stores in the United States and Canada, a product repair services network with over 10,000 technicians, leading internet sites including sears.com, sears.ca and landsend.com and direct to customer catalog programs.

Fiscal 2003 was an important transition year for the Company. On November 3, 2003, the Company completed the sale of its domestic Credit and Financial Products business, including its clubs and services business (“Credit”), to Citigroup and entered into a long-term marketing and servicing alliance with Citigroup. Additionally, on November 29, 2003, the Company sold National Tire & Battery (“NTB”) to TBC Corporation.

The divestiture of these businesses significantly strengthened the Company’s financial position and liquidity. These divestitures, along with the beginning of a new strategic relationship with Citigroup, have allowed the Company to refocus its efforts as a pure-play retailer with strong proprietary and national brands and unparalleled service offerings.

18

SEARS, ROEBUCK AND CO.

The Company’s focus in 2004 is to achieve more consistent revenue growth with improved margins. An important component of the strategy is to provide better access to the Company’s products for its customers. The Company has aggressively focused on increasing its presence outside of the traditional mall-based formats. During the second quarter, the Company expanded its off-mall presence by:

§	agreeing to acquire ownership or leasehold interest in up to 61 off-mall stores in key Sears markets from Kmart Holding Corporation and Wal-Mart Stores, Inc. for approximately $620 million. Sears expects to take possession of four stores in 2004, up to 55 stores in 2005 and the remaining two stores in 2006; and
§	accelerating the development of our new Sears Grand format from two pilot locations to up to 14 locations by the end of 2005 with further growth in 2006.

The acquired stores are a unique opportunity to rapidly enter attractive markets for the Company. The newly acquired stores will offer a relevant subset of traditional categories, including apparel, home appliances, home electronics, home improvement and home fashions, plus consumables and transactional items. The floor design of the new stores will be on one level, utilizing a common layout similar to the open-racetrack design of existing Sears Grand stores, with exit cashiering near the door.

The initial results of the Company’s two pilot Sears Grand stores are encouraging as the customer response to the new format has been favorable and revenue levels have been above expectations. Including the four Sears Grand stores expected to be opened by the end of 2004, the Company expects to be operating 10 to 14 Sears Grand stores by the end of 2005.

The Company’s ongoing efforts to improve margins and gain additional productivity included the conclusion of two notable initiatives in the second quarter. First, following the sale of Credit, the Company began a comprehensive review of its headquarters and field support structure in order to identify opportunities to create a more streamlined, focused retail company with fewer jobs that are wider in scope and responsibility. This review resulted in the severance of approximately 3,300 associates within the headquarters and field organization, with a resultant pretax charge of $41 million.

Second, the Company entered into a purchased services transaction with Computer Sciences Corporation (“CSC”), whereby CSC will provide the Company with information technology infrastructure support services for ten years. As part of the transaction, the Company sold certain assets to CSC for approximately $19 million, and CSC hired substantially all of the Sears associates who previously managed Sears’ technical infrastructure. The Company recognized $39 million of additional depreciation related to shortening the estimated remaining useful life for the assets sold to CSC.

The Company anticipates that the purchased services transaction and the reduction in the number of headquarters and field associates will generate approximately $55 to $65 million of annual gross savings for the Company on a going-forward basis. The Company continues to review its current processes to identify areas of additional efficiencies.

While the Company made progress in accelerating its off-mall strategy during the second quarter, overall results for the quarter were below expectations. Sales in key Father’s Day businesses, including Men’s Apparel, Tools, Sporting Goods and certain Lawn & Garden categories did not perform as well as expected. In apparel, the Company lacked a sufficient amount of fashion-oriented Spring product in what has been a strong fashion-driven season. This, coupled with the Company’s overcorrection of last year’s apparel inventory overage, resulted in shortages in certain key Spring products, including Lands’ End apparel.

19

SEARS, ROEBUCK AND CO.

The Company is taking aggressive actions to address the issues experienced during the second quarter and to continue its focus on off-mall growth. Those actions include:

§	increasing the fashion content within its apparel offering, including the introduction of two new proprietary brands – Structure and A|Line;
§	addressing low inventory levels in key apparel brands;
§	implementing a new organization with responsibility to manage the Company’s domestic supply chain, including inventory planning and replenishment; and
§	expanding the merchandise offering in an additional 28 Sears Hardware stores to include the Company’s core of home appliances

While management is confident that it is taking the necessary actions to address the Company’s issues, it has revised its third quarter and full-year guidance as a result of the lower-than-anticipated results in the second quarter, as well as a modified outlook for the second half of the year.

A summary of the Company’s consolidated results of operations is as follows:

	13 Weeks Ended						26 Weeks Ended
millions, except per share data	July 3,			June 28,			July 3,			June 28,
	2004			2003			2004			2003
Merchandise sales and services revenues	$	8,700		$	8,851		$	16,403		$	16,325
Domestic comparable store sales		-2.9	%		-3.5	%		-0.9	%		-5.0	%
Credit and financial products revenues		81			1,345			172			2,751
Total revenues	$	8,781		$	10,196		$	16,575		$	19,076
Gross margin rate		27.8	%		27.7	%		27.4	%		27.3	%
Selling and administrative expense as a percentage of total revenues		23.5	%		22.5	%		23.9	%		23.1	%
Operating income	$	53		$	489		$	12		$	798
Other income, net	$	36		$	13		$	52		$	14
Income before income taxes, minority interest and cumulative effect of change in accounting principle	$	89		$	502		$	64		$	812
Cumulative effect of change in accounting principle	$	--		$	--		$	(839	)	$	--
Net income/(loss)	$	53		$	309		$	(806	)	$	501
Earnings/(loss) per share — diluted	$	0.24		$	1.04		$	(3.71	)	$	1.63
Earnings per share before cumulative effect of change in accounting principle	$	0.24		$	1.04		$	0.15		$	1.63

Effective January 4, 2004, the Company changed its method for recognizing gains and losses for both its domestic pension and postretirement benefit plans. The Company began recognizing experience gains and losses on a more current basis, while under its previous methods, the Company amortized experience gains and losses over future service periods. As a result of this accounting change, the Company recorded an after-tax charge of $839 million, or $3.81 per share, in the first quarter of 2004 for the cumulative effect of change in accounting principle. The charge represents the recognition of unamortized experience losses at the beginning of 2004 in accordance with the new accounting methods.

The results of operations for the 13- and 26-week periods ended June 28, 2003 include the results of operations for the divested businesses, Credit and NTB.

20

SEARS, ROEBUCK AND CO.

The Company believes that an understanding of its reported results and its ongoing financial performance is not complete without considering the impact of the divested businesses, negative carrying and debt retirement costs and reflecting the impact of the change in accounting for domestic retirement plans on the results of operations for the 13- and 26-week periods ended July 3, 2004 and June 28, 2003.

The table below provides an understanding through this reconciliation.

	13 Weeks Ended					26 Weeks Ended
	July 3,		June 28,			July 3,			June 28,
millions	2004		2003			2004			2003
As reported:
Income before income taxes, minority interest and cumulative effect of change in accounting principle	$	89	$	502		$	64		$	812
Significant items:
Curtailment gain on retiree medical plans		--		--			(30	)		--
Negative carrying and debt retirement costs		19		--			57			--
Pro forma effects on the prior year:
Divested businesses:
Operating income		--		(364	)		--			(769	)
Zero-percent financing costs		--		60			--			116
Pro forma revenues earned under Citigroup alliance		--		40			--			72
Retirement plan accounting change		--		17			--			33
Pro forma	$	108	$	255		$	91		$	264

§	The decrease in merchandise sales and services revenues for the 13-week period ended July 3, 2004 was primarily due to domestic comparable store sales declines, as well as the prior year’s results including $106 million of revenues attributable to the divested NTB business. For the 26-week period ended July 3, 2004, merchandise sales and services increased slightly primarily due to the strengthening of the Canadian dollar and revenues earned under the Company’s long-term alliance with Citigroup.
§	Credit and Financial Products revenues were lower than the prior year for the 13- and 26-week periods ended July 3, 2004, as a result of the sale of Credit in the fourth quarter of 2003. Domestic revenues generated in the 13- and 26-week periods ended June 28, 2003 were $1.3 billion and $2.6 billion, respectively. The current year revenues reflect solely the credit business of Sears Canada.
§	The modest improvement in the gross margin rates for the 13- and 26-week periods ended July 3, 2004 is reflective of revenues earned under the long-term alliance with Citigroup.
§	Selling and administrative expenses as a percentage of total revenues increased for the 13- and 26-week periods ended July 3, 2004 primarily due to a reduction in expense leverage resulting from the divestiture of Credit and NTB, as well as lower overall sales.
§	The increase in other income of $23 million for the 13-week period ended July 3, 2004 compared to the prior year’s quarter was primarily related to an $18 million gain on the sale of the Company’s remaining interest in the Sears Tower. The Company also recorded an $11 million gain in the first quarter of 2004 resulting from the sale of a Sears Canada real estate joint venture.

21

SEARS, ROEBUCK AND CO.

SEGMENT OPERATIONS

The Company is organized into two principal business segments — Domestic and Sears Canada. Following is a discussion of results of operations by business segment.

Domestic

Domestic results and key statistics were as follows:

	13 Weeks Ended						26 Weeks Ended
	July 3,			June 28,			July 3,			June 28,
millions	2004			2003 (2)			2004			2003 (2)
Full-line Stores	$	5,322		$	5,462		$	10,137		$	10,113
Specialty Stores		1,317			1,366			2,359			2,489
Direct to Customer		338			373			683			741
Home Services		696			670			1,283			1,235
Merchandise sales and services revenues		7,673			7,871			14,462			14,578
Credit and financial products revenues		--			1,266			--			2,596
Total Domestic revenues		7,673			9,137			14,462			17,174
Cost of sales, buying and occupancy		5,536			5,703			10,506			10,641
Gross margin rate		27.9	%		27.5	%		27.4	%		27.0	%
Selling and administrative		1,776			2,031			3,387			3,911
Selling and administrative expense as a percentage of total revenues		23.1	%		22.2	%		23.4	%		22.8	%
Provision for uncollectible accounts		--			446			--			917
Depreciation and amortization		237			202			435			400
Interest, net		41			261			90			512
Special charges		41			28			41			28
Total costs and expenses		7,631			8,671			14,459			16,409
Operating income	$	42		$	466		$	3		$	765
Number of:
Full-line Stores								871			869
Specialty Stores								1,109			1,307
Lands’ End Retail Stores								16			15
Total Retail Stores								1,996			2,191
Comparable store sales percentage increase/(decrease) (1)
Home Group		-1.9	%		-2.8	%		+0.7	%		-4.7	%
Apparel/accessories		-8.3	%		-3.1	%		-5.5	%		-6.1	%
Full-line Stores		-4.0	%		-3.1	%		-1.3	%		-5.2	%
Specialty Stores		+2.7	%		-5.1	%		+1.6	%		-4.1	%
Total		-2.9	%		-3.5	%		-0.9	%		-5.0	%

(1)	For purposes of determining comparable store sales, a store is considered to be comparable at the beginning of the 13th month after the store is opened.
(2)	Includes the results of operations for the divested businesses of Credit and NTB.

The Company believes that an understanding of its reported results and its ongoing financial performance for the Domestic segment is not complete without considering the impact of the divested businesses, negative carrying and debt retirement costs and reflecting the impact of the change in accounting for retirement plans on the results of operations for the 13- and 26-week periods ended July 3, 2004 and June 28, 2003.

22

SEARS, ROEBUCK AND CO.

This reconciliation is provided below:

millions	13 Weeks Ended					26 Weeks Ended
	July 3,		June 28,			July 3,			June 28,
	2004		2003			2004			2003
Operating income	$	42	$	466		$	3		$	765
Significant Items:
Curtailment gain on retiree medical plans		--		--			(30	)		--
Negative carrying and debt retirement costs		19		--			57			--
Retirement plan accounting change		--		17			--			33
Divested businesses		--		(264	)		--			(581	)
Pro forma	$	61	$	219		$	30		$	217

Domestic merchandise sales and services revenues decreased 2.6% in the 13 weeks ended July 3, 2004 due to a 2.9% decrease in domestic comparable store sales and a $106 million reduction in revenues due to the divestiture of NTB in the fourth quarter of 2003. Domestic merchandise sales and services revenues for the 26 weeks ended July 3, 2004 were relatively flat as compared to the prior year as the reduction in revenues of $206 million, due to the divestiture of NTB in the fourth quarter of 2003, was offset by approximately $70 million of revenues earned under the Citigroup long-term alliance and slight increases across the Specialty Store formats.

Full-line Stores revenues decreased 2.6% in the 13-week period ended July 3, 2004, primarily due to significant declines in Apparel resulting from the insufficient levels of fashion-oriented Spring product and the overall decline in apparel inventory as the Company overcorrected its inventory level overages faced in fiscal 2003. On a comparable store basis, Apparel revenues were down 8.3% for the 13 weeks ended July 3, 2004. Overall, the Home Group revenues, on a comparable store basis, were down 1.9% for the 13 weeks ended July 3, 2004 due to declines in Sporting Goods, primarily treadmills, and Home Appliances, primarily air conditioners. The decline in air conditioners was due to unseasonably cool weather.

The decrease in Specialty Stores revenues for the 13- and 26-week periods ended July 3, 2004 is primarily due to the divestiture of NTB. Increased comparable store sales for the 13-week period occurred for most formats within this category with solid improvements in comparable store sales at The Great Indoors as a result of the Company’s refinement of its business strategy.

Declines in Direct to Customer revenues for the 13- and 26-week periods ended July 3, 2004 were primarily due to declines in the Lands’ End direct to customer business resulting from softer customer response to Spring/Summer catalog offerings, the establishment of state tax nexus, the continued channel shift of business to the Full-Line Stores and lower comparable levels of clearance inventory.

Home Services revenues increased for the 13- and 26-week periods ended July 3, 2004 resulting from increases in product repair services, specifically product protection agreements and parts sales, as well as increases in the cabinet refacing and kitchen remodeling categories within the Sears Home Improvement business.

Domestic gross margin as a percentage of Domestic merchandise sales and services revenues increased primarily due to the income from revenues earned through our long-term alliance with Citigroup.

Domestic selling and administrative expense as a percentage of Domestic total revenues increased 90 basis points in the second quarter of 2004 compared to the prior year. This rate increase was primarily due to a reduction in expense leverage resulting from the divestitures of Credit and NTB, as well as the current year including a $21 million expense associated with establishment of additional insurance reserves resulting from the financial difficulties being experienced by one of the Company’s third party insurance providers.

23

SEARS, ROEBUCK AND CO.

Depreciation and amortization expense for the second quarter of 2004 included $39 million of additional depreciation related to shortening the estimated remaining useful lives for the assets sold to CSC under the previously discussed purchased services arrangement.

As previously discussed, the Company underwent an extensive review of its headquarters and field operations following the sale of Credit. A $41 million pretax charge was taken in the second quarter of 2004 related to severance associated with the termination of approximately 3,300 associates. The second quarter of 2003 included a $28 million pretax charge for severance costs associated with the Company’s productivity improvement initiatives.

The two charges taken in the second quarter of 2004 discussed above result from the Company’s ongoing initiatives to streamline its headquarters and field operations to improve profitability and allow the Company to focus its efforts on retail operations. The Company anticipates annual gross savings of between $55 and $65 million resulting from these two actions.

The decline in interest expense was primarily due to the prior year results including $245 million and $487 million of interest expense associated with the divested Credit business for the 13 and 26 weeks ended June 28, 2003, respectively. The second quarter 2004 interest expense included $19 million attributable to the negative carrying cost related to credit legacy debt.

Sears Canada

Sears Canada results were as follows:

millions	13 Weeks Ended						26 Weeks Ended
	July 3,				June 28,			July 3,			June 28,
	2004			2003			2004			2003
Merchandise sales and services	$	1,027		$	980		$	1,941		$	1,747
Credit revenues		81			79			172			155
Total revenues		1,108			1,059			2,113			1,902
Cost of sales, buying and occupancy		746			699			1,397			1,235
Gross margin rate		27.4	%		28.7	%		28.0	%		29.3	%
Selling and administrative		288			268			571			498
Selling and administrative expense as a percentage of total revenues		26.0	%		25.3	%		27.0	%		26.2	%
Provision for uncollectible accounts		11			15			27			27
Depreciation and amortization		25			28			55			55
Interest		27			26			54			54
Total costs and expenses		1,097			1,036			2,104			1,869
Operating income	$	11		$	23		$	9		$	33
Comparable store sales percentage increase/(decrease) (C$)		1.4	%		-6.5	%		4.3	%		–10.0	%
Foreign exchange rate (quarterly average) (US$/C$)		0.7353			0.7109			0.7473			0.6844

Total revenues increased by $49 million, or 4.6%, in the second quarter of 2004 compared to the prior year quarter due to the strengthening of the Canadian dollar as well as an overall increase in sales over the prior year quarter. Comparable stores sales on a Canadian dollar (C$) basis increased 1.4% in the second quarter of 2004.

24

SEARS, ROEBUCK AND CO.

Sales performance during the second quarter varied across the various retail formats. Full-line Store total store revenues for the second quarter of 2004 were relatively flat with the prior year quarter with comparable store sales up 0.2%. Specialty Stores revenues increased 7.7% over the prior year quarter with comparable store sales increasing 5.7%. Sales during the quarter were adversely affected by unseasonably cool weather, with weak sales noted in seasonal categories such as air conditioners, patio furniture, outdoor grills and seasonal apparel. Strong sales were noted in major appliances, furniture and electronics.

Credit revenues increased 2.5% in the second quarter of 2004 compared to the prior year quarter primarily due to the strengthening of the Canadian dollar. Within the Sears Canada credit operations, the net charge-off rate decreased to 5.1% in the second quarter of 2004 from 5.8% in the second quarter of 2003.

The decrease in gross margin rate reflects a shift in sales mix to lower margin products such as home appliances and furniture, as well as an increase in promotional and clearance activity to reduce spring and summer seasonal inventories.

The increase in selling and administrative expense as a percentage of total revenues is primarily due to an increase in employee-related costs and the inclusion of costs associated with additional restructuring activities that occurred during the second quarter of 2004.

ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION

The Company ended the second quarter of 2004 with approximately $3.6 billion of cash and cash equivalents, a decrease of $5.5 billion from year-end 2003. During the 26-week period ended July 3, 2004, the Company utilized cash proceeds from the sale of Credit for working capital needs as well as to retire $2.4 billion of debt, purchase $320 million of investments and repurchase $852 million of common shares. The Company also used proceeds to pay approximately $1.3 billion of taxes associated with the sale of Credit. The Company expects to retire an additional $200 million of domestic term debt by year-end 2004. The Company plans to target, exclusive of seasonal working capital requirements, domestic funded term debt, less cash and investments, of approximately $1.5 billion.

The cash used in operating activities for the 26-week period ended July 3, 2004 primarily relates to the $1.3 billion of taxes paid associated with the sale of Credit. The cash provided by operating activities for the 26 weeks ended June 28, 2003 resulted from the cash flow associated with Credit.

Financing Activities

The Company’s financing activities include net borrowings, dividend payments and share issuances and repurchases. The Company’s total debt balances as of July 3, 2004, June 28, 2003 and January 3, 2004 were as follows:

	July 3, 2004				June 28, 2003				January 3, 2004
millions			Sears				Sears				Sears
	Domestic		Canada		Domestic		Canada		Domestic		Canada
Short-term borrowings	$	671	$	99	$	5,358	$	106	$	719	$	314
Long-term debt (including current portion):
Long-term borrowings		2,891		1,360		23,929		1,373		5,336		1,245
Capitalized lease obligations		346		135		382		143		355		142
SFAS No. 133 hedge accounting adjustment		69		--		685		--		90		--
Total debt	$	3,977	$	1,594	$	30,354	$	1,622	$	6,500	$	1,701

25

SEARS, ROEBUCK AND CO.

The decrease in total debt from January 3, 2004 is primarily due to the retirement of $2.4 billion of domestic term debt.

The Company continues to use interest rate derivatives to synthetically convert fixed rate debt to variable rate debt. The interest rate derivatives qualify as fair value hedges in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, and as such are recorded on the balance sheet at market value with an offsetting entry to the underlying hedged item, which is debt.

Liquidity

Historically, the Company has been an active borrower in various capital markets due to the funding needs of its domestic credit card receivables portfolio. As a result of the sale of Credit, the Company’s need to access the capital markets has been greatly reduced. The Company’s primary need for liquidity will be to fund capital expenditures and the seasonal working capital requirements of its retail businesses. These needs will be funded primarily through liquidation of the Company’s cash and investment portfolio as well as operating cash flows.

The Company’s total cash and investment portfolio as of July 3, 2004, June 28, 2003 and January 3, 2004 were as follows:

	July 3, 2004				June 28, 2003				January 3, 2004
millions			Sears				Sears				Sears
	Domestic		Canada		Domestic		Canada		Domestic		Canada
Cash and cash equivalents	$	3,341	$	218	$	2,833	$	88	$	8,959	$	98
Available-for-sale securities		320		--		--		--		--		--
Total cash and investments	$	3,661	$	218	$	2,833	$	88	$	8,959	$	98

In order to ensure liquidity and provide additional capacity, the Company intends to maintain access to capital markets. During the second quarter of 2004, the Company, through its domestic wholly-owned financial subsidiary, SRAC, syndicated a new $2.0 billion unsecured, three-year credit facility. Sears guarantees any borrowings outstanding under this facility. This facility provides support for SRAC’s domestic direct-issue commercial paper program and is available for other general corporate purposes. No borrowings were outstanding under this committed credit facility at the end of the second quarter of 2004. The facility and related Sears guarantee contain certain financial covenants for both SRAC and the Company’s domestic segment. As of July 3, 2004, the Company and SRAC were in compliance with these covenants. In addition, Sears Canada has a $0.5 billion committed credit facility.

The ratings of the Company’s domestic debt securities as of July 3, 2004, appear in the table below:

	Moody's			Standard &
	Investors	Fitch		Poor's Ratings
	Service	Ratings		Services
Unsecured long-term debt	Baa1	BBB		BBB
Unsecured commercial paper	P-2		F2		A-2

During the second quarter, Fitch Ratings lowered its rating of the Company’s domestic unsecured term debt from BBB+, with a negative outlook, to BBB, with a stable outlook. The Company’s short-term rating of F2 was affirmed. In July 2004, Standard & Poor’s revised the outlook for the Company’s debt ratings from stable to negative.

26

SEARS, ROEBUCK AND CO.

SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ESTIMATES

The Company’s significant accounting policies are discussed in the Notes to the Consolidated Financial Statements that are included in the Company’s 2003 Annual Report on Form 10-K that is filed with the Securities and Exchange Commission. In most cases, the accounting policies utilized by the Company are the only ones permissible under U.S. Generally Accepted Accounting Principles for businesses in our industry. However, the application of certain of these policies requires significant judgment or a complex estimation process that can affect the results of operations and financial position of the Company, as well as additional information provided in our related footnote disclosures. The Company bases its estimates on historical experience and other assumptions that it believes are reasonable. If actual amounts are ultimately different from previous estimates, the revisions are included in the Company’s results of operations for the period in which the actual amounts become known. The accounting policies and estimates that can have a significant impact on the operating results, financial position and footnote disclosures of the Company are described in the Management Discussion and Analysis in the Company’s 2003 Annual Report on Form 10-K.

Defined benefit retirement plans

The fundamental components of accounting for defined benefit retirement plans consist of the compensation cost of the benefits earned, the interest cost from deferring payment of those benefits into the future and the results of investing any assets set aside to fund the obligation. Such retirement benefits are earned by associates ratably over their service careers; therefore the amounts reported in the income statement for these retirement plans have historically followed the same pattern. Accordingly, changes in the obligations or the value of assets to fund it have been recognized systematically and gradually over the associate’s estimated period of service. This systematic and gradual recognition of changes has been accomplished by amortizing experience gains/losses in excess of the 10% corridor into expense over the associate service period and by recognizing the difference between actual and expected asset returns over a five-year period.

As discussed in Note 9 of the Notes to Condensed Consolidated Financial Statements, the Company changed its method of accounting for its domestic defined benefit plans to immediately recognize any experience gains or loss in excess of the 10% corridor and to value plan assets at fair value. The Company believes that the new method is preferable in light of changes made to its domestic benefit plans to discontinue providing pension and retiree medical benefits to associates under the age of 40 as the new policy accelerates recognition of events which have already occurred. As a result of this accounting method change, the Company recorded an after-tax charge of $839 million in the first quarter of 2004 for the cumulative effect of the change in accounting principle.

Under its new accounting method, the Company’s pension expense in future periods may be more volatile as this method accelerates recognition of actual experience. Furthermore, because the domestic pension plan’s unrecognized loss will be at the 10% corridor limit at the beginning of 2004, additional pension expense will be recognized in 2004 for the full amount of any experience losses realized in 2004. The largest drivers of experience losses in recent years have been the discount rate used to determine the present value of the obligation and the actual return on pension assets.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

During the 13- and 26- week periods ended July 3, 2004, the Company retired $0.6 billion and $2.4 billion, respectively, of domestic term debt. In addition, the Company issued a guarantee of SRAC’s borrowings outstanding under its three-year unsecured credit facility. As of July 3, 2004, there were no outstanding borrowings under this facility.

27

SEARS, ROEBUCK AND CO.

STOCK-BASED COMPENSATION

As discussed in the Company’s 2003 Annual Report on Form 10-K, the Company follows Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees”, which does not require recognition of expense for stock options when the exercise price of an option equals, or exceeds, the fair market value of the common stock on the date of grant.

The Financial Accounting Standards Board has released an Exposure Draft, “Share-Based Payment – An Amendment to FASB Statements No. 123 and 95”, which revises the rules governing stock option accounting. The exposure draft requires expense recognition of stock options and certain employee stock purchase plans in the statements of operations. The comment period ended June 30, 2004. The effective date for this statement is expected to be fiscal 2005. The Company will adopt any new rules required by the FASB when they are effective. The pro forma impact on the 13- and 26- week periods ended July 3, 2004 of expensing unvested stock options is disclosed, as required under FASB Statement No. 123, “Accounting for Stock-Based Compensation”, in Note 10 of the Notes to Condensed Consolidated Financial Statements.

OUTLOOK

The Company anticipates third quarter 2004 earnings per share to be between $0.00 and $0.10, including $0.03 to $0.05 per share of negative carrying cost on the Company’s remaining legacy debt. The outlook assumes third quarter domestic comparable store sales to be down low single-digits. For the full year, the Company now expects earnings per share, before the cumulative effect of change in accounting principle, but including $0.24 per share related to the second quarter severance related costs and additional depreciation, to be between $2.66 and $2.86, reflecting the year to date results and a reduced revenue outlook based upon first half trends. This includes the negative carrying cost of approximately $0.20 to $0.25 per share on the Company’s remaining legacy debt related to Credit.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

The above Outlook and certain other statements made in this quarterly report on Form 10-Q and in other public announcements by the Company are “forward-looking statements” that are subject to risks and uncertainties that may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include information concerning the Company’s future financial performance, business strategy, plans, goals and objectives. Statements preceded by, followed by or that otherwise include the words “believes”, “expects”, “anticipates”, “intends”, “estimates”, “plans”, “forecasts”, “is likely to”, “projected” and similar expressions or future or conditional verbs such as “will”, “should”, “would”, “may” and “could” are generally forward-looking in nature and not historical facts.

Following are some of the risks and uncertainties that could affect our financial condition or results of operations, and could cause actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied by these forward-looking statements: competitive conditions in retail and related services industries; changes in consumer confidence, tastes, preferences and spending; the availability and level of consumer debt; the successful execution of, and customer response to, the Company’s strategic initiatives, including the Full-line Store strategy and the proposed acquisition, conversion and integration of the Kmart and Wal-Mart stores and other new store locations; the possibility that the Company will identify new business and strategic options for one or more of its business segments, potentially including selective acquisitions, dispositions, restructurings, joint ventures and partnerships; trade restrictions, tariffs, and other factors potentially affecting the Company’s ability to find qualified vendors and access products in an

28

SEARS, ROEBUCK AND CO.

efficient manner; the Company’s ability to successfully implement its initiatives to improve its inventory management capabilities; the outcome of pending legal proceedings; anticipated cash flow; social and political conditions such as war, political unrest and terrorism or natural disasters; the possibility of negative investment returns in the Company’s pension plan; changes in interest rates; volatility in financial markets; changes in the Company’s debt ratings, credit spreads and cost of funds; the possibility of interruptions in systematically accessing the public debt markets; general economic conditions and normal business uncertainty. In addition, the Company typically earns a disproportionate share of its operating income in the fourth quarter due to seasonal buying patterns, which are difficult to forecast with certainty. Additional discussion of these and other risks and uncertainties is contained elsewhere in this Item 2 and in Item 3, “Quantitative and Qualitative Disclosures About Market Risk”.

While the Company believes that its forecasts and assumptions are reasonable, it cautions that actual results may differ materially. The Company intends the forward-looking statements to speak only as of the time first made and does not undertake to update or revise them as more information becomes available.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The nature of market risks faced by the Company at July 3, 2004 are the same as disclosed in the Company’s Annual Report on Form 10-K for the year ended January 3, 2004. As of July 3, 2004 and June 28, 2003, 47% and 78%, respectively, of the Company’s funding portfolio was variable rate (including fixed rate debt synthetically converted to variable rate through the use of derivative financial instruments). Based on the size of the Company’s variable rate funding portfolio at July 3, 2004 and June 28, 2003, which totaled $2.6 billion and $24.3 billion, respectively, an immediate 100 basis point change in interest rates would have affected annual pretax funding costs by approximately $26 million and $243 million, respectively. These estimates do not take into account the effect on revenue resulting from invested cash or the returns on assets being funded. These estimates also assume that the variable rate funding portfolio remains constant for an annual period and that the interest rate change occurs at the beginning of the period. As a result of the sale of Credit, the Company’s domestic funding requirements have declined such that it is unlikely that current maturities of domestic term debt will be refinanced and, therefore, such current debt maturities are not considered variable rate in the calculation above. Prior to the sale, it was assumed that these current maturities of fixed rate term debt would be refinanced and were considered variable rate due to the interest rate risk upon refinancing. Under the methodology used prior to the sale, at June 28, 2003, approximately 78% of the Company’s funding portfolio was variable rate debt.

Item 4. Controls and Procedures

The Company’s management, including Alan J. Lacy, Chairman of the Board of Directors, President and Chief Executive Officer (principal executive officer), and Glenn R. Richter, Executive Vice President and Chief Financial Officer (principal financial officer), have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter ended July 3, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

29

SEARS, ROEBUCK AND CO.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Pending against the Company and certain of its officers and directors are a number of lawsuits, described below and previously reported in the Company’s Quarterly Report on Form 10-Q for the 13 weeks ended April 3, 2004, that relate to the credit card business and public statements about it. The Company believes that all of these claims lack merit and is defending against them vigorously.

§	On and after October 18, 2002, several actions were filed in the United States District Court for the Northern District of Illinois against the Company and certain current and former officers alleging that certain public announcements by the Company concerning its credit card business violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Court has consolidated the actions and certified the consolidated action as a class action. Discovery is underway. Trial is scheduled to begin on August 8, 2005.
§	On and after November 15, 2002, several actions were filed in the United States District Court for the Northern District of Illinois against the Company, certain officers and directors, and alleged fiduciaries of Sears’ 401(k) Savings Plan (the “Plan”), seeking damages and equitable relief under the Employee Retirement Income Security Act of 1974 (“ERISA”). The plaintiffs purport to represent participants in the Plan, and allege breaches of fiduciary duties under ERISA in connection with the Plan’s investment in the Company’s common shares and alleged communications made to Plan participants regarding the Company’s financial condition. These actions have been consolidated into a single action. Discovery is underway. No trial date has been set.
§	On October 23, 2002, a purported derivative action was filed in the Supreme Court of the State of New York against the Company (as a nominal defendant) and certain current and former directors seeking damages on behalf of the Company. The complaint purports to allege a breach of fiduciary duty by the directors with respect to the Company’s management of the credit card business. On June 21, 2004, the Court dismissed the complaint because the plaintiff had filed the suit without having demanded that the Board of Directors bring the suit. The plaintiff has filed a notice of appeal from that ruling. Two similar actions (the “Cook County actions”) were filed in the Circuit Court of Cook County, Illinois (the “Illinois state court”), and a third (the “federal derivative action”) was filed in the United States District Court for the Northern District of Illinois. All three actions were stayed pending the disposition of the action in New York. In light of the New York court’s decision, the Illinois state court has lifted the stay of the Cook County actions and has reinstated motions to dismiss which defendants had filed prior to the stay. The Illinois state court has ordered the parties to file supplemental briefs concerning the effect of the New York court’s decision on the motions to dismiss the Cook County actions. The plaintiffs in the federal derivative action appealed the stay order in that case to the United States Court of Appeals for the Seventh Circuit. On July 19, 2004, the Court of Appeals affirmed the stay of the federal derivative action, and that stay remains in effect.
§	On June 17, 2003, an action was filed in the Northern District of Illinois against the Company and certain officers, purportedly on behalf of a class of all persons who, between June 21, 2002 and October 17, 2002, purchased the 7% notes that SRAC issued on June 21, 2002. An amended complaint has been filed, naming as additional defendants certain former officers, SRAC and several investment banking firms who acted as underwriters for SRAC’s March 18, May 21 and June 21, 2002 notes offerings. The amended complaint alleges that the defendants made misrepresentations or omissions concerning its credit business during the class period and in the registration statements and prospectuses relating to the offerings. The amended complaint alleges that these misrepresentations and omissions violated Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder, and Sections 11, 12 and 15 of the Securities Act of 1933 and purports to be brought on behalf of a class of all persons who purchased any

30

SEARS, ROEBUCK AND CO.

security of SRAC between October 24, 2001 and October 17, 2002, inclusive. Motions to dismiss the amended complaint are pending.

The Company is subject to various other legal and governmental proceedings, many involving litigation incidental to the businesses. Some matters contain class action allegations, environmental and asbestos exposure allegations and other consumer-based claims that involve compensatory, punitive or treble damage claims in very large amounts as well as other types of relief. The consequences of these matters are not presently determinable but, in the opinion of management of the Company after consulting with legal counsel, and taking into account insurance and reserves, the ultimate liability is not expected to have a material adverse effect on annual results of operations, financial position, liquidity or capital resources of the Company.

Item 4.     Submission of Matters to a Vote of Security-Holders

On May 13, 2004, the Company held its annual meeting of shareholders at the Merchandise Review Center in Hoffman Estates, Illinois.

William L. Bax, Donald J. Carty, Alan J. Lacy and Hugh B. Price were elected to Class A of the Board of Directors for three year terms expiring at the 2007 annual meeting of shareholders. The shareholders ratified the Audit Committee’s appointment of Deloitte & Touche LLP as independent auditors for 2004. Shareholder proposals regarding declassification of the Board of Directors and a poison pill were approved by a majority of votes cast. A shareholder proposal regarding a Bylaw amendment to create a Majority Vote Shareholder Committee was defeated. The votes on these matters were as follows:

1. Election of Directors

Name	For	Withheld
William L. Bax Donald J. Carty Alan J. Lacy Hugh B. Price	176,997,820 144,543,599 143,617,761 144,593,510	11,248,249 43,702,650 44,628,487 43,652,739

2. Appointment of Deloitte & Touche LLP as independent auditors for 2004

For	Against	Abstain
179,375,963	6,464,014	2,406,270

3. Shareholder proposal regarding declassification of the Board

For	Against	Abstain	Broker Non-Votes
108,049,315	51,282,567	4,323,939	24,590,428

4. Shareholder proposal regarding a poison pill

For	Against	Abstain	Broker Non-Votes
99,314,969	59,706,506	4,634,271	24,590,503

31

SEARS, ROEBUCK AND CO.

5. Shareholder proposal regarding Bylaw Amendment to create a Majority Vote Shareholder Committee

For	Against	Abstain	Broker Non-Votes
43,040,003	116,055,872	4,559,944	24,590,430

Item 6. Exhibits and Reports on Form 8-K.

(a)	Exhibits.
	An Exhibit Index has been filed as part of this Report on Page E-1.
(b)	Reports on Form 8-K.
	A Current Report on Form 8-K dated April 21, 2004 was filed with the Securities and Exchange Commission on April 21, 2004 to report, under Item 12, the release of first quarter 2004 earnings of the Registrant.

32

SEARS, ROEBUCK AND CO.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SEARS, ROEBUCK AND CO. (Registrant)
August 10, 2004	By	/s/ Michael J. Graham
		Michael J. Graham
		Vice President and Controller (Principal Accounting Officer and duly authorized officer of Registrant)

33

SEARS, ROEBUCK AND CO.
E-1
EXHIBIT INDEX

Exhibit No.
*2.	Asset Purchase Agreement dated as of June 29, 2004 by and between Sears, Roebuck and Co. and Kmart Corporation. **
3(a).	Restated Certificate of Incorporation as in effect on May 13, 1996 (incorporated by reference to Exhibit 3(a) to Registration Statement No. 333-8141 of the Registrant).
3(b).	By-laws, as amended to February 14, 2001 (incorporated by reference to Exhibit 3(ii) to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 30, 2000).
4.	Registrant agrees to furnish the Commission, upon request, with the instruments defining the rights of holders of each issue of long-term debt of the Registrant and its consolidated subsidiaries.
10(a).	Three-Year Credit Agreement dated as of May 17, 2004 among Sears Roebuck Acceptance Corp., the banks, financial institutions and other institutional lenders (the “Lenders”) listed on the signature pages thereof, Barclays Bank PLC, as syndication agent, Bank of America, N.A., Bank One, NA and Wachovia Bank National Association, as documentation agents, Citigroup Global Markets Inc. and Barclays Capital, the Investment Banking Division of Barclays Bank PLC, as joint lead arrangers and joint bookrunners, and Citibank, N.A., as administrative agent for the Lenders (incorporated by reference to Exhibit 10(a) to Sears Roebuck Acceptance Corp.’s Current Report on Form 8-K dated May 17, 2004).
10(b).	Guarantee, dated as of May 17, 2004, by Sears, Roebuck and Co. in favor of the Benefited Parties (incorporated by reference to Exhibit 10(b) to Sears Roebuck Acceptance Corp.’s Current Report on Form 8-K dated May 17, 2004).
*10(c).	Master Services Agreement between Sears, Roebuck and Co. and Computer Sciences Corporation dated as of June 1, 2004.***
*12.	Computation of ratio of income to fixed charges for Sears, Roebuck and Co. and consolidated subsidiaries for each of the five years ended January 3, 2004 and for the six-month period ended July 3, 2004.
*15.	Acknowledgement of awareness from Deloitte & Touche LLP, dated August 10, 2004, concerning unaudited interim financial information.
*31(a).	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31(b).	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted by section 906 of the Sarbanes-Oxley Act of 2002.

*	Filed herewith
**	All schedules and exhibits to this Exhibit have been omitted in accordance with 17 CFR § 229.601 (b)(2). Registrant agrees to furnish a copy of the omitted schedules and exhibits to the Securities and Exchange Commission supplementally upon request, subject to such request for confidential treatment as Registrant deems appropriate at the time it receives the Commission’s request.
***	Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission.

34

EX-2

Exhibit 2

ASSET PURCHASE AGREEMENT

DATED AS OF JUNE 29, 2004

BY AND BETWEEN

SEARS, ROEBUCK AND CO.

AND

KMART CORPORATION

TABLE OF CONTENTS

		Page
ARTICLE I PURCHASE AND SALE			1
Section 1.1.	Purchase and Sale of Transferred Assets		1
Section 1.2.	Excluded Assets		2
Section 1.3.	Assumed Liabilities		2
Section 1.4.	Excluded Liabilities		3
ARTICLE II PHARMACY ASSETS			4
Section 2.1.	Right to Acquire Pharmacy Assets		4
Section 2.2.	No Additional Consideration		5
Section 2.3.	Pharmacy Transfer Deliveries		5
Section 2.4.	Operation of Pharmacies		5
Section 2.5.	Cooperation		5
Section 2.6.	Seller’s Representations and Warranties Relating to Pharmacy Assets		6
Section 2.7.	Transfer to Designee		7
ARTICLE III PURCHASE PRICE			7
Section 3.1.	Purchase Price		7
Section 3.2.	Payment of Purchase Price		8
ARTICLE IV CLOSINGS			9
Section 4.1.	Initial Closing and Subsequent Closings		9
Section 4.2.	Closing Documents		10
Section 4.3.	Closing Prorations and Adjustments		13
Section 4.4.	Closing Costs		15
Section 4.5.	Certain Retained Claims		15
Section 4.6.	Take-Back Leases		16
Section 4.7.	Cooperation Between the Parties		17
Section 4.8.	Separate Transactions		17
Section 4.9.	Pre-Closing Allocation of Purchase Price		17
ARTICLE V PRE-CLOSING COVENANTS			17
Section 5.1.	Operation of Transferred Assets		17
Section 5.2.	Reasonable Best Efforts to Consummate the Transactions		20
Section 5.3.	Tax-Deferred Exchange		24
Section 5.4.	Disclosure		24
Section 5.5.	Additional Approved Sublease Documents		25
Section 5.6.	Purchase of Fee Interest in Leased Properties		25
Section 5.7.	Employee Matters		25
Section 5.8.	Environmental Due Diligence for Approved Sublease Space		27

ARTICLE VI STATUS OF TITLE TO THE PROPERTIES		27
Section 6.1.	Preliminary Evidence of Title	27
Section 6.2.	Title Defects	27
Section 6.3.	Permitted Exceptions	28
ARTICLE VII CASUALTY LOSS AND CONDEMNATION		29
Section 7.1.	Condemnation or Material Casualty	29
Section 7.2.	Non-Material Casualty	30
ARTICLE VIII REPRESENTATIONS AND WARRANTIES		30
Section 8.1.	Seller’s Representations and Warranties	30
Section 8.2.	Purchaser’s Representations and Warranties	34
Section 8.3.	Definitions of Knowledge and Notice	35
Section 8.4.	“As-Is” Condition	35
ARTICLE IX INVESTIGATION OF EACH PROPERTY		36
Section 9.1.	Access to Properties	36
ARTICLE X CLOSING CONDITIONS		36
Section 10.1.	Purchaser’s Closing Conditions	36
Section 10.2.	Seller’s Closing Conditions	38
ARTICLE XI INDEMNIFICATION		39
Section 11.1.	Indemnification	39
Section 11.2.	Proceedings Involving Third Parties	39
Section 11.3.	Objections to Claims for Indemnification; Resolution by the Parties	41
Section 11.4.	Treatment of Indemnification Claims	41
Section 11.5.	Exclusive Remedy	41
Section 11.6.	Survival	41
Section 11.7.	Limitation on Indemnification	42
ARTICLE XII DEFAULTS AND REMEDIES		43
Section 12.1.	Defaults and Remedies	43
ARTICLE XIII I MISCELLANEOUS		44
Section 13.1.	Assignment	44
Section 13.2.	Entire Agreement	44
Section 13.3.	Time is of the Essence	44
Section 13.4.	Further Assurances	44
Section 13.5.	Construction	44

ii

Section 13.6.	Legal Fees	44
Section 13.7.	Notices	45
Section 13.8.	Governing Law	46
Section 13.9.	Counterparts	46
Section 13.10.	Invalid Provisions	46
Section 13.11.	Headings, Gender, Etc.	46
Section 13.12.	No Third Party Beneficiaries	46
ARTICLE XIV ESCROW AGENT		46
Section 14.1.	Duties and Obligations of Escrow Agent	46

INDEX OF DEFINED TERMS

	Page
Acquisition Right		4
Agreement		1
Applicable Laws		18
Approved Subleases		33
Assignment of Approved Sublease		11
Assignment of Lease		11
Assumed Liabilities		3
Business Day		10
CAA		34
CERCLA		34
Closing		10
Closing Conditions		10
Closing Date		10
Closing Statement		14
Code		12
Confidentiality and Access Agreement		37
Controlling Party		41
Current Tax Year		16
Defaulting Properties		44
Delinquent Amounts		16
Deposit		8
Designee		7
Effective Date		1
Election Deadline		4
Employees		3
Employment Law		3
Environmental Laws		33
EPCRA		34
ERISA		3
ESA		34

iii

Escrowee	28
Exchange	24
Exchanger	25
Excluded Assets	2
Excluded Liabilities	3
FIFRA	34
FIRPTA Certificate	12
First Occupancy Delivery Date	17
First Occupancy Delivery Date Properties	17
FWPCA	34
Governmental Entity	18
Ground Leases	34
Hazardous Materials	34
HMTA	34
HSR Act	21
Improvements	2
Indemnified Persons	40
Indemnifying Person	41
Initial Closing	9
Initial Closing Date	10
Initial Closing Properties	8
Intangible Personal Property	2
Landlord	2
Leased Properties	2
Leased Property	2
Leasehold Commitments	28
Leases	2
Liabilities	3
LLC	17
Losses	40
Material Casualty	30
Material Title Defect	28
Maximum Violation Cure Amount	19
Merchandise Trade Fixtures	2
Non-controlling Party	41
Non-Seller Violation	19
Objection	42
Occupancy Delivery Date	17
Order	22
OSHA	34
Owned Properties	1
Owned Property	1
Owner’s Title Commitments	27
Permitted Exceptions	28,29
Permitted Property Condition	18
Personal Property	2

iv

Pharmacy	4
Pharmacy Approvals	31
Pharmacy Assets	4
Pharmacy Records	4
Possession Payment Conditions	9
Pre-Closing Allocation Statement	17
Prescription Files	4
Properties	2
Property	2
Property Termination Procedure	19
Purchase Price	7
Purchaser	1
Purchaser Closing Conditions	37
Purchaser Indemnified Parties	40
Purchaser Subsidiary	45
Purchaser’s Representatives	37
Qualified Contractor	30
Qualified Intermediary	24
RCRA	34
Related Agreements	31
Release	34
Remaining Properties	8
Renewal Notice	19
Required Consents	23
Retained Pharmacy Business Assets	3
SDWA	34
Second Occupancy Delivery Date	17
Second Occupancy Delivery Date Properties	17
Seller	1
Seller Closing Conditions	39
Seller Indemnified Parties	40
Seller Plan	3
Seller Subsidiary	1
Seller Subtenant Estoppel	11
Seller Tenant Estoppel	12
Seller Violation	18
Seller’s Title Cure Election Period	28
Service Contract	4
SNDA	24
Store Employee	26
Sublease Rents	16
Subleased Premises	27
Subleases	32
Subsequent Closing	10
Subsequent Closing Date	10
Subtenants	16

v

Surveys	28
Take-Back Lease	17
Third Party Environmental Claims	40
Third Party Proceeding	40
Title Commitments	28
Title Company	28
Title Review Period	28
Transferred Assets	1
TSCA	34
Violations	18
WARN Act	3

vi

ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of the 29 day of June, 2004 (the “Effective Date”), by and between SEARS, ROEBUCK AND CO., a New York corporation ( “Purchaser”) and KMART CORPORATION, a Michigan corporation (“Seller”).

R E C I T A L S:

WHEREAS, Seller and certain wholly owned subsidiaries of Seller (each, a “Seller Subsidiary”; and any reference to “Seller” herein shall be deemed to include any applicable Seller Subsidiary) are (a) the owners of fee simple title to the Owned Properties, (b) the lessees under the Leases with respect to the Leased Properties, and (c) the owners of all of the other Transferred Assets and Pharmacy Assets (as such terms are hereinafter defined);

WHEREAS, Seller desires to sell and/or assign, as applicable, the Transferred Assets and Pharmacy Assets to Purchaser, and Purchaser desires to purchase the Transferred Assets and Pharmacy Assets from Seller and to assume certain liabilities in connection therewith, upon the terms and subject to conditions set forth in this Agreement;

NOW, THEREFORE, in consideration of and in reliance upon the above Recitals, which are acknowledged to be accurate and are incorporated herein, the terms, covenants and conditions contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser agree as follows:

ARTICLE I

PURCHASE AND SALE

Section 1.1.      Purchase and Sale of Transferred Assets.    Subject to the terms and conditions of this Agreement, Seller shall sell, convey and assign to Purchaser, and Purchaser shall purchase, all right, title and interest of Seller in and to the assets described in the following clauses (a) through (e) (all of which are hereinafter collectively referred to as the “Transferred Assets”):

     (a)      those two (2) parcels of real estate located at the addresses listed on Schedule 1.1(a)-1 attached hereto and legally described on Schedule 1.1(a)-2 hereto, together with (i) all easements, covenants, agreements, rights, privileges, tenements, hereditaments and appurtenances belonging or appertaining thereto, (ii) all oil, gas and mineral rights relating to the real estate, and any rights to use and appropriate water from or relating to the real estate, and (iii) any land lying in the bed of any street, alley, road or avenue (whether open, closed or proposed) within, in front of, behind or otherwise adjoining any such parcel of real estate or any portion of it (individually, an “Owned Property” and collectively, the “Owned Properties”);

     (b)     those fifty-two (52) lease agreements, together with all modifications and amendments thereto and assignments thereof, identified on Schedule 1.1(b)-1 attached hereto, together with all easements, covenants, agreements, rights, privileges, tenements,

hereditaments and appurtenances belonging or appertaining thereto (collectively, the “Leases”), pursuant to which Seller leases certain real properties identified on Schedule 1.1(b)-2 attached hereto (individually, a “Leased Property” and collectively, the “Leased Properties”);

     (c)      the buildings, structures, fixtures, facilities, installations and other improvements now or hereafter in, on, or under the Owned Properties and the Leased Properties, including, without limitation, any plumbing, air conditioning, heating, ventilating, mechanical, electrical, sprinklers and other utility systems, vertical transportation systems, loading docks, parking lots and facilities, landscaping, roadways, sidewalks, signs, security devices and fixtures that are attached to the Owned Properties or Leased Properties (collectively, the “Improvements”);

     (d)      (i) all existing surveys, blueprints, drawings, plans and specifications (including, without limitation, structural, HVAC, mechanical, electrical, vertical transportation and plumbing plans and specifications) relating to the Properties (as hereinafter defined) to the extent in Seller’s possession or control; (ii) all currently effective use, occupancy, building and operating permits, licenses and approvals relating to the Properties, to the extent assignable or transferable; and (iii) all currently effective guarantees and warranties issued to Seller in connection with the purchase, construction, alteration, installation or repair of any portion of the Properties, to the extent assignable or transferable (collectively, the “Intangible Personal Property”); and

     (e)      all racks, shelves, brackets, displays and other merchandise trade fixtures located in the Properties as of the Effective Date (collectively, the “Merchandise Trade Fixtures,” and, together with the Intangible Personal Property, the “Personal Property”).

For purposes of this Agreement, each Owned Property and Leased Property, together with related Improvements, is referred to individually as a “Property,” and collectively as the “Properties.”

Section 1.2.      Excluded Assets.    Except as provided in Article II, Seller will retain all right, title and interest in all assets of Seller located at or relating to the Properties other than the Transferred Assets (the “Excluded Assets”), including without limitation, all inventory, all personal property located at the Properties other than the Personal Property (including all point of sale and inventory scanning systems, cash registers, computer equipment and hardware systems), any consideration payable to Seller, as tenant, prior to the applicable Closing (and relating to any period prior to the Closing) by any landlord under a Lease (a “Landlord”) pursuant to, or in connection with, such Lease, and any rights or claims retained by Seller, as tenant, under any Lease pursuant to Section 4.3(b) or Section 4.5 hereof, and, solely with respect to Seller’s pharmacy business at locations other than the Properties, all prescription files, “pharmacy scrips,” patient profiles, customer lists and other books, records and files (the “Retained Pharmacy Business Assets”).

Section 1.3.      Assumed Liabilities.   Subject to the terms and conditions of this Agreement, Purchaser shall assume, perform, pay and discharge any and all liabilities, debts,

-2-

obligations, judgments, fines, penalties and claims (collectively, “Liabilities”) relating to any Transferred Asset to the extent that such Liabilities accrue or arise from or out of events occurring on or after the Closing Date related to such Transferred Asset (the “Assumed Liabilities”), excluding in all cases the Excluded Liabilities.

Section 1.4.      Excluded Liabilities.    Purchaser shall not assume or be obligated to pay, perform or otherwise assume or discharge the following Liabilities of Seller or any of its affiliates (the “Excluded Liabilities”):

     (a)      any indebtedness of Seller or its affiliates for borrowed money;

     (b)      any Liabilities not related to the Transferred Assets;

     (c)      any Liabilities with respect to the employment, engagement or termination by Seller or any affiliate thereof of any current or former employees, independent contractors or licensed employees of Seller or any such affiliate (collectively, “Employees”), including, without limitation, any Liabilities with respect to any alleged violation of any Employment Law (as hereinafter defined). For purposes of this Agreement, the phrase “Employment Law” shall mean any federal, state or local law, statute, ordinance, rule or regulation and any common laws regarding employment, including, without limitation, Title VII of the Civil Rights Act of 1964, 42 U.S.C. 198l, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act of 1990, the Family and Medical Leave Act, the National Labor Relations Act, the Worker Adjustment and Retraining Notification Act (“WARN Act”), the Americans With Disabilities Act, the Fair Labor Standards Act, and common law claims for breach of contract, wrongful discharge or other claims, and other comparable federal state or local laws, each as amended, and all rules and regulations promulgated pursuant thereto or published thereunder;

     (d)      any Liabilities relating to any Transferred Asset to the extent that such Liabilities accrue or arise from or out of events occurring during the period prior to the Closing with respect to such Transferred Asset, including, without limitation, the litigation disclosed on Schedule 8.1(g) attached hereto;

     (e)      any Liabilities with respect to any compensation or benefits due and payable by Seller to any Employees, including, without limitation, any of such Liabilities with respect to (i) any plan or program maintained by Seller or any of its affiliates that is (x) an “employee benefit plan” within the meaning of Section 3(3) of ERISA or (y) a fringe benefit program providing vacation, sick leave or other paid time off benefits (a “Seller Plan”) or (ii) any alleged violation of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or other applicable federal, state or local laws, each as amended, and all rules and regulations promulgated pursuant thereto or published thereunder;

     (f)      any and all taxes owed by Seller or any of its affiliates, except for real estate taxes to the extent prorated as provided in Section 4.3 hereof, and except as otherwise provided herein;

-3-

     (g)      all Liabilities of Seller under the Take-Back Leases (as hereinafter defined);

     (h)      all Liabilities of Seller under any service contract or service agreement relating to the Properties (each a “Service Contract”); and

     (i)      all Liabilities of Seller under any Sublease (as hereinafter defined) except for those Liabilities arising or accruing from or out of events occurring after Closing with respect to any Approved Sublease (as hereinafter defined).

ARTICLE II

PHARMACY ASSETS

Section 2.1.      Right to Acquire Pharmacy Assets.    From and after the time of the sale, conveyance and assignment by Seller of a Property to Purchaser at a Closing pursuant to this Agreement, Purchaser shall have the right (the “Acquisition Right”) to require Seller to convey and assign to Purchaser, to the extent permitted under applicable law, all right, title and interest of Seller in and to the following assets (collectively, the “Pharmacy Assets”) used in the retail drugstore and pharmaceutical operations of Seller conducted at such Property (each such operation relating to a particular Property being a “Pharmacy”):

     (a)      all of the prescription files (including historical and active prescriptions and pharmacy “scripts”); patient profiles; customer lists; transferable licenses and registrations; and phone numbers used by Seller in connection with the operation of such Pharmacy (the “Prescription Files”); and

     (b)      all books, records, files, papers, databases and compilations and collections of data, whether in hard copy or computer format, relating to the Prescription Files or customers of such Pharmacy in Seller’s possession or control as of the date of transfer of the Pharmacy Assets from Seller to Purchaser (“Pharmacy Records”).

In order to exercise its Acquisition Right with respect to the Pharmacy Assets relating to a particular Property, Purchaser must deliver written notice of exercise to Seller on or after the time of the Closing with respect to the related Property and prior to the date that is 60 days prior to the Occupancy Delivery Date for such Property (the “Election Deadline”). If Purchaser does not so exercise its Acquisition Right with respect to any particular Pharmacy Assets prior to the applicable Election Deadline, Purchaser’s Acquisition Right with respect to such Pharmacy Assets shall terminate and all of Seller’s obligations hereunder with respect to such Pharmacy Assets and the related Pharmacy (including under Section 2.4) shall cease and be of no further effect (except that Seller shall remain liable for any breaches of Section 2.4, Section 2.5(b) and the third sentence of Section 2.5(d) prior to such termination), and Seller shall have the right to retain such Pharmacy Assets or convey them to a third party. If Purchaser does so exercise its Acquisition Right with respect to any particular Pharmacy Assets prior to the applicable Election Deadline, Seller shall convey and assign such Pharmacy Assets to Purchaser on a Business Day to be later specified by Purchaser in a written notice of closing (the “Notice”) to Seller, which

-4-

date shall be no earlier than 10 Business Days after Purchaser’s delivery of its Notice to Seller and no later than 10 Business Days prior to the Occupancy Delivery Date.

Section 2.2.      No Additional Consideration.    The portion of the Purchase Price allocable to, and payable by Purchaser with respect to, each Property shall be deemed to include payment for the Pharmacy Assets relating to such Property and no additional consideration shall be payable by Purchaser to Seller in connection with the exercise by Purchaser of any Acquisition Rights or the transfer of any Pharmacy Assets. Furthermore, Purchaser shall not assume or be obligated to pay, perform or otherwise assume or discharge any Liabilities of Seller or any of its affiliates accruing or arising from or out of events occurring during the period of Seller’s ownership of any Pharmacy Assets or operation of the related Pharmacy prior to Seller’s transfer of such Pharmacy Assets to Purchaser, and all such Liabilities shall be Excluded Liabilities hereunder.

Section 2.3.       Pharmacy Transfer Deliveries.

     (a)      Seller Deliveries.    At the time of transfer of any Pharmacy Assets, Seller shall execute and deliver, or cause to be executed and delivered, to Purchaser such customary documents necessary to effect the transfer from Seller to Purchaser of the Pharmacy Assets as may be reasonably requested by Purchaser, including, without limitation, assignment agreements relating to the Pharmacy Assets in the form attached hereto as Exhibit G.

     (b)      Purchaser Deliveries.    At the time of transfer of any Pharmacy Assets, Purchaser shall execute and deliver, or cause to be executed and delivered, to Seller such customary documents necessary to effect the transfer from Seller to Purchaser of the Pharmacy Assets as may be reasonably requested by Seller, including, without limitation, assignment agreements relating to the Pharmacy Assets in the form attached hereto as Exhibit G.

Section 2.4.      Operation of Pharmacies.    From and after the Effective Date until December 31, 2004, Seller shall operate each Pharmacy in the usual and ordinary course of business, consistent with past practices with respect to such Pharmacy; provided, that nothing in this Section 2.4 shall preclude Seller from commencing a store closing sale with respect to Seller’s non-Pharmacy operations prior to December 31, 2004 at any Property in which a Pharmacy is located.

Section 2.5. Cooperation.

     (a)      Seller and Purchaser shall reasonably cooperate to effect an orderly transfer of any Pharmacy Assets for which Purchaser exercises its Acquisition Right. In addition, Seller and Purchaser shall cooperate in good faith to develop within 30 days after the Initial Closing hereunder a preliminary schedule for the transfer of Pharmacy Assets relating to each Property and shall thereafter consult with each other and cooperate to update such schedule from time to time in light of continuing developments with respect to the Pharmacies and the transactions contemplated hereunder. Seller shall reasonably cooperate with Purchaser to transfer in an electronic format usable to Purchaser all such Pharmacy Assets that are, or reasonably can be, embodied in an electronic format; provided, that Purchaser shall reimburse Seller for all

-5-

documented and reasonable out-of-pocket costs and expenses incurred by Seller in complying with its obligations under this sentence.

     (b)      From and after the Effective Date, Seller shall (i) subject to the terms of the Confidentiality and Access Agreement (as hereinafter defined) and applicable law, allow Purchaser and its representatives and advisors and any prospective Designee (as hereinafter defined) of Purchaser reasonable access at reasonable times and upon reasonable prior notice to Seller, to the employees, assets and facilities of Seller related to Seller’s operation of any Pharmacy, provided that such access shall not unreasonably interfere with Seller’s operation of any Pharmacy, and (ii) furnish promptly to Purchaser and its representatives and advisors and any prospective Designee of Purchaser such information concerning the business, records and personnel of each Pharmacy (including, without limitation, financial, operating and other data and information) as may be reasonably requested by Purchaser, to the extent such information is within Seller’s possession or control; provided, that as a condition precedent to Seller’s obligation to allow such access or furnish such information to any prospective Designee of Purchaser, such prospective Designee shall have executed and delivered to Seller a customary confidentiality agreement reasonably similar to the Confidentiality and Access Agreement.

     (c)      From and after the exercise by Purchaser of its Acquisition Right with respect to any Pharmacy, Seller shall, subject to receipt of any necessary approvals from Landlords or other third parties, permit Purchaser to post reasonably-sized signs around the Pharmacy at each such Property to notify customers that Purchaser intends to open a pharmacy at such location.

     (d)      From and after the exercise by Purchaser of its Acquisition Right with respect to any Pharmacy, Seller shall, subject to receipt of any necessary approvals from Landlords or other third parties, permit Purchaser (at Purchaser’s sole cost) to construct a reasonably-sized temporary facility to be used for the operation of a pharmacy in a location reasonably acceptable to Purchaser and Seller outside the store at such Property. From and after the transfer from Seller to Purchaser of Pharmacy Assets relating to any Property, Seller shall, subject to the receipt of any necessary approvals from Landlords or other third parties, permit Purchaser (at Purchaser’s sole cost) to operate a pharmacy from such temporary facility. From and after the Effective Date, Seller shall reasonably cooperate with Purchaser to obtain, at Purchaser’s sole cost and expense, any requisite Landlord consents and regulatory permits and approvals necessary for the construction and operation of any temporary pharmacy facility. Purchaser agrees to operate any temporary pharmacy facility in accordance with all applicable laws and regulations and (notwithstanding anything to the contrary in the Take-Back Lease) agrees to indemnify and hold harmless all Seller Indemnified Parties (as hereinafter defined) against any and all Losses (as hereinafter defined) incurred or suffered by the Seller Indemnified Parties, or any of them, due to any claim or other assertion of liability by a third party to the extent such third party claim or assertion relates to or results from Purchaser’s construction or operation of any temporary pharmacy facility (which indemnification obligation of Purchaser shall survive the Closing).

Section 2.6.      Seller’s Representations and Warranties Relating to Pharmacy Assets.    Seller represents and warrants to Purchaser that the following shall be true, complete and correct as of the date of transfer of any Pharmacy Assets:

     (a)      Seller shall have good and valid title to the Pharmacy Assets; and

-6-

     (b)      The Prescription Files and Pharmacy Records that Seller will transfer shall be, in all material respects, complete and correct copies of all such items in Seller’s records as of the time of such transfer.

Section 2.7.      Transfer to Designee.    Purchaser may, upon written notice to Seller given at least 30 days prior to the First Occupancy Delivery Date, request that Seller convey the Pharmacy Assets to any Purchaser Subsidiary (as hereinafter defined) or any third party (a “Designee”), and in such event Seller shall convey the Pharmacy Assets on the applicable transfer date to such Designee (to the extent permitted under applicable law and subject to receipt of any requisite Landlord consents under the applicable Lease), provided that Purchaser (and not such Designee) shall retain any rights or obligations hereunder with respect to such Pharmacy Assets, and Seller shall have no liability to such Designee in connection therewith. From and after the time that Purchaser requests that Seller convey the Pharmacy Assets to its Designee, Seller shall be obligated to Purchaser to cooperate with the Designee for all purposes under this Article II in the same manner as Seller would be obligated to cooperate with Purchaser if Purchaser would acquire such Pharmacy Assets.

ARTICLE III

PURCHASE PRICE

Section 3.1.      Purchase Price.

     (a)      The purchase price for the Transferred Assets (the “Purchase Price”) to be paid by Purchaser to Seller under this Agreement, in consideration for the conveyance by Seller to Purchaser of the Properties and the other Transferred Assets, shall be $621,000,000, in cash, subject to adjustment pursuant to Section 3.1(b) hereof and subject to any adjustments and prorations as provided under Section 4.3. The portion of the Purchase Price allocable to each Property is set forth on Schedule 3.1(a) attached hereto. The Purchase Price shall be payable by Purchaser to Seller in the manner set forth in Section 3.2.

     (b)      Pursuant to Section 4.1(a) hereof, at the Initial Closing (as hereinafter defined) Seller shall convey, and Purchaser shall acquire, in accordance with and subject to the terms of this Agreement, (i) at least forty-three (43) Properties or (ii) a lesser number of Properties if Seller shall exercise its option (pursuant to the proviso in the first sentence of Section 4.1(a) below) to proceed to Closing with respect to less than forty-three (43) Properties. If, as of the Initial Closing Date, the Closing Conditions (as hereinafter defined) have not been satisfied with respect to certain of the Properties (and subject to the provisions of Article XII below) (for example, if the Closing Conditions shall have been satisfied for forty-four (44) Properties and the Closing Conditions shall not yet have been satisfied for the remaining ten (10) Properties) then the parties shall proceed with the Initial Closing with respect only to the Properties for which the Closing Conditions shall have been satisfied (the “Initial Closing Properties”), and the Purchase Price payable by Purchaser to Seller at the Initial Closing shall be reduced by the allocable portion of the Purchase Price (as set forth on Schedule 3.1(a)) of those Properties not conveyed by Seller to Purchaser at the Initial Closing (the “Remaining Properties”).

-7-

     (c)      In the event that, in accordance with this Agreement, any of the Remaining Properties are conveyed by Seller to Purchaser in a Subsequent Closing (as hereinafter defined), the Purchase Price payable by Purchaser to Seller in respect of the conveyance of any such Remaining Property shall be the allocable portion of the Purchase Price for such Remaining Property as set forth on Schedule 3.1(a).

Section 3.2. Payment of Purchase Price.

     (a)      Within two (2) Business Days after the execution hereof, Purchaser shall pay an amount equal to $62,100,000 (the “Deposit”), by wire transfer of federal funds, into escrow with the Title Company, as Escrow Agent (as such terms are hereinafter defined), to be held and disbursed by the Escrow Agent in accordance with Article XIV hereof. Notwithstanding anything in this Agreement to the contrary, any interest earned on the Deposit shall be paid to Purchaser.

     (b)      At the Initial Closing, (i) the Deposit (less ten percent (10%) of the Purchase Price allocable to the Remaining Properties pursuant to Schedule 3.1(a)), shall be paid by the Escrow Agent to Seller, (ii) Purchaser shall pay, or cause to be paid, to Seller an additional 20% of the Purchase Price allocable to the Properties conveyed at the Initial Closing pursuant to Schedule 3.1(a) by wire transfer of federal funds to an account designated by Seller in writing by notice to Purchaser, and (iii) all adjustments and prorations (relating to the Properties being conveyed at the Initial Closing) as provided in Section 4.3 shall be made and credited between Seller and Purchaser.

     (c)      At any Subsequent Closing, (i) the applicable Deposit for any Remaining Property being conveyed shall be paid by the Escrow Agent to Seller, (ii) Purchaser shall pay, or cause to be paid, to Seller an additional 20% of the Purchase Price for such Remaining Property (pursuant to Schedule 3.1(a)), by wire transfer of federal funds to an account designated by Seller in writing by notice to Purchaser, and (iii) all adjustments and prorations (relating to such Remaining Property) as provided in Section 4.3 shall be made and credited between Seller and Purchaser.

     (d)      The balance of the Purchase Price with respect to each Property conveyed at the Initial Closing or any Subsequent Closing shall be paid by Purchaser to Seller as follows: (i) on the First Occupancy Delivery Date (as hereinafter defined), and provided that (x) Seller shall have delivered occupancy to Purchaser of such First Occupancy Delivery Date Property (as hereinafter defined) in the manner set forth in the Take-Back Lease applicable to such Property, (y) Seller is not otherwise in default in any material respect of any of its covenants or obligations under such applicable Take-Back Lease, under this Agreement, or under any Seller Tenant Estoppel or any Seller Subtenant Estoppel, as applicable, with respect to such Property, and (z) there is no uncured Seller Violation (as defined below) (collectively, the “Possession Payment Conditions”), Purchaser shall pay to Seller the balance of the Purchase Price allocable to such First Occupancy Delivery Date Property pursuant to Schedule 3.1(a), and (ii) on the Second Occupancy Delivery Date (as hereinafter defined), and provided that Seller shall have satisfied the Possession Payment Conditions with respect to any Second Occupancy Delivery Date Property, Purchaser shall pay to Seller the balance of the Purchase Price allocable to such Property pursuant to Schedule 3.1(a).

-8-

     (e)      In the event the Possession Payment Conditions are not satisfied in all material respects with respect to any Property at the applicable Occupancy Delivery Date (as hereinafter defined), the following shall occur: (i) in the event Seller has not delivered occupancy of such Property to Purchaser, Purchaser shall not be required to pay to Seller any of the balance of the Purchase Price allocable to such Property until occupancy is so delivered to Purchaser, and (ii) in the event Seller has not satisfied the Possession Payment Conditions described in clause (y) or (z) of Section 3.2(d)(i) above, Purchaser shall withhold from the balance of the Purchase Price allocable to such Property (which balance, less such withheld amount, shall be paid by Purchaser to Seller on the Occupancy Delivery Date) an amount equal to one hundred fifty percent (150%) of the reasonably estimated cost to cure or otherwise satisfy such Possession Payment Conditions, which amount shall be deposited by Purchaser with, and held by, the Title Company in escrow until the earliest of (1) its receipt of a joint direction from both Seller and Purchaser, (2) Seller substantially cures the applicable default (in which event Purchaser and Seller will provide a joint direction to the Title Company), or (3) a court of competent jurisdiction issues an order directing the disbursement of such funds, whereupon the Title Company shall pay such withheld funds to Seller or as otherwise directed pursuant to such joint direction or court order. Notwithstanding the foregoing, in the event Purchaser, pursuant to the terms of a Take-Back Lease, has expended funds to cure a default of Seller under a Take-Back Lease, the reasonable costs incurred by Purchaser in curing such default (including, without limitation, any reasonable attorneys’ fees incurred in connection therewith) may be deducted from the balance of the Purchase Price for such Property and such costs shall not be deposited with the Title Company in escrow but shall be retained by Purchaser.

     (f)      Notwithstanding the foregoing, if any Closing is part of an Exchange pursuant to Section 5.3, the funds paid at such Closing and on the First Occupancy Delivery Date or the Second Occupancy Delivery Date (as applicable) shall be wire transferred to an account designated by the Qualified Intermediary (as hereinafter defined).

     (g)      The provisions of this Section 3.2 shall survive the Closings.

ARTICLE IV

CLOSINGS

Section 4.1.      Initial Closing and Subsequent Closings.

     (a)      The initial closing of the conveyance of the Properties from Seller to Purchaser as contemplated hereby (the “Initial Closing”) shall occur at the offices of Jenner & Block LLP in Chicago, Illinois, on the tenth (10th) Business Day (as hereinafter defined) after the satisfaction (or waiver) of the closing conditions set forth in Article X hereof (the “Closing Conditions”) with respect to at least forty-three (43) of the Properties; provided, however, that if the Closing Conditions shall not have been satisfied or waived with respect to at least forty-three (43) of the Properties by August 31, 2004, then Seller, at its option and upon written notice given to Purchaser within seven (7) Business Days thereafter, may elect to proceed with the Closing with respect to those Properties for which the Closing Conditions shall have been satisfied or waived as of such date, and in such event such Closing shall (i) occur on the tenth (10th) Business Day after such notice from Seller to Purchaser shall have been delivered, and (ii) be deemed to be the

-9-

Initial Closing. At the Initial Closing, all of the Properties with respect to which the Closing Conditions shall have been satisfied (or waived) shall be conveyed by Seller to Purchaser in the manner set forth in this Article IV and elsewhere in this Agreement. The term “Business Day”, as used herein, shall mean any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to be closed.

     (b)      The closing of the conveyance of any Remaining Property from Seller to Purchaser as contemplated hereby (a “Subsequent Closing”) shall occur at the offices of Jenner & Block LLP in Chicago, Illinois, on the tenth (10th) Business Day after the satisfaction (or waiver) of the Closing Conditions with respect to any such Remaining Property. The Initial Closing or any Subsequent Closing shall be referred to herein as a “Closing”, and references herein to a Closing shall mean only the Closing with respect to the Property or Properties being conveyed at such Closing (and not any prior or subsequent closing). The term “Initial Closing Date” shall mean the date on which the Initial Closing occurs, the term “Subsequent Closing Date” shall mean the date on which any Subsequent Closing occurs, and the term “Closing Date” shall mean either the Initial Closing Date or any Subsequent Closing Date. In the event the Closing Conditions with respect to at least forty-three (43) Properties shall not have been satisfied or waived by August 31, 2004, then (provided that Seller shall not have delivered the notice to Purchaser described in the proviso to the first sentence in Section 4.1(a)) either Seller or Purchaser may terminate this Agreement upon written notice given to the other party subsequent to September 9, 2004, but prior to the date such Closing Conditions are satisfied or waived for at least forty three (43) of the Properties, whereupon the Deposit shall be returned by the Escrow Agent to Purchaser, and neither party shall have any further liability to the other party hereunder, except for liabilities arising from a default by either party hereunder or other liabilities that expressly survive the termination of this Agreement. In the event that the Closing Conditions with respect to any Subsequent Closing shall not have been satisfied or waived by September 15, 2004, then either Seller or Purchaser may terminate this Agreement with respect to any such Subsequent Closing upon written notice given to the other party subsequent to September 15, 2004, but prior to the date such Closing Conditions are satisfied or waived, whereupon the Deposit allocable to such Remaining Property shall be returned by the Escrow Agent to Purchaser, and neither party shall have any further liability to the other party hereunder with respect to such Remaining Property or Subsequent Closing, except for liabilities arising from a default by either party hereunder or other liabilities that expressly survive the termination of this Agreement.

Section 4.2.      Closing Documents.

     (a)      Seller’s Closing Deliveries. At a Closing, Seller shall deliver or cause to be delivered to Purchaser each of the following with respect to each Property being conveyed at such Closing, in form and substance reasonably acceptable to Purchaser and Seller, if not attached as a Schedule to this Agreement, to be executed (if necessary) by Seller at such Closing:

(i) with respect to each Owned Property being conveyed at such Closing, a special warranty deed for such Property, subject only to the Permitted Exceptions, and otherwise in a form customary for the jurisdiction where the Property is located and acceptable to the Title Company;

-10-

(ii)	with respect to each Lease being transferred at such Closing, an Assignment and Assumption of the Lease (the “Assignment of Lease”) executed by Seller in the form attached hereto as Exhibit A together with any other appropriate documents necessary to convey and transfer to Purchaser Seller’s interest in any improvements owned by Seller;
(iii)	the Required Consents (as hereinafter defined), if any, applicable to any Lease or Property being transferred at such Closing;
(iv)	with respect to each Lease being transferred at such Closing for which a Required Consent was not required, a letter advising the Landlord of the Assignment of Lease;
(v)	with respect to each Approved Sublease being transferred at such Closing, an Assignment and Assumption of Approved Sublease (“Assignment of Approved Sublease”) executed by Seller in the form attached hereto as Exhibit F;
(vi)	with respect to each Approved Sublease being transferred at such Closing, an estoppel letter executed by the respective subtenant in substantially the form set forth in such Approved Sublease, or if no such form is set forth in such Approved Sublease, then in substantially the form as Exhibit E attached hereto, except that in the event the Seller cannot deliver the foregoing estoppel letter at Closing, then in lieu thereof Seller shall deliver an estoppel letter executed by Seller with respect to such Approved Sublease in substantially the form attached hereto as Exhibit E (a “Seller Subtenant Estoppel”);
(vii)	a bill of sale and general assignment with respect to the Personal Property being conveyed at such Closing, in the form attached hereto as Exhibit B;
(viii)	with respect to each Leased Property, an estoppel letter substantially in the form set forth in the applicable Lease, and if no form is set forth in the applicable Lease, then substantially in the form attached hereto as Exhibit D, except that in the event that Seller cannot deliver the foregoing estoppel letter from a Landlord with respect to any of the Leases, then in lieu thereof Seller shall deliver an estoppel letter executed by Seller with respect to the applicable Lease substantially in the form attached hereto as Exhibit D (a “Seller Tenant Estoppel”);
(ix)	a Take-Back Lease for each Property executed by Seller in the form attached hereto as Exhibit C;
(x)	with respect to the Leased Properties, an assignment of any existing and effective SNDA (as hereinafter defined, and provided that such SNDA is assignable) from Seller to Purchaser in a form reasonably acceptable to Seller and Purchaser;

-11-

(xi)	a counterpart of the Closing Statement (as hereinafter defined) for each Owned and Leased Property being conveyed at such Closing;
(xii)	a copy of notice of termination from Seller to the applicable contractor with respect to any service contracts affecting or pertaining to the Property being conveyed at such Closing;
(xiii)	to the extent in the possession of Seller, (A) the original Leases (for each Leased Property being conveyed at such Closing) (or if Seller is not in possession of original Leases, then a copy of such Leases certified by Seller as being true, complete and correct), and (B) (for any of the Properties being conveyed at such Closing) building plans, blueprints, drawings, surveys, site plans, engineering plans, utility plans, landscaping plans, other plans and specifications, and all currently effective use, occupancy, building and operating permits, licenses and approvals, bonds, guarantees, and warranties;
(xiv)	a certificate of non-foreign status (a “FIRPTA Certificate”) from the Seller in the form and manner that complies with Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), and the Treasury Regulations promulgated thereunder. Notwithstanding anything to the contrary contained herein, if any Seller fails to provide Purchaser with a FIRPTA Certificate, Purchaser shall be entitled to withhold from the Purchase Price the amount required to be withheld pursuant to Section 1445 of the Code and the Treasury Regulations promulgated thereunder;
(xv)	all properly completed transfer tax forms, if required, that are applicable to the Properties being conveyed at such Closing;
(xvi)	any reasonable affidavits and other documents customarily required by the Title Company from a Seller in order to issue an Owner’s Policy or a Leasehold Policy (with extended coverage over the “general exceptions”), as applicable, in the applicable jurisdiction (provided that no such title affidavit or document shall modify or expand Seller’s obligations with respect to Title Objections beyond those set forth in Article VI hereof), together with a copy of any material Bankruptcy Court order with respect to the assumption by Seller of any such Lease in connection with Seller’s bankruptcy (which copy shall be certified to be correct and complete by Seller, or by the applicable bankruptcy court if so required by the Title Company in order to issue the Leasehold Policies), and an executed memorandum of Lease, in recordable form, with respect to such Lease if provided by the applicable Landlord (and Seller covenants to use reasonable and good faith efforts prior to Closing to obtain any such executed memorandum of Lease from each Landlord under a Lease for which no memorandum of Lease is currently recorded); and

-12-

(xvii) all other customary closing documents reasonably approved by Purchaser and Seller in connection with the consummation of the transactions contemplated by this Agreement, including, without limitation, those customarily provided by sellers of owned or leased commercial real property in the applicable state and local jurisdictions in order to convey, transfer and assign the Properties being conveyed at such Closing to Purchaser.

(b)      Purchaser’s Closing Deliveries. Purchaser shall deliver or cause to be delivered to Seller (or to the Title Company in escrow, if applicable) at Closing: (i) the portion of the Purchase Price due at such Closing pursuant to Article III hereof, plus or minus prorations and adjustments as set forth herein; (ii) a duly executed counterpart of the Assignment of Lease executed by Purchaser with respect to each Leased Property being conveyed at such Closing; (iii) a duly executed counterpart of the Assignment of Sublease executed by Purchaser with respect to each Approved Sublease being conveyed at such Closing; (iv) a duly executed counterpart of a Take-Back Lease executed by Purchaser for each Property being conveyed at such Closing; (v) a counterpart of the Closing Statement for each Property being conveyed at such Closing executed by Purchaser; (vi) all properly completed transfer tax forms, if required, that are applicable to the Properties being conveyed at such Closing; (vii) any and all reasonable and customary affidavits and other documents reasonably requested of Purchaser by the Title Company in order to cause the Title Company to issue its Title Policy; and (viii) all other customary closing documents reasonably approved by Seller and Purchaser in connection with the consummation of the transactions contemplated by this Agreement, including, without limitation, those customarily provided by purchasers in the applicable state and local jurisdictions in order to perfect the conveyance, transfer and assignment of the Properties being conveyed at such Closing to Purchaser.

Section 4.3.      Closing Prorations and Adjustments. A statement of prorations and other adjustments shall be prepared by Seller (for each Property being conveyed at a Closing) in conformity with the provisions of this Agreement and submitted to Purchaser for review and approval not less than five (5) Business Days prior to the Initial Closing Date and three (3) Business Days prior to any Subsequent Closing Date (the “Closing Statement”). For purposes of prorations, Purchaser shall be deemed the owner of the respective Property on the Closing Date. In addition to other adjustments that may be provided for in this Agreement, the following items with respect to each Property are to be prorated or adjusted, as the case may require, for each Property as of the Closing Date for such Property:

     (a)      real estate taxes and assessments (initially prorated on the basis of 100% of the most recent ascertainable bill, but subject to reproration upon issuance of the actual bills therefor to effectuate the actual proration); to the extent that Seller has escrowed any real estate taxes with the Landlord under a Lease, Seller shall assign all rights under such escrow to Purchaser and, provided the amount so escrowed is confirmed by such Landlord in writing or is confirmed by other reasonably satisfactory substantiation, Seller shall be credited accordingly in connection with the proration of taxes or assessments. Real estate taxes shall be apportioned on the basis of the fiscal period for which assessed. If as of the applicable Closing Date any of the Properties or any portion thereof shall be affected by any special or general assessments which are or

-13-

may become payable in installments of which the first installment is then a lien and has become payable, Seller shall be responsible to pay the unpaid installments of such assessments which are due prior to the applicable Closing Date and Purchaser shall be responsible to pay the installments which are due on or after the applicable Closing Date and Purchaser or Seller shall make a payment to the other to the extent necessary so that the total amount of such special or general assessment is apportioned as provided above;

     (b)      the rent and other sums, including, without limitation, monthly installments payable by Seller on account of operating costs and taxes, payable by Seller under the Leases. Any percentage rent owed under any Lease with respect to any time period prior to the applicable Closing shall be paid by Seller. To the extent that Seller has paid to or escrowed with the Landlord under any Lease any monthly estimate of taxes or other operating expenses, and the Landlord refunds or credits to Purchaser or its designee (after the applicable Closing) a portion of such estimated or escrowed payments resulting from a reconciliation of the actual expenses or taxes for the period prior to such Closing, Purchaser shall deliver to Seller its pro-rata share of such refund within twenty (20) days of receipt of said refund. In the event that a Landlord is owed any additional funds as a result of any deficiency shown in such reconciliation for the period of time prior to the applicable Closing, Seller shall deliver to Purchaser the deficient funds within twenty (20) days of receipt of notice from Purchaser, subject to any rights of the tenant under the Lease to contest such determination by the Landlord (which rights shall be retained and shall be exercisable by Seller) with respect to any reconciliation for the period of time prior to the applicable Closing. Seller shall retain, subsequent to any Closing with respect to a Leased Property, any other rights, claims and remedies against the Landlord with respect to any refunds, rebates or credits due from the Landlord to Seller (as a tenant under the Lease) with respect to any periods prior to the Closing Date (including, without limitation, audit rights and rights to claim adjustments from the Landlord for overcharged amounts of additional rent under the Lease), and Purchaser shall promptly pay to Seller any such amounts received by (or credited for the benefit of) Purchaser after the Closing Date and attributable to periods prior to the Closing Date;

     (c)      security deposits paid under the Leases, and not theretofore applied, shall be credited by Purchaser to Seller on the applicable Closing Date;

     (d)      water, electric, telephone and all other utility and fuel charges shall be prorated ratably on the basis of the last ascertainable bills (and reprorated upon receipt of the actual bills or invoices) unless final meter readings and final invoices can be obtained. To the extent practicable, Seller shall cause meters for utilities to be read not more than ten (10) Business Days prior to the applicable Closing Date;

     (e)      assignable license and permit fees;

     (f)      deposits made by Seller with utility companies, Governmental Entities or any other person, which deposits shall be assigned to Purchaser at Closing and shall be credited to Seller, provided, however, that Seller shall have received written notice from the party holding such deposits confirming the amount of such deposits and stating that no default has occurred by Seller and no other condition has occurred which would

-14-

prohibit all or any portion of such deposit from being refunded (or such other substantiation of the foregoing facts reasonably satisfactory to Purchaser). If Seller is unable to obtain such a notice or provide such other substantiation, amounts on deposit with utility companies shall not be prorated; provided, however, that prior to Closing, Purchaser shall substitute its own deposit for any amounts on deposit with utility companies and Seller shall be entitled to arrange for a refund of Seller’s deposit from such utility companies;

     (g)      the rent and other sums, including, without limitation, monthly installments payable by subtenants on account of operating costs and taxes payable under the Approved Subleases, subject to Section 4.5 below;

     (h)      security deposits paid under the Approved Subleases, and not theretofore applied, shall be credited by Seller to Purchaser on the applicable Closing Date; and

     (i)      other operating expenses and any other customarily apportioned items.

Except with respect to general real estate taxes (which shall be reprorated upon the issuance of the actual bills, if necessary), any proration which must be estimated at a Closing shall be reprorated and finally adjusted as soon as practicable after the applicable Closing, with any refunds payable to Seller or Purchaser to be made as soon as practicable; otherwise all prorations shall be final. The provisions of this Section 4.3 shall survive the Closings.

Section 4.4.      Closing Costs. Purchaser shall pay the cost of the Owner’s Policies and Leasehold Policies, with extended coverage (all other endorsements requested by Purchaser shall be paid for by Purchaser), and (ii) the Surveys (as hereinafter defined); and at Closing, Seller shall pay 75% of the cost of transfer taxes, documentary stamps, intangible taxes and similar taxes or charges, and Purchaser shall pay 25% of such costs. Purchaser shall pay the costs of recording the deeds and all costs of Purchaser’s due diligence activities, including, without limitation, engineering and environmental inspections and reports, and Seller and Purchaser shall each pay one-half of any escrow charges (including any charges for a “New York Style” closing). Seller and Purchaser shall each be responsible for the fees and costs of their respective attorneys, accountants, financial advisors, brokers and other agents and advisors and any expenses and costs incurred by such party except as otherwise specifically set forth herein.

Section 4.5.      Certain Retained Claims.

     (a)      Seller shall have the right to collect and retain all charges due and payable by the subtenants (“Subtenants”) under any subleases, licenses or concession agreements relating to any Property and attributable to the period prior to the Closing Date, including without limitation, rent, payments of common area maintenance charges and payments in the nature of the Subtenant’s share of real estate taxes (collectively, “Sublease Rents”). If, at the Closing Date, any of the Subtenants are in arrears in the payment of any Sublease Rents (such arrearages being herein referred to as “Delinquent Amounts”), Seller shall have the right to collect the same after the Closing Date. Sublease Rents received after the Closing Date by Purchaser from any of the Subtenants shall first be applied to the amount due to Purchaser from such Subtenant for the time period after Closing and shall then be applied to Delinquent Amounts and be

-15-

promptly paid over by Purchaser to Seller. Seller shall have and reserves the right to pursue any right or remedy against the Subtenants for Delinquent Amounts; provided, however, that with respect to any of the Approved Subleases to be assigned to Purchaser as set forth herein, Seller shall have no right to file an eviction action against such Subtenants after the Closing.

(b) Seller shall retain all rights, claims and remedies, from and after the Closing Date (and, with respect to any Leased Property, to the extent of the tenant’s rights under the applicable Lease), with regard to any refunds of real estate taxes, with respect to any period prior to the Closing Date. The amount of any tax refund (net of reasonable attorneys’ fees and other reasonable costs of obtaining such tax refunds) with respect to the tax year for any Property in which the Closing Date occurs (a “Current Tax Year”) shall be apportioned between Seller and Purchaser as of the Closing Date. If, in lieu of a tax refund, a tax credit is received by Seller or Purchaser with respect to any Property for the Current Tax Year, then (x) within thirty (30) days after receipt by Seller or Purchaser, as the case may be, of evidence of the actual amount of such tax credit (net of reasonable attorneys’ fees and other reasonable costs of obtaining such tax credit), the tax credit apportionment shall be readjusted between Seller and Purchaser, and (y) upon realization by Purchaser or Seller of a tax savings on account of such credit, Purchaser or Seller, as the case may be, shall pay to Seller or Purchaser an amount equal to the savings realized (as apportioned). All refunds, credits or other benefits applicable to any tax year for any Property prior to the Current Tax Year shall belong solely to Seller (and Purchaser shall have no interest therein) and, if the same shall be paid or credited to Purchaser or anyone acting on behalf of Purchaser, same shall be paid to Seller within twenty (20) days following receipt thereof or following the realization of such credit by Purchaser. All refunds, credits or other benefits applicable to any tax year for any Property after the Current Tax Year shall belong solely to Purchaser (and Seller shall have no interest therein) and, if the same shall be paid to Seller or anyone acting on behalf of Seller, same shall be paid by Seller to Purchaser within twenty (20) days following receipt thereof.

(c) The provisions of this Section 4.5 shall survive the Closing.

Section 4.6.      Take-Back Leases.    At each Closing, Seller, as tenant, and Purchaser, as landlord, shall enter into a lease or sublease for each Property conveyed by Seller to Purchaser at such Closing, in the form attached hereto as Exhibit C (the “Take-Back Lease”). The term of the Take-Back Leases shall expire (a) on March 15, 2005 (the “First Occupancy Delivery Date”) with respect to the Properties described on Schedule 4.6(a) (the “First Occupancy Delivery Date Properties”), and (b) on April 15, 2005 (the “Second Occupancy Delivery Date”, and each of the First Occupancy Delivery Date and the Second Occupancy Delivery Date, an “Occupancy Delivery Date”), with respect to the Properties described on Schedule 4.6(b) (the “Second Occupancy Delivery Date Properties”). In the event that Purchaser acquires less than 54 Properties as a result of a failure of certain Closing Conditions or for any other reason as set forth in this Agreement, Seller and Purchaser may mutually agree in good faith to revise the allocation of Occupancy Delivery Dates as shown on Schedules 4.6(a) and 4.6(b). Notwithstanding anything herein to the contrary, in the event a Take-Back Lease is terminated as a result of a default by Seller under such Take-Back Lease, Purchaser may elect to accelerate the Occupancy Delivery Date for such Property to a date prior to the First Occupancy Delivery Date or the Second Occupancy Delivery Date.

-16-

Section 4.7.      Cooperation Between the Parties.    Seller and Purchaser shall cooperate with one another in order to minimize the transfer taxes payable in connection with the transactions contemplated by this Agreement, and to minimize any increase in real estate taxes, property valuations or assessments (special or ordinary) including, without limitation, effecting the acquisition by Purchaser of any Transferred Assets through the merger, consolidation or stock acquisition of or with a newly formed limited liability company (“LLC”) that is wholly owned by Seller which has no assets other than the Transferred Assets and no liabilities other than the Assumed Liabilities; provided that such alternative structure has no adverse tax consequences or other adverse consequences to either party, is otherwise reasonably acceptable to both parties and does not adversely impact the ability of either party to structure such transfer as a like-kind exchange under Section 1031 of the Code. In the event that the acquisition by Purchaser of any Transferred Assets occurs through the merger, consolidation or stock acquisition of or with a wholly owned LLC, Seller shall provide reasonable representations and warranties with respect to such wholly owned LLC covering the matters contained in Section 2.5 and Section 8.1, and such LLC shall be bound by the covenants contained herein that bind the Seller, as applicable.

Section 4.8.      Separate Transactions.    Seller and Purchaser intend and agree that for federal and state income tax purposes the sale or Exchange of an individual Transferred Asset does not take place until the Closing for such Transferred Asset, and agree to report the transactions accordingly.

Section 4.9.      Pre-Closing Allocation of Purchase Price.    Not less than ten (10) days prior to each Closing, Purchaser and Seller will jointly prepare and approve a statement (the “Pre-Closing Allocation Statement”) setting forth the portion of the Purchase Price that is being paid for Transferred Assets that are subject to a transfer tax.

ARTICLE V

PRE-CLOSING COVENANTS

Section 5.1.      Operation of Transferred Assets.    With respect to each Property, from the Effective Date through and including the first to occur of (i) the termination of this Agreement or (ii) the Closing relating to such Property (provided, however, where covenants specifically noted in this Section 5.1 run through the Occupancy Delivery Date for such Property, such covenants shall not expire on the Closing for such Property, but shall survive the Closing and expire on the Occupancy Delivery Date for such Property):

     (a)      Seller shall keep each Property in substantially the same condition and repair as on the date hereof, ordinary wear and tear and damage due to a casualty or a taking by condemnation excepted (the “Permitted Property Condition”), provided that Seller shall not be required subsequent to the Effective Date to make any improvements (including capital improvements) to any Property that would upgrade the condition and repair of any Property beyond the Permitted Property Condition (other than Seller’s obligation to cure Seller Violations (as defined below) under Section 5.1(d));

-17-

     (b)      without the prior written consent of Purchaser, Seller shall not sell, mortgage, pledge, lease, hypothecate or otherwise transfer or dispose of all or any part of any Property or any interest therein or enter into any agreement or arrangement to do so, other than non material subleases, licenses or concession agreements or other similar agreements entered into in the ordinary course of business, each of which will be terminated on or before the applicable Occupancy Delivery Date;

     (c)      Seller shall not initiate, consent to, approve or otherwise take any material action with respect to zoning or any other governmental laws, rules or regulations presently applicable to any Property, other than such action as is necessary to maintain a Property in compliance with such laws, rules and regulations applicable to such Property, in each case without the prior written consent of Purchaser, which consent shall not be unreasonably withheld or delayed;

     (d)      Seller shall cure, or cause to be cured, prior to Closing any violations (“Violations”, which shall include, with respect to a Leased Property, only those violations that are the responsibility of the tenant under the Lease) of laws, ordinances, requirements, rules, regulations, notices and orders (collectively, “Applicable Laws”) of any federal, state or local governmental agency, quasi-governmental agency or regulatory authority (a “Governmental Entity”), applicable to the Transferred Assets and issued in writing by the applicable Governmental Entity to Seller (i) on or prior to the date of this Agreement, or (ii) subsequent to the date of this Agreement and prior to Occupancy Delivery Date, if arising from Seller’s actions or the conduct of Seller’s business at the Property subsequent to the date hereof (each, a “Seller Violation”); provided that if any Seller Violation is not capable of being cured by Seller prior to the Closing, then the parties shall nevertheless proceed to Closing with respect to the applicable Property in accordance with this Agreement, and Seller shall indemnify, defend and hold harmless the Purchaser Indemnified Parties from and against any Losses with respect to such uncured Seller Violations, subject to the limitations set forth in this Section 5.1(d) (and such indemnification obligation of Seller shall survive the Closing), but without limiting Purchaser’s rights under Section 3.2(e) above. Notwithstanding the foregoing, in the event that the estimated cost of curing all Seller Violations with respect to a Property (as determined by an independent architect or engineer selected by Seller and approved by Purchaser) exceeds five percent (5%) of the allocated Purchase Price with respect to any Property (the “Maximum Violation Cure Amount”), then Seller, upon written notice to Purchaser given within five (5) Business Days after Seller’s receipt of such determination, shall have the right to terminate this Agreement with respect to the applicable Property, in which event (i) the portion of the Deposit allocated to such Property shall be returned to Purchaser, (ii) the Purchase Price shall be deemed to be reduced by the allocated Purchase Price applicable to such Property, (iii) the term “Property” as used herein shall be deemed to be amended to omit any references to the applicable Property, (iv) the parties shall proceed to Closing with respect to the other Properties pursuant to the terms of this Agreement, and (v) neither party hereto shall have any further obligation to the other with respect to the applicable Property, with the exception of those obligations which expressly survive the termination of this Agreement (clauses (i) through (v) collectively, the “Property Termination Procedure”). Notwithstanding the foregoing, within ten (10) Business Days after Purchaser’s receipt of

-18-

such a termination notice from Seller, Purchaser may notify Seller that it elects to void Seller’s termination notice and to proceed to Closing subject to such Seller Violation, in which event the Purchase Price allocable to such Property shall be reduced by five percent (5%). Any Violation with respect to a Transferred Asset that is not a Seller Violation shall be hereinafter referred to as a “Non-Seller Violation”.

     (e)      Seller shall terminate any leases (for the Owned Properties), subleases and/or license agreements (except for the Approved Subleases set forth on Schedule 8.1(j) attached hereto) relating to each Property prior to the applicable Occupancy Delivery Date relating to such Property, such that Purchaser shall have sole and exclusive possession of each Property at the applicable Occupancy Delivery Date, except for any Approved Subleases;

     (f)      Seller shall comply in all material respects with all terms and conditions of the Leases and Approved Subleases and Seller shall not terminate, extend or modify any of the Leases or Approved Subleases without the prior written consent of Purchaser, which consent shall not be unreasonably withheld or delayed. Seller shall provide written notice (“Renewal Notice”) to Purchaser of any pending renewal options with respect to any Lease at least thirty (30) days prior to the last date on which any such renewal option may be exercised, and unless Seller is notified in writing by Purchaser not to exercise any such renewal option within fifteen (15) days after Purchaser’s receipt of the Renewal Notice, Seller shall exercise such renewal option. Seller shall also promptly forward to Purchaser copies of any material notices received by Seller from any Landlord subsequent to the Effective Date;

     (g)      all Service Contracts and other contracts (other than the Leases, the Approved Subleases and the Permitted Exceptions) which affect or pertain to any Property shall be terminated, or caused to be terminated, by Seller prior to and be of no further force or effect as of the applicable Occupancy Delivery Date relating to such Property;

     (h)      any mortgage financing relating to any Owned Property, and any financing secured by Seller’s leasehold interest with respect to any Leased Property, shall be paid off and all related security documents encumbering the Owned Properties or Leased Properties, as applicable, shall be released at the Closing relating to such Property;

     (i)      prior to the applicable Occupancy Delivery Date for each Property, Seller shall vacate the Property and remove all personal property and inventory therefrom, except for Merchandise Trade Fixtures, which may be left by Seller in their existing location as of the completion of Seller’s store closing sale, or in any other reasonable location within the Property as reasonably determined by Seller. At the applicable Occupancy Delivery Date for each Property, Seller shall deliver the applicable Property to Purchaser in broom-clean condition;

     (j)      Seller shall be responsible for and shall pay all amounts due through the applicable Occupancy Delivery Date relating to such Property for each Employee’s salaries, wages, fees, vacation pay, severance pay, withholding and payroll taxes and

-19-

other benefits, and shall otherwise comply with any and all applicable requirements of the WARN Act (including all notice requirements), any similar Applicable Law and the medical and dental continuation requirements of COBRA;

     (k)      subject to Section 5.7 hereof, Seller shall (i) terminate the employment of, or transfer to another Seller store, all of the individuals rendering services to Seller as employees or independent contractors in connection with any Property before the applicable Occupancy Delivery Date related to such Property, and (ii) provide Purchaser with written notice of the number of employees terminated by Seller during the ninety (90) days preceding and including any applicable Occupancy Delivery Date;

     (l)      Seller shall promptly give written notice to Purchaser of the occurrence of any event known to Seller which affects in any material respect the truth or accuracy of any of the representations or warranties made or to be made by Seller under this Agreement; and

     (m)      Notwithstanding any provisions of the Take-Back Leases, Purchaser and its representatives and contractors shall have reasonable access to each Property during the time period after the Closing for such Property through the Occupancy Delivery Date for such Property for purposes of inspection of the Property in connection with Purchaser’s intended renovations and operations at the Property, upon reasonable prior notice to Seller and during business hours (or, at Seller’s election and to the extent reasonable, after business hours), provided that such access by Purchaser shall not interfere in any material respect with Seller’s business operations at the Property. Seller shall (at no cost to Seller) reasonably cooperate with Purchaser prior to the Occupancy Delivery Date for each Property in connection with Purchaser obtaining any permits from Governmental Entities to perform renovations on the Property, which renovations shall be performed by Purchaser after the Occupancy Delivery Date for such Property. Purchaser’s entry on the Properties shall be subject to the terms and conditions of the Confidentiality and Access Agreement.

     (n)      Seller shall use commercially reasonable efforts to obtain a no further action letter or no further remediation letter, from the appropriate Governmental Entity providing that the former underground storage tanks identified in Schedule 5.1(n) were closed in accordance with all applicable Environmental Laws.

Section 5.2.      Reasonable Best Efforts to Consummate the Transactions.

     (a)      Subject to the terms and conditions provided herein and to Applicable Laws, each of the parties shall use its reasonable best efforts to take, or cause to be taken, all actions, and do, or cause to be done, and assist and cooperate with the other party in doing, in the most expeditious manner practicable, all things necessary, proper or advisable to ensure that the conditions set forth in Article X hereof are satisfied and to consummate the transactions contemplated hereby.

     (b)      Without limiting the generality of the foregoing, and subject to the terms and conditions in this Agreement, each of Purchaser and Seller shall:

-20-

(i)	to the extent required under Applicable Laws, promptly make any required filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the “HSR Act”), with respect to the transactions contemplated by this Agreement and thereafter respond as promptly as practicable to any inquiries or requests received from any Governmental Authority for additional information or documentation;
(ii)	not extend any waiting period under the HSR Act or enter into any agreement with any Governmental Authority not to consummate the transactions contemplated by this Agreement, except with the prior consent of the other party hereto (which consent shall not be unreasonably withheld or delayed);
(iii)	use their reasonable best efforts to cooperate with one another in (A) determining which filings and notifications are required to be made under Applicable Laws with, and which consents, licenses, approvals, permits, waivers, orders or authorizations are required to be obtained under Applicable Laws from, Governmental Entities in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement, (B) timely making all such filings and notifications and timely seeking all such consents, licenses, approvals, permits, waivers, orders or authorizations and (C) as promptly as practicable, responding to any request for information from such Governmental Entities;
(iv)	subject to any restrictions under Applicable Laws, to the extent practicable, promptly notify each other of any communication to that party from any Governmental Entity with respect to the transactions contemplated by this Agreement and permit the other party to review in advance any proposed written communication to any Governmental Entity;
(v)	not agree to participate in any meeting with any Governmental Entity in respect of any filing, investigation or other inquiry with respect to the transactions contemplated by this Agreement unless it consults with the other party in advance and, to the extent permitted by such Governmental Entity, gives the other party the opportunity to attend and participate thereat, in each case to the extent practicable;
(vi)	subject to any restrictions under Applicable Laws, furnish the other party with copies of all correspondence, filings and communications (and memoranda setting forth the substance thereof) between it and its affiliates and their respective

-21-

representatives on the one hand, and any Governmental Entity or members of its staff on the other hand, with respect to the transactions contemplated by this Agreement (excluding documents and communications that are subject to preexisting confidentiality agreements and to the attorney-client privilege or work product doctrine);

(vii)	furnish the other party with such necessary information and reasonable assistance as such other party and its affiliates may reasonably request in connection with their preparation of necessary filings, registration, or submissions of information to any Governmental Entities in connection with this Agreement and the transactions contemplated hereby, including, without limitation, any filings necessary or appropriate under the provisions of the HSR Act;
(viii)	use its reasonable best efforts to avoid the entry of, or to have vacated, lifted, reversed, overturned or terminated, any order, judgment, injunction or decree (whether temporary, preliminary or permanent) or any other judicial, administrative or legislative action or proceeding (“Order”) that would restrain, prevent or delay the closing of the transactions contemplated by this Agreement, including, without limitation, defending through litigation on the merits any claim asserted in any court by any party; and
(ix)	use its reasonable best efforts to take any steps necessary to avoid or eliminate any impediment under any Applicable Law that may be asserted by any Governmental Entity or private party with respect to the transactions contemplated by the Agreement so as to enable the Closings to occur as soon as reasonably practicable after the date hereof.

     (c)      Seller and Purchaser agree that they will seek with respect to each Lease set forth on Schedule 5.2(c) attached hereto a written consent and/or waiver from either the Landlord under such Lease, any ground lessor and/or from other property owners pursuant to a recorded declaration, pursuant to which such Landlord, ground lessors or property owners, as applicable, consents to (as applicable, based upon the terms of such Lease, ground lease or declaration): (i) the assignment of such Lease from Seller to Purchaser and Landlord waives any termination or recapture rights in favor of such Landlord under the Lease, (ii) the closing of business at the Leased Property by Purchaser (after such assignment and transfer of the Lease) for up to ninety (90) days (subject to extension for up to forty-five (45) days due to unusually severe weather conditions, labor strikes, latent defects or conditions in or on the Property discovered by Purchaser during construction, and other materially adverse events not within Purchaser’s reasonable control, provided that if any such latent defects or conditions require that Purchaser obtain a building permit from a Governmental Entity in order to remedy such defect or condition, then the extension period shall end on the date forty five (45) days after the issuance by the Governmental Entity to Purchaser of such building permit) for purposes of renovating the

-22-

Property for Purchaser’s intended use, (iii) Purchaser making exterior and/or structural alterations to the Improvements on the Property for purposes of (x) compliance with the Americans with Disabilities Act, (y) constructing an awning or rain shelter at the front entrance of the Property, and/or (z) constructing a customer pick up dock, and consents to a change in the signage on the Property, and/or (iv) the recording of a memorandum of lease or similar instrument sufficient to enable the Title Company to issue a Leasehold Policy (and execution of such document by the Landlord) with respect to those Leased Properties located in Puerto Rico for which no memorandum of lease or similar instrument is currently recorded (such consents being hereinafter referred to collectively as the “Required Consents”). The form of Required Consents to be sent to Landlords, ground lessors or property owners, as applicable, shall be approved by Seller and Purchaser, and, once approved, Seller shall send the Required Consent forms to the Landlords, ground lessors and property owners. Seller and Purchaser shall each use their reasonable best efforts to obtain the Required Consents as soon as practicable after the Effective Date, provided, however, that neither Seller nor Purchaser shall have any obligation to pay any sum of money or commence any action or proceeding in order to obtain the same. In connection with seeking each Required Consent, Purchaser shall cooperate with the reasonable requests of the Landlords, ground lessors or property owners (including, without limitation, reasonable modifications to the Lease or other applicable documents), provided that in no event shall Purchaser be required, in connection with obtaining a Required Consent, to (i) pay any sum of money to any Landlord, ground lessor or property owner (including through any increase in rent or additional charges), or (ii) make any agreements that could increase Purchaser’s liability under a Lease or other applicable documents or materially interfere with or otherwise adversely affect in any material respect Purchaser’s ability to conduct its intended business on the Property. Seller and Purchaser (x) shall jointly meet and/or communicate with each Landlord, ground lessor or property owner with respect to any initial request for a Required Consent, and (y) following such initial meeting or communication, shall establish and adhere to mutually acceptable procedures for communicating with Landlords, ground lessors or property owners and their representatives and attorneys with respect to such Required Consents and keeping the other party (to the extent that such other party is not involved in such subsequent meetings or communications) advised with respect thereto.

     (d)      Seller and Purchaser shall promptly request, and use reasonable and good faith efforts to obtain prior to Closing with respect to any Leased Property, (i) an estoppel letter from each Landlord of the Leased Properties, in substantially the form specified in the particular Lease (provided such form of estoppel is customary for retail leases of such age and location) or, if no form of estoppel is prescribed in a Lease, in substantially the form attached hereto as Exhibit E, and dated within thirty (30) days of such Closing; (ii) with respect to any Properties as requested by Purchaser, including without limitation the Properties set forth on Schedule 5.2(d) attached hereto, a subordination, non-disturbance and attornment agreement (an “SNDA”) from the Landlord’s lender and/or, in the event the Lease is actually a sublease subject to a Ground Lease (as hereinafter defined), from Landlord’s ground lessor, in form and substance reasonably acceptable to Purchaser; (iii) a release from the Landlord in favor of Seller with respect to the Lease, in form and substance reasonably satisfactory to Seller, and (iv) an estoppel letter from each subtenant of the Approved Subleases, in form and substance similar to the form attached to the applicable Approved Sublease, or if no form of estoppel letter is attached to such Approved Sublease, an estoppel letter in substantially the form attached hereto as Exhibit F, in each case dated within thirty (30) days of Closing. Notwithstanding the foregoing, (x) the receipt by

-23-

Purchaser of executed estoppels with respect to any Lease or Approved Sublease shall not be a condition to Purchaser’s obligation to close with respect to the transfer and assignment of the applicable Lease provided that Seller delivers a Seller Tenant Estoppel or Seller Subtenant Estoppel at Closing for any Leases or Approved Subleases for which such estoppels are not obtained, (y) the receipt by Seller of an executed release with respect to any Lease shall not be a condition of Seller’s obligation to close with respect to the transfer and assignment of such Lease, and (z) the receipt by Purchaser of any SNDAs shall not be a condition to Purchaser’s obligation to close with respect to the transfer and assignment of the applicable Lease except with respect to those Leased Properties described in Section 10.1(a)(iii)(y).

(e)      Notwithstanding the foregoing, nothing in this Agreement shall require Purchaser to agree to the sale, transfer, divestiture or other disposition of any assets (including any lines of business and any Transferred Assets or Pharmacy Assets to be acquired hereunder) of Purchaser. Furthermore, notwithstanding anything to the contrary in this Agreement, Seller shall not, without Purchaser’s prior written consent, take any action or commit to take any action that would limit the Purchaser’s freedom of action with respect to, or its ability to retain, any of the Transferred Assets or Pharmacy Assets.

Section 5.3.      Tax-Deferred Exchange.     Upon the written request of Seller or Purchaser, the other party agrees to cooperate with the requesting party to effectuate a tax deferred like kind exchange (an “Exchange”) as contemplated by Section 1031 of the Code, or other tax efficient transaction, including, in the case of an Exchange, by use of a qualified intermediary (a “Qualified Intermediary”), with respect to (a) the sale of any Property by Seller and/or (b) the acquisition of any Property by Purchaser or a permitted assignee of Purchaser; provided, however, that (i) neither party shall have any liability to the other if such other party is unable to effectuate an Exchange (or other tax efficient transaction) for any reason, other than by reason of a default under this Agreement by the other party, including, without limitation, that neither party shall have liability under any circumstances for any part of any tax savings or tax benefit that the other party might have enjoyed by reason of an Exchange; (ii) either party’s ability to effectuate an Exchange (or other tax efficient transaction) shall not be a condition to its obligation to consummate any transaction contemplated by this Agreement, and (iii) neither party shall be obligated to incur any costs, expenses or liabilities of the other party with respect to the Exchange. Either party’s election to exchange, rather than sell or buy any Property for other real estate of a like kind shall be at no cost or liability to the other, and the Exchanger (as defined below) shall pay all additional costs associated with the use of the Qualified Intermediary. Should a Property become part of an Exchange, each party electing to exchange the Property (the “Exchanger”) hereby agrees that the other party may enforce and all representations, warranties, covenants and other obligations of the Exchanger under this Agreement directly against the Exchanger, and the other party agrees that the Exchanger may enforce any and all representations, warranties, covenants and other obligations of the other party under this Agreement directly against the other party. If both parties request an Exchange with respect to the same Property, the parties agree to cooperate to effectuate such Exchange in accordance with the preceding principles.

Section 5.4.      Disclosure.     Purchaser and Seller will each use their reasonable best efforts to coordinate and simultaneously release their first public announcement or press release relating to the transactions contemplated by this Agreement. In addition, prior to the Initial

-24-

Closing Date, Purchaser and Seller shall consult with each other before issuing, and provide each other a reasonable opportunity to review and comment upon, any press release or other similar written public statements with respect to the transactions contemplated hereby (including, without limitation, the first public announcement or press release) and shall not issue any such press release or written public statement prior to such consultation, except as may be required by Applicable Law, by court process or by obligations pursuant to any listing agreement with any national securities exchange.

Section 5.5.      Additional Approved Sublease Documents. With respect to any documents (or portions thereof) set forth on Schedule 5.5 or noted on Schedule 8.1(j) as having not been made available by Seller to Purchaser prior to the Effective Date (collectively, “Additional Approved Sublease Documents”), Seller shall use good faith efforts to provide to Purchaser, at least ten (10) Business Days prior to the applicable Closing, true and complete copies of such Additional Approved Sublease Documents. Notwithstanding the foregoing, Seller shall deliver to Purchaser, at least ten (10) Business Days prior to the then applicable Closing, true and complete copies of the Additional Approved Sublease Documents set forth on Schedule 5.5 attached hereto.

Section 5.6.      Purchase of Fee Interest in Leased Properties.    Prior to the Closing Date with respect to a Leased Property, Purchaser shall not acquire or attempt to acquire the underlying fee simple interest with respect to such Leased Property, or make any offer or purchase inquiry with respect thereto. Seller (or its affiliates) shall be entitled to acquire or enter into a contract to acquire the underlying fee simple interest with respect to any Leased Property prior to the Closing Date with respect to such Leased Property, provided, that, in the event of such acquisition, Seller shall, as the fee owner of such Leased Property, consent to (without requiring Purchaser to agree to amend or otherwise modify the Lease) (i) the assignment of the leasehold interest in the Lease to Purchaser, (ii) the closing of business at the Leased Property by Purchaser in connection with any renovation of the Leased Property for Purchaser’s intended use as contemplated hereunder, and (iii) structural or exterior alterations or changes in signage in accordance with the standard plans and specifications for Purchaser’s use as a [Sears] brand store to the extent such Lease requires the consent of the Landlord to any of the foregoing. Notwithstanding the foregoing, neither Seller nor any affiliate of any of Seller shall purchase or enter into a contract to purchase the fee simple interest with respect to more than twenty five (25) of the Leased Properties prior to the final Closing Date, without the prior written approval of Purchaser.

Section 5.7.      Employee Matters.

(a)      From and after the applicable Closing Date until the Occupancy Delivery Date with respect to a Property, Seller shall cooperate with Purchaser to attempt to make available to Purchaser (or any of its officers, employees or agents or its Designee) each Employee (including all pharmacy personnel) employed by Seller at such Property (a “Store Employee”) for the purpose of interviewing such individuals for possible employment with Purchaser or its Designee, to the extent that such individuals desire to interview for possible employment with Purchaser or its Designee. Prior to the Occupancy Delivery Date with respect to a Property, Purchaser shall arrange an interview with each interested Store Employee employed at such Property for possible employment with Purchaser or its Designee. However, notwithstanding the

-25-

foregoing, nothing in this Agreement shall obligate or constitute the agreement of Purchaser or any of its affiliates or its Designee to recruit or hire any Store Employee or any other employee or former employee of Seller. Furthermore, in the event that Purchaser or any of its affiliates or its Designee determines to hire any Store Employee or any other employee or former employee of Seller, any such hiring and employment shall be at the sole discretion of Purchaser or its Designee and any terms or conditions of such employment shall be determined by Purchaser or its Designee, in its respective sole discretion.

     (b)      From and after the Effective Date until thirty (30) days (or sixty (60) with respect to Pharmacy Employee) after the applicable Closing with respect to a Property, Seller shall not transfer or reassign any pharmacy personnel employed by Seller in connection with Seller’s operation of its pharmacy business from any Property (a “Pharmacy Employee”) or any store manager or assistant store manager (either, a “Store Manager”) employed by Seller at such Property to any other stores of Seller or any of its subsidiaries, unless such a Pharmacy Employee or Store Manager requests a transfer or reassignment for health or family reasons or for similar reasons, in which case Seller may transfer or reassign such employee and Seller shall promptly notify Purchaser of any such transfer or reassignment. From and after the Effective Date until the applicable Closing Date with respect to a Property, Seller may communicate with, but shall not make an offer to, any Pharmacy Employee or Store Manager employed by Seller at such Property to continue to work for Seller after the applicable Occupancy Delivery Date; provided, however, in the event Seller notifies Purchaser that it desires to make an offer to a Store Manager prior to the applicable Closing Date and provides Purchaser with no less than ten (10) days after Purchaser’s receipt of such notice to interview such Store Manager for possible employment with Purchaser, Seller may make an offer to such Store Manager at any time after such ten (10) day period. Except as set forth in the preceding sentence, Purchaser shall not recruit, solicit, interview, make an offer to or otherwise communicate with Seller’s Employees prior to the Closing Date for the applicable Property. After the Closing Date for the applicable Property, both Seller and Purchaser shall have the right to recruit, solicit, interview, make an offer to and communicate with Seller’s Employees with respect to prospective employment, except that (notwithstanding anything to the contrary set forth in this Section 5.7(b)) with respect to Pharmacy Employees Seller may not make an offer of employment to such Pharmacy Employee (or engage such Pharmacy Employee as an independent contractor or leased employee) for any other store of Seller or any of its subsidiaries during the period beginning on the Effective Date and ending on the sixtieth (60th) day after the applicable Closing Date, subject to the limitations on Seller’s right to transfer or reassign Pharmacy Employees or Store Managers, for health or family or similar reasons, pursuant to the first sentence of this Section 5.7(b).

     (c)      Seller shall be liable for all claims relating to COBRA continuation coverage (within the meaning of Treas. Reg. Section 59.4980B-9) attributable to “qualifying events” with respect to any Employee and his or her beneficiaries and dependents that occur on or before the Occupancy Delivery Date with respect to the Property at which the Employee rendered service; provided that Purchaser shall not take, or encourage any other person to take, any measures that discourage or are intended to discourage any Employee hired by Purchaser from enrolling in Purchaser’s health and medical plans, programs, policies or arrangements, nor shall Purchaser take, or encourage or facilitate any other person to take, any measures that encourage or are intended to encourage any Employee to apply for COBRA continuation coverage.

-26-

Section 5.8.      Environmental Due Diligence for Approved Sublease Space.     Purchaser shall have the right subject to the Confidentiality and Access Agreement to perform Phase I and Phase II environmental investigations with respect to the portions of the Properties subleased pursuant to the Approved Subleases (each a “Subleased Premises”) identified on Schedule 5.8. In the event any such report discloses an environmental condition in, on, under or relating to any such Subleased Premises which is in violation of any Environmental Law and the estimated cost to remediate such environmental condition is reasonably estimated by Purchaser’s consultant to exceed five percent (5%) of the Purchase Price allocable to such Property, Purchaser shall notify Seller in writing of the same, and Purchaser shall have the right, within thirty (30) days after the Effective Date, to terminate this Agreement with respect to such Property, in which event the Property Termination Procedure shall apply.

ARTICLE VI

STATUS OF TITLE TO THE PROPERTIES

Section 6.1.      Preliminary Evidence of Title.     Within thirty (30) days following the Effective Date, Purchaser shall use commercially reasonable efforts to obtain each of the following documents (and shall provide to Seller a copy of such documents promptly after Purchaser’s receipt thereof):

     (a)      with respect to the Owned Properties, title insurance commitments (the “Owner’s Title Commitments”) for ALTA Form B (1992) Owner’s Title Insurance Policies proposing to insure Purchaser and committing to insure each Owned Property, issued by First American Title Insurance Company (referred to herein as the “Title Company” or “Escrowee”).

     (b)      with respect to the Leased Properties, leasehold title insurance commitments (the “Leasehold Commitments,” and, together with the Owner’s Title Commitments, the “Title Commitments”) for ALTA Leasehold Owners Title Insurance Policies proposing to insure Purchaser and committing to insure the leasehold interest in each Leased Property, issued by the Title Company.

     (c)      current survey plats (collectively, the “Surveys”) of each of the Properties certified to Purchaser and the Title Company (and such other persons or entities as Purchaser may designate) by a surveyor registered in the state in which such Property is located, prepared in accordance with the Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys.

Section 6.2.      Title Defects.     If any Title Commitment or Survey discloses any (i) mortgages, deeds of trust, financing statements, judgments, mechanic’s liens, materialmen’s liens, tax liens, or similar monetary liens, (ii) material encroachments, or (iii) other title exceptions or defects that materially and adversely affect the future use or operation of a Property as a Sears brand retail store, including, without limitation, the sale of consumables and transactional merchandise (a “Material Title Defect”), Purchaser shall use commercially reasonable efforts to notify Seller in writing of such Material Title Defect within ten (10) days after Purchaser’s receipt of a Title Commitment and Survey for a Property, but in no event later

-27-

than forty five (45) days after the Effective Date (the “Title Review Period”), and Seller shall have ten (10) days from the receipt of Purchaser’s notice (“Seller’s Title Cure Election Period”) to elect whether to have the Material Title Defect removed or cured (or to commit to do the same), to the reasonable satisfaction of Purchaser. In the event Seller elects, within Seller’s Title Cure Election Period, not to remove or cure such Material Title Defect, Purchaser shall have the option, within ten (10) days after the expiration of Seller’s Title Cure Election Period, to either (i) waive such Material Title Defect and proceed to Closing for such Property in accordance with this Agreement, or (ii) elect not to acquire such Property and related Transferred Assets, in which event the Property Termination Procedure shall apply. In the event Seller elects, within Seller’s Title Cure Election Period, to remove or cure such Material Title Defect, Seller shall be entitled to a period ending on the later of (1) 30 days after the expiration of Seller’s Title Cure Election Period, or (2) the Closing Date with respect to such Property, to remove or cure such Material Title Defect, upon which removal or cure the parties shall proceed to Closing for such Property in accordance with this Agreement. Any liens, encumbrances, title defects or other title exceptions disclosed in any Title Commitment or Survey and which do not constitute Material Title Defects (and any Material Title Defects which Purchaser elects to waive pursuant to this Section 6.2), shall be referred to herein as the “Permitted Exceptions”. Notwithstanding the foregoing, Seller shall cause to be removed and discharged of record prior to Closing (i) any lien encumbering the Property and securing money borrowed by Seller, and (ii) any mechanic’s lien, judgment lien or other lien securing a liquidated sum relating to work performed by or on behalf of Seller or otherwise required to be removed by Seller pursuant to the applicable Lease for such Property, provided that Seller shall not be required to remove or discharge at Closing any bona fide mechanic’s liens, judgment liens or other liens (excluding judgment liens relating to non-appealable judgments) encumbering the Property and described in this clause (ii) if the aggregate amount of such liens exceeds five percent (5%) of the Purchase Price allocated to such Property, and if Seller so elects not to remove and discharge such liens at Closing pursuant to this proviso, then Purchaser shall have the same rights (as set forth in the second sentence of this Section 6.2) as if Seller shall have elected not to cure a Material Title Defect, except that if Purchaser elects to waive such Material Title Defect and to proceed to Closing, the Purchase Price allocated to such Property shall be reduced by five percent (5%).

Section 6.3.      Permitted Exceptions. As used in this Agreement, the term “Permitted Exceptions” shall mean the following:

     (a)      the matters deemed to be Permitted Exceptions pursuant to Section 6.2;

     (b)      any title exceptions or defects (A) over which the Title Company is willing to insure (without additional cost to Purchaser or where Seller pays such cost for Purchaser’s account), (B) against which the Title Company is willing to provide affirmative insurance (without additional cost to Purchaser or where Seller pays such cost for Purchaser’s account) (provided that any insurance by the Title Company pursuant to clauses (A) and (B) shall be in a form acceptable to Purchaser in its reasonable discretion), (C) which will be extinguished upon the Closing of the Property, or (D) which are the responsibility of a Landlord under a Lease to cure, correct or remove and which will not result in a forfeiture of the tenant’s interest under the Lease or in the Property;

-28-

     (c)      Real property taxes which are a lien but not yet due and payable, subject to proration in accordance with Section 4;

     (d)      any Applicable Laws, rules, regulations, statutes, ordinances, orders or other legal requirements affecting the Property, including, without limitation, those relating to zoning and land use;

     (e)      any installment not due and payable as of the Closing Date of assessments imposed after the date hereof and affecting the Property or any portion thereof; and

     (f)      any utility company rights, easements and franchises for electricity, water, steam, gas, telephone or other service or the right to use and maintain poles, lines, wires, cables, pipes, boxes and other fixtures and facilities in, over, under and upon the Property, provided the same do not materially and adversely affect the present use of the Property and will not materially and adversely affect Purchaser’s intended use of the Property.

Section 6.4.      Cooperation By Seller.    If necessary in order for the Title Company to issue a Title Commitment or to deliver to Purchaser copies of the underlying title documents, Seller shall, promptly after request from Purchaser or Purchaser’s attorneys, (and, if necessary, shall request that the applicable Landlord) deliver to the Title Company or any applicable Governmental Entity any authorizations reasonably required by the Title Company or the applicable Governmental Entity, in order to release such documents to Purchaser.

ARTICLE VII

CASUALTY LOSS AND CONDEMNATION

Section 7.1.      Condemnation or Material Casualty.    If, prior to any Closing, any Property or any part thereof shall be condemned, or destroyed or materially damaged by fire or other casualty (that is, damage or destruction which Purchaser and Seller reasonably estimate would cost in excess of $750,000 to repair or restore or which materially impedes access to the respective Property or any material part thereof) (a “Material Casualty”), Purchaser shall have the option, which may be exercised not later than the later of (x) ten (10) days prior to the applicable Closing, or (y) ten (10) days following the date Purchaser receives written notice of the condemnation or material damage, to:

(a)      proceed to consummate the transactions contemplated by this Agreement with respect to the Property, notwithstanding such casualty or condemnation, and receive a credit at Closing in the amount of the costs to repair any damage (in an amount reasonably acceptable to Seller and Purchaser); or

(b)      elect not to acquire the Property and other Transferred Assets related to such Property, in which event the Property Termination Procedure shall apply.

(c)      In the event that Seller and Purchaser cannot agree as to the amount of credit set forth in Section 7.1(a) above, Seller and Purchaser agree to promptly submit the matter to an independent, licensed third party contractor that has performed similar work

-29-

in the area where the Property is located (a “Qualified Contractor”) and that is mutually acceptable to Seller and Purchaser, to determine the amount of such credit. If the parties are unable to agree upon such contractor, each party shall select a Qualified Contractor, and the two (2) contractors shall mutually agree on a third Qualified Contractor, which third contractor shall determine the amount of such credit. Each party shall pay the cost of its respective contractor and the parties shall each pay for one-half of the cost of the mutually acceptable contractor or the third contractor, as applicable.

     Section 7.2.      Non-Material Casualty. If there is any other damage or destruction (that is, damage or destruction which Purchaser and Seller reasonably estimate would cost $750,000 or less to repair or restore, or which does not materially impede access to the Property or any material part thereof), Seller shall either, at Seller’s option, (i) completely repair such damage prior to Closing in a manner reasonably satisfactory to Purchaser, or (ii) allow Purchaser a credit against the Purchase Price in an amount equal to the estimated cost of repair (determined as set forth in Section 7.1 above), as of the Closing Date.

ARTICLE VIII

REPRESENTATIONS AND WARRANTIES

Section 8.1.      Seller’s Representations and Warranties.  Seller represents and warrants to Purchaser that the following are true, complete and correct as of the Effective Date and shall be true, complete and correct as of each Closing Date (with respect to the Properties being transferred and conveyed as of such Closing Date):

     (a)      Seller is duly organized, validly existing, and in good standing under the laws of the State in which Seller was incorporated. Seller has all requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby has been duly authorized by all necessary corporate action and no other corporate proceedings on the part of Seller are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Seller and, assuming the due authorization, execution and delivery of this Agreement by Purchaser, constitutes the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as may be limited by (i) any bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors’ rights, and (ii) the law of fraudulent transfer and conveyance.

     (b)      Neither the execution and delivery of this Agreement nor its performance by Seller will conflict with or result in the breach of any contract, agreement, or Applicable Laws to which Seller is a party, other than Leases, ground leases or Permitted Exception documents for which Required Consents are necessary as set forth in Section 5.2(c).

-30-

     (c)      No approvals, consents, authorizations, declarations, registrations or notices of or to any Governmental Entity that have not been received or made is required by or with respect to Seller in connection with the execution, delivery and performance of this Agreement by Seller or the consummation by Seller of the transactions contemplated hereby except for (i) the filing of any premerger notification and report forms and the expiration or termination of any waiting periods required by the HSR Act, (ii) any applicable approvals, consents, authorizations, declarations, registrations or notices under any pharmacy regulations or to any Governmental Entities or third party administrators in connection with the transactions contemplated under Article II (“Pharmacy Approvals”), and (iii) any other approvals, consents, authorizations, declarations, registrations or notices that, if not made or obtained, would not materially and adversely affect the ability of Seller to perform its obligations under this Agreement or under any instrument, document or agreement required to be executed and delivered pursuant hereto (collectively, the “Related Agreements”) or to consummate the transactions contemplated hereby or thereby.

     (d)      Seller is the owner of the Personal Property, free and clear of all liens and encumbrances.

     (e)      Seller has not entered into any currently effective agreement to lease (other than the Leases), sell, mortgage or otherwise encumber or dispose of its interest in any of the Transferred Assets or any part thereof (other than currently effective Subleases, or otherwise in the ordinary course of business), except for this Agreement, any Permitted Exceptions and mortgages, deeds of trust or other encumbrances that will be satisfied and released from the Properties at or before the Closing.

     (f)      Except as set forth on Schedule 8.1(f) attached hereto, to the knowledge of Seller, Seller has not received any written notice that the Transferred Assets or any part thereof are presently in violation in any material respect of any Applicable Laws, or any covenants or restrictions of record applicable to the particular Transferred Assets, provided that notwithstanding anything to the contrary herein, the provisions of this Section 8.1(f) relating to Violations shall be applicable only as of the Effective Date, and any Violations issued with respect to the Properties subsequent to the Effective Date shall be governed by Section 5.1(d) hereof.

     (g)      Except as set forth on Schedule 8.1(g), to the knowledge of Seller, there is no action, proceeding or investigation pending or threatened against or involving the Transferred Assets or against Seller with respect to the Transferred Assets before any court or governmental department, commission, board, agency or instrumentality.

     (h)      Except as set forth on Schedule 8.1(h) attached hereto, Seller has not received written notice of any proposed material reassessment of any Property for purposes of real estate taxes. Except as set forth on Schedule 8.1(h-1), Seller has not received written notice of any special or general assessments affecting any Property.

     (i)      Schedule 1.1(b)-1 describes all of the Leases, including all amendments, modifications and revisions thereof (all of which are deemed included within the term

-31-

“Leases” defined herein), and Seller has made available to Purchaser true and complete copies of all Leases, except as set forth on Schedule 1.1(b)-1. Each of the Leases is in full force and effect. To Seller’s knowledge, no commissions to any broker or leasing agent and payable by Seller are due or will become due pursuant to an agreement made by Seller on account of any of the Leases or upon extension or renewal of the original term thereof, whether or not pursuant to an option or other rights contained in the Lease. Except as set forth on Schedule 8.1(i)-1 attached hereto, Seller has not received or given any written notice from or to a Landlord that any default exists on the part of the Seller or the respective Landlord under any of the Leases, which default has not been cured. Schedule 8.1(i)-2 discloses all unapplied security and other deposits held by Landlords under the Leases. Seller has not made any advance payment of rent (other than for the current month) on account of any of the Leases. All written or oral leases, subleases, license agreements, concession agreements or tenancies or rights of possession affecting the Leased Properties entered into by Seller other than the Leases (collectively, the “Subleases”) shall be terminated effective at or prior to each Occupancy Delivery Date (except for those Subleases and consent agreements listed on Schedule 8.1(j), which shall not be terminated (the “Approved Subleases”)). All of the Leases are assignable by Seller at Closing as contemplated by this Agreement without the consent of any other party, except for the Required Consents. The square footage amounts for Seller’s stores at the Properties set forth on Schedule 8.1(i)-3 do not include any of the space subleased under the Approved Subleases.

     (j)      (i) Schedule 8.1(j) describes the Approved Subleases, including all amendments, modifications and revisions thereof (all of which are deemed included within the term “Approved Subleases”), and, except for the Additional Approved Sublease Documents, Seller has made available to Purchaser true and complete copies of all the Approved Subleases, (ii) each of the Approved Subleases is in full force and effect, (iii) except as set forth in Schedule 8.1(j), Seller has not received or given any written notice from or to a subtenant that any default exists on the part of Seller or the subtenant under any of the Approved Subleases, which default has not been cured, and, to Seller’s knowledge, no subtenant is currently in default in any material respect under any Approved Sublease, (v) to Seller’s knowledge, no right or claim of setoff against rent exists or has been claimed in writing to exist by any subtenant under the Approved Subleases, (vi) Schedule 8.1(j) discloses all security and other deposits made by each subtenant under the Approved Subleases, (vii) Seller has not received any advance payment of rent (other than for the current month) under any of the Approved Subleases except as shown on Schedule 8.1(j), and (viii) the premises subleased pursuant to the Approved Subleases are located outside the walls of Seller’s store operated on each Property. Notwithstanding the foregoing, with respect to those Approved Subleases comprising consent agreements and not actual Subleases, Seller’s representations and warranties set forth above shall only be made to Seller’s knowledge. Notwithstanding anything herein to the contrary, with respect to Seller’s representations and warranties set forth in Section 8.1(i) and (j) of this Agreement, upon receipt by Purchaser of an estoppel letter (in the form described in this Agreement) from a Landlord or subtenant, as applicable, for any Property, Seller’s representations and warranties with respect to the matters contained in such estoppel letter shall terminate and be of no further force or effect.

-32-

     (k)      Except as disclosed on Schedule 8.1(k) attached hereto and except as disclosed in any Phase 1 or Phase 2 reports or other due diligence information or materials received by Purchaser, Seller has received no written notice: (i) of the presence of any under or above-ground storage tanks on, in or under any Property; (ii) that there are any uncured violations of Environmental Laws that have been issued and are currently in effect with respect to (x) any Hazardous Materials or any asbestos-containing materials, lead-based paint, or mold contamination on, in or under any Property; or (y) the presence of any polychlorinated biphenyls or radioactive materials located on any Property. To Seller’s knowledge, there is no ongoing environmental remediation or investigation being performed by or on behalf of Seller with respect to any of the Properties.

          For purposes of this Agreement, the phrase “Environmental Laws” shall mean any federal, state or local law, statute, ordinance, order, decree, rule or regulation and any common laws regarding health, safety, radioactive materials, or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601, et seq. (“CERCLA”); the Resource Conservation and Recovery Act, 42 U.S.C. § 6901, et seq. (“RCRA”); the Toxic Substances Control Act, 15 U.S.C. § 2601, et seq. (“TSCA”), the Occupational, Safety and Health Act, 29 U.S.C. § 651, et seq. (“OSHA”), the Clean Air Act, 42 U.S.C. § 7401, et seq. (“CAA”), the Federal Water Pollution Control Act, 33 U.S.C. § 1251, et seq. (“FWPCA”), the Safe Drinking Water Act, 42 U.S.C. § 3001, et seq. (“SDWA”), the Hazardous Materials Transportation Act, 49 U.S.C. § 1802, et seq. (“HMTA”) and the Emergency Planning and Community Right to Know Act, 42 U.S.C. § 11001, et seq. (“EPCRA”), the Endangered Species Act of 1973, 16 U.S.C. § 1531 et seq. (“ESA”), the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. § 136 et seq. (“FIFRA”) and other comparable federal, state or local laws, each as amended, and all rules, regulations and guidance documents promulgated pursuant thereto or published thereunder. The phrase “Hazardous Materials” shall mean each element, compound, chemical mixture, contaminant, pollutant, material, waste or other substance which is defined, determined or identified as hazardous or toxic under Environmental Laws or the Release of which is regulated under Environmental Laws. The term “Release” shall mean the discharge, disposal, deposit, injection, dumping, spilling, leaking, leaching, placing, presence, pumping, pouring, emitting, emptying, escaping, or other release of any Hazardous Material.

          For purposes of the representations and warranties set forth in the foregoing clause (l) of Section 8.1 hereof, “Hazardous Materials” shall not include consumer products, office supplies, and cleaning and maintenance supplies stored and used in the ordinary course of operation of the Properties and in compliance with applicable Environmental Laws.

     (l)      Seller has not received any written notice that any fact or condition exists which would result in the termination or discontinuation of any necessary utilities at any Property, including, without limitation, gas, electricity, telephone, water and sanitary and storm sewers.

-33-

     (m)      No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission from Seller in connection with the transactions contemplated by this Agreement based upon arrangements made by Seller.

     (n)      To Seller’s knowledge, Schedule 8.1(n) (i) lists (by store number) those Leased Properties that are subject to ground leases (i.e., where the Leases are actually subleases by Seller which are subject to ground leases between the Landlord (or its predecessor in interest), as ground lessee, and the owner of the fee title to the Property, as ground lessor (collectively the “Ground Leases”, and (ii) Seller has made available to Purchaser such Ground Lease documents (including amendments, modifications and revisions) in Seller’s possession and control. To Seller’s knowledge, each of the Ground Leases is in full force and effect. Seller has not received any written notice that any default exists on the part of the fee owner of the Property or the respective Landlord under any of the Ground Leases, which default has not been cured.

Section 8.2.      Purchaser’s Representations and Warranties.     Purchaser represents and warrants to Seller that the following are true, complete and correct as of the date of this Agreement and shall be true, complete and correct as of each Closing Date (with respect to the Properties being transferred and conveyed as of such Closing Date):

     (a)      Purchaser is duly organized, validly existing and in good standing under the laws of the State of New York. Purchaser has all requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Purchaser and the consummation by Purchaser of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no other corporate proceedings on the part of Purchaser are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Purchaser and, assuming the due authorization, execution and delivery of this Agreement by Seller, constitutes the legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms.

     (b)      Neither the execution and delivery of this Agreement nor its performance by Purchaser, will conflict with or result in the breach of any contract, agreement, law, rule or regulation to which Purchaser is a party or by which Purchaser is bound.

     (c)      No approvals, consents, authorizations, declarations, registrations or notices of or to any Governmental Entity that has not been received or made is required by or with respect to Purchaser in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby except for (i) the filing of any premerger notification and report forms and the expiration or termination of any waiting periods required by the HSR Act, (ii) any Pharmacy Approvals, and (iii) any other approvals, consents, authorizations, declarations, registrations or notices that, if not made or obtained, would not materially and adversely affect the ability of Purchaser to perform its obligations under this

-34-

Agreement or any Related Agreement or to consummate the transactions contemplated hereby or thereby.

     (d)      Except for the fees payable to Morgan Stanley & Co. Incorporated (which shall be paid solely by Purchaser), no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee, commission or expense in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Purchaser.

     (e)      Purchaser presently intends to spend in the aggregate amongst all the Properties the sum of $150,000,000 to renovate the Properties (based on acquiring all 54 Properties).

Section 8.3.      Definitions of Knowledge and Notice.    As used in Section 8.1 above, the term “Seller’s knowledge” (or variations thereof) means with respect to any matter, the actual knowledge of Jeff Stollenwerck, Vice President of Real Estate of Seller. As used in Section 8.1 above, the term “written notice received by”, “receipt of written notice by” or “written notice given by” Seller (or variations thereof) means, with respect to any matter, any written notice received or given by the person described in the first sentence of this Section 8.3.

Section 8.4. “As-Is” Condition.    Purchaser confirms that prior to the Effective Date, it has inspected the Properties and the Leases, environmental reports, engineering reports, inspection reports and other reports, documents and agreements relating to, or prepared or received in connection with, Purchaser’s due diligence investigation of the Transferred Assets, and except as expressly set forth in (a) this Agreement, including, without limitation, in Section 8.1 hereof, (b) the Related Agreements, and (c) the closing documents to be delivered by Seller pursuant to Section 4.2, the Properties shall be conveyed by Seller, and accepted by Purchaser, in their “as-is” condition as of the Effective Date, ordinary wear and tear between the Effective Date and the Closing Date excepted. Other than the express representations and warranties of Seller expressly set forth herein, Purchaser has not relied upon any oral or written information from Seller or its employees, affiliates, agents, consultants, advisors or representatives, nor has Purchaser relied on any representation or warranty, express or implied, regarding any of the Owned Properties or the Leased Properties, including, without limitation, any representation or warranty with respect to (i) the physical condition of the Property, including the physical condition of any improvement comprising all or a part of an Owned Property or a Leased Property, (ii) the compliance or non-compliance with any laws, codes, ordinances, rules or regulations of any Governmental Entity (including, without limitation, Environmental Laws), (iii) the presence or alleged presence of any Hazardous Substances at, within, under or generated by or from any Property, (iv) the current or future use of an Owned Property, or a Leased Property, including, but not limited to, any Property’s use for commercial, retail, industrial or other purposes. Except as expressly set forth herein (including in Section 8.1 with regard to the representations and warranties of Seller as to the Leases), Purchaser further acknowledges that all materials which have been provided by or on behalf of Seller with respect to the Properties have been provided without any warranty or representation, expressed or implied, as to their content, suitability for any purpose, accuracy, truthfulness or completeness, and Purchaser shall not have any recourse against Seller in the event of any errors therein or omissions therefrom. Purchaser is acquiring the Properties based solely on its own independent

-35-

investigation and inspection of the Properties and not in reliance on any information provided by Seller, except for the representations expressly set forth herein. Purchaser expressly disclaims any intent to rely on any such materials provided to it by Seller in connection with its due diligence and agrees that it shall rely solely on its own independently developed or verified information, except for the representations of Seller expressly set forth herein. In amplification, and not in limitation, of the foregoing, with respect to any Properties conveyed by Seller to Purchaser hereunder, Purchaser shall acquire such Properties subject to, and without recourse to Seller (except for any violation or breach by Purchaser of any representation, warranty or covenant set forth in this Agreement that survives the Closing, and also subject to the provisions of Section 11.1(d) with respect to Third Party Environmental Claims) with respect to, any matters or conditions described in clauses (i) through (iv) of the second sentence of this Section 8.4, and notwithstanding anything to the contrary in Sections 1.3 and 1.4 hereof, none of such matters or conditions shall constitute Excluded Liabilities or Assumed Liabilities hereunder. The provisions of this Section 8.4 shall survive Closing.

ARTICLE IX

INVESTIGATION OF EACH PROPERTY

Section 9.1.      Access to Properties.    From the Effective Date through the applicable Closing for each Property, Purchaser and its employees, agents, engineers, surveyors, appraisers, and other representatives (collectively, “Purchaser’s Representatives”), shall have the right to enter upon the Properties and to inspect the same subject to and in accordance with that certain letter agreement between the parties dated March 16, 2004, as amended by a First Amendment to such letter agreement dated the date hereof (as so amended, the “Confidentiality and Access Agreement”).

ARTICLE X

CLOSING CONDITIONS

Section 10.1.      Purchaser’s Closing Conditions.    The following conditions shall be satisfied at Closing with respect to each Property and other Transferred Asset being conveyed at a Closing:

     (a)      Conditions to Obligations of Purchaser.    The obligations of Purchaser to consummate the acquisition of a Property and the related Transferred Assets at a Closing shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions with respect to such Property and other Transferred Assets (the “Purchaser Closing Conditions”), any or all of which may be waived in writing by Purchaser in whole or in part, to the extent permitted by Applicable Law:

(i) the representations and warranties of Seller set forth in this Agreement with respect to such Transferred Assets shall be true, correct and complete in all material respects (other than to the extent already qualified by materiality, in which case each shall be true, correct and complete in all respects) as if made by Seller as of such Closing Date;

-36-

(ii)	Seller shall have performed and satisfied in all material respects each material obligation, term and condition hereunder to be performed and satisfied by Seller prior to such Closing with respect to the Transferred Assets being conveyed at such Closing, including, without limitation, delivery of all closing documents referenced in Section 4.2(a) of this Agreement or otherwise required hereunder;
(iii)	with respect to any Property being transferred and assigned at such Closing that is listed on Schedule 5.2(c) hereto, Purchaser shall have received a Required Consent, executed and delivered by the Landlord or other third party, as applicable; with respect to each Lease being assigned and conveyed at such Closing, (x) an estoppel letter from the Landlord or a Seller Tenant Estoppel in accordance with Section 5.2(d) hereof, and (y) an SNDA in accordance with Section 5.2(d) hereof from (I) the ground lessor with respect to Store No. 7784 (Vega Alta, Puerto Rico) and (II) from mortgage lenders with respect to Store Nos. 7446 (Cayey, Puerto Rico) and 7427 (Londonderry, New Hampshire); and with respect to each Approved Sublease being assigned at such Closing an estoppel letter from the subtenant or a Seller Subtenant Estoppel in accordance with Section 5.2(d) hereof;
(iv)	at Closing, Seller shall convey to Purchaser (or, to the extent permitted hereunder, Purchaser’s designee) fee title or leasehold title, as applicable, to the Property as required by this Agreement, subject only to the Permitted Exceptions (as evidenced by an updated title commitment for such Property ordered by Purchaser and issued by the Title Company showing no title exceptions other than the Permitted Exceptions);
(v)	at the time of Closing, each Property shall be in substantially the same condition and repair as existed on the Effective Date, ordinary wear and tear and damage from an event of casualty or condemnation (subject to Article VII hereof) excepted;
(vi)	no Non-Seller Violation affecting the Property which has not been cured shall have been issued by any Governmental Entity with respect to which the estimated cost of correcting or curing such Non-Seller Violation (as estimated by an independent architect or engineer designated by Purchaser and approved by Seller) shall exceed five percent (5%) of the allocated Purchase Price of such Property;
(vii)	as of the applicable Closing Date, there shall not be any currently effective injunction prohibiting the closing of the transfer of the applicable Property;
(viii)	any applicable waiting periods under the HSR Act with respect to the transactions contemplated by this Agreement shall have expired or been terminated; and

-37-

(ix) None of the Additional Approved Sublease Documents provided to Purchaser pursuant to Section 5.5 hereof shall prohibit Purchaser from operating a Sears brand store at the Property, including without limitation the sale of consumable and transactional merchandise. Purchaser shall promptly review any Additional Approved Sublease Documents provided by Seller and shall notify Seller in writing, within five (5) Business Days of receipt of any Additional Approved Sublease Documents, whether such documents, in Purchaser’s reasonable judgment, prohibit Purchaser from operating a Sears brand store at the Property, including without limitation the sale of consumable and transactional merchandise.

Section 10.2.      Seller’s Closing Conditions. The obligations of Seller to consummate the sale of a Property and the related Transferred Assets at a Closing shall be subject to the fulfillment, at or prior to the applicable Closing, of each of the following conditions with respect to such Property and other Transferred Assets (the “Seller Closing Conditions”), any or all of which may be waived by Seller in whole or in part, to the extent permitted by Applicable Law:

(i)	Purchaser shall have paid the portion of the Purchase Price due to Seller pursuant to Article III with respect to the applicable Property and other Transferred Assets;
(ii)	Purchaser shall have performed and satisfied in all material respects each material obligation, term and condition to be performed and satisfied by Purchaser under this Agreement with respect to the Property and other Transferred Assets, including, without limitation, delivery of all closing documents referenced in Section 4.2(b) of this Agreement or otherwise required hereunder;
(iii)	Each representation or warranty of Purchaser set forth in this Agreement shall be true and correct in all material respects (other than to the extent already qualified by materiality, in which case each shall be true, correct and complete in all respects) as if made by Purchaser as of such Closing Date;
(iv)	as of the applicable Closing Date, there shall not be any currently effective injunction prohibiting the closing of the transfer of the applicable Property;
(v)	any applicable waiting periods under the HSR Act with respect to the transactions contemplated by this Agreement shall have expired or been terminated; and
(vi)	with respect to any Property being transferred and assigned at such Closing that is listed on Schedule 5.2(c) and for which a Required Consent is required, Seller shall have received such Required Consent, executed and delivered by the Landlord or other third party, as applicable; provided, however, that if Purchaser has elected to waive the receipt of

-38-

such Required Consent as a Purchaser Closing Condition and agrees to indemnify, defend and hold harmless Seller from and against all Losses (as defined below) resulting from Seller assigning such Lease to Purchaser without such Required Consent, Seller shall waive this Seller Closing Condition and proceed to the Closing for such Property.

ARTICLE XI

INDEMNIFICATION

Section 11.1.      Indemnification.

     (a)      Indemnification by Seller.    Subject to the provisions of this Article XI, from and after the applicable Closing, Seller agrees to indemnify and hold harmless Purchaser and its officers, directors, employees and affiliates (collectively, the “Purchaser Indemnified Parties”), against any and all actual loss, damage, liability, cost and expense (including, without limitation, reasonable attorneys’ fees) (collectively, “Losses”) incurred or suffered by the Purchaser Indemnified Parties, or any of them, to the extent arising or resulting from (i) the breach of any representation or warranty made by Seller in this Agreement, (ii) the breach by Seller of any covenant set forth in Sections 5.1(b), (c), (e), (f), (j), (m) and (n) hereof, which breach is not discovered by Purchaser until after Closing, (iii) the breach by Seller of any covenant set forth in Article II hereof, (iv) any Excluded Liability, other than Third Party Environmental Claims, as hereinafter defined, and (v) any material misrepresentation by Seller contained in a Seller Subtenant Estoppel or a Seller Tenant Estoppel.

     (b)      Indemnification by Purchaser.    Subject to the provisions of this Article XI from and after the applicable Closing, Purchaser agrees to indemnify and hold harmless Seller and its officers, directors, employees and affiliates (the “Seller Indemnified Parties” and together with the Purchaser Indemnified Parties, the “Indemnified Persons”), against any and all Losses incurred or suffered by the Seller Indemnified Parties, or any of them, to the extent arising or resulting from (i) the breach of any representation or warranty made by Purchaser in this Agreement and (ii) any Assumed Liability, other than Third Party Environmental Claims.

     (c)      As used herein, the term “Third Party Environmental Claims” shall mean shall mean all suits, actions, claims or proceedings of or by Governmental Entities, Landlords or other third parties with respect to (i) the presence or alleged presence of Hazardous Materials at, in, under, or generated by or from any Property, (ii) any Release at or from any Property, or (iii) any alleged or actual non-compliance with any Environmental Laws with respect to any Property.

     (d)      Nothing in this Section 11.1 or any other provision of this Agreement shall preclude either Seller or Purchaser from exercising any rights or remedies available against each other or any third parties under any Applicable Laws, including, without limitation, Environmental Laws, common law or in equity with respect to Third Party Environmental Claims.

Section 11.2.      Proceedings Involving Third Parties.    The rights and obligations of Purchaser and Seller in connection with their respective indemnities pursuant to Section 11.1

-39-

hereunder resulting from any claim or other assertion of liability by a third party (a “Third Party Proceeding”) shall be subject to the following terms and conditions:

     (a)      The Indemnified Person shall give prompt written notice of such Third Party Proceeding to the party from whom indemnification is sought (the “Indemnifying Person”), but the failure to give such notice or a delay in giving such notice shall not affect the Indemnified Person’s right to indemnification or the Indemnifying Person’s obligation to indemnify as set forth in this Agreement, except to the extent the Indemnifying Person’s ability to remedy, contest, defend or settle with respect to such Third Party Proceeding is actually prejudiced thereby. Such written notice shall describe in reasonable detail the facts constituting the basis for such Third Party Proceeding and the amount of the potential Loss, in each case to the extent known. Within twenty (20) days after delivery of such notification, the Indemnifying Person may, upon written notice thereof to the Indemnified Person, elect to assume control of the Third Party Proceeding with counsel reasonably satisfactory to the Indemnified Person. Notwithstanding the foregoing, the Indemnified Person shall retain control of such Third Party Proceeding if (i) the Indemnifying Person elects not to assume control, (ii) the Indemnifying Person shall fail to undertake to defend such Third Party Proceeding, or diligently pursue or maintain such defense, within a reasonable time after receipt of notice thereof, (iii) the Indemnified Person reasonably concludes that the Indemnifying Person and Indemnified Person have conflicting interests with respect to such Third Party Proceeding which may materially and adversely affect the Indemnified Person, or (iv) the Third Party Proceeding involves a claim for injunctive, equitable or other non-monetary relief.

     (b)      The party not controlling such Third Party Proceeding (the “Non-controlling Party”) may participate therein at its own expense. The party controlling such Third Party Proceeding (the “Controlling Party”) shall keep the Non-controlling Party advised of the status of such Third Party Proceeding and shall consider in good faith recommendations made by the Non-controlling Party with respect thereto. The Non-controlling Party shall promptly furnish the Controlling Party with such non-privileged information as it may have with respect to such Third Party Proceeding (including copies of any summons, complaint or other pleading that may have been served on such party and any written claim, demand, invoice, billing or other document evidencing or asserting the same) and shall otherwise cooperate with and assist the Controlling Party with respect to such Third Party Proceeding. The Indemnifying Person shall not agree to any settlement of, or the entry of any judgment arising from, any such Third Party Proceeding without the prior written consent of the Indemnified Person, which shall not be unreasonably withheld, conditioned or delayed; provided that the consent of the Indemnified Person shall not be required if (i) the Indemnifying Person agrees in writing to pay all amounts payable pursuant to such settlement or judgment, and (ii) the proposed settlement of such Third Party Proceeding (x) includes as an unconditional term thereof a complete and irrevocable release of the Indemnified Person from all liability with respect to such Third Party Proceeding, (y) provides for no injunctive, equitable or other non-monetary relief against the Indemnified Person, and (z) has no other adverse effect on the Indemnified Person. The Indemnified Person shall not agree to any settlement of, or the entry of any judgment arising from (and the

-40-

Indemnifying Person shall have no indemnification obligations with respect to), any such Third Party Proceeding without the prior written consent of the Indemnifying Person, which shall not be unreasonably withheld, conditioned or delayed.

Section 11.3.      Objections to Claims for Indemnification; Resolution by the Parties.    An Indemnifying Person may make a written objection (“Objection”) to any claim for indemnification, which Objection shall state in reasonable detail the basis therefor. The Objection shall be delivered to the Indemnified Person within thirty (30) days after receipt by the Indemnifying Person of notice of a claim for indemnification from an Indemnified Person. The Indemnifying Person and the Indemnified Person shall attempt in good faith to resolve any claim for indemnification to which an Objection is made. If the Indemnifying Person and the Indemnified Person are unable to resolve a claim for indemnification to which an Objection has been made within thirty (30) days of receiving such Objection (as such period may be extended by mutual agreement between Purchaser and Seller), either the Indemnifying Person or the Indemnified Person shall serve the other with a written demand for arbitration within forty-five (45) days of the expiration of such thirty (30) day period. Any such arbitration shall be held in New York City and shall be conducted before a single arbitrator mutually agreeable to Purchaser and Seller and in accordance with the Commercial Arbitration Rules of the American Arbitration Association. In the event that within thirty (30) days after submission of any dispute to arbitration Purchaser and Seller cannot mutually agree on one arbitrator, Purchaser and Seller shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator. The decision of the arbitrator or, if applicable, the majority of the three arbitrators regarding any claim for indemnification to which an Objection has been made shall be binding and conclusive. Such decision shall be written and shall be supported by written findings of fact and conclusions, which shall set forth the award, judgment, decree or order awarded by the arbitrator. The parties agree to complete such arbitration as expeditiously as reasonably practicable.

Section 11.4.      Treatment of Indemnification Claims.    All indemnification payments made under this Agreement shall be treated by the parties as an adjustment to the Purchase Price.

Section 11.5.      Exclusive Remedy.    The parties hereby acknowledge and agree that, from and after the Closing Date with respect to an applicable Property, the exclusive remedy of the parties hereto with respect to any Losses described in Sections 11.1(a) and 11.1(b) relating to such Property shall be pursuant to indemnification under this Article XI; provided, however, that the foregoing shall not limit the remedies of the parties in the event of any breach or default under any Take-Back Lease.

Section 11.6.      Survival.    All representations and warranties set forth in Article II and Article VIII of this Agreement, and the indemnification obligations set forth in Sections 11.1(a)(i), and 11.1(b)(i), shall survive the Closing and shall expire and terminate on the date that is twelve (12) months after the Second Occupancy Delivery Date. The indemnification obligations set forth in Sections 11.1(a)(ii), (iv) and (v) and 11.1(b)(ii) shall survive the Closing Date without limitation except as provided under Applicable Law. The indemnification obligations set forth in Section 11.1(a)(iii) with respect to any Pharmacy Assets shall survive the Closing Date for the related Property and shall expire and terminate at the later to occur of (1) the Occupancy Delivery Date for the related Property and (2) the date that is 30 days after the transfer of such Pharmacy Assets. Notwithstanding anything herein to the contrary, each

-41-

representation or warranty that is the subject of one or more claims asserted in writing prior to the expiration of the twelve (12) month period set forth above shall survive with respect to the related claim or claims until the final resolution thereof.

Section 11.7.      Limitation on Indemnification.    Notwithstanding anything to the contrary set forth in Section 11.1(a) of this Agreement or elsewhere in this Agreement, (a) Purchaser hereby expressly waives, relinquishes and releases any right or remedy available to it at law, in equity or under this Agreement, in the event the Closing occurs, to make a claim against Seller for Losses that Purchaser may incur, or to rescind this Agreement and the transactions contemplated hereby, as the result of any of Seller’s representations or warranties in Articles II or VIII hereof or in any Seller Subtenant Estoppel or Seller Tenant Estoppel being untrue, inaccurate or incorrect in any material respect if Purchaser has actual knowledge that such representation or warranty was untrue, inaccurate or incorrect at the time of the Closing and Purchaser nevertheless proceeds with the Closing hereunder, (b) Seller’s liability for the breach of any representations or warranties of Seller contained in Articles II or VIII or pursuant to Section 11.1(a)(i) of this Agreement, shall be limited to claims in excess of $1,500,000 in the aggregate; upon reaching such claims which exceed $1,500,000 in the aggregate, Purchaser may pursue such claims against Seller for Losses resulting from Seller’s breach of any representations and warranties under this Agreement (including the first $1,500,000 of such claims) and (c) Seller’s aggregate liability for all claims arising out of any breach of such representations or warranties shall not exceed $62,100,000, except that there shall be no cap on Seller’s liability for such breaches of the representations or warranties set forth in Sections 8.1(a), (b), or (c) hereof or in any Seller Tenant Estoppel or Seller Subtenant Estoppel. As used in this paragraph, the term “actual knowledge” of Purchaser shall mean the actual knowledge of Tony Will with no duty of inquiry or investigation.

Notwithstanding anything to the contrary set forth in this Agreement, (a) Seller hereby expressly waives, relinquishes and releases any right or remedy available to it at law, in equity or under this Agreement, in the event the Closing occurs, to make a claim against Purchaser for Losses that Seller may incur, or to rescind this Agreement and the transactions contemplated hereby, as the result of any of Purchaser’s representations or warranties in Section 11.1(b)(i) being untrue, inaccurate or incorrect if Seller has actual knowledge (as defined in Section 8.3 hereof) that such representation or warranty was untrue, inaccurate or incorrect at the time of the Closing and Seller nevertheless proceeds with the Closing hereunder, and (b) Purchaser’s liability for breach of any representations or warranties of Purchaser contained in Article VIII hereof or pursuant to Section 11.1(b)(i) shall be limited to claims in excess of $1,500,000 in the aggregate. Upon reaching such claims which exceed $1,500,000 in the aggregate, Seller may pursue such claims against Purchaser for Losses resulting from Purchaser’s breach of any representations and warranties under this Agreement (including the first $1,500,000 of such claims). Purchaser’s aggregate liability for all claims arising out of any breach of such representations or warranties shall not exceed $62,100,000, except that there shall be no cap on Purchaser’s liability for breaches of the representations or warranties set forth in Sections 8.2(a), (b), or (c) hereof.

-42-

ARTICLE XII

DEFAULTS AND REMEDIES

Section 12.1.      Defaults and Remedies.

     (a)     Defaults and Remedies Which Relate to Five (5) Or Less Properties.    If Purchaser shall default in the performance of its material obligations under this Agreement, which default relates solely to five (5) or less Properties (such Properties relating to the default of either Seller or Purchaser shall be referred to herein as the “Defaulting Properties”), and if such default is not cured by Purchaser within fifteen (15) Business Days after written notice thereof from Seller to Purchaser, then Seller shall have the right, at Seller’s option, to terminate this Agreement solely with respect to the Defaulting Properties (in which event clauses (ii) through (v) of the Property Termination Procedure shall apply), and (i) sue Purchaser for actual damages suffered by Seller as a result of such default which relates to the Defaulting Properties (in which event the Deposit allocable to the Defaulting Properties shall continue to be held by Escrow Agent pursuant to Article XIV hereof until such claim for damages is adjudicated and paid) or (ii) retain the Deposit allocable to the Defaulting Properties as liquidated damages. If Seller shall default in the performance of its material obligations under this Agreement, which default relates to five (5) or less Properties, and if such default is not cured by Seller within fifteen (15) Business Days after written notice thereof from Purchaser to Seller, then Purchaser shall have the right, at Purchaser’s option, to (x) terminate this Agreement solely with respect to the Defaulting Properties and receive the Deposit allocable to the Defaulting Properties from the Escrow Agent (in which event the Property Termination Procedure shall apply), and Purchaser may sue Seller for actual damages suffered by Purchaser as a result of such default which relates to the Defaulting Properties, or (y) institute a suit against Seller for specific performance of Seller’s obligations under this Agreement with respect to the Defaulting Properties.

     (b)      Defaults and Remedies Which Relate to More Than Five (5) Properties.    If Purchaser shall default in the performance of its material obligations under this Agreement, which default relates to more than five (5) Properties, and if such default is not cured by Purchaser within fifteen (15) Business Days after written notice thereof from Seller to Purchaser, then Seller shall have the right, at Seller’s option, to terminate this Agreement and (i) sue Purchaser for actual damages as a result of such default (in which event the Deposit shall continue to be held by Escrow Agent pursuant to Article XIV hereof until such claim for damages is adjudicated and paid) or (ii) to retain the Deposit (or the remaining portion thereof than being held by the Escrow Agent) as liquidated damages. If Seller shall default in the performance of its material obligations under this Agreement, which default relates to more than five (5) Properties, and such default is not cured by Seller within fifteen (15) Business Days after written notice thereof from Purchaser to Seller, then Purchaser shall have the right, at Purchaser’s option, to (x) terminate this Agreement and receive the Deposit (or the remaining portion thereof then being held by the Escrow Agent) from the Escrow Agent, and Purchaser may sue Seller for actual damages suffered by Purchaser as a result of such default, or (y) institute a suit against Seller for specific performance of Seller’s obligations under this Agreement.

-43-

ARTICLE XIII I

MISCELLANEOUS

Section 13.1.      Assignment.    Except as set forth in Section 5.3 hereof, this Agreement may not be assigned by operation of law or otherwise without the express written consent of Purchaser, in the case of Seller, or Seller, in the case of Purchaser, which consent in each such case may be granted or withheld in the sole discretion of each such party. Notwithstanding the foregoing, Purchaser may, upon written notice to Seller given at least five (5) Business Days prior to the applicable Closing Date, designate one or more of its direct or indirect wholly owned subsidiaries (a “Purchaser Subsidiary”) to take title to any Transferred Asset at the Closing (in lieu of Purchaser), provided that any such transfer and assignment of a Lease to a Purchaser Subsidiary shall either (a) not require the consent or approval of the Landlord under the Lease or of any other third party, or (b) be in accordance with, and be permitted under, the terms of any Required Consent obtained with respect to the transfer and assignment of such Lease.

Section 13.2.      Entire Agreement.    This Agreement constitutes the entire agreement between Seller and Purchaser with respect to the subject matter hereof and shall not be modified or amended except in a written document signed by Seller and Purchaser. Any prior agreement or understanding between Seller and Purchaser concerning the subject matter hereof is hereby rendered null and void, other than the Confidentiality and Access Agreement, which remains in full force and effect.

Section 13.3.      Time is of the Essence.    Time is of the essence with respect to the matters covered by this Agreement. In the computation of any period of time provided for in this Agreement or by law, the day of the act or event from which the period of time runs shall be excluded, and the last day of such period shall be included, unless it is not a Business Day, in which case the period shall be deemed to run until the end of the next Business Day.

Section 13.4.      Further Assurances.    Each party will promptly execute and deliver or cause to be executed and delivered all such other and further instruments, documents or assurances, and promptly do or cause to be done all such other and further things as may be necessary and reasonably required in order to further and more fully vest in the other party, all rights, interests, powers or benefits intended to be conferred upon it by this Agreement.

Section 13.5.      Construction.    The parties acknowledge that each party and its counsel have reviewed and revised this Agreement, and that any rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or schedules hereto.

Section 13.6.      Legal Fees.    In the event of a default by either party of its obligations under this Agreement, the prevailing party in any action or proceeding in any court in connection therewith shall be entitled to recover from such other party its costs and expenses, including, without limitation, reasonable legal fees and associated court costs.

-44-

Section 13.7.      Notices.  All notices, requests, demands or other communications required or permitted under this Agreement shall be in writing and delivered personally, by facsimile transmission, or by overnight courier (such as Federal Express), addressed as follows:

If to Seller:

Kmart Corporation
3100 West Big Beaver Road
Troy, Michigan 48084
Attn:    Harold W. Lueken, Esq.

            Senior Vice President and General Counsel
Fax:     (248) 614-0951

With a copy to:

Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attn:   Stephen G. Gellman, Esq.
 
            Scott K. Charles, Esq.
Fax:     (212) 403-2000

And a copy to:

Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attn:   Chetan Gulati
Fas:     (212) 403-2000

If to Purchaser:

Sears, Roebuck and Co.
3333 Beverly Road

Hoffman Estates, Illinois 60192-3322
Attn:   General Counsel
Fax:     (847) 286-6544

 

With a copy to:

-45-

Jenner & Block LLP
One IBM Plaza
Chicago, Illinois 60611
Attn:    Donald I. Resnick, Esq.
Fax:     (312) 840-7656

Section 13.8.      Governing Law.    This Agreement shall be governed and interpreted in accordance with the laws of the State of New York, without regard to principles of conflicts of law.

Section 13.9.      Counterparts.    This Agreement may be executed in any number of identical counterparts, any or all of which may contain the signatures of fewer than all of the parties but all of which shall be taken together as a single instrument.

Section 13.10.      Invalid Provisions.    If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any present or future law, rule, or regulation, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof. The remaining provisions of this Agreement shall remain in full force and effect, and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a legal, valid, and enforceable provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible.

Section 13.11.      Headings, Gender, Etc.    The headings used in this Agreement have been inserted for convenience only and do not constitute matter to be construed or interpreted in connection with this Agreement. Unless the context of this Agreement otherwise requires, (a) words of any gender shall be deemed to include each other gender, (b) words using the singular or plural number shall also include the plural or singular number, respectively, (c) references to “hereof,” “herein,” “hereby” and similar terms shall refer to this entire Agreement, and (d) the term “including,” as used herein shall mean “including, without limitation,” unless the context otherwise requires. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent and no rule of strict construction shall be applied against any party.

Section 13.12.      No Third Party Beneficiaries.    Except with respect to the Purchaser Indemnified Parties and Seller Indemnified Parties, nothing contained herein, express or implied, is intended to confer upon any person other than the parties hereto and their respective successors and permitted assigns any rights or remedies under or by reason of this Agreement.

ARTICLE XIV

ESCROW AGENT

Section 14.1.      Duties and Obligations of Escrow Agent.

-46-

     (a)      Upon receipt by Escrow Agent of the Deposit (which term, as used herein, shall refer either to the entire Deposit or, following the Initial Closing, the remaining portion of the Deposit then held by the Escrow Agent), Escrow Agent shall cause the same to be deposited into an interest bearing account selected by Escrow Agent, it being agreed that Escrow Agent shall not be liable for (y) any loss of such investment (unless due to Escrow Agent’s gross negligence or willful misconduct) or (z) any failure to attain a favorable rate of return on such investment. Escrow Agent shall deliver the Deposit (or applicable portion thereof) to Seller or to Purchaser, as the case may be, under the following conditions:

(i)	The portion of the Deposit applicable to the Properties being conveyed at such Closing shall be delivered to Seller at the Closing upon receipt by Escrow Agent of a statement duly executed by Seller and Purchaser authorizing such portion of the Deposit to be released.
(ii)	The Deposit (or applicable portion thereof) shall be delivered to Seller within ten (10) Business Days following receipt by Escrow Agent of written demand therefor from Seller (a copy of which shall be simultaneously sent by Seller to Purchaser) stating that Purchaser has defaulted in the performance of its material obligations under this Agreement, and specifying the Section of this Agreement that entitles Seller to be paid the Deposit (or portion thereof), if Purchaser shall not have given notice of objection in accordance with the provisions set forth below; or
(iii)	The Deposit (or applicable portion thereof) shall be delivered to Purchaser within ten (10) Business Days following receipt by Escrow Agent of written demand therefor from Purchaser (a copy of which shall be simultaneously sent by Purchaser to Seller) stating that Seller has defaulted in the performance of its material obligations under this Agreement or that this Agreement was terminated under circumstances entitling Purchaser to the return of the Deposit (or portion thereof), and specifying the Section of this Agreement that entitles Purchaser to the return of the Deposit (or portion thereof), if Seller shall not have given written notice of objection in accordance with the provisions set forth below; or
(iv)	The Deposit shall be delivered to Purchaser or Seller as directed by joint written instructions of Seller and Purchaser.

     (b)      Upon the delivery of a written demand for the Deposit (or applicable portion thereof) by Seller or Purchaser, pursuant to subsection (ii) or (iii) above, the other party shall have the right to object to the delivery of the Deposit (or applicable portion thereof), by giving notice of such objection to Escrow Agent (with a copy to the party demanding the Deposit (or applicable portion thereof)) at any time within seven (7) days after such party’s receipt of notice of the demand for the Deposit (or applicable portion thereof), but not thereafter. Such notice shall set forth the basis for objecting to the delivery of the Deposit. If Escrow Agent shall have timely received such notice of objection, Escrow Agent shall continue to hold the Deposit until

-47-

(x) Escrow Agent receives a notice jointly signed by Seller and Purchaser directing the disbursement of the Deposit (or applicable portion thereof), in which case Escrow Agent shall then disburse the Deposit (or applicable portion thereof) in accordance with said direction, or (y) litigation is commenced between Seller and Purchaser, in which case Escrow Agent shall deposit the Deposit (or applicable portion thereof) with the clerk of the court in which said litigation is pending, or (z) Escrow Agent takes such affirmative steps as Escrow Agent may elect, at Escrow Agent’s sole option, in order to terminate Escrow Agent’s duties hereunder, including but not limited to depositing the Deposit (or applicable portion thereof) in court and commencing an action for interpleader, the costs thereof to be borne by whichever of Seller or Purchaser is the losing party in such interpleader action.

     (c)      Escrow Agent may rely and act upon any instrument or other writing reasonably believed by Escrow Agent to be genuine and purporting to be signed and presented by any person or persons purporting to have authority to act on behalf of Seller or Purchaser, as the case may be, and shall not be liable in connection with the performance of any duties imposed upon Escrow Agent by the provisions of this Agreement, except for Escrow Agent’s own gross negligence or willful misconduct. Escrow Agent shall have no duties or responsibilities except those set forth herein. Escrow Agent shall not be bound by any modification, cancellation or rescission of this Agreement unless the same is in writing and signed by Purchaser and Seller, and, if Escrow Agent’s duties hereunder are affected, unless Escrow Agent shall have given prior written consent thereto. Escrow Agent shall be reimbursed by Seller and Purchaser for any expenses (including reasonable legal fees and disbursements of outside counsel), including all of Escrow Agent’s fees and expenses with respect to any interpleader action incurred in connection with this Agreement, and such liability shall be joint and several; provided, however, that, as between Purchaser and Seller, the prevailing party in any dispute over the Deposit shall be entitled to reimbursement by the losing party of any such expenses paid to Escrow Agent. In the event that Escrow Agent shall be uncertain as to Escrow Agent’s duties or rights hereunder, or shall receive instructions from Purchaser or Seller that, in Escrow Agent’s opinion, are in conflict with any of the provisions hereof, Escrow Agent shall be entitled to hold and apply the Deposit, and may decline to take any other action. After delivery of the Deposit (or applicable portion thereof) in accordance herewith, Escrow Agent shall have no further liability or obligation of any kind whatsoever.

     (d)      Escrow Agent shall have the right at any time to resign as Escrow Agent upon ten (10) Business Days’ prior notice to Seller and Purchaser. Seller and Purchaser shall jointly select a successor Escrow Agent and shall notify Escrow Agent of the name and address of such successor Escrow Agent within ten (10) Business Days after receipt of notice of Escrow Agent of its intent to resign. If Escrow Agent has not received notice of the name and address of such successor Escrow Agent within such period, Escrow Agent shall have the right to select on behalf of Seller and Purchaser a bank or trust company to act as successor Escrow Agent hereunder. At any time after the expiration of such ten (10) Business Day period, Escrow Agent shall have the right to deliver the Deposit to any successor Escrow Agent selected hereunder, provided such successor Escrow Agent shall execute and deliver to Seller and Purchaser an assumption agreement whereby it assumes all of Escrow Agent’s obligations hereunder. Upon the delivery of all such amounts and such assumption agreement, the successor Escrow Agent shall become the Escrow Agent for all purposes hereunder and shall have all of the rights and

-48-

obligations of the Escrow Agent hereunder, and the resigning Escrow Agent shall have no further responsibilities or obligations hereunder.

     (e)      Seller and Purchaser shall jointly and severally indemnify and hold harmless Escrow Agent from and against any and all costs, losses, claims, damages, liabilities and expenses, including reasonable costs of investigation, court costs, attorneys’ fees and disbursements, which may be imposed upon or incurred by Escrow Agent in connection with its acceptance of, or appointment as, Escrow Agent hereunder, or in connection with the performance of its duties hereunder (other than due to the gross negligence or willful misconduct of Escrow Agent), including, without limitation, any litigation arising out of this Agreement or involving the subject matter hereof.

     (f)      The interest earned on the Deposit shall be paid to Purchaser and Purchaser shall pay any income taxes thereon.

               REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

-49-

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

SEARS, ROEBUCK AND CO., a New York corporation

By:      /s/ Alan J. Lacy
Name: Alan J. Lacy
Its:      Chairman of the Board of Directors, President and Chief Executive Officer

KMART CORPORATION, a Michigan corporation, on behalf of itself and all Seller
Subsidiaries owning any portion of the Transferred Assets and Pharmacy Assets

By:       /s/ Harold W. Lueken
Name: Harold W. Lueken
Its:       Senior Vice President

The undersigned hereby executes this
Agreement as Escrow Agent, and agrees
to be bound by the terms and conditions
of this Agreement that are applicable to
the Escrow Agent:

FIRST AMERICAN TITLE INSURANCE COMPANY, as Escrow Agent

By:       /s/ Joseph Ghilardi
Name: Joseph Ghilardi
Its:      Vice President and Managing Director

-50-

EX-10.(C)

Exhibit 10(c)

*** Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Securities and Exchange Commission.

MASTER SERVICES AGREEMENT

between

Sears, Roebuck and Co.

and

Computer Sciences Corporation

DATED: June 1, 2004

TABLE OF CONTENTS
(continued)

			Page
		1.
		BACKGROUND AND OBJECTIVES
1.1	Information Technology Services			1
1.2	Goals and Objectives			1
		2.
		DEFINITIONS AND DOCUMENTS
2.1	Definitions			3
2.2	Master Agreement and Associated Contract Documents			3
	(a)	General		3
	(b)	Exhibits		3
	(c)	Statements of Work		4
	(d)	Service Addenda		4
	(e)	Appendices		4
	(f)	Transaction Document		4
	(g)	Interpretation and Precedence		4
	(h)	Ordering Affiliates		5
2.3	Appendices to this Master Agreement			5
		3.
		TERM
3.1	Term of Master Agreement, Exhibits, SOWs and Service Addenda			5
	(a)	Master Agreement		5
	(b)	Exhibits		6
	(c)	Service Addenda and SOWs		6
3.2	Extension			6
		4.
		SERVICES
4.1	Overview			6
	(a)	Services		6
	(b)	Included Services		8
	(c)	TI Exhibit		8
	(d)	Off-Shore Services		8

 i 

TABLE OF CONTENTS
(continued)

			Page
4.2	Eligible Recipient Services			9
	(a)	Eligible Recipients		9
	(b)	Eligible Recipient Requests		9
4.3	Acquisition and Divestiture Services			9
	(a)	Acquisition Support		10
	(b)	Migration of Systems		10
	(c)	On-Site Support		10
	(d)	Divestitures		10
4.4	Access to Specialized CSC Skills and Resources			10
4.5	Additional Services			10
	(a)	General		10
	(b)	New Services		11
	(c)	Efforts to Reduce Costs and Charges		13
	(d)	Charges for Contract Changes		14
	(e)	Additional Work or Reprioritization		14
		5.
		GOVERNANCE
5.1	Operational Procedures Manual			14
	(a)	Delivery and Contents		14
	(b)	Revision and Maintenance		15
	(c)	Compliance		15
	(d)	Modification and Updating		16
5.2	Change Control			16
	(a)	Compliance with Change Control Procedures		16
	(b)	System Change Costs		16
	(c)	Sears Approval — Cost, Adverse Impact		17
	(d)	Temporary Emergency Changes		17
	(e)	Implementation of System Changes		17
	(f)	Planning and Tracking		17
	(g)	Comparisons		17

 ii 

TABLE OF CONTENTS
(continued)

			Page
5.3	Reports			18
	(a)	Reports		18
	(b)	Back-Up Documentation		18
5.4	Meetings			18
	(a)	Meetings		18
	(b)	Agenda and Minutes		18
	(c)	Eligible Recipient Meetings		19
	(d)	Telephone/Video Conferences		19
		6.
		CSC RESPONSIBILITIES
6.1	Cooperation with Sears Personnel			19
6.2	Subcontractors			20
	(a)	Use of Subcontractors		20
	(b)	Exempt Subcontractors		20
	(c)	Minority/Women-Owned Businesses		20
6.3	Quality Assurance			21
6.4	Architecture, Standards and Information Technology Planning			21
	(a)	CSC Support		21
	(b)	CSC Familiarity with Sears Standards		22
	(c)	Sears Authority and CSC Compliance		22
	(d)	Compliance with Sears Standards		22
	(e)	Financial, Forecasting and Budgeting Support		23
6.5	Technology			23
	(a)	CSC Briefings		23
	(b)	Currency		23
	(c)	Evaluation and Testing		24
	(d)	Approval by Sears		24
	(e)	Updates by Sears		25
	(f)	Unanticipated IT Change		25
	(g)	CSC Developed Advances		25

 iii 

TABLE OF CONTENTS
(continued)

			Page
	(h)	Services Evolution and Modification		25
6.6	Financial Filings and Notice of Change of Financial Condition			25
	(a)	Financial Filings		25
	(b)	Notice		26
		7.
		SEARS’ RESPONSIBILITIES
7.1	General Sears Responsibilities			26
	(a)	Sears Relationship Manager		26
	(b)	Cooperation		26
	(c)	Sears Personnel		26
	(d)	Contract Waivers		26
7.2	Sears’ Responsibilities			26
	(a)	Nature of Responsibilities		26
	(b)	Exception to CSC Performance		27
	(c)	Notice of Problems		27
	(d)	***		27
		8.
		SEARS AND CSC FACILITIES
8.1	Service Facilities			27
8.2	Sears Facilities			28
	(a)	General		28
	(b)	Use of Sears Facilities		29
8.3	Access to Sears’ Networks			29
8.4	CSC’s Responsibilities			30
8.5	Physical Security			30
		9.
		REQUIRED CONSENTS
9.1	Administrative Responsibility			31
	(a)	General		31
	(b)	Cooperation		31
9.2	Financial Responsibility			31

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

 iv 

TABLE OF CONTENTS
(continued)

			Page
9.3	Contingent Arrangements			32
	(a)	General		32
		10.
	SOFTWARE,	EQUIPMENT, CONTRACTS AND ASSETS ASSOCIATED WITH THE PROVISION OF SERVICES
10.1	CSC Designated Contracts			32
	(a)	Assignment and Assumption		32
	(b)	CSC Designated Contracts Not Assignable by Commencement Date		32
	(c)	Non-Assignable CSC Designated Contracts		33
	(d)	Modification and Substitution		33
	(e)	Unidentified Third Party Contracts		34
	(f)	Managed Third Parties		34
	(g)	Notice of Defaults		34
10.2	Acquired Assets			34
10.3	Sears Provided Systems and CSC Provided Systems			35
	(a)	Inventory		35
	(b)	Non-Commercially Available Software		35
	(c)	CSC Managed Systems		36
	(d)	Financial Responsibility		37
	(e)	Operational Responsibility		37
	(f)	Benefits Pass-Through		38
	(g)	UCITA and CISG		38
	(h)	Other Matters		38
	(i)	Evaluation of Third Party Software, Equipment		39
10.4	Notice of Decommissioning			40
10.5	License to CSC Provided Systems			40
10.6	License to Sears Provided Systems and CSC Managed Systems			41
	(a)	License to Sears Owned Materials		41
	(b)	License to Third Party Materials		41

 v 

TABLE OF CONTENTS
(continued)

			Page
		11.
		SERVICE LEVELS
11.1	Description of Service Levels			42
	(a)	Purpose of Service Levels		42
	(b)	Service Level Performance Standards		42
11.2	Service Level Credits			42
11.3	Problem Analysis			42
11.4	Continuous Improvement Reviews			43
11.5	Measurement and Monitoring			43
11.6	Satisfaction Surveys			44
	(a)	General		44
	(b)	Sears Conducted Surveys		44
	(c)	Survey Follow-up		44
11.7	Excessive Service Level Failure			44
		12.
		PROJECT PERSONNEL
12.1	Key Personnel			45
	(a)	Approval of Key Personnel		45
	(b)	Continuity of Key Personnel		45
	(c)	Succession		46
	(d)	Location of Key Personnel		46
	(e)	Restrictions on Performing Services to Sears’ Competitors		46
12.2	CSC Account Executive			46
12.3	Compensation of CSC Account Executive and Key Personnel			46
	(a)	CSC Account Executive		46
	(b)	Key Personnel		47
	(c)	Evaluation Input		47
12.4	Qualifications and Retention of CSC Personnel			47
	(a)	Sufficiency and Suitability of Personnel		47
	(b)	Turnover Rate and Data		47
	(c)	Drug Testing		47

 vi 

TABLE OF CONTENTS
(continued)

			Page
	(d)	Background Checks		47
	(e)	Fingerprinting		49
12.5	Identification of CSC Personnel			49
12.6	Substance Abuse			49
12.7	Union Agreements			49
12.8	CSC Responsibility			49
		13.
		CHARGES
13.1	General			50
	(a)	Payment of Charges		50
	(b)	No Charge for Reperformance		50
13.2	Pass-Through Expenses			50
	(a)	Procedures and Payment		50
	(b)	No Markup; No Fees		51
	(c)	Efforts to Minimize		51
	(d)	Disbursements		51
	(e)	Limited Agency		51
	(f)	Reimbursement for Substitute Payment		51
13.3	Reimbursable Expenses and Sears Expense Policy			51
13.4	Taxes			52
	(a)	Income Taxes		52
	(b)	Sales, Use and Property Taxes		52
	(c)	Taxes on Goods or Services Used by CSC		52
	(d)	Service Taxes		52
	(e)	Notice of New Taxes and Charges		53
	(f)	Efforts to Minimize Taxes		53
	(g)	Tax Audits or Proceedings		54
13.5	Tax Filings			54
13.6	Extraordinary Events			54
	(a)	Definition		54

 vii 

TABLE OF CONTENTS
(continued)

			Page
	(b)	Consequence		55
13.7	Proration			56
13.8	Refundable Items			56
	(a)	Prepaid Amounts		56
	(b)	Refunds and Credits		56
13.9	Repricing			56
13.10	Benchmarking			57
	(a)	Required Benchmark Reviews		57
	(b)	Other Price Reviews		57
	(c)	General		58
	(d)	Results of Required Benchmarking		58
	(e)	Non-Competitive Charges		58
13.11	Most Favored Customer			58
		14.
		INVOICING AND PAYMENT
14.1	Invoicing			59
	(a)	Invoice		59
	(b)	Form and Data		59
	(c)	Credits		60
	(d)	Time Limitation		60
14.2	Payment			60
	(a)	Timing		60
	(b)	Interest		60
14.3	Set Off			60
14.4	Disputed Charges			60
	(a)	Description and Explanation		61
	(b)	No Waiver		61
	(c)	***		61
	(d)	***		61

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

 viii 

TABLE OF CONTENTS
(continued)

			Page
		15.
		SEARS DATA AND OTHER CONFIDENTIAL INFORMATION
15.1	Sears Ownership of Sears Data			61
15.2	Safeguarding Sears Data			62
	(a)	Safeguarding Procedures		62
	(b)	Reconstruction Procedures		62
15.3	Confidentiality			63
	(a)	Confidential Information		63
	(b)	Confidential Business Information		63
	(c)	Confidential Personal Information		65
	(d)	Return or Destruction of Confidential Information		67
	(e)	Loss of Confidential Information		67
	(f)	No Implied Rights		67
15.4	File Access			68
		16.
		OWNERSHIP
16.1	CSC Provided Systems			68
	(a)	Ownership of CSC Provided Systems		68
	(b)	*** – Patents		68
16.2	Sears Provided Systems			70
16.3	Deliverables			70
	(a)	License to Sears		70
	(b)	Restrictions		71
	(c)	Source Code and Documentation		71
16.4	General Knowledge			71
16.5	Other Rights			71
16.6	Copyright Legends			71
		17.
		REPRESENTATIONS, WARRANTIES AND COVENANTS
17.1	By CSC			71
	(a)	Work Standards		72

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

 ix 

TABLE OF CONTENTS
(continued)

			Page
	(b)	Maintenance		72
	(c)	Efficiency and Cost Effectiveness		72
	(d)	CSC Provided Systems/CSC Managed Systems/Deliverables		73
	(e)	Deliverables		73
	(f)	Non-Infringement		73
	(g)	Authorization		74
	(h)	Sears Code of Conduct and Privacy Policies		74
	(i)	Unauthorized Code		74
	(j)	Compliance with Laws		76
	(k)	Notice of Adverse Impact		77
	(l)	Interoperability		77
	(m)	Pass-Through		77
17.2	By Sears			77
	(a)	Non-Infringement		77
	(b)	Authorization		78
17.3	Disclaimer			78
17.4	Effect			79
		18.
		Audit Rights
18.1	Contract Records			79
18.2	Sears Audit			79
	(a)	General		79
	(b)	Operational and Financial Audits		79
18.3	SAS 70 Audit			80
18.4	Governmental or Other Non-Sears Audits			80
18.5	Audit Process			81
18.6	Security Testing			81
18.7	Remedial Obligations			81
18.8	General Procedures			82
	(a)	Access		82

 x 

TABLE OF CONTENTS
(continued)

			Page
	(b)	Notice		82
	(c)	Exit Conference		82
	(d)	Audit Workspace		82
18.9	CSC Breach			82
		19.
		INSURANCE AND RISK OF LOSS
19.1	Insurance			83
	(a)	Requirements		83
	(b)	Endorsements		84
	(c)	Certificates		85
	(d)	No Implied Limitation		85
	(e)	Insurance Subrogation		85
	(f)	Material Breach		85
19.2	Risk of Loss			86
	(a)	General		86
	(b)	Waiver		86
		20.
		INDEMNITIES
20.1	Indemnity by CSC			86
	(a)	Breach of This Agreement		86
	(b)	CSC Designated Contracts		87
	(c)	Licenses, Leases or Contracts		87
	(d)	Sears Data or Confidential Information		87
	(e)	Infringement		87
	(f)	Government Claims		87
	(g)	Taxes		87
	(h)	Shared Facility Services		87
	(i)	Affiliate, CSC Personnel or Assignee Claims		88
	(j)	Background and Drug Checks		88
	(k)	CSC Acts or Omissions		88
	(l)	Employment Claims		88

 xi 

TABLE OF CONTENTS
(continued)

			Page
	(m)	Environmental Claims		89
	(n)	Violation of Laws		89
20.2	Indemnity by Sears			89
	(a)	Breach of This Agreement		89
	(b)	Licenses, Leases or Contracts		89
	(c)	Pre-Commencement Date Matters		89
	(d)	CSC’s Confidential Business Information		89
	(e)	Infringement		89
	(f)	Taxes		90
	(g)	Eligible Recipients’ Acts or Omissions		90
	(h)	Eligible Recipient Claims		90
	(i)	Violation of Laws		90
20.3	Infringement			90
	(a)	CSC Provided Systems, CSC Managed Systems or Deliverables		90
	(b)	Sears Provided Systems		91
20.4	Indemnification Procedures			91
	(a)	Notice		92
	(b)	Procedure Following Notice of Defense		92
	(c)	Procedure Where No Notice of Assumption Is Delivered		92
20.5	Indemnification Procedures — Governmental Claims			92
20.6	Mixed Claims			93
20.7	Independent Obligations			93
		21.
		LIABILITY
21.1	Force Majeure			93
	(a)	General		93
	(b)	Duration and Notification		94
	(c)	Substitute Services; Termination		94
	(d)	Disaster Recovery		95
	(e)	Payment Obligation		95

 xii 

TABLE OF CONTENTS
(continued)

			Page
	(f)	Allocation of Resources		95
21.2	Limitation of Liability			96
	(a)	Exclusions from Liability		96
	(b)	Liability Cap		96
	(c)	Other		96
	(d)	Exceptions to Limitations of Liability		96
	(e)	Items Not Considered Damages		97
	(f)	Waiver of Liability Cap		98
	(g)	Acknowledged Direct Damages		98
21.3	Public Telecommunications Transmissions			99
		22.
		DISPUTE RESOLUTION
22.1	Informal Dispute Resolution			99
	(a)	Initial Effort		99
	(b)	Escalation		100
	(c)	Provision of Information		100
	(d)	Prerequisite to Formal Proceedings		100
22.2	Arbitration			101
	(a)	Arbitration		101
	(b)	Location and Decision		101
	(c)	Selection and Qualification of Arbitrators		101
	(d)	General		102
22.3	Continued Performance			102
	(a)	General		102
	(b)	Non-Interruption of Services		103
		23.
		TERMINATION
23.1	Termination for Cause			103
	(a)	Termination By Sears		103
	(b)	By CSC		105
23.2	Termination for Convenience			105

 xiii 

TABLE OF CONTENTS
(continued)

			Page
23.3	Termination Charges			106
23.4	Termination Upon CSC Change of Control			106
23.5	Termination Upon Sears’ Mergers and Acquisitions			107
23.6	Termination for Insolvency			107
23.7	Termination for Change in Laws			108
23.8	Sears’ Rights Upon CSC’s Bankruptcy			108
	(a)	General Rights		108
	(b)	Sears’ Rights in Event of Bankruptcy Rejection		108
23.9	Right to Assume Licenses in Bankruptcy			109
		24.
		Rights Upon Expiration or Termination
24.1	Certain Rights			109
24.2	Hiring			109
24.3	Sears Provided Systems and Deliverables			110
	(a)	Deliver		110
	(b)	Destroy		110
24.4	Sears Facilities			110
24.5	CSC Provided Systems			110
	(a)	CSC Provided Circuits and Other Items		110
	(b)	CSC Provided Equipment		110
	(c)	CSC Provided Software		111
24.6	CSC Subcontracts and Third Party Contracts			113
24.7	Effect on Termination Charge			114
		25.
		Termination Assistance Services
25.1	Duration			114
	(a)	Period of Provision		114
	(b)	Extension(s) of Services and Termination Assistance Services		114
	(c)	Firm Commitment		115
	(d)	Performance		116
25.2	Scope of Termination Assistance Service			116

 xiv 

TABLE OF CONTENTS
(continued)

			Page
25.3	General Support			116
25.4	Rates and Charges			117
		26.
		GENERAL
26.1	Binding Nature and Assignment			117
	(a)	Binding Nature		117
	(b)	Assignment		117
	(c)	Impermissible Assignment		118
26.2	Entire Agreement; Amendment			118
26.3	Notices			118
26.4	Legal Expenses			119
26.5	Counterparts			120
26.6	Headings			120
26.7	Severability			120
26.8	Jurisdiction			120
26.9	Governing Law			121
26.10	Relationship of the Parties			121
26.11	Consents and Approval			122
	(a)	General		122
	(b)	Written Approval		122
26.12	Waiver of Default; Cumulative Remedies			122
	(a)	Waiver of Default		122
	(b)	Cumulative Remedies		123
26.13	Survival			123
26.14	Publicity			123
26.15	Equitable Remedies			123
26.16	Parties To This Agreement			124
26.17	Covenant Against Pledging and Liens			124
26.18	Hiring of Employees			124
	(a)	Hiring Restriction		124

 xv 

TABLE OF CONTENTS
(continued)

			Page
	(b)	Permitted Hiring		124
26.19	Further Assurances			125
26.20	No Commitment and No Exclusivity			125
26.21	Sears Rules and Compliance			125
26.22	Interpretation			125
26.23	Export Controls			126
26.24	Covenant of Good Faith			126

 xvi 

MASTER SERVICES AGREEMENT

THIS MASTER SERVICES AGREEMENT (this “Master Agreement”) is made as of June 1, 2004 (the “Effective Date”) by and between Computer Sciences Corporation, a Nevada corporation (“CSC”), and Sears, Roebuck and Co., a New York corporation (“Sears”).

WHEREAS, Sears and CSC wish to set forth the terms and conditions under which CSC may provide Sears and the other Eligible Recipients with certain services through one or more Transaction Documents pursuant to this Master Agreement;

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Sears and CSC (collectively, the “Parties” and each, a “Party”) hereby agree as follows:

1.	BACKGROUND AND OBJECTIVES
1.1	Information Technology Services.
	Sears desires that certain information technology services presently performed and managed by or for Sears and the other Eligible Recipients by their respective Personnel, and certain additional information technology services, as each is described in a Transaction Document, be performed and managed by CSC. CSC has carefully reviewed Sears’ requirements, has performed all due diligence it deems necessary, and desires to perform and manage such information technology services for Sears and the other Eligible Recipients.
1.2	Goals and Objectives.
	The Parties acknowledge and agree that the goals and objectives of the Parties in entering into this Agreement are to create a special relationship between CSC and Sears, where CSC’s Personnel work cooperatively and proactively with Sears’ Personnel in a “badge neutral” environment with the common goals of:

(a)	Transforming the underlying architecture of Sears’ and the other Eligible Recipients’ technical infrastructure to improve services;
(b)	Significantly reducing the current and ongoing cost to Sears and the other Eligible Recipients for information technology services and delivery;
(c)	Providing a flexible, reliable, high-performance architecture for Sears and the other Eligible Recipients’ technical infrastructure, that provides:

(i)	Common processes across the Eligible Recipients;
(ii)	Elimination of duplication across the Eligible Recipients;

(iii)	Simplified end user interactions;
(iv)	Scalable and modular solutions;
(v)	Flexibility and speed in changing service delivery to meet the Eligible Recipients’ evolving business requirements; and
(vi)	Technology currency;

(d) Performing all of the Services at or above existing service levels while reducing costs, including providing:

(i)	Improved quality and efficiency of information technology delivery to the Eligible Recipients;
(ii)	Predictable and consistent service delivery;
(iii)	Industry best practices and delivery processes; and
(iv)	The right capability at the right time;

(e) Standardizing, simplifying and integrating the Eligible Recipients’ technical infrastructure, including:

(i)	Modernization and sustained infrastructure support of the Eligible Recipients’ evolving business requirements;
(ii)	Access to current and evolving technologies;
(iii)	Rapid transformation to future state initiatives within defined time frames; and
(iv)	Uniform technical infrastructure prioritized over best-of-class for creation of future state;

(f) Continuously innovating and improving the performance and delivery of technical services to the Eligible Recipients and the Eligible Recipients’ technical infrastructure cost and Service Level metrics, including:

(i)	Achieving and maintaining best-in-class pricing for the technical capabilities and Service Levels for the Services received by the Eligible Recipients under this Agreement;
(ii)	Utilizing enabling technologies to add value to the Eligible Recipients’ business processes;
(iii)	Keeping Sears apprised of new and advanced technologies to enhance the performance of the Eligible Recipients; and

2

(iv) Providing thought leadership in the selection and use of enabling technologies;

(g) Allowing Sears to focus on its core competencies and allowing Sears’ technical infrastructure management to focus on business relationships and requirements, including:

(i)	Delivering information technology services by proactively and willingly participating on teams comprising CSC, Sears enterprise leadership and staff, and Third Party vendors; and
(ii)	Providing flexibility to allow Sears and its Affiliates to meet their changing business needs, align incentives, protect Sears Data and vital business interests, allocate risks and to allow effective management of the Services.

2.	DEFINITIONS AND DOCUMENTS
2.1	Definitions.
	Certain capitalized terms used in this Agreement are defined in Appendix A (Glossary). Other capitalized terms used in this Master Agreement, the Appendices to this Master Agreement or any Transaction Documents are defined in the context in which they are used and have the respective meanings there indicated.
2.2	Master Agreement and Associated Contract Documents.

(a)

General. This Master Agreement is a master agreement that sets forth the general terms and conditions upon which Sears and the other Eligible Recipients may from time to time procure Services from CSC. Services shall be provided by CSC pursuant to Transaction Documents entered into by CSC and Sears and/or Affiliate(s) of Sears. The Parties intend that they shall enter into a Transaction Document before CSC or its Affiliates provides any Services to Sears or the other Eligible Recipients. If CSC or its Affiliates provides Services to Sears or the other Eligible Recipients in the absence of such a Transaction Document or other written agreement signed by each Party, this Agreement shall nevertheless apply to such Services. However, Sears shall not be required to compensate CSC or its Affiliates for Services not described in a Transaction Document or other written agreement executed by the duly authorized representatives of both Parties, except as and to the extent expressly provided otherwise in Section 4.5 (Additional Services).

(b)

Exhibits. If Sears elects to procure Services from CSC that are unrelated to the subject matter of any existing Exhibit (and CSC elects to provide such Services), the Parties shall enter into an Exhibit for such Services. Separate Exhibits may be entered into for discrete Services. Exhibits can be either: (i) commitments to procure Services; or (ii) general descriptions of Services without a commitment to

3

	procure Services, in which case Services shall not be deemed to have been ordered under such Exhibit unless and until the Parties shall have entered into a subsequent Statement of Work or Service Addendum that expressly references such Exhibit and whereby Sears agrees to procure Services. Each Exhibit shall be subject to the terms and conditions of this Master Agreement. All references in this Agreement to “Exhibits” shall include Appendices, SOWs and Service Addenda thereunder.
(c)	Statements of Work. “Statements of Work” or “SOWs” are transaction-level documents that are entered into pursuant to an Exhibit. Each SOW shall be subject to the terms and conditions of the applicable Exhibit and this Master Agreement. All references in this Agreement to “SOWs” shall include all Appendices and Service Addenda thereunder.
(d)	Service Addenda. “Service Addenda” are transaction-level documents that are entered into to add Services to an Exhibit or a SOW. Each Service Addendum shall be subject to the terms and conditions of the applicable SOW, the applicable Exhibit and this Master Agreement. All references in this Agreement to a “Service Addendum” shall include all Appendices thereunder.
(e)	Appendices. “Appendices” are ancillary documents attached to this Master Agreement, an Exhibit, a SOW or a Service Addendum and the term Appendices shall include “Schedules” and “Attachments”. Each Appendix shall be deemed incorporated by reference into the Transaction Document that references it and shall be subordinate in priority to such Transaction Document.
(f)	Transaction Document. “Transaction Document” means the applicable Exhibit, SOW and/or Service Addendum.
(g)	Interpretation and Precedence. This Master Agreement and any Transaction Documents are to be interpreted so that all of their respective provisions are given as full effect as possible. In the event of a conflict between any of the documents comprising this Agreement, the following order of precedence shall apply: (i) first, a Service Addendum; (ii) second, a SOW; (iii) third, the applicable Exhibit; and (iv) fourth, this Master Agreement; provided, however, that absent an express statement therein to the contrary, no provision in a SOW, a Service Addendum or an Appendix to any contract document shall be deemed to amend this Master Agreement or any Exhibit (e.g., a different provision in an Exhibit would control over this Master Agreement, but such a provision in a SOW shall not control over this Master Agreement unless there is an express statement in such SOW that such provision was to control over a particular Section of this Master Agreement). Notwithstanding the foregoing, if a Transaction Document provides a more specific description of CSC’s obligations or the requirements relating to the Services to be performed by CSC or sets higher standards than the terms of this Master Agreement or the applicable Exhibit, then such more specific description, requirements or higher standard, as the case may be, shall not be deemed to

4

conflict, or be inconsistent, with such terms of this Master Agreement or the applicable Exhibit.

(h)

Ordering Affiliates. Subject to Section 4.2(b) (Eligible Recipient Requests), Affiliates of Sears may procure Services directly from CSC under this Master Agreement by entering into a Transaction Document with CSC for such Services that references this Master Agreement. Each Transaction Document, together with this Master Agreement, shall be deemed to constitute a separate agreement between CSC and the Affiliate of Sears that executed such Transaction Document. Any Affiliate of Sears that executes a Transaction Document with CSC shall be deemed to be “Sears” hereunder for purposes of such Transaction Document. Only the Affiliate of Sears that executes such a Transaction Document shall be liable for Sears’ obligations under such Transaction Document and CSC shall look solely to such Affiliate (and not to Sears) for satisfaction of any liability arising thereunder or relating thereto.

2.3	Appendices to this Master Agreement.
	This Master Agreement includes the following Appendices:
	Appendix A      Glossary Appendix B      Sears Expense Policy Appendix C      CSC Drug Testing Policy
3.	TERM
3.1	Term of Master Agreement, Exhibits, SOWs and Service Addenda.

(a) Master Agreement. The term of this Master Agreement (the “Term”) shall commence as of 12:00:01 a.m., Eastern Time, on the Effective Date and continue until 11:59:59 p.m., Eastern Time, on May 31, 2009, unless this Master Agreement is extended or terminated earlier in accordance with the terms and conditions of this Master Agreement. Upon any expiration or termination of this Master Agreement, the terms and conditions of this Master Agreement shall survive for purposes of any Transaction Document still in effect as of such expiration or termination; provided, however, that no new Exhibit shall be entered into after such expiration or Termination. For purposes of clarity, the purpose of the preceding sentence is to cause the parties to evaluate whether changes should be made to this Master Agreement prior to entering into a new Exhibit after such five (5) year period. Absent the express written agreement of the Parties, for Transaction Documents that have a Term that extends past the expiration of this Master Agreement: (i) no renegotiation of this Master Agreement upon its expiration shall affect such Transaction Document; and (ii) the expiration or termination of this Master Agreement shall not affect the ability of the Parties to enter into additional Exception Project Work, No Impact Proposals, Service Addenda, SOWs or any other schedule or subsidiary document pursuant to such a Transaction Document after such expiration or termination.

5

(b)

Exhibits. The Term of each Exhibit (the “Exhibit Term”) shall be set forth therein, unless such Exhibit is extended or terminated earlier in accordance with the terms and conditions of such Exhibit or this Master Agreement. Upon any expiration or termination of an Exhibit, the terms and conditions of such Exhibit shall survive for purposes of any SOW and Service Addendum thereunder still in effect as of such expiration or termination; provided, however, that no new SOW or Service Addendum shall be entered into thereunder after such expiration or termination.

(c)

Service Addenda and SOWs. Except as otherwise set forth in a Service Addendum or SOW, the Term of each Service Addendum and SOW shall be coterminous with the Exhibit pursuant to which it was entered into.

3.2	Extension.
	CSC shall notify Sears in writing whether it desires to renew each Exhibit, and of the proposed prices and other terms and conditions to govern such renewal, not less than eighteen (18) months prior to the expiration of the applicable Exhibit Term. If CSC so notifies Sears that it desires to renew such Exhibit, Sears shall inform CSC in writing whether it also desires to renew such Exhibit not less than twelve (12) months prior to the expiration of the applicable Exhibit Term, whereupon CSC shall promptly meet with Sears to agree upon the prices and other terms and conditions for such renewal. Failure by either CSC or Sears to provide notice at the time specified above shall be deemed to be notice of intent not to extend such Exhibit, subject to the other rights of Sears under this Agreement. If either Sears or CSC does not wish to renew such Exhibit, such Exhibit shall expire at the end of the applicable Exhibit Term. IF BOTH CSC AND SEARS DESIRE TO RENEW SUCH EXHIBIT BUT ARE UNABLE TO AGREE IN WRITING UPON RENEWAL PRICES AND OTHER TERMS AND CONDITIONS AT LEAST SIX (6) MONTHS PRIOR TO THE EXPIRATION OF THE APPLICABLE EXHIBIT TERM, SEARS MAY, UPON NOTICE TO CSC, ELECT TO EXTEND SUCH EXHIBIT TERM FOR ONE (1) YEAR AT THE PRICES, TERMS AND CONDITIONS IN EFFECT DURING THE LAST YEAR OF THE THEN-CURRENT APPLICABLE EXHIBIT TERM. If CSC and Sears are unable to reach agreement on renewal during such extension period, if any, such Exhibit shall expire at the end of such extension period unless earlier terminated in accordance with the terms and conditions of such Exhibit or this Master Agreement, or further extended pursuant to Section 25.1(b) (Extension of Services).
4.	SERVICES
4.1	Overview.

(a) Services. Commencing on the applicable Commencement Date, (i) CSC shall provide the Services to Sears, and, upon Sears’ request, to other Eligible Recipients designated by Sears, in each case, at levels of accuracy, quality, completeness, timeliness, responsiveness and resource efficiency that are (1) at

6

least equal to those received by Sears or the other Eligible Recipients, respectively, prior to the Commencement Date and (2) equal to or higher than the applicable Service Levels and the accepted industry standards of first tier providers of information technology services performing similar services, and (ii) the Services that CSC shall provide under such Transaction Document shall consist of the following, as they may evolve during the Term of such Transaction Documents or be supplemented, enhanced, modified or replaced:

(i)	General. The services, functions and responsibilities described in such Transaction Document and the applicable portions of this Master Agreement.
(ii)	Displaced Functions. The services, functions and responsibilities performed during the twelve (12) months preceding such Commencement Date by Sears Personnel who were displaced or whose functions were displaced as a result of such Transaction Document, even if the service, function or responsibility is not specifically described in this Master Agreement or such Transaction Documents; provided, however, that express statements in such Transaction Document that such services, functions or responsibilities are out of scope shall control over this Section 4.1(a)(ii) Displaced Functions);
(iii)	Sears IT Base Case. The services, functions and responsibilities reflected in those categories of the Sears IT Base Case that CSC is assuming pursuant to such Transaction Document; provided, however, that express statements in such Transaction Document that such services, functions or responsibilities are out of scope shall control over this Section 4.1(a)(iii) (Sears IT Base Case);
(iv)	Non-Retained Functions. The services, functions and responsibilities that are not retained by Sears or the other Eligible Recipients and that are reasonably related to the Services and of a nature and type that would ordinarily be performed by the information technology department of a generally comparable, major, multi-division retail merchandising and services company, even if such services, functions and responsibilities are not specifically described in this Agreement; and
(v)	Compliance Functions. All information technology and telecommunication support services reasonably related to the Services that are required for Sears and its Affiliates to meet (A) requirements imposed by federal, state and local laws and regulations, and (B) their internal and external audit and compliance requirements.
(vi)	Peak Business Season Readiness. All peak business season readiness services (a/k/a holiday readiness) reasonably related to the Services that Sears and its Affiliates deem prudent to prepare for their peak business

7

periods. These include such things as forward deployment of important spare parts, stress testing of various Systems, etc.

(b)	Included Services. If any services, functions or responsibilities not specifically described in this Agreement or any Transaction Document are an inherent, necessary or customary part of the Services, including any Migration Services, Interim Services, Termination Assistance Services and/or Transformation Services under any Exhibit, and are (i) reasonably related to CSC’s performance of the Services or (ii) are required for proper performance or provision of the Services in accordance with this Agreement, they shall be deemed to be included within the scope of the Services to be delivered for the Charges, as if such services, functions or responsibilities were specifically described in this Agreement or the applicable Transaction Document.
(c)	TI Exhibit. For purposes of the TI Exhibit, the Services shall consist of four (4) components: (i) the Migration Services; (ii) the Interim Services; (iii) the Transformation Services; and (iv) the Future State Services, in each case as described in greater detail therein.
(d)	Off-Shore Services. Except as otherwise provided in a Transaction Document and subject to the other terms and conditions of this Agreement, CSC may provide the Services using services or facilities outside the United States (collectively, “Foreign Based Services”), or install, transfer or otherwise use Sears Provided Systems, CSC Managed Systems or Sears Data from outside the United States (collectively, “Foreign Use of Certain Systems”), subject to the following.

(i) Foreign Based Services. CSC shall notify Sears at least *** in advance of the commencement of such Foreign Based Service and such notice shall specifically describe what Services will be performed in each foreign jurisdiction. Sears shall have the right to reject the use of such Foreign Based Service; ***.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

8

(ii)	Foreign Use of Certain Systems. CSC shall notify Sears at least *** in advance of the commencement of any Foreign Use of Certain Systems and such notice shall specifically describe which Systems will be used in each foreign jurisdiction. Sears shall have the right to reject, *** any proposal that involves Foreign Use of Certain Systems. If Sears does approve such a proposal, CSC shall be responsible for obtaining, prior to commencement of such foreign use, at its expense, any Required Consents required from Third Parties in connection with such Foreign Use of Certain Systems (e.g., approval from Software licensors, etc.).
(iii)	Data Communications. Except as otherwise expressly set forth in a Transaction Document, to the extent necessary to provide Foreign Based Services, CSC shall, without separate Charge, provide data network connectivity between: (i) CSC’s data connection to the Eligible Recipients’ United States facilities and (ii) the Foreign Based Services.
(iv)	Further Information. CSC shall promptly provide to Sears any information Sears reasonably requests, in connection with any proposal for Foreign Based Services or Foreign Use of Certain Systems.

4.2 Eligible Recipient Services.

(a)

Eligible Recipients. CSC shall provide the Services to Eligible Recipients designated by Sears from time to time. Except as provided in Section 4.5 (Additional Services) or otherwise agreed by the Parties, such Services shall be performed in accordance with the terms, conditions and prices (excluding any non-recurring transition or start-up activities specific to such Eligible Recipients which shall be subject to Section 4.5 (Additional Services)) then applicable to the provisions of the same Services to existing Eligible Recipients. To the extent a designated Eligible Recipient shall receive less than all of the Services, Sears shall designate the categories of Services to be provided by CSC to such Eligible Recipient.

(b)

Eligible Recipient Requests. CSC shall promptly inform the Sears Relationship Manager of requests for New Services from Eligible Recipients and shall submit any proposals for such New Services to the Sears Relationship Manager. Neither CSC nor its Affiliates shall provide New Services to any Eligible Recipients without the prior written approval of the Sears Relationship Manager.

4.3	Acquisition and Divestiture Services.
	CSC shall provide the following Services, at no additional charge and as part of the base Services, related to acquisitions or divestitures by Sears or any other Eligible Recipient. Services that would require CSC to create a new infrastructure to support an acquired Entity or to migrate Sears to an acquired Entity’s Systems shall be subject to Section 4.5(b) (New Services).

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

9

(a)	Acquisition Support. With respect to a potential acquisition by any Eligible Recipient, upon Sears’ request, CSC shall provide acquisition support (including assessments of the current technology environments to be acquired, potential integration approaches and the potential net economic impact of the acquisition in connection with the Services) as reasonably necessary to assist any Eligible Recipient’s assessment of the portion of the acquisition to which the Services shall relate. Such support shall be provided within the time frame reasonably requested by Sears or as required by the timing of the transaction.
(b)	Migration of Systems. As requested by Sears, CSC shall migrate all or some of the Systems, applications and data of the acquired Entity to the Eligible Recipients’ existing environment and/or migrate all or some of the Systems, applications and data of Eligible Recipients to the environment of the acquired Entity. As requested by Sears, CSC shall, following the integration, provide the Services as they apply to the newly integrated acquired Entity or business.
(c)	On-Site Support. As requested by Sears, CSC shall provide CSC Personnel to staff vacancies and to provide management for the information technology functions needed to support an acquisition, including on-site support at the location of the acquired Entity or business.
(d)	Divestitures. From time to time, any Eligible Recipient may divest business units. In such cases, as and to the extent requested by Sears, CSC shall provide transition support services to the Eligible Recipients, the divested business unit and the acquirer, and shall continue to provide such Services for a period of up to twenty-four (24) months after such divestitures as requested by Sears. Any revenues, resources or other similar usage measures in connection with services that are the same as, or similar to, the Services and that are obtained by any Eligible Recipient’s divested business unit under a separate agreement between such business unit (or any acquiring entity or successor thereof) and CSC, shall count toward the satisfaction of any revenue, resource or other similar usage requirements under this Agreement.

4.4	Access to Specialized CSC Skills and Resources.
	Upon Sears’ request, CSC shall provide the Eligible Recipients with prompt access to CSC’s specialized services, CSC Personnel and resources and associated Software, Equipment and Systems. The foregoing shall be provided on an expedited basis, taking into account the relevant circumstances, in the event of a service disruption (the “Specialized Services”).
4.5	Additional Services.

(a) General. If Sears requests CSC to perform any services not already included in the Services, then CSC shall perform such services at no additional Charge to any Eligible Recipient, except to the extent such services constitute New Services. If

10

	CSC’s performance of such services results in a net reduction in CSC’s costs of providing the Services, CSC shall provide Sears a credit in the amount of such savings. If Sears requests that CSC provide Services that CSC believes to be New Services, CSC may make a proposal for New Services in accordance with Section 4.5(b) (New Services).
(b)	New Services.

(i)

No Impact Proposal. If Sears requests that CSC perform New Services, CSC shall first perform an analysis to determine the means, if any, by which CSC can complete such New Services without (1) additional charges to Sears, (2) modifications to any Transaction Document, or (3) any adverse impact to other Services under this Agreement, and, if CSC can do so, CSC shall then: (A) document in writing such a proposal (each a “No Impact Proposal”), (B) deliver a written copy of any such No Impact Proposal to Sears, and (C) shall promptly proceed to provide such New Services in accordance with such proposal.

(ii)

Service Addendum.

(1) Development of Service Addendum. If CSC determines that CSC cannot formulate a No Impact Proposal, CSC shall promptly complete a Service Addendum for such New Services. CSC shall deliver to Sears with such Service Addendum a specific list of alternatives that were explored as possible No Impact Proposals as well as any adverse consequence CSC anticipates under such Service Addendum. CSC shall prepare and deliver any Service Addendum required by this Agreement, at no additional charge to Sears, within ten (10) days of its receipt of Sears’ request; provided, however, that CSC shall use all commercially reasonable efforts to respond more quickly in the case of a pressing business need or an emergency situation. Sears shall provide such information as CSC reasonably requests in order to prepare such proposed Service Addendum. Such proposed Service Addendum shall include, among other things, the following at a level of detail sufficient to permit Sears to make an informed business decision for those New Services not already covered by this Agreement: (A) a project plan; (B) a fixed price or a time and materials price estimate for new Charges required for the New Service, if any, and a breakdown of such Charges by items of consumption (e.g., license and maintenance fees for CSC Provided Software, number of hours of services, price, service type, etc.); (C) a description of any additional Service Levels to be associated with such New Service (or changes to existing Service Levels); (D) a schedule, including major milestones, for commencing and completing the New Service; (E) a description of the new CSC Provided Systems to be provided by CSC in connection with the New Service; (F) a

11

description of any other software, hardware and other resources, including resource unit utilization, necessary to provide the New Service; (G) any additional or different Sears Provided Systems, facilities or labor resources to be provided by the Eligible Recipients in connection with the proposed New Service; and (H) in the case of any Deliverables to be created through the provision of the proposed New Services, any ownership rights therein that differ from the provisions of Section 16.1(a)(Ownership of CSC Provided Systems).

(2)

Acceptance of Service Addendum. Sears may accept or reject any proposed Service Addendum in its sole discretion. CSC shall not be obligated to perform any New Services for which a Service Addenda is required unless the proposed Service Addendum is signed by Sears, or Sears re-prioritizes or eliminates other Services CSC is to provide such that CSC is not required to incur any incremental resources. Upon the execution by the Parties of a proposed Service Addendum for New Services, the scope of the Services in the applicable Transaction Document shall be expanded to include such New Services. Except as provided for in Section 4.5(b)(iii) (Exception Project Work), CSC shall not receive any additional compensation for New Services unless the Sears Relationship Manager and CSC Account Executive, or their authorized designees, have executed a Service Addendum for such New Services. Sears’ execution of a proposed Service Addendum shall not waive Sears’ right to challenge the appropriateness of any or all of CSC’s Charges provided for in such Service Addendum. If Sears authorizes CSC to proceed with any work, such as by executing a Service Addendum, but the Parties disagree as to whether the authorized work constitutes New Services or the amount of the Charges for such work, CSC shall proceed with such work and the disagreement shall be submitted to dispute resolution ***.

(iii) Exception Project Work. The Sears Vice President of Operations/Engineering may authorize CSC to perform New Services (for which an additional charge will apply) on a project-by-project basis, without the need to execute a Service Addendum; provided that:

(1)	Such New Services are for a specific project of a limited duration (rather than the addition of ongoing Services to be performed for the Term of the applicable Transaction Document);
(2)	The Charges applicable to such New Services are non-recurring and do not exceed (A) *** per incident, (B) *** in the

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

12

	aggregate per Contract Year, or (C) the hourly rates set forth in the applicable Transaction Document;
(3)	Neither CSC nor Sears are seeking any changes to the ownership provisions set forth in this Agreement with respect to any Deliverables relating to such New Services; and
(4)	CSC provides a written summary of such New Services that contains the information in Section 4.5(b)(ii) (Service Addendum) to the extent requested by Sears.
By the fifth (5th) day of each month during the Term, CSC shall provide to the Sears Relationship Manager a report listing (A) each New Service subject to this Section 4.5(b)(iii) (Exception Project Work), (B) the amount of Charges then incurred to date for each New Service and (C) the total amount approved by Sears for each New Service. For the avoidance of doubt, each such New Service shall be subject to the terms of this Master Agreement and the applicable Transaction Document.

(iv) Charges. CSC shall act reasonably and in good faith in formulating its pricing proposal for such New Services and shall use commercially reasonable efforts to identify potential means of reducing or eliminating the cost to Sears, including delaying expenditures in other areas under this Agreement, utilizing Subcontractors, etc. CSC’s pricing proposal shall be competitive to the fair market value for such services and no less favorable to Sears than the pricing and labor rates set forth in this Agreement for comparable Services and shall take into account the existing and future volume of overall business between Sears and its Affiliates and CSC and its Affiliates.

(c) Efforts to Reduce Costs and Charges. The Parties shall work together (throughout the Term) to identify ways of achieving reductions in the cost of service delivery and corresponding reductions in the Charges to be paid by Sears by modifying or reducing the nature or scope of the Services to be performed by CSC, the applicable Service Levels or other contract requirements. If requested by Sears, CSC shall promptly prepare a proposal at a level of detail sufficient to permit Sears to make an informed business decision identifying all viable means of achieving the desired reductions without adversely impacting business objectives or requirements identified by Sears (or, if such adverse impacts cannot be avoided, identifying such adverse impacts and any means of mitigating them). In preparing such a proposal, CSC shall give due consideration to any means of achieving such reductions proposed by Sears. CSC shall negotiate in good faith with Sears about each requested reduction in Charges and, without disclosing the actual cost of providing the Services, CSC shall identify for Sears if and to what extent the cost of service delivery may be reduced by implementing various changes in the contract requirements, taking into account all avoided costs plus CSC’s average profit on such Services. If CSC rejects any such change in the

13

	Service delivery, CSC shall demonstrate to Sears why technically such proposal cannot work. Sears shall not be obligated to accept or implement any proposal, and CSC shall not be obligated to implement any change that affects the Terms of this Agreement, unless and until such change is reflected in a Service Addendum or a written amendment to this Agreement.
(d)	Charges for Contract Changes. Unless otherwise agreed, System Changes, changes in the Services (including changes in the Sears Standards) and changes in the rights or obligations of the Parties under this Agreement (collectively, “Contract Changes”) shall result in changes in the applicable Charges only if and to the extent (i) this Agreement expressly provides for a change in the CSC Charges in such circumstances, (ii) the agreed-upon Charges or pricing methodology expressly provides for a price change in such circumstances (for example, where the applicable Transaction Document specifies a number of full time equivalents or hours of coverage to be provided for the quoted price, or defines units of consumption for increased or decreased usage), or (iii) the Contract Change constitutes New Services for purposes of Section 4.5(b)(New Services) and additional Charges are applicable in accordance therewith.
(e)	Additional Work or Reprioritization. The Sears Relationship Manager may, in the sole discretion of Sears, identify new or additional work activities to be performed by CSC Personnel, reprioritize or reset the schedule for existing Services or New Services, and designate which problems shall be resolved immediately versus those that may be deferred due to the priority of other Services to be performed by such CSC Personnel. The foregoing shall not relieve CSC of its responsibility for identifying and addressing problems and otherwise prioritizing its work flow absent specific direction to the contrary by Sears. CSC shall use commercially reasonable efforts to perform such work activities without impacting the established schedule for other tasks or the performance of the Services in accordance with the Service Levels. If it is not possible to avoid such impact, CSC shall notify Sears of the anticipated impact and obtain Sears’ consent under Section 7.2(d)prior to proceeding with any work activities that would cause such impact. Sears, in its sole discretion, may forego or delay such work activities or temporarily adjust the work to be performed by CSC, the schedules associated therewith or the Service Levels to permit such reprioritization.

5.	GOVERNANCE
5.1	Operational Procedures Manual.

(a) Delivery and Contents. CSC shall create, as part of the Services, and at no additional cost to Sears, an operational procedures manual that documents the processes and procedures that underlie each Service (the “Operational Procedures Manual” or “OPM”). CSC shall deliver to Sears for its review, comment and approval both an outline of the topics to be addressed in the Operational Procedures Manual and a final draft of the OPM for each Exhibit, in each case within the time periods set forth in the applicable Exhibit. At a

14

minimum, the Operational Procedures Manual for each Exhibit shall include the following:

(i)	a detailed description of the Services and the manner in which each shall be performed by CSC under the Exhibit, including (1) all CSC Provided Systems, CSC Managed Systems and Sears Provided Systems, as well as the functional and operational characteristics of each of the foregoing, (2) documentation (including operations manuals, user guides, specifications, policies/procedures and disaster recovery plans) providing further details regarding such Services, and (3) the specific activities to be undertaken by CSC in connection with each Service, including, where appropriate, service responsibilities matrices, the direction, supervision, monitoring, staffing, reporting, planning and oversight activities to be performed by CSC and the time period in which tasks are to be completed under the Exhibit;
(ii)	the procedures for Sears/CSC interaction and communication, including (1) call lists, (2) procedures for and limits on direct communication by CSC with Sears Personnel, (3) problem management and escalation procedures, (4) priority and project procedures, (5) acceptance testing and procedures, (6) quality assurance procedures and checkpoint reviews, and (7) annual and quarterly financial objectives, budgets and performance goals; and
(iii)	practices and procedures addressing such other issues and matters as Sears shall require.
CSC shall incorporate Sears’ then-current policies and procedures in the Operational Procedures Manual to the extent Sears directs CSC to do so.

(b)

Revision and Maintenance. CSC shall incorporate any comments or suggestions of Sears into the OPM and shall deliver a final revised version to Sears within fifteen (15) days of its receipt of such comments and suggestions for Sears’ approval. The OPM shall be delivered and maintained by CSC in hard copy and electronic formats and shall be accessible electronically to Sears Personnel in a manner consistent with Sears’ security policies.

(c)

Compliance. CSC shall perform the Services in accordance with Sears’ then-current policies and procedures until the Operational Procedures Manual is finalized and mutually agreed upon by the Parties. Thereafter, CSC shall perform the Services in accordance with the Operational Procedures Manual. In the event of a conflict between the provisions of this Agreement, including any Transaction Document, and the Operational Procedures Manual, the provisions of this Agreement shall control. The Operational Procedures Manual shall not be considered an amendment to this Agreement.

15

(d) Modification and Updating. CSC shall modify and update the Operational Procedures Manual monthly to comply with Sears Standards as described in Section 6.4 (Architecture, Standards and Information Technology Planning) and to reflect changes in the operations or procedures described therein and/or changes to the features or functionality of the Services, including any CSC Provided Systems and/or CSC Managed Systems. All updated versions of the OPM shall be accurate and at least as detailed as the documentation originally delivered to Sears. In addition, CSC shall meet with Sears on at least an annual basis to review and discuss the OPM and any changes to the OPM proposed by CSC. In advance of each such meeting, and in advance of making any change to the OPM, CSC shall provide Sears, for Sears’ review, comment and approval, a revised copy of the OPM marked to show the proposed changes by CSC. To the extent any such change could (i) increase Sears’ total costs of receiving the Services, (ii) require changes to the facilities, Software or Equipment or Systems of the Eligible Recipients (including the installation of any Upgrades), (iii) have an adverse impact on the functionality, interoperability, performance, accuracy, speed, responsiveness, quality, security or resource efficiency of the Services, or (iv) violate or be inconsistent with the Sears Standards, neither CSC nor its Personnel shall implement such change without first obtaining Sears’ approval (pursuant to a written amendment to this Master Agreement or a Service Addendum), which approval Sears may withhold in its sole discretion.

5.2 Change Control.

(a)

Compliance with Change Control Procedures. In requesting or making any System Change, both Parties shall comply with the change control procedures specified in the OPM (or, with respect to System Changes prior to the Parties mutually agreeing on the OPM, Sears’ then-current change control procedures). Prior to making any System Change or using any new (e.g., not tested in or for the Sears environment) Software or Equipment to provide the Services, CSC shall verify by appropriate testing that the change or item has been properly installed, is operating in accordance with its specifications, is performing its intended functions in a reliable manner and is compatible with and capable of operating as part of the Eligible Recipients’ environment. This obligation shall be in addition to any unit testing to be performed by CSC as part of the routine deployment or installation of Software or Equipment.

(b)

System Change Costs. Unless otherwise set forth in the applicable Transaction Document or approved by Sears in accordance with Section 5.2(c) (Sears Approval — Cost, Adverse Impact) or otherwise, CSC shall bear all charges, fees and costs associated with any System Change made by CSC or the CSC Personnel, including all charges, fees and costs associated with (i) the design, installation, implementation, testing and rollout of such System Change, (ii) any modification, enhancement to, or substitution for, any CSC Provided Systems, CSC Managed Systems or Sears Provided Systems, (iii) any increase in the cost to the Eligible Recipients of operating, maintaining or supporting any CSC Provided Systems, CSC Managed Systems or Sears Provided Systems, and (iv) subject to

16

	Section 5.2(g) (Comparisons), any increase in resource usage to the extent it results from a System Change.
(c)	Sears Approval — Cost, Adverse Impact. Neither CSC nor the CSC Personnel shall make any System Change that may (i) increase the Eligible Recipients’ total cost of receiving the Services, (ii) require changes to an Eligible Recipient’s facilities, Software, Equipment or other Systems (including the installation of any Upgrades), (iii) have an adverse impact on the functionality, interoperability, performance, accuracy, speed, responsiveness, quality, security or resource efficiency of the Services or on any applications run by the Eligible Recipients, or (iv) violate or be inconsistent with Sears Standards or plans as specified in Section 6.4(Architecture, Standards and Information Technology Planning), without first obtaining Sears’ approval, which approval: (x) Sears may withhold in its sole discretion and (y) shall be effective only if in writing (in the form of an amendment to this Master Agreement or a Service Addendum), if any such change would increase the Eligible Recipients’ costs over the remaining Term of the applicable Transaction Document by more than $10,000 or require a change to any provision of this Agreement (including waivers of Service Level(s)). If CSC desires to make such a System Change, it shall provide to Sears a written proposal describing in detail the extent to which the desired System Change may affect the functionality, performance, security, price or resource efficiency of the Services and any benefits, savings or risks to the Eligible Recipients associated with such System Change.
(d)	Temporary Emergency Changes. Notwithstanding the foregoing, CSC may make temporary System Changes required by an emergency if it has been unable to contact the Sears Relationship Manager to obtain approval after making reasonable efforts. CSC shall document and report such emergency changes to Sears not later than the next Business Day after the change is made. Such System Changes shall not be implemented on a permanent basis unless and until approved by Sears.
(e)	Implementation of System Changes. CSC shall schedule and implement all System Changes so as not to (i) disrupt or adversely impact the business or operations of the Eligible Recipients, (ii) degrade the Services then being received by them or (iii) interfere with their ability to obtain the full benefit of the Services.
(f)	Planning and Tracking. On a monthly basis, CSC shall prepare a rolling quarterly “look ahead” schedule for ongoing and planned System Changes for the next three (3) months in accordance with the OPM. The status of System Changes shall be monitored and tracked by CSC against the applicable schedule.
(g)	Comparisons. For any System Change, CSC shall, upon Sears’ request, perform a comparison, at a reasonable and mutually agreed level of detail, between the amount of resources required by the affected Software or Equipment to perform a representative sample of the processing being performed for the Eligible Recipients immediately prior to the System Change and immediately after the

17

System Change. Sears shall not be required to pay for increased resource usage due to a System Change, except to the extent that such System Change is requested or approved by Sears after notice from CSC of such increased resource usage.

5.3 Reports.

(a)

Reports. CSC shall provide Sears with reports pertaining to the performance of the Services and CSC’s other obligations under this Agreement sufficient to permit Sears to monitor and manage CSC’s performance (“Reports”). The Reports to be provided by CSC shall include those described in each Transaction Document in the format and at the frequencies provided therein. At no additional charge, CSC shall provide Sears with data and reports in CSC’s possession necessary for the Eligible Recipients to comply with all Laws. In addition, from time to time, Sears may identify additional Reports, to a commercially reasonable extent, to be generated by CSC and delivered to Sears on an ad hoc or periodic basis. All Reports shall be provided to Sears as part of the Services and at no additional charge to Sears. The Reports described in each Transaction Document and, to the extent reasonably possible, all other Reports, shall be (i) capable of being accessed by Sears through a secure on-line connection, (ii) exportable (together with the underlying data) by Sears in an electronic, ODBC format capable of being accessed by Microsoft Office components and modified by Sears (e.g., not in “read only” form), with the information contained therein capable of being displayed graphically and accessed from a web browser, and (iii) provided to Sears in traditional printed form.

(b)

Back-Up Documentation. As part of the Services, CSC shall provide Sears with such documentation and other information as may be reasonably requested by Sears from time to time in order to verify the accuracy of the Reports provided by CSC and the CSC Personnel. In addition, CSC shall provide Sears with all documentation and other information reasonably requested by Sears from time to time to verify that CSC’s performance of the Services is in compliance with the Service Levels and this Agreement.

5.4 Meetings.

(a)

Meetings. During each Exhibit Term, representatives of the Parties shall meet periodically or as requested by Sears or as set forth in the applicable Transaction Document to discuss matters arising under this Agreement and each Transaction Document, including any such meetings provided for under each Migration Plan and Transformation Plan. Each Party shall bear its own costs in connection with the attendance and participation of such Party’s representatives in such meetings. Such meetings shall include, at a minimum, the following:

(b)

Agenda and Minutes. For each such meeting CSC shall prepare and distribute an agenda, which shall incorporate the topics designated by Sears. CSC shall

18

	distribute such agenda in advance of each meeting so that the meeting participants may prepare for the meeting. In addition, CSC shall record and promptly distribute minutes for every meeting for review and approval by Sears.
(c)	Eligible Recipient Meetings. CSC shall notify the Sears Relationship Manager (or her/his delegates) in advance of scheduled meetings with Eligible Recipients (other than meetings pertaining to the provision of specific Services on a day-to-day basis) and shall invite the Sears Relationship Manager and the applicable Exhibit Project Executives to attend such meetings or to designate representatives to do so.
(d)	Telephone/Video Conferences. Telephone/video conferences can be used in place of meetings with the prior approval of the participants. Unless otherwise agreed to by the participants, all meetings shall occur at Sears Facilities.

6.	CSC RESPONSIBILITIES
	In addition to CSC’s responsibilities as expressly set forth elsewhere in this Agreement or any Transaction Document, CSC shall be responsible for the following.
6.1	Cooperation with Sears Personnel.
	CSC shall fully cooperate with and work in good faith with the Eligible Recipients and Sears Personnel as described in this Agreement or as otherwise requested by Sears. Such cooperation shall include timely providing: (a) all cooperation and assistance reasonably required or requested by Sears, the other Eligible Recipients or the Sears Personnel in connection with Sears’ evaluation or testing of the Services and Deliverables and/or services Sears is to receive from such third parties (including the integration of such Third Party services with the Services Sears is to receive under this Agreement); (b) access to any facilities being used to provide the Services, as necessary for Sears Personnel to perform the work assigned to them; (c) reasonable electronic and physical access to business processes and associated CSC Provided Systems, CSC Managed Systems and Sears Provided Systems to the extent necessary and appropriate for the Sears Personnel to perform the work assigned to them (including oversight of CSC); (d) written requirements, standards, policies or other documentation for the Services, and the business processes and associated CSC Provided Systems, CSC Managed Systems and Sears Provided Systems; (e) access to CSC Facilities to permit Sears, its Affiliates or Sears Personnel to install, maintain or manage Third Party Software, Equipment and other Systems Sears desires to use in connection with the Services; and (f) any other cooperation or assistance reasonably necessary for Sears Personnel to perform the work in question. Sears Personnel shall comply with CSC’s reasonable security requirements, and shall, to the extent performing work on CSC Provided Systems or CSC Managed Systems, comply with CSC’s reasonable standards, methodologies and procedures, in each case, to the extent such requirements are provided in advance and in writing to such Personnel.

19

6.2 Subcontractors.

(a)

Use of Subcontractors. Except as set forth in Section 6.2(a) (Exempt Subcontractors) or elsewhere in this Agreement, CSC shall not subcontract any of its responsibilities under this Agreement without Sears’ prior written approval;. Prior to entering into a subcontract with a Third Party or a CSC Affiliate for the Services, for whom approval is required under this subsection, CSC shall (i) give Sears reasonable prior notice specifying the Transaction Documents and components of the Services affected, the scope of the proposed subcontract, the identity and qualifications of the proposed Subcontractor and the reasons for subcontracting the work in question and (ii) obtain Sears’ prior written approval of such Subcontractor.

(b)

Exempt Subcontractors. CSC may, without Sears’ approval, subcontract in the ordinary course of business:

(i)	for services that do not involve: (1) *** (2) regular direct contact with Sears Personnel, including any Services that are to be performed at Sears Sites; or (3) off-site remote services and help desk support; or
(ii)	for services to the extent they consist of the provision of Equipment or Software maintenance and do not involve regular direct contact with Sears Personnel; or
(iii)	with temporary personnel firms for the provision of temporary contract labor (collectively, “Exempt Subcontractors”); or

In addition, the parties agree that the prohibition in Section 6.2(a) do not apply to third parties to the extent CSC is procuring Equipment or Software from such third parties.

(c) Minority/Women-Owned Businesses. CSC acknowledges that it is the commitment of Sears to successfully bring minorities and women into the American economic system by doing business with qualified minority and women sources. In furtherance of Sears’ aforesaid commitment, if CSC utilizes the services of Subcontractors, CSC shall use reasonable efforts to utilize Subcontractors that are qualified minority-owned and/or women-owned sources. Upon Sears’ request, from time to time, CSC shall, and shall require each of its Subcontractors to, provide Sears with a detailed listing of all Subcontractors involved in the provision of the Services (including any CSC Provided Systems), listing: (i) which, if any, are qualified minority-owned or women-owned Entities, and (ii) the dollar amount of Charges under this Agreement attributable to qualified minority-owned or women-owned Subcontractors and suppliers versus Subcontractors and suppliers that are not qualified minority-owned or women-owned Entities over the period of time specified by Sears; to assist Sears in reporting on the level of minority-owned and/or women-owned entities involved in the provision of the Services (including any CSC Provided Systems). CSC has

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

20

informed Sears that *** Subcontractors be qualified minority-owned or women-owned Entities and CSC will inform Sears of any changes in this goal.

6.3	Quality Assurance.
	CSC shall develop, implement and fully document in the OPM quality assurance processes and procedures to ***. Such procedures shall include verification, checkpoint reviews, testing, acceptance and other procedures to assure the quality and timeliness of CSC’s performance. No failure or inability of the quality assurance procedures to disclose any errors or problems with the Services shall excuse CSC’s failure to comply with the terms of this Agreement, including the Service Levels. In addition, CSC must integrate such quality assurance procedures with Sears’ application development/enterprise service delivery teams. ***.
6.4	Architecture, Standards and Information Technology Planning.

(a) CSC Support. As requested by Sears from time to time, CSC shall assist Sears in defining information technology architectures and standards applicable to the activities that are the subject of the Services on an ongoing basis (collectively, the “Sears Standards”) and in annually preparing long-term strategic information technology plans and short-term implementation plans based thereon. The assistance to be provided by CSC shall include: (i) active participation with Sears representatives on permanent and ad hoc committees and working groups addressing such issues as further specified in the Transaction Document, or otherwise agreed to by the Parties; (ii) assessments of the then-current Sears Standards at a level of detail sufficient to permit Sears to make informed business decisions; (iii) analyses of the appropriate direction for such Sears Standards in light of business priorities, business strategies, competitive market forces and changes in technology; (iv) the provision of information to Sears regarding CSC’s information technology strategies for its own business; (v) technology briefings from an industry perspective, (vi) accompanying Sears, upon Sears’ request, at meetings with other technology vendors (e.g., Microsoft), and (vii) recommendations regarding information technology architectures and platforms, software and hardware products, information technology strategies, standards and directions, and other enabling technologies. With respect to each recommendation Sears’ elects to investigate further, CSC shall provide the

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

21

	following at a level of detail sufficient to permit Sears to make an informed business decision: (A) cost projections and cost/benefit analyses; (B) the changes, if any, in the Software, Equipment, Materials, Personnel and other resources required to operate and support the changed environment; (C) the resulting impact on Sears’ information technology costs; and (D) the expected performance, quality, responsiveness, efficiency, reliability, security risks and other Service Levels. CSC shall, and shall cause the CSC Personnel to, perform their respective obligations under this Agreement without any preference for or bias toward any Software, Equipment or other products licensed or sold by CSC, its Affiliates or any other CSC Personnel, including in connection with any recommendations that CSC or the CSC Personnel may make regarding business processes, technologies or specific solutions that Sears should adopt.
(b)	CSC Familiarity with Sears Standards. CSC acknowledges and agrees that as of the applicable Commencement Date, it is fully informed of and familiar with the Sears Standards, Code of Conduct and Privacy Policies, both through due diligence and its hiring of Transitioned Personnel pursuant to the applicable Transaction Document. CSC shall be responsible for documenting the Sears Standards in the Operational Procedures Manual in accordance with Section 5.1 (Operational Procedures Manual). Additions, deletions or modifications to the Sears Standards shall be communicated in writing by Sears to CSC.
(c)	Sears Authority and CSC Compliance. Sears shall have final authority to promulgate Sears Standards and to modify or grant waivers from such Sears Standards. CSC shall (i) comply with and implement the Sears Standards in providing the Services, (ii) work with Sears to enforce the Sears Standards, (iii) modify the Services as and to the extent necessary to conform to such Sears Standards and (iv) obtain Sears’ prior written approval for any deviations from such Sears Standards. CSC’s compliance with new Sears Standards and its modification of the Services in accordance therewith may or may not constitute New Services.
(d)	Compliance with Sears Standards. The Parties acknowledge and agree that (i) Sears shall not incur additional Charges in connection with changes in the Sears Standards applicable to Software if the new or changed Software can be distributed remotely (in such event, the distribution of new or changed Software in this manner and the setup of the distribution system to accommodate such new or changed Software shall be deemed included in the Charges), (ii) Sears shall not incur additional Charges in connection with changes in the Sears Standards applicable to Equipment and Software if such changes are implemented through the refresh of such Equipment and Software in the ordinary course in accordance with the refresh schedule set forth in the applicable Transaction Document, and (iii) to the extent Sears requires that changes in the Sears Standards applicable to Equipment and Software be implemented on an accelerated basis, and not through the refresh of such Equipment and Software in the ordinary course, and the implementation of such changes requires CSC to perform tasks that satisfy the

22

definition of New Services, the implementation of changes shall be subject to Section 4.5(b)(New Services).

(e)

Financial, Forecasting and Budgeting Support. On a monthly basis, CSC shall provide to Sears, for Sears’ forecasting and budgeting purposes, a report that shall include (i) a summary of the Charges for the Services current year to date, by pricing element, under each Transaction Document, (ii) a forecast of the utilization of the Services, by pricing element, under each Transaction Document, of the remainder of the current calendar year, as well as the next calendar year, and (ii) changes to the environment impacting Sears’ costs or utilization, including general plans and projected time schedules for development and implementation. In addition, on each anniversary of the Effective Date, CSC shall provide information to Sears regarding opportunities to modify or improve the Services and reduce the Charges and/or total cost to the Eligible Recipients of receiving the Services.

6.5 Technology.

(a)

CSC Briefings. CSC shall meet with Sears at least semi-annually to brief Sears regarding technological developments and advances as well as new or enhanced services, software, tools, products, methodologies, trends and directions which CSC is developing or is otherwise aware of that could reasonably be expected to have an impact on Eligible Recipients’ businesses, or are otherwise of possible interest or applicability to Sears. Such briefing shall include CSC’s assessment of the business impact, performance improvements and cost savings to Sears associated with each.

(b)

Currency. Subject to Section 6.4(Architecture, Standards and Information Technology Planning), throughout each Exhibit Term, CSC shall provide the Services using current technologies that shall enable Sears and the other Eligible Recipients to take advantage of technological advancements in Sears’ and its Affiliates’ businesses and support Sears’ and its Affiliates’ efforts to maintain competitiveness in the markets in which Sears and its Affiliates compete. Without limiting the generality of the foregoing, and subject to and in accordance with Sections 10.3(Sears Provided Systems and CSC Provided Systems), Section 6.4(Architecture, Standards and Information Technology Planning), Section 5.2(Change Control), Section 6.5(d) (Approval by Sears) and the terms of the applicable Transaction Document, CSC shall maintain reasonable currency for Software for which it is financially responsible under this Agreement and provide maintenance and support for new releases and versions of Software for which it is operationally responsible. *** For purposes of this Section 6.5 (Technology), “reasonable currency” means that, unless expressly provided

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

23

otherwise in the applicable Exhibit or otherwise directed by Sears, (i) CSC shall maintain Software within one (1) Major Release of the then-current Major Release, and (ii) CSC shall install Minor Releases promptly or, if earlier, as requested by Sears.

(c)

Evaluation and Testing. Prior to installing a new Major Release or Minor Release, CSC shall evaluate and test such release to verify that it shall perform in accordance with this Agreement and the Sears Standards and that it shall not violate clauses (i) — (iv) of Section 5.2(c) (Sears Approval — Cost, Adverse Impact). The evaluation and testing performed by CSC in accordance with the OPM shall be at least consistent with the reasonable and accepted industry norms applicable to the performance of such Services and shall be at least as rigorous and comprehensive as the evaluation and testing usually performed by highly qualified service providers under such circumstances.

(d)

Approval by Sears. Notwithstanding Section 6.5(b) (Currency), CSC shall confer with Sears prior to CSC or the CSC Personnel installing any Major Release or Minor Release, shall provide Sears with the results of its testing and evaluation of such release and a detailed implementation plan and shall not install such release if directed not to do so by Sears. Neither CSC nor the CSC Personnel shall install new Software releases or make other System Changes other than in accordance with Section 5.2 (Change Control); provided, however, that if requested by Sears, neither CSC nor the CSC Personnel shall install new Software releases or make other Software changes until Sears has completed and provided formal sign-off on successful user acceptance testing. CSC shall install, operate and support multiple versions of the same Software as and to the extent directed to do so by Sears. ***

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

24

(e)	Updates by Sears. The Eligible Recipients shall have the right, but not the obligation, to install new releases of, replace or make other changes to Software for which Sears is financially responsible under this Agreement.
(f)	Unanticipated IT Change. If an Unanticipated IT Change occurs, and if Sears requests that such Unanticipated IT Change be substituted or added by CSC to the Services, the Parties shall use the procedures in Section 13.6(b) (Extraordinary Events; Consequence) to equitably adjust the Charges and other relevant provisions of this Agreement to take such Unanticipated IT Change into account. An “Unanticipated IT Change” means a material shift and improvement in technology capable of providing all or part of the Services that is outside the normal evolution of technology experienced by the information technology industry, was not generally available as of the applicable Commencement Date, is reasonably reliable and relevant and can be technically substituted or added by CSC to the Services.
(g)	CSC Developed Advances. If CSC or its Affiliates develop technological advances or changes to CSC’s Systems to be offered to other CSC customers to provide services that are the same or similar to the Services or CSC or its Affiliates develop new or enhanced processes, services, software, tools, products or methodologies to be offered to other CSC customers (collectively, “New Advances”), CSC shall, subject to Section 4.5 (Additional Services), (i) offer Sears the opportunity to serve as a pilot customer in connection with the implementation of such New Advances, and (ii) if Sears declines such opportunity, offer Sears preferred access to such New Advances and the opportunity to be among the first ten percent (10%) of the CSC customer base to implement and receive the benefits of any New Advances.
(h)	Services Evolution and Modification. The Parties anticipate that the Services shall evolve and be supplemented, modified, enhanced or replaced over time to keep pace with technological advancements and improvements in the methods of delivering services and changes in the businesses of the Eligible Recipients. The Parties acknowledge and agree that these changes shall modify the Services and shall not be deemed to result in New Services as provided in Section 4.5(b) (New Services) unless the changed services otherwise meet the definition of New Services.

6.6 Financial Filings and Notice of Change of Financial Condition.

(a) Financial Filings. Promptly, but in no event later than fourteen (14) days after CSC files any quarterly, annual or special report with the (i) SEC, including 10-Q, 10-K and 8-K reports, Proxy Statements pursuant to Section 14(a) of the Securities Exchange Act of 1934, or Annual Reports to CSC’s shareholders, or (ii) applicable listing stock exchange for Supplier’s publicly traded equities, CSC

25

shall provide copies of such reports, statements or filings to (1) Sears’ Chief Information Officer, and (2) Sears’ Chief Financial Officer.

(b)

Notice. CSC shall, within fourteen (14) days after obtaining actual knowledge of the occurrence of a Credit Trigger Event, provide notice to Sears of the occurrence of such Credit Trigger Event. Promptly following the date Sears receives such notice, senior executives of the Parties shall meet to discuss CSC’s and CSC’s parent Entity’s (to the extent CSC has a parent Entity) financial condition and their ability to continue to perform their obligations hereunder.

7.	SEARS’ RESPONSIBILITIES
7.1	General Sears Responsibilities.
	In addition to Sears’ responsibilities as expressly set forth elsewhere in this Agreement, Sears shall be responsible for the following:

(a)	Sears Relationship Manager. Sears shall designate one (1) individual to whom all CSC communications concerning this Agreement may be addressed, as provided in Section 26.3 (Notices) (the “Sears Relationship Manager”), who shall have the authority to act on behalf of the Eligible Recipients in all day-to-day matters pertaining to this Agreement. Sears may change the designated Sears Relationship Manager from time to time by providing notice to CSC.
(b)	Cooperation. Sears shall cooperate with CSC by, among other things, making available, as reasonably requested by CSC, management decisions, information, approvals and acceptances so that CSC may accomplish its obligations and responsibilities hereunder.
(c)	Sears Personnel. Subject to Section 7.2 (Sears Responsibilities), Sears may elect to perform any of its obligations under this Agreement through any Sears Personnel; provided that such election by Sears shall not limit or affect Sears responsibilities under this Agreement for the performance of such obligations.
(d)	Contract Waivers. At CSC’s request, the Parties will meet, from time to time, to discuss *** implementation of appropriate contract waivers, through which the Parties can, limit both Sears and CSC’s liability to Third Parties ***.

7.2 Sears’ Responsibilities.

(a) Nature of Responsibilities. Without limiting Sears’ obligations under this Agreement, such as Sears’ payment obligation as provided in Section 14 (Invoicing and Payment) and Sears’ obligations regarding CSC’s Confidential Business Information under Section 15.3(b) (Confidential Business Information),

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

26

	references in this Agreement to Sears’ responsibilities are intended solely for the purpose of indicating items that are not CSC’s responsibility, and shall not in any circumstance give rise to, or constitute grounds for, a claim of breach by Sears.
(b)	Exception to CSC Performance. CSC’s failure to perform its responsibilities under this Agreement or to meet the Service Levels shall be excused if and to the extent such CSC non-performance is directly caused by Sears’ or Sears Personnel’s (excluding for purposes of this Section 7.2(b) (Exception to CSC Performance) Sears Personnel under the direction or management of CSC or CSC Personnel) breach of Sears’ obligations under this Agreement or Sears’ failure (other than as a result of CSC’s failure to complete its obligations on a timely basis) to timely complete any necessary predecessor Sears’ obligation under this Agreement, but only if (i) CSC immediately notifies Sears in accordance with Section 7.2(c) (Notice of Problems) of such a breach or Sears’ failure to perform such obligation and its inability to perform under such circumstances, (ii) CSC provides Sears with every reasonable opportunity to correct such breach or Sears’ failure to perform such obligation and thereby avoid such CSC non-performance, and (iii) CSC uses commercially reasonable efforts to perform notwithstanding Sears’ breach or Sears’ failure to perform such obligation.
(c)	Notice of Problems. CSC shall immediately notify Sears in writing when it becomes aware that an act or omission of any Eligible Recipient shall cause, or has caused, a problem or delay in providing the Services, and shall use commercially reasonable efforts to work with the Eligible Recipients to prevent or circumvent such problem or delay. CSC shall cooperate with the Eligible Recipients to resolve differences and conflicts regarding the Services and other activities undertaken by the Eligible Recipients.
(d)	***

8.	SEARS AND CSC FACILITIES
8.1	Service Facilities.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

27

The Services shall be provided at or from (a) the Sears Facilities described in the applicable Transaction Document, (b) the CSC Facilities described in the applicable Transaction Document or (c) any other service location approved in writing by Sears. CSC shall obtain Sears’ prior written approval for any proposed relocation by CSC or CSC Personnel of the provision of a Service from or to a new or different Sears Facility. CSC shall be financially responsible for all additional costs, taxes or expenses related to or resulting from any CSC-initiated relocation to a new or different Sears Facility or CSC Facility, including any costs or expenses incurred or experienced by any Eligible Recipient as a result of such relocation (e.g., increases in taxes, telecommunications charges, etc.).

8.2

Sears Facilities.

(a) General. To the extent expressly provided in a Transaction Document, Sears shall provide CSC and the CSC Personnel with the use of and access to the Sears Facilities (or equivalent space) and office furniture described in such Transaction Document for the periods specified therein solely as necessary for CSC to perform its obligations thereunder. Notwithstanding anything to the contrary in this Section 8.2 (Sears Facilities), Sears will provide office space only to CSC Personnel directly involved in providing the Services and dedicated to Sears. In addition, all improvements or modifications to Sears Facilities requested by CSC shall be (i) subject to review and approval in advance by Sears, (ii) in strict compliance with applicable Laws and Sears’ then-current policies, standards, rules and procedures, and (iii) performed by and through Sears at CSC’s expense. CSC acknowledges and agrees that the facilities to be provided by Sears are sufficient for performing the Services and for satisfying CSC’s responsibilities under this Agreement. THE SEARS FACILITIES ARE PROVIDED BY THE ELIGIBLE RECIPIENTS TO CSC AND THE CSC PERSONNEL ON AN AS-IS, WHERE-IS BASIS. THE ELIGIBLE RECIPIENTS EXPRESSLY DISCLAIM ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO THE SEARS FACILITIES OR THEIR CONDITION OR SUITABILITY FOR USE BY CSC OR CSC PERSONNEL. It is understood that CSC and the CSC Personnel’s use of the Sears Facilities does not constitute or create a leasehold interest. When the Sears Facilities, or any portion of the Sears Facilities, are no longer to be used by CSC or the CSC Personnel as contemplated by this Section 8 (Sears and CSC Facilities) or are otherwise no longer required for performance of the Services, CSC shall notify Sears as soon as practicable and shall vacate and return such Sears Facilities (including any improvements to such facilities made by or at the request of CSC) to Sears in substantially the same condition as when such facilities were first provided to CSC, subject to reasonable wear and tear. CSC Personnel using the office facilities provided by Sears shall be accorded reasonable use of (A) certain employee facilities (e.g., parking facilities (other than paid parking facilities), cafeteria and common facilities) to the extent generally made available to similarly situated Sears employees, and (B) certain shared office equipment and services (such as local telephone service for Sears-related calls, mail service, office support service (e.g., janitorial not including

28

	secretarial services), heat, light and air conditioning). The foregoing employee facilities, and the extent of CSC Personnel’s permitted use thereof, may be modified in Sears’ sole discretion without advance notice, but in a manner generally applicable to Sears Personnel.
(b)	Use of Sears Facilities.

(i)	No Use for Shared Services. Unless CSC obtains Sears’ prior written agreement, which Sears may withhold in its sole discretion, CSC shall use the Sears Facilities, and the Equipment and Software located therein, and the Sears Provided Systems solely to provide the Services to the Eligible Recipients and not to CSC’s other customers.
(ii)	Relocation by Sears. Sears reserves the right to relocate any Sears Facility from which the Services are then being provided by CSC Personnel to another geographic location; provided, however, that, in such event, Sears shall provide CSC with comparable office space in the new location. In such event, Sears shall reimburse CSC for: (1) any reasonable incremental Out-of-Pocket Expenses incurred by CSC, and (2) CSC’s internal labor costs (subject to Section 4.5 (Additional Services)); in each such case, incurred in physically relocating to such new geographic location; provided, however, that such relocation is not expressly contemplated in this Agreement, and that CSC notifies Sears of such incremental expenses, obtains Sears’ approval prior to incurring such expenses and uses commercially reasonable efforts to minimize such expenses.
(iii)	Re-Use of Space. Sears also reserves the right to direct CSC to cease using all or part of the space in any Sears Facility from or in which the Services are then being provided by the CSC Personnel and to thereafter use such space for Sears’ own purposes. In such event, Sears shall reimburse CSC for: *** incurred in leasing required substitute new space; provided, however, that such relocation direction is not expressly contemplated in this Agreement and that CSC notifies Sears of such incremental expenses, obtains Sears’ approval prior to incurring such expenses, and uses commercially reasonable efforts to minimize such expenses. Except for office space provided by Sears in a Sears Facility for CSC’s Personnel pursuant to the TI Exhibit and any Systems that are required to be located at a Sears Facility for the proper performance of the Services, CSC shall relocate to a CSC Facility all other CSC Personnel, CSC Provided Systems and CSC Managed Systems as part of the Transformation Services. Sears shall be entitled to charge CSC rent for any such space that is not vacated by CSC Personnel within the timelines set forth in the Transformation Plan.

8.3 Access to Sears’ Networks.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

29

	If CSC or any CSC Personnel has access, whether on-site or through remote facilities, to any Eligible Recipient’s Equipment, Software, electronic data storage Systems or other electronic Systems (each, an “Electronic System”), in connection with this Agreement, CSC shall limit such access and use by CSC Personnel solely to: (a) those Electronic Systems and data contained therein that Sears has authorized CSC’s Personnel to access; (b) those CSC Personnel who need access to such Electronic Systems to accomplish CSC’s obligations under the applicable Transaction Document, and CSC’s Personnel shall not attempt to access any Electronic Systems and data contained therein other than those specifically required to accomplish its obligations under the applicable Transaction Document; and (c) performing CSC’s obligations within the scope of the applicable Transaction Document. CSC shall, upon Sears’ request, advise Sears in writing of the name of each such Personnel who have been granted such access, and shall strictly follow all Sears Rules. CSC is responsible for any unauthorized access or use by CSC Personnel. All user identification numbers and passwords disclosed to CSC Personnel and any information obtained by CSC Personnel as a result of CSC Personnel’s access to, and use of, Eligible Recipients’ Electronic Systems shall be Sears’ Confidential Information, without the need to mark it as such. CSC shall cooperate with Sears in the investigation of any apparent unauthorized access by CSC Personnel to any Eligible Recipient’s Electronic Systems and/or the data contained therein. CSC shall not install or permit the installation or connection of any Software or Equipment on any Eligible Recipient’s network(s) without Sears’ prior review and approval.
8.4	CSC’s Responsibilities.
	Except for the Sears Provided Systems and as provided in Section 8.2 (Sears Facilities), CSC shall be responsible for all office, data processing, and desktop and other computing Software, Equipment and services, long-distance telephone service, space, furniture, fixtures, facilities and other items, as well as all personnel, technical knowledge, expertise and other resources, needed by CSC or CSC Personnel (including Transitioned Personnel hired by CSC) to provide the Services, and for all Upgrades, replacements and additions thereto. Without limiting the foregoing, CSC shall (i) provide all maintenance, site management, site administration and similar services for the CSC Facilities, and (ii) provide uninterrupted power supply services for the CSC Facilities and for the Software, Equipment and Systems in Sears Facilities as designated in the applicable Transaction Document.
8.5	Physical Security.
	CSC shall be responsible for physical security, including safety and physical access and control, for the CSC Facilities that CSC is using in performing the Services. CSC shall not permit any person to have access to, or control of, any Sears Facilities unless such access or control is permitted in accordance with control procedures approved by Sears. If CSC provides the Services to the Eligible Recipients from a CSC Facility, CSC shall develop and implement the processes and controls *** unauthorized access in any such CSC Facility to Sears Confidential Information and prevent CSC Personnel servicing Third Parties at or from such CSC Facility from having access to

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

30

             Sears Confidential Information. ***.

9.	REQUIRED CONSENTS
9.1	Administrative Responsibility.

(a)

General. Unless otherwise elected by Sears, CSC shall, commencing on the effective date of the applicable Transaction Document, undertake all administrative activities necessary to obtain all Required Consents, including those necessary to transfer Acquired Assets to CSC and to permit CSC’s Personnel to access and use the Acquired Assets in connection with providing the Services if consent to transfer them to CSC is not received. Notwithstanding the foregoing, Sears shall undertake all administrative activities necessary to obtain any Required Consents for CSC’s use of Sears Facilities as contemplated hereby.

(b)

Cooperation. At CSC’s request, Sears shall cooperate with CSC in obtaining the Required Consents by executing appropriate Sears-approved written communications and other documents prepared or provided by CSC. Upon CSC’s request, Sears will provide to CSC any information CSC reasonably requests that is in Sears’ possession and that Sears is permitted to share with CSC under the terms of the applicable Third Party Contract and Law. In connection with any Required Consents for Sears Facilities, at Sears’ request, CSC shall cooperate with Sears in obtaining the Required Consents by executing appropriate CSC approved written communications and other documents prepared or provided by Sears. With Sears’ approval, CSC shall exercise for the benefit of the Eligible Recipients any rights CSC, its Affiliates or the other CSC Personnel have to utilize or transfer license rights or other applicable rights under any existing Third Party licenses, leases or contracts, including licenses, leases and/or contracts relating to functionally equivalent Systems, and the Parties shall cooperate in minimizing or eliminating any costs associated therewith.

9.2

Financial Responsibility.

Except as set forth in a Transaction Document, (a) CSC shall pay all transfer, relicensing or termination fees or expenses associated with obtaining any Required Consents (including the rights provided for under Section 10.3(h) (Other Matters) for Sears Provided Systems, CSC Provided Systems, including Acquired Assets, CSC Managed Systems, CSC Designated Contracts and CSC Facilities or terminating any licenses, leases or agreements as to which CSC is unable to obtain such Required Consents, and (b) Sears shall be responsible for any fees or expenses for Required Consents for CSC’s use of Sears Facilities.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

31

9.3 Contingent Arrangements.

(a) General. If, despite using all commercially reasonable efforts, CSC is unable to obtain a Required Consent for any Acquired Asset, CSC Designated Contract, or Sears Provided System, then, unless and until such Required Consent is obtained, CSC shall use all commercially reasonable efforts to determine and adopt, subject to Sears’ prior approval, such alternative approaches as are necessary and sufficient to provide the Services without such Required Consent(s) and without violating the Third Party Contracts applicable to the foregoing. If such alternative approaches are required for a period longer than six (6) months following the applicable Commencement Date, ***. The Parties shall work together to negotiate in good faith any other appropriate adjustments to this Agreement during such interim period. Except as otherwise expressly provided herein, the failure to obtain any Required Consent shall not relieve CSC of its obligations under this Agreement and CSC shall not be entitled to any additional compensation or reimbursement amounts in connection with obtaining or failing to obtain any Required Consent or implementing any alternative approach.

10.	SOFTWARE, EQUIPMENT, CONTRACTS AND ASSETS ASSOCIATED WITH THE PROVISION OF SERVICES
10.1	CSC Designated Contracts.

(a)

Assignment and Assumption. On and as of the applicable Commencement Date, Sears shall assign to CSC, and CSC shall assume and agree to perform all obligations related to, the Software licenses, Equipment leases and Third Party Contracts associated with Acquired Assets and/or identified as “CSC Designated Contracts” in the applicable Transaction Document (collectively, “CSC Designated Contracts”). With respect to each CSC Designated Contract requiring a Required Consent for assignment to CSC, CSC shall use commercially reasonable efforts to cause the applicable Third Party to enter into a mutually satisfactory novation agreement among such Third Party, Sears and CSC evidencing the assignment and assumption by CSC of Sears’ obligations and the release of Sears as provided for in this Agreement. With respect to CSC Designated Contracts not requiring a Required Consent for assignment or for which CSC is unable to obtain such novation agreement, then subject to CSC obtaining the applicable Required Consents, Sears and CSC shall execute and deliver a mutually satisfactory assignment and assumption agreement with respect to such CSC Designated Contracts, evidencing the assignment and assumption provided for in this Agreement.

(b)

CSC Designated Contracts Not Assignable by Commencement Date. With respect to any CSC Designated Contracts that cannot, as of the applicable Commencement Date, be assigned to CSC without breaching their terms or

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

32

otherwise adversely affecting the rights or obligations of Sears or CSC thereunder, but for which any Required Consent necessary for CSC to access and use the underlying Software, Equipment or services has been received, the performance obligations thereunder shall be deemed to be subcontracted or delegated to CSC until any requisite consent, notice or other prerequisite to assignment can be obtained, given or satisfied by CSC. It is understood that, from and after the Commencement Date, CSC, as a Subcontractor or delegate, shall be and remain financially and operationally responsible for such CSC Designated Contract as Sears’ agent pursuant to Section 13.2(e) (Limited Agency) and, if applicable, the underlying Acquired Asset shall not be transferred to CSC, but instead shall be considered part of the CSC Managed Systems. CSC shall use all commercially reasonable efforts to satisfy the consent, notice or other prerequisites to assignment and, upon CSC doing so, the CSC Designated Contract and, if applicable, the underlying Acquired Asset shall immediately be assigned and transferred to and assumed by CSC (and shall thereafter no longer be part of the CSC Managed Systems).

(c)

Non-Assignable CSC Designated Contracts. If, after CSC using commercially reasonable efforts for a reasonable period of time, a CSC Designated Contract cannot be assigned to CSC without breaching its terms or otherwise adversely affecting the rights or obligations of Sears or CSC thereunder, the Parties shall take such actions and execute and deliver such documents as may be necessary to cause the Parties to realize the practical effects of the allocation of responsibilities intended to be effected by this Agreement.

(d)

Modification and Substitution. Unless otherwise agreed to by the Parties in writing, CSC may terminate, shorten, modify or extend the CSC Designated Contracts and may substitute or change suppliers relating to Equipment, Software or other goods or services covered thereby, so long as such change(s) do not, in connection with such CSC Designated Contract or the Services hereunder: (i) constitute a breach of any obligation of the Eligible Recipients under any CSC Designated Contract; (ii) result in additional financial obligations, or Losses to Sears Related Businesses arising out of such CSC Designated Contract; and (iii) provide, if assumable by Sears, for less favorable terms, conditions or prices for the Eligible Recipients following the expiration or termination of the applicable Transaction Document than would otherwise be applicable to CSC (except for terms, conditions or prices available to CSC because of its volume purchases). CSC’s rights under the immediately preceding sentence are: (i) conditioned upon CSC paying all applicable termination or cancellation charges, Losses and other amounts due to the applicable supplier associated with such action, and (ii) are subject to Section 10.1(d) (System Change Costs). Notwithstanding anything to the contrary in this Agreement, CSC shall not terminate, shorten or modify without Sears’ prior written consent any license for Third Party Software either created exclusively for the Eligible Recipients or otherwise not commercially available. CSC shall reimburse the Eligible Recipient(s) for any termination

33

	charges, cancellation charges, or other amounts paid by them at CSC’s direction in connection with obtaining any such modification.
(e)	Unidentified Third Party Contracts. With respect to any Third Party Contract that (i) is related to any of the Acquired Assets or functions, responsibilities or services to be performed by CSC under this Agreement, (ii) is not identified in a Transaction Document and (iii) was not discovered by CSC during their due diligence and negotiations preceding the execution of such Transaction Document (an “Unidentified Third Party Contract”), the following shall apply: (1) the Unidentified Third Party Contract shall be added to the applicable Transaction Document as a CSC Designated Contract as soon as it has been identified, subject to Sears’ prior approval; (2) CSC shall obtain any Required Consents with respect to any Unidentified Third Party Contract; and (3) the costs of all transfers, upgrade and other fees necessary to obtain such Required Consent with respect to the Unidentified Third Party Contracts shall be the responsibility of CSC. ***.
(f)	Managed Third Parties. If a Transaction Document provides for Managed Third Parties, CSC shall be responsible for those Managed Third Parties perform in accordance with this Agreement, including Service Levels, and comply with all applicable duties and obligations imposed on CSC under this Agreement. Unless otherwise specified in the applicable Transaction Document or agreed to in writing by the Parties, CSC shall be responsible for all costs and charges associated with such Managed Third Parties and for any failure by any Managed Third Party or its Personnel to perform in accordance with this Agreement or to comply with any duties or obligations imposed on CSC under this Agreement to the same extent as if such failure to perform or comply was committed by CSC or CSC Personnel. CSC shall be the Eligible Recipients’ sole point of contact regarding the services provided by such Managed Third Parties.
(g)	Notice of Defaults. CSC shall promptly inform Sears in writing of any material breach of, or misuse or fraud in connection with, any Third Party Contract, Equipment lease or Third Party Software license used in connection with the Services of which CSC becomes aware and shall cooperate with Sears to prevent or stay any such breach, misuse or fraud.

10.2	Acquired Assets.
	If a Transaction Document provides for Acquired Assets, Sears agrees to convey (or shall cause the applicable Eligible Recipient to convey) to CSC (either directly or through an

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

34

entity purchase transaction mutually approved by the Parties), subject to CSC receiving any Required Consents, and CSC agrees (or shall cause an Affiliate to agree) to accept, as of the applicable Commencement Date, all of Sears’ (or the applicable Eligible Recipient’s) right, title and interest in and to the Acquired Assets specified in the applicable Transaction Document (or entity purchase transaction document). In consideration for such conveyance, CSC shall pay Sears on the Commencement Date the Acquired Assets Credit specified in the applicable Transaction Document (or entity purchase transaction document). In addition, CSC shall be responsible for, and shall pay, or provide evidence of exemption from, all sales, use, Equipment, Software or other goods and services and other similar taxes arising out of the conveyance of such Acquired Assets. Subject to CSC receiving any Required Consents, Sears represents and warrants to CSC that CSC (or its Affiliates) shall take good title to such Acquired Assets as of the Commencement Date, free and clear of all liens. Except as otherwise expressly provided in this Section 10.2 (Acquired Assets), SEARS CONVEYS ACQUIRED ASSETS TO CSC ON AN “AS IS,” “WHERE IS” AND “WITH ALL FAULTS” BASIS. SEARS HEREBY DISCLAIMS ALL IMPLIED WARRANTIES, WITH RESPECT TO ACQUIRED ASSETS, OR THE CONDITION OR SUITABILITY OF SUCH ACQUIRED ASSETS FOR USE BY CSC TO PROVIDE THE SERVICES, INCLUDING WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

10.3 Sears Provided Systems and CSC Provided Systems.

(a)

Inventory. Except as may be set forth in a Transaction Document, with respect to the Services to be provided under such Transaction Document, such Transaction Document shall contain an inventory (the “Inventory”) of all: (i) Sears Provided Systems that the Eligible Recipients are to provide for use by CSC Personnel under such Transaction Document; (ii) CSC Provided Systems; (iii) CSC Managed Systems; and (iv) CSC Designated Contracts. The Inventory shall be incorporated into the OPM and shall be regularly updated by CSC as changes occur. CSC shall review all such changes with Sears, upon Sears’ request, and at least once per year. All changes to the Inventory shall be subject to Sears’ approval.

(b)

Non-Commercially Available Software. CSC shall indicate on the Inventory which of the CSC Software and Third Party Software used in providing the Services are not commercially available. CSC shall avoid, after the Commencement Date, using non-commercially available CSC Software and Third Party Software where practical and shall not introduce any non-commercially available CSC Software or Third Party Software where a reasonably functionally equivalent commercially available alternative exists, unless otherwise agreed to in advance in writing by Sears. Prior to CSC or the CSC Personnel introducing non-commercially available CSC Software or Third Party Software, CSC shall notify Sears thereof and CSC shall work with Sears in good faith to ensure that, to the extent requested by Sears, Sears Related Businesses are able to procure a license

35

	for such Software. CSC’s inability to obtain maintenance or support for any CSC Provided Systems shall not excuse CSC’s performance under this Agreement.
(c)	CSC Managed Systems.

(i)	CSC Managed Systems Generally. For all CSC Managed Systems that are not provided under Excluded Agreements; CSC’s responsibility for such Systems shall be the same under this Agreement as if the Third Party provider of such System was a subcontractor to CSC, including end to end management of such Systems and integration of such Systems into CSC’s overall Service delivery; provided that CSC shall not be responsible for the failure of any such Third Party services provider to pay service credits, if any, as required under the Third Party Contract between such service provider and Sears for such CSC Managed System.
(ii)	IBM Lotus Notes Agreement. CSC shall have the same responsibility for the IBM Lotus Notes Agreement, as CSC has for other CSC Managed Systems under Section 10.3(c)(i); ***.
(iii)	Excluded Agreements. CSC’s responsibility for CSC Managed Systems provided under Excluded Agreements shall be limited to ***.
(iv)	Terms Applicable to All CSC Managed Systems. Upon CSC’s request, Sears shall assist CSC in any contractual matters under the Third Party Contracts between Sears and such Third Party providers of such CSC Managed Systems by, among other things, sending, in appropriate circumstances, a notice of breach or termination (prepared by CSC in a format acceptable to Sears); provided that Sears shall not terminate such agreements (except for cause) with out CSC’s concurrence. CSC shall be responsible for replacing each CSC Managed System, including those provided for under the Excluded Agreements and the IBM Lotus Notes Agreement, on or before the expiration or termination (for any reason) of the Third Party Contract for such CSC Managed System, either: (a) with a new CSC Provided System, or (b) by removal of the need for such System from the Services (as may be further set forth in the applicable Transaction Document), without any Charges to Sears not set forth in the Transaction Document.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

36

(d)

Financial Responsibility. Except as set forth in a Transaction Document, CSC shall be responsible for all costs and expenses incurred on or after the applicable Commencement Date associated with the CSC Provided Systems, CSC Managed Systems and CSC Designated Contracts (excluding the Excluded Agreements and Third Party Contracts administered by CSC on a pass-through basis, which are addressed in Section 13.2 (Pass-Through Expenses)), used by CSC to provide the Services. Subject to CSC’s obligations with respect to Required Consents, Sears shall be responsible for Third Party fees or expenses associated with Sears Provided Systems. Unless otherwise expressly provided, each Party also shall be responsible for any Third Party fees or expenses on or after the applicable Commencement Date associated with new, substitute or replacement Software, Equipment, Equipment leases, circuits, Systems, services or Third Party Contracts (including Upgrades, enhancements, new versions or new releases of such Software, Equipment, circuits or services) for which such Party or any of its Affiliates is financially responsible under this Agreement or the applicable Transaction Document.

(e)

Operational Responsibility. Except as set forth in a Transaction Document, with respect to the CSC Provided Systems, CSC Managed Systems (except for Excluded Agreements) and CSC Designated Contracts (excluding the charges under Third Party Contracts administered by CSC on a pass-through basis, which are addressed in Section 13.2 (Pass-Through Expenses)), used by CSC to provide the Services, CSC shall be responsible for: (i) the evaluation, procurement, testing, installation, rollout, use, repair, support, management, administration, operation and maintenance of such Software, Equipment or Systems, including Equipment leases, circuits, services and Third Party Contracts, (ii) the disposal of broken or replaced Equipment, Software or Systems; (iii) the evaluation, procurement, testing, installation, rollout, use, repair, support, management, administration, operation and maintenance of new, substitute or replacement Software, Equipment, Equipment leases, circuits, services and Third Party Contracts (including Upgrades); (iv) the performance, availability, reliability, compatibility and interoperability of such Software, Equipment, circuits, services and Third Party Contracts each in accordance with this Agreement, including the Service Levels and change management procedures; (v) the compliance with and performance of all operational, administrative and contractual obligations specified in such licenses, leases and contracts; (vi) the administration and exercise as appropriate of all rights available under such licenses, leases and contracts; and (vii) the payment of any fees, penalties, charges, interest or other expenses due and owing under or with respect to such Software licenses, Equipment, Equipment leases, circuits, services and Third Party Contracts that are incurred, caused by or result from CSC’s failure to comply with or perform its obligations under this Section 10.3(e) (Operational Responsibility) (except to the extent such failure is relieved due to Sears’ failure to perform its responsibilities as set forth in Section 7 (Sears Responsibilities)). CSC shall establish a schedule to evaluate all such Systems on a rolling twelve (12) month basis so that each System is reviewed at least annually.

37

(f)	Benefits Pass-Through. With respect to any products and services acquired by CSC for an Eligible Recipient on a Pass-Through Expense basis during the course of performing the Services, CSC shall use all commercially available efforts to pass-through to Sears and the other Eligible Recipients all benefits offered by the manufacturers and/or suppliers of such products and services (including all warranties, refunds, credits, rebates, discounts, training, technical support and other consideration offered by such manufacturers and suppliers) except to the extent otherwise agreed by Sears. If CSC is unable to pass through such benefit to Sears or the other Eligible Recipients, it shall notify Sears in advance and shall not purchase such product or service without Sears’ prior written approval.
(g)	UCITA and CISG. CSC shall use commercially reasonable efforts to ensure that any Third Party Contracts (i) related to Software, Equipment or services procured by CSC or any CSC Personnel in connection with this Agreement, and (ii) that may be transferred to Sears upon the termination or expiration of this Agreement or any Transaction Document, shall include provisions stating that the parties agree that UCITA and CISG do not and shall not apply to such contract, to the extent such exclusions are legally permissible under the applicable governing law of such contract. If, despite such commercially reasonable efforts, CSC is unable to obtain such provisions, CSC shall promptly notify Sears in writing of such failure. Thereafter, Sears may reject or approve CSC’s use of such contract. If Sears rejects such contract, CSC shall identify a replacement provider reasonably acceptable to Sears that shall provide Sears with the applicable contractual rights. Nothing contained in this Section 10.3(g) (UCITA and CISG) shall relieve CSC of its obligation to (A) perform the Services or any of its obligations under this Agreement, or (B) meet the Service Levels.
(h)	Other Matters.

(i)

With respect to all CSC Provided Systems, and related Third Party Contracts to be used primarily to provide the Services, CSC shall use all commercially reasonable efforts to (1) obtain for Sears the rights specified in Section 24 (Rights upon Expiration or Termination), (2) ensure that the granting of such rights is not subject to subsequent third party approval or the payment by a transferee of transfer fees, (3) ensure that the terms, conditions and prices applicable to Sears following expiration or termination that are no less favorable than those otherwise applicable to CSC, and at least sufficient for the continuation of the activities comprising the Services, and (4) ensure that neither the expiration or termination of this Agreement or any Transaction Document, nor the assignment of the contract, shall trigger less favorable terms, conditions or pricing or services.

(ii)

If in any instance CSC is unable to obtain any of the rights and assurances described in this Section 10.3(h) (Other Matters), it shall notify Sears in advance and shall not use such CSC Provided System or Third Party Contract without Sears’ approval, and absent such approval, CSC’s use of

38

any such CSC Provided System or Third Party Contract shall obligate CSC to obtain or arrange, at no additional cost to Sears, equivalent rights to those set forth in Section 24 (Rights upon Expiration or Termination) below. If Sears so consents to CSC’s use of any specific CSC Provided Systems or Third Party Contracts under the foregoing circumstances, such consent shall be deemed to be conditioned on CSC’s commitment to use all commercially reasonable efforts to cause such Third Party to agree at expiration or termination of this Agreement or the applicable Transaction Document, or the completion of Termination Assistance Services requested by Sears, to permit Sears to assume prospectively the license, lease or other contract in question or to enter into a new license, lease or other contract with Sears on substantially the same terms and conditions, including price and restrictions on authorized users. Sears may, in its sole discretion, withhold its consent to any such CSC Provided Systems or Third Party Contract if, following expiration or termination of this Agreement or any Transaction Document, as the case may be, (1) Sears would not be entitled to the license, sublicense, assignment or other rights specified in Section 24.1 (Certain Rights), (2) the granting of such license, sublicense, assignment or other rights would be subject to subsequent Third Party approval or the payment by a transferee of transfer fees or (3) Sears would be obligated to reimburse CSC for any termination or cancellation fees, noncancelable charges or other termination charges set forth in the applicable Transaction Document.

(i) Evaluation of Third Party Software, Equipment.

(i) Replacement With Sears Provided System. If Sears wishes to replace or provision any CSC Provided System or CSC Managed System with an identical or comparable Sears Provided System, CSC shall provide Sears with a credit equal to the amount of the cost avoidance, if any, enjoyed by CSC, its Affiliates or the CSC Personnel by reason of such replacement. Such cost avoidance shall include all reduced or eliminated license fees, lease payments, maintenance contracts and all other costs and expenses avoided by CSC, its Affiliates or the CSC Personnel as a result of Sears’ replacement or provisioning of such CSC Provided System or CSC Managed System or other goods or services, as well as CSC’s, its Affiliates’ or the CSC Personnel’s anticipated profit associated with such avoided cost(s) (net of any increased costs suffered by CSC as a result of such replacement); provided that CSC shall not be required to accept such a replacement System if such replacement would result in a net increase to CSC costs. If Sears’ provisioning of a comparable Sears Provided System will have an adverse affect on the Services or the method in which CSC is providing any of the Services, CSC shall notify Sears in writing of such adverse effect within ten (10) Business Days of Sears’ notice of Sears’ intention to install such a comparable system; in which case the parties shall work in good faith to mitigate any potential harm from the use of

39

Sears Provided System. ***.

(ii)

Evaluation of New Software or Equipment. If Sears wishes to modify or replace or provision any CSC Provided System or CSC Managed System or Sears Provided System with any Third Party Software or Equipment (other than a Sears Provided System, in which case Section 10.3(i)(i) (Replacement With Sears Provided System) shall apply) selected by an Eligible Recipient and that is not then in use in connection with the Services, then CSC shall, without additional cost to Sears, use all commercially reasonable efforts to evaluate and determine whether such Software and Equipment shall adversely affect the Eligible Recipients’ environment, CSC Provided Systems, CSC Managed Systems, Sears Provided Systems and/or CSC’s ability to provide the Services. CSC shall complete and report the results of such evaluation to Sears within fifteen (15) days of its receipt of Sears’ request; provided, however, that CSC shall use all commercially reasonable efforts to respond more quickly in the case of a pressing business need or an emergency situation.

10.4	Notice of Decommissioning.
	CSC shall notify Sears promptly if and to the extent any CSC Managed Systems or Sears Provided Systems, including any Eligible Recipients’ owned Equipment or Eligible Recipients’ leased Equipment, shall no longer be used to provide the Services. The notification shall include the identification of the applicable Equipment, Software or circuit, and the date it shall no longer be needed by CSC, along with the reason for decommissioning or non-use. Upon receipt of any such notice, Sears may (or may cause the applicable Eligible Recipient to), in its sole discretion, terminate the Equipment lease for such leased Equipment or the license for such Software, as the case may be, as of the date specified in such notice and sell or otherwise dispose of or redeploy such Eligible Recipient owned Equipment, Software or circuit that is the subject of such a notice as of the date specified in such notice. Upon CSC ceasing to use any Equipment (or, in the case of leased Equipment, upon the last day such Eligible Recipient is obligated to make such leased Equipment available to CSC, if earlier) or Software, CSC shall return the same to the Eligible Recipients and/or their designee(s) in condition at least as good as the condition thereof on the applicable Commencement Date, ordinary wear and tear excepted. CSC shall, at CSC’s expense, deliver such Equipment or Software to the location designated by the Eligible Recipients.
10.5	License to CSC Provided Systems.
	As of the applicable Commencement Date, CSC, at no additional charge to the Eligible Recipients, hereby grants an irrevocable, worldwide, non-exclusive, and except for the Charges, paid-up, royalty-free right and license during the Term of the applicable Transaction Document and any Termination Assistance Services period to the Eligible

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

40

Recipients (but, as to Eligible Recipients ***, to access, interface with, monitor, use, execute, reproduce, display, perform, prepare Derivative Works based upon, and distribute, from and to any locations in the world, the CSC Provided Systems to the extent necessary or appropriate to receive the full benefit of the Services; *** may permit the Sears Personnel to exercise the foregoing rights and licenses on behalf of the Eligible Recipients in connection with receipt of the Services by the Eligible Recipients.

10.6

License to Sears Provided Systems and CSC Managed Systems.

(a)

License to Sears Owned Materials. As of the applicable Commencement Date, Sears hereby grants to CSC, for the sole and express purpose of performing the Services during the Term of the applicable Transaction Document and any Termination Assistance Services period, a non-exclusive, non-transferable, royalty-free right and license to access, interface with, monitor, use, operate, copy and store Sears Provided Systems that consist of Sears Owned Materials; provided that CSC may permit the CSC Personnel (that are retained in accordance with this Agreement) to use such Materials solely to provide Services to Eligible Recipients on CSC’s behalf. Neither CSC, nor CSC Personnel, shall have any right to the source code to such Sears Owned Materials unless and to the extent approved in advance by Sears, and shall cease all use of such Sears Owned Materials upon the end of the Term of the applicable Transaction Document and the completion of any applicable Termination Assistance Services requested by Sears.

(b)

License to Third Party Materials. Subject to CSC having obtained any Required Consents, Sears hereby grants to CSC, for the sole and express purpose of performing the Services during the Term of the applicable Transaction Document and any Termination Assistance Services period and solely to the extent of Sears’ underlying rights, the same rights of access and use as Sears possesses under the applicable contract with respect to the CSC Managed Systems and those Sears Provided Systems that do not consist of Sears Owned Materials; provided that CSC may permit the CSC Personnel (that are retained in accordance with this Agreement) to use such Materials solely to provide Services to Eligible Recipients on CSC’s behalf. CSC shall comply with the duties, including use restrictions and those of nondisclosure, imposed on Sears by such Third Party contracts, and shall cease all use of such CSC Managed Systems and Sears Provided Systems upon the end of the Term of the applicable Transaction Document and the completion of any applicable Termination Assistance Services requested by Sears.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

41

11.	SERVICE LEVELS
11.1	Description of Service Levels.

(a)

Purpose of Service Levels. Without limiting CSC’s obligations provided elsewhere in this Agreement, the Parties acknowledge and agree that the purpose of the Service Levels specified in this Agreement is to serve as a reporting tool to inform the Parties as to how the Services are being performed and to enable the Parties to identify and measure those areas of the Services that require improvement.

(b)

Service Level Performance Standards. CSC shall perform the Services so as to meet or exceed the Service Levels set forth in the applicable Transaction Document beginning on the applicable dates set forth therein. If such Transaction Document does not specify dates for CSC to meet the Service Levels, CSC shall perform the Services so as to meet or exceed the Service Levels beginning on the Commencement Date thereof. If more than one Service Level applies to any particular obligation of CSC, CSC shall perform in accordance with the most stringent of such Service Levels. CSC shall be responsible for meeting or exceeding the applicable Service Levels, even where doing so is dependent on the provision of Services by CSC Personnel that are Third Parties.

11.2	Service Level Credits.
	CSC recognizes that Sears is paying CSC to deliver the Services at specified Service Levels. If CSC fails to meet such Service Levels, then CSC shall pay or credit to Sears the performance credits specified in the applicable Transaction Document (“Service Level Credits”) in recognition of the diminished value of the Services resulting from CSC’s failure to meet the agreed-upon level of performance and not as a penalty. Sears shall have the right to re-allocate the Service Level Credits among the Service Levels under a Transaction Document, upon ninety (90) days’ advance written notice to CSC ***, provided that such re-allocation shall not change the total amount of Service Level Credits at risk under such Transaction Document. Under no circumstances shall the imposition of Service Level Credits be construed as Sears’ sole or exclusive remedy for any failure to meet the Service Levels. However, if Sears recovers monetary damages from CSC as a result of CSC’s failure to meet a Service Level, CSC shall be entitled to set off against such damages any Service Level Credits paid for the failure giving rise to such recovery.
11.3	Problem Analysis.
	If CSC fails to provide Services in accordance with the Service Levels or otherwise in accordance with this Agreement, CSC shall (after restoring service or otherwise resolving any immediate problems) (a) promptly investigate and report on the causes of the problem, (b) provide a Root Cause Analysis of such failure as soon as practicable after such failure or at Sears’ request, (c) use all commercially reasonable efforts to implement remedial action and begin meeting the Service Levels as soon as practicable, (d) advise

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

42

	Sears of the status of remedial efforts being undertaken with respect to such problem and (e) provide Sears reasonable evidence that the causes of such problem have been or shall be corrected on a permanent basis. CSC shall use all commercially reasonable efforts to complete the Root Cause Analysis within fifteen (15) days; provided, however, that if it is not capable of being completed within fifteen (15) days using reasonable diligence, CSC shall complete such Root Cause Analysis as quickly as possible and shall notify Sears prior to the end of the initial fifteen (15) day period as to the status of the Root Cause Analysis and the estimated completion date.
11.4	Continuous Improvement Reviews.
	Throughout each Exhibit Term, CSC shall identify and notify Sears of commercially reasonable methods of improving the Services and reducing the cost to the Eligible Recipients of such Services. In addition, Sears and CSC shall periodically review the Service Levels and the performance data collected and reported by CSC in accordance with the applicable Transaction Document. As part of this review process, the Parties shall, at no additional cost to Sears, increase the Service Levels to reflect the higher performance levels actually attained or attainable by CSC in accordance with the applicable Transaction Document. At minimum, if the actual performance of any Services exceeds the applicable Service Level for twelve (12) consecutive months, then the applicable Service Level shall be automatically increased (or decreased, if applicable) to a value which is halfway between the existing Service Level and the average actual performance for such twelve (12) month period. In addition, subject to Section 4.5 (Additional Services) and the applicable Transaction Document, the Parties shall, to the extent reasonable and appropriate, (a) increase the Service Levels to reflect improved performance capabilities associated with advances in the proven processes, technologies and methods available to perform the Services, (b) add new Service Levels to permit further measurement or monitoring of the accuracy, quality, completeness, timeliness, responsiveness, cost-effectiveness or productivity of the Services, (c) modify or increase the Service Levels to reflect changes in the processes, architecture, standards, strategies, needs or objectives defined by Sears, (d) modify or increase the Service Levels to reflect agreed-upon changes in the manner in which the Services are performed by CSC or (e) replace Service Levels that are not accurately measuring the impact of poor performance with Service Levels that better measure the benefits the Eligible Recipients should receive from the Services. Sears may, from time to time, require CSC to measure and report on additional Service Levels.
11.5	Measurement and Monitoring.
	CSC shall, on or before the applicable Commencement Date or as otherwise set forth in the applicable Transformation Plan, implement measurement and monitoring tools and metrics, as well as standard reporting procedures, all acceptable to Sears, to measure and report CSC’s performance of the Services against the applicable Service Levels. CSC shall provide Sears with on-line access to up-to-date problem management data and other data regarding the status of service problems, service requests and user inquiries. CSC also shall provide Sears with access to the data used by CSC to calculate its performance against the Service Levels and the measurement and monitoring tools and procedures

43

	utilized by CSC to generate such data for purposes of audit and verification. Sears shall not be required to pay any amount in addition to the Charges for such measurement and monitoring tools or the resource utilization associated with their use.
11.6	Satisfaction Surveys.

(a)	General. Except as set forth in a Transaction Document, within three (3) months after the initial Commencement Date under this Master Agreement, at least once every twelve (12) months thereafter during the Term and as part of the Services, CSC shall conduct (i) a satisfaction survey of end users regarding the Services performed under each Transaction Document, and (ii) a survey of the senior management of the Sears information technology department that shall focus on satisfaction with the functional interface between Sears and CSC. The timing, content, scope, protocols and procedures of each survey shall be as described in the applicable Transaction Document or as otherwise mutually agreed upon in writing by the Parties. To the extent CSC engages an independent Third Party to perform all or any part of any satisfaction survey, CSC shall obtain Sears’ prior approval of such Third Party.
(b)	Sears Conducted Surveys. In addition to the satisfaction surveys to be conducted by CSC pursuant to Section 11.6(a) (General), Sears may survey, or engage a Third Party to survey, end user satisfaction with CSC’s performance. At Sears’ request, CSC shall cooperate and assist Sears with the formulation of the survey questions, protocols and procedures and with the execution and review of such surveys.
(c)	Survey Follow-up. If the results of any satisfaction survey conducted pursuant to Section 11.6(a) (General) or 11.6(b) (Sears Conducted Surveys) indicate that the level of satisfaction with CSC’s performance is less than the level reasonably deemed appropriate by Sears, CSC shall promptly: (i) analyze and report on the cause of the management or end user dissatisfaction; (ii) develop an action plan to address and improve the level of satisfaction; (iii) present such plan to Sears for its review, comment and approval; and (iv) take reasonable action in accordance with the approved plan and as necessary to improve the level of satisfaction. CSC’s action plan shall specify the specific measures to be taken by CSC and the dates by which each such action shall be completed. Following implementation of such action plan, CSC shall conduct follow-up surveys with the affected Sears’ users and management to confirm that the cause of any dissatisfaction has been addressed and that the level of satisfaction has improved.

11.7

Excessive Service Level Failure.

If the Parties define one or more Service Level failures in a Transaction Document as giving Sears a right to terminate for cause (an “Excessive Service Level Failure”), and such Excessive Service Level Failure occurs, Sears shall have the right to terminate as provided in Section 23.1(a) (Termination By Sears). The express acknowledgment that such number of Service Level failures shall be considered an Excessive Service Level

44

	Failure, or that a certain amount of Service Level Credits shall give Sears the right to terminate does not imply that a lesser number of Service Level failures or lesser amount of Service Level Credits does not or cannot constitute a material breach of this Agreement and therefore grounds for termination under other subsections, and no Party shall contend otherwise in any dispute or controversy between the Parties. In the event of any Excessive Service Level Failure, either itself or in combination with other breaches of the applicable Transaction Document, Sears shall be entitled to all remedies under this Agreement and applicable Law, and shall not be limited to Service Level Credits received for individual Service Level failures; provided, however, that any Service Level Credits received by Sears shall be credited against any such damages.
12.	PROJECT PERSONNEL
12.1	Key Personnel.
	A Transaction Document may identify certain CSC Personnel and related positions critical to the provision of the Services (“Key Personnel”). Key Personnel shall be subject to the following terms and conditions.

(a)

Approval of Key Personnel. Before assigning an individual to act as one of the Key Personnel, whether as an initial assignment or a subsequent assignment, CSC shall notify Sears of the proposed assignment, shall introduce the individual to appropriate Sears Personnel, shall provide a reasonable opportunity for Sears Personnel to interview the individual and shall provide Sears with a resume and such other information about the individual as may be reasonably requested by Sears. If Sears in good faith objects to the proposed assignment, the Parties shall attempt to resolve Sears’ concerns on a mutually agreeable basis. If the Parties have not been able to resolve Sears’ concerns within five (5) Business Days of Sears communicating its concerns, CSC shall not assign the individual to that position and shall propose to Sears the assignment of another individual of suitable ability and qualifications.

(b)

Continuity of Key Personnel. CSC shall cause each of the Key Personnel to devote full time and effort to the provision of Services under this Agreement for the period specified in the applicable Transaction Document from the date he or she assumes the position in question. CSC shall not transfer, reassign or remove any of the Key Personnel (except as a result of voluntary resignation, involuntary termination for cause; documented, repeated negative performance; or illness, disability or death (collectively, “Permitted Separation”)), without Sears’ prior approval, which approval may be withheld in Sears’ reasonable discretion (based upon Sears’ business needs and the nature of the Services performed by such individual). In the event of a Permitted Separation of one of its Key Personnel, CSC shall (i) give Sears as much notice as reasonably possible of such development, and (ii) expeditiously identify and obtain Sears’ approval of a suitable replacement. Unless otherwise agreed, CSC shall not transfer, reassign or remove more than *** of the Key Personnel under any Transaction Document in any twelve (12) month period.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

45

(c)	Succession. CSC shall maintain active succession plans for each of the Key Personnel positions, including plans to effectively transfer knowledge from Key Personnel in the event that it becomes necessary to replace such Key Personnel. Upon termination or resignation of any Key Personnel, CSC shall promptly provide notice to Sears of such termination or resignation and identify potential suitable replacements.
(d)	Location of Key Personnel. If any Key Personnel are not resident in the area where they will be providing Services (e.g., the Chicago metropolitan area for Key Personnel assigned to the Sears Hoffman Estates, Illinois facility), CSC shall, at its expense, relocate such Key Personnel to the area where they will be providing Services within *** days of such individuals being assigned as Key Personnel under this Agreement; provided that for such interval period the Key Personnel will be on-site Monday through Friday from 8 am to 5 pm, unless otherwise agreed.
(e)	Restrictions on Performing Services to Sears’ Competitors. CSC shall not permit any individual who (i) is retained (as CSC Personnel) by CSC or its Subcontractors and (ii) provides Services to the Eligible Recipients to provide services to any retailer that is a competitor of Sears or its Affiliates either while engaged in the provision of such Services or during the twelve (12) months immediately following the termination of his or her involvement in the provision of such Services without Sears’ prior written consent.

12.2	CSC Account Executive.
	CSC shall designate a “CSC Account Executive” who, unless otherwise agreed by Sears, shall maintain his or her office at Sears’ Hoffman Estates, Illinois facility. The CSC Account Executive shall: (a) be the primary CSC representative under this Agreement; (b) be one of the Key Personnel; (c) be a full-time employee of CSC; (d) devote his or her full time and effort to managing the Services; (e) remain in this position for a minimum period of three (3) years from the initial assignment (except in the event of a Permitted Separation of the CSC Account Executive); (f) serve as the single point of accountability for the Services; (g) be the single point of contact to whom all Sears communications concerning this Agreement may be addressed; (h) have authority to act for and on behalf of CSC in all matters pertaining to this Agreement; and (i) have overall responsibility for managing and coordinating the performance of CSC’s obligations under this Agreement and day-to-day authority for ensuring customer satisfaction and attainment of all Service Levels.
12.3	Compensation of CSC Account Executive and Key Personnel.

(a) CSC Account Executive. At a minimum, *** of the CSC Account Executive’s *** compensation shall be based upon (i) the level of customer satisfaction reflected in the periodic customer satisfaction surveys, (ii) the extent to which CSC has met or exceeded the Service Levels, Service Levels and CSC’s other responsibilities and obligations under this

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

46

	Agreement, (iii) CSC’s achievement of the objectives relating to the Eligible Recipients’ businesses set forth in Section 1.2 (Goals and Objectives), as reasonably determined by Sears, and (iv) Sears’ determination as to whether CSC has met the technical objectives set by the Sears Chief Information Officer.
(b)	Key Personnel. At a minimum, fifteen percent (15%) of the annual incentive compensation of the Key Personnel listed in a Transaction Document shall be based upon the factors set forth in Section 12.3(a) (CSC Account Executive).
(c)	Evaluation Input. Sears shall have a meaningful opportunity to provide information to CSC with respect to Sears’ evaluation of the performance of the CSC Account Executive and the other Key Personnel and such evaluation shall be considered and accorded substantial weight by CSC in establishing the bonus and other compensation of such individuals.

12.4 Qualifications and Retention of CSC Personnel.

(a)	Sufficiency and Suitability of Personnel. CSC shall assign (or cause to be assigned) sufficient CSC Personnel to provide the Services in accordance with this Agreement and such CSC Personnel shall possess suitable competence, ability and qualifications and shall be properly educated and trained for the Services they are to perform.
(b)	Turnover Rate and Data. If Sears determines that the turnover rate of CSC Personnel is unacceptable and so notifies CSC, CSC shall within ten (10) Business Days (i) provide Sears with data concerning CSC’s turnover rate, (ii) meet with Sears to discuss the reasons for the turnover rate, and (iii) submit a proposal for reducing the turnover rate for Sears’ review and approval. Notwithstanding any transfer or turnover of CSC Personnel, CSC shall remain obligated to perform the Services without degradation and in accordance with the Service Levels and other requirements of this Agreement.
(c)	Drug Testing. Attached here as Appendix C, is a copy of CSC’s drug testing policy (the “CSC Drug Testing Policy”). CSC shall comply with its CSC Drug Testing Policy (or a similarly restrictive policy) for any Personnel assigned to the Sears account. CSC shall not subject the Transitioned Personnel to the CSC Drug Testing Policy as a condition of employment. If CSC, in its sole discretion, makes a material modification of the CSC Drug Testing Policy, it shall provide Sears with a copy of such modifications at least 60 days in advance of its implementation. For Personnel that have not been tested under a similarly restrictive policy, CSC, its Affiliates or its Subcontractors, may grandfather existing employees of any Third Party that such party acquires or that such party receives transitioned Personnel from as part of a purchased services arrangement.
(d)	Background Checks. Within sixty (60) days of the Effective Date, CSC shall comply with the following provisions; provided that CSC shall not require the Transitioned Personnel to submit to the following:

47

(i)	CSC shall, at its sole cost and expense, conduct a criminal background check report, and obtain any other job-relevant consumer reports, for each of the CSC Personnel to be assigned to the Sears account or involved in the Services for more than a total of three (3) days. Said reports must be based on a minimum of seven (7) years’ residential history, unless otherwise restricted by Law; provided, however, that the time span of the information obtained must extend to that which is reasonably available from court records or any other applicable sources, even if in excess of seven (7) years, except as otherwise restricted by Law.
(ii)	CSC shall use the services of a consumer reporting agency, approved in advance in writing by Sears, to conduct such criminal background checks and any other job-relevant consumer reports. At a minimum, criminal background checks shall be based on information obtained by the consumer reporting agency from every county court associated with the applicable CSC Personnel’s residences. In addition, CSC shall use a consumer reporting agency that conducts searches (typically via pass-throughs of credit bureau data) to obtain aliases and other addresses found that are then used for additional criminal background checks and CSC shall conduct retail theft background checks when offered as an option by the consumer reporting agency.
(iii)	Such background check shall be completed by CSC, and the results must be satisfactory to Sears, before the applicable CSC Personnel report for the cumulative sixth day of work on the Sears account or involvement in the Services, except and to the extent the background check results are delayed because of the administrative protocol of the information suppliers (e.g., county courts), or as otherwise agreed by Sears. CSC shall promptly notify Sears of any adverse results obtained after the applicable CSC Personnel have begun work on the Sears account and remove such Personnel from the Sears account. CSC shall not be required to perform such background checks on CSC Personnel located outside of the United States that will not have access to Sears Confidential Personnel Information and that will not have contact with Sears Personnel.
(iv)	If an assignment involves operating equipment that requires special licensing or certification such as trucks or forklifts, working around sensitive equipment or data (as in the Sears Testing Laboratory), CSC shall ensure that all CSC Personnel involved with such assignment have successfully acquired all required licenses and certifications prior to reporting for the first day of work on such assignment, regardless of any delay by any background check information suppliers or administrative agencies.
(v)	If any CSC Personnel has satisfactorily completed a criminal background check, and other job-relevant consumer reports, where applicable, specifically for a Sears assignment in accordance with the requirements of

48

	this Section 12.4(d) (Background Checks), an additional check need not be performed due to break in involvement in the Services by such CSC Personnel, as long as the CSC Personnel’s primary residence has not changed and the initial criminal background check was performed within sixty (60) days prior to the CSC Personnel resuming involvement in the Services.
(vi)	CSC shall not assign individuals with job-relevant adverse information or information that indicates an unreasonable risk to property, safety or the welfare of individuals or the public or to any Eligible Recipient. At a minimum, all such adverse information shall be evaluated by CSC in accordance with all Laws. Sears reserves the right to approve and modify the criteria CSC utilizes for this process.
(vii)	At Sears’ request, CSC shall submit evidence satisfactory to Sears of CSC’s compliance with this Section 12.4(d) (Background Checks).

(e) Fingerprinting. ***

12.5	Identification of CSC Personnel.
	While at Sears Facilities or Sears Sites, all CSC Personnel shall clearly identify themselves as CSC Personnel and not as employees of the Eligible Recipients. This shall include any and all e-mail communications.
12.6	Substance Abuse.
	CSC represents, warrants and covenants that CSC and its Affiliates have and shall maintain substance abuse policies, in each case in conformance with applicable Laws, and CSC Personnel shall be subject to such policies.
12.7	Union Agreements.
	CSC shall provide Sears not less than ninety (90) days’ prior written notice of the potential expiration of any collective agreement with unionized CSC Personnel (other than Exempt Subcontractors), if the expiration of such agreement or any resulting labor dispute could potentially interfere with or disrupt the business or operations of an Eligible Recipient or impact CSC’s ability to timely perform its duties and obligations under this Agreement.
12.8	CSC Responsibility.
	CSC shall be fully responsible for the performance of all CSC Personnel, as well as any failure by any CSC Personnel, including CSC employees and Subcontractors and Subcontractor’s Personnel, to perform in accordance with this Agreement or to comply with any duties or obligations imposed on CSC under this Agreement. Except as

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

49

expressly provided otherwise in this Agreement, CSC shall be responsible for the provision of the Services in accordance with this Agreement even if, by agreement of the Parties, such Services are actually performed by Third Parties (including Sears Personnel, subject to Section 7.1(c) (Sears Responsibilities)). CSC shall be Sears’ sole point of contact regarding the Services, including with respect to payment.

13.	CHARGES
13.1	General.

(a)

Payment of Charges. In consideration of CSC’s performance of the Services, and subject to Section 14.4 (Disputed Charges), Sears agrees to pay CSC the applicable Charges set forth in a Transaction Document as full compensation for such Services. Sears shall not pay any Charges or have any reimbursement obligations other than those expressly set forth in a Transaction Document. Except as provided for under Section 2.2(h) (Ordering Affiliates), CSC shall not charge (nor seek any reimbursement from) any Eligible Recipient other than Sears in connection with the Services. The Charges in each Transaction Document shall be stated separately for each relevant consumption item or Service component at a level of detail reasonably satisfactory to Sears. In no event shall any Eligible Recipient be required to pay any Charges in connection with the training of CSC Personnel.

(b)

No Charge for Reperformance. As part of the Services and at no additional expense to Sears, CSC shall promptly correct and reperform (including any backups or restoration of data) any Services or deliverables that result in incorrect outputs or contain errors or inaccuracies due to an error or breach by CSC or any CSC Personnel, and the resources required for such correction and reperformance shall not be counted in calculating the Charges payable or resources utilized by the Eligible Recipients under this Agreement.

13.2 Pass-Through Expenses.

(a) Procedures and Payment. Subject to Section 14.4 (Disputed Charges), Sears shall pay all Pass-Through Expenses directly to the applicable suppliers following review, validation and approval of such Pass-Through Expenses by CSC. Before submitting an invoice to Sears for any Pass-Through Expense, CSC shall (i) review and validate the invoiced charges, (ii) identify any errors or omissions, and (iii) communicate with the applicable supplier to correct any errors or omissions, resolve any questions or issues and obtain any applicable credits for Sears. CSC shall deliver (or cause to be delivered) to Sears the original supplier invoice, together with any documentation supporting such invoice and a statement that CSC has reviewed and validated the invoiced charges, within ten (10) Business Days after CSC’s receipt thereof or, if earlier, at least fifteen (15) Business Days prior to the date on which payment is due if such invoice was received by CSC; provided that if CSC receives an invoice within fifteen (15) Business Days of its due date, CSC shall deliver such invoice to Sears within two (2) Business Days of

50

	CSC’s receipt. In addition, if the supplier offers a discount for payment prior to a specified date, CSC shall deliver such invoice and associated documentation to Sears at least fifteen (15) Business Days prior to such date. To the extent CSC fails to comply with its obligations under this Agreement, it shall be financially responsible for any resulting discounts lost or any late fees or interest charges incurred by the Eligible Recipients. In addition, to the extent CSC fails to process any invoice in accordance with this provision within six (6) months after CSC’s receipt thereof, CSC shall be financially responsible for the payment of all such invoiced amounts.
(b)	No Markup; No Fees. CSC shall not (i) mark up any Pass-Through Expenses or (ii) add any management, administrative or other fees to any Pass-Through Expenses. In addition, CSC shall not separately charge Sears any handling or administrative charge in connection with its processing or review of invoices for Pass-Through Expenses in accordance with Section 13.2(a) (Procedures and Payment).
(c)	Efforts to Minimize. CSC shall continually seek to identify methods of reducing and minimizing both Sears’ retained and Pass-Through Expenses and shall notify Sears of such methods and the estimated potential savings associated with each such method.
(d)	Disbursements. Beginning on the applicable Commencement Date, CSC shall make payments for all Third Party Contracts (other than Excluded Agreements and Pass-Through Expenses) related to CSC Managed Systems and CSC Designated Contracts (to the extent they have not then been assigned to CSC) as paying agent of the Sears Related Businesses or shall reimburse Sears for amounts paid by Sears and which were due such Third Parties.
(e)	Limited Agency. Sears hereby appoints CSC as its limited agent during the Term of the applicable Transaction Document solely for the purposes of the administration of Pass-Through Expenses and administration and payment of amounts under CSC Designated Contracts (to the extent they have not then been assigned to CSC). Sears shall provide, on a timely basis, such affirmation of CSC’s authority to such Third Parties.
(f)	Reimbursement for Substitute Payment. If either Party (or their representatives, or, in the case of Sears, the other Eligible Recipients) in error pays to a Third Party an amount for which the other Party is responsible under this Agreement, the Party that is responsible for such payment shall promptly reimburse the other Party for such amount.

13.3	Reimbursable Expenses and Sears Expense Policy.
	To the extent a Transaction Document provides that an expense shall be reimbursable by Sears, Sears’ obligation to pay such expenses shall be conditioned upon CSC’s compliance with Sears Expense Policy (which was provided to CSC prior to CSC

51

	incurring such expense). Sears’ current Expense Policy is set forth in Appendix B (Sears Expense Policy), and may be amended by Sears from time to time, upon notice to CSC.
13.4	Taxes.
	The Parties’ respective responsibilities for taxes arising under or in connection with this Agreement shall be as follows:

(a)	Income Taxes. Each Party shall be responsible for its own Income Taxes.
(b)	Sales, Use and Property Taxes. CSC shall be responsible for any sales, lease, use, personal property, stamp duty or other such taxes on its real property and personal property, including CSC Provided Systems. Sears (or the other Eligible Recipients) shall be responsible for any sales, lease, use, personal property, stamp duty or other such taxes on its real property and its personal property, including Sears Provided Systems and CSC Managed Systems provided pursuant to the Excluded Agreements or on a Pass-Through Expense basis.
(c)	Taxes on Goods or Services Used by CSC. CSC shall be responsible for all sales, service, value-added, lease, use, personal property, excise, consumption and other taxes and duties, including VAT, payable by CSC on any Equipment, Software or other goods or services used or consumed by CSC in providing the Services (including CSC Provided Systems, CSC Managed Systems, but not including CSC Managed Systems provided pursuant to the Excluded Agreements or on a Pass-Through Expense Basis, and CSC Designated Contracts and services obtained from CSC Personnel) where the tax is imposed on CSC’s acquisition or use of such goods or services and the amount of tax is measured by CSC’s costs in acquiring or procuring such goods or services and not by Sears’ cost of acquiring such goods or services from CSC.
(d)	Service Taxes.

(i)

Responsibility as of Effective Date. Sears shall be financially responsible for all Service Taxes assessed by any United States jurisdiction against either Party as of the Effective Date on the provision of the Services as a whole or on any particular Service received by the Eligible Recipients from CSC. CSC shall be responsible for assessing and collecting from Sears and remitting to the appropriate Taxing Authority all such Service Taxes, and CSC shall indemnify Sears from (pursuant to Section 20.1 (Indemnity by CSC)): (A) except as set forth in clauses (ii) and (iii) below, the economic burden of any such Service Taxes which exceed the amount of Service Taxes set forth in the applicable Transaction Document, and (B) any fines, penalties and interest arising from CSC’s failure to properly assess and remit Service Taxes.

(ii)

Modifications Increasing Taxes After the Effective Date. If after the Effective Date new or higher Service Taxes become applicable to the

52

	Services as a result of either Party or its Affiliates (or their Personnel) moving all or part of its operations to a different jurisdiction (e.g., Sears opening a new office, CSC relocating performance of Services to a shared service center or CSC assigning this Agreement to an Affiliate) or as a result of a change in the manner in which CSC performs or invoices Sears for the Services, the Party who initiated (or whose Personnel initiated) such move or change, respectively, shall be financially responsible for such new or higher Service Taxes.
(iii)	New or Increased Taxes. If new or higher Service Taxes become applicable to such Services after the Effective Date for any other reason (e.g., tax law changes, but not volume changes) the Parties shall share equally financial responsibility for such new or additional Service Taxes; ***.
(iv)	Reimbursement. If required under applicable Laws, CSC shall invoice Sears for the full amount of any Service Taxes, fines, penalties and interest and then credit or reimburse Sears in an amount to make Sears whole for the economic burden of such Service Taxes, fines, penalties and interest for which CSC is financially responsible under this provision.
(v)	Invoicing. CSC’s invoices shall separately state the Charges that are subject to taxation and the amount of any taxes included therein (by tax jurisdiction).

(e)

Notice of New Taxes and Charges. CSC shall promptly notify Sears when it becomes aware of any new taxes or other Charges (including changes to existing taxes or Charges) to be passed through to and/or collected from Sears under this Section, as well as any changes in the manner in which CSC assesses taxes in connection with this Agreement. Such notification (which shall be separate from the first invoice reflecting such taxes or other Charges or changes, as the case may be, and delivered to Sears at least thirty (30) days prior to the delivery to Sears of such invoice) shall contain a detailed explanation of such taxes or Charges or changes, as the case may be, including the effective date of each new tax or charge or change.

(f)

Efforts to Minimize Taxes. CSC shall cooperate fully with Sears to enable Sears to more accurately determine Sears’ tax liability and to minimize such liability to the extent legally permissible (e.g., by the way CSC invoices). Each Party shall provide and make available to the other any resale certificates, information regarding out-of-state or out-of-country sales or use of Equipment, materials or services, and other exemption certificates or information reasonably requested by either Party. At Sears’ request, CSC shall provide Sears with (i) written certification signed by an authorized representative of CSC confirming that CSC has filed all required tax forms and returns required in connection with any

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

53

Service Taxes collected from Sears, and has collected and remitted all applicable Service Taxes, and (ii) such other information pertaining to applicable Taxes as Sears may reasonably request. For purposes of the State of Illinois tax on telecommunications, CSC acknowledges that Sears’ Hoffman Estates, Illinois facility is presently exempt from such tax and CSC agrees that, for the duration of such exemption, CSC shall not include such tax on invoices for exempt Services, provided Sears furnishes CSC with a current exemption certificate. CSC shall provide to Sears such documentation as Sears may reasonably request to establish that CSC is registered to collect any tax described in Section 13.4(d) (Service Taxes) that CSC seeks to collect from Sears.

(g)

Tax Audits or Proceedings. Each Party shall promptly notify the other of, and coordinate with the other Party, the response to and settlement of any claim for taxes asserted by applicable taxing authorities for which the other Party or its Affiliates is responsible hereunder, but solely with respect to the taxes claimed for Services under this Agreement that CSC seeks to recover from Sears. Information regarding other taxes that do not relate to the Services or this Agreement shall not be provided. With respect to any claim arising out of a form or return signed by either Party or its Affiliates, such Entity shall have the right to elect to control the response to and settlement of the claim, but the other Party shall have all rights to consult with such Entity in the responses and settlements that are appropriate to its potential responsibilities or liabilities and in a reasonable time frame so as to allow the other Party meaningful input into the responses and settlements. Each Party also shall have the right to challenge the imposition of taxes for which it is financially responsible under this Agreement or, if necessary, to direct the other Party to challenge the imposition of such taxes. If either Party requests the other to challenge the imposition of any tax, the requesting Party shall reimburse the other for all fines, penalties, interest, additions to taxes or similar liabilities imposed in connection therewith, plus the reasonable legal fees and expenses it incurs. The Party who is ultimately responsible for payment of a tax under this Agreement shall be entitled to receive, and to have the other Party remit to it, any tax refunds or rebates granted with respect to such tax that were paid by the obligated Party or its Affiliates.

13.5	Tax Filings.
	CSC represents, warrants and covenants that (a) it shall file appropriate tax returns, and pay applicable taxes owed arising from or related to the provision of the Services in applicable jurisdictions, and (b) it is registered to and shall timely collect and remit Service Taxes in all applicable jurisdictions.
13.6	Extraordinary Events.

(a) Definition. As used in this Agreement, an “Extraordinary Event” means a circumstance in which an event or discrete set of events has occurred or is planned with respect to the business of the Eligible Recipients that results or could reasonably be expected to result in a change in the scope, nature or volume

54

of the Services that the Eligible Recipients shall require from CSC, and which is expected to cause the estimated average monthly amount of Charges for any Transaction Document specified in the applicable Transaction Document to increase or decrease by *** or more. Examples of the kinds of events that might cause such substantial increases or decreases include the following:

(i)	changes in locations where the Eligible Recipients operate;
(ii)	changes in products of, or in markets served by, the Eligible Recipients;
(iii)	mergers, acquisitions, divestitures or reorganizations of the Eligible Recipients;
(iv)	changes in the method of service delivery;
(v)	changes in the applicable regulatory environment;
(vi)	changes or advances in technology allowing services to be delivered or supported in a more efficient manner;
(vii)	changes in market priorities; or
(viii)	changes in the business units being serviced by CSC.

(b) Consequence. If an Extraordinary Event occurs, Sears may, at its option, request more favorable pricing with respect to applicable Charges in accordance with the following:

(i) CSC and Sears shall mutually determine on a reasonable basis the efficiencies, economies, savings and resource utilization reductions resulting from such Extraordinary Event and, upon Sears’ approval, CSC shall then proceed to implement such efficiencies, economies, savings and resource utilization reductions as quickly as practicable and in accordance with the agreed-upon schedule. As the efficiencies, economies, savings or resource utilization reductions are realized, the Charges specified in the applicable Transaction Document shall be promptly and equitably adjusted to pass through to Sears the full benefit of such efficiencies, economies, savings and resource utilization reductions; provided, however, that Sears shall reimburse CSC for any out-of-pocket expenses incurred to realize such efficiencies, economies, savings or resource utilization reductions if and to the extent CSC (1) notifies Sears of such additional costs and obtains Sears’ approval prior to incurring such costs (at which point they shall become approved Out-Of-Pocket Expenses), (2) uses commercially reasonable efforts to identify and consider practical alternatives, and reasonably determines that there is no other more practical or cost-effective way to obtain such savings without incurring such expenses, and

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

55

(3) uses commercially reasonable efforts to minimize the Out-Of-Pocket Expenses to be reimbursed by Sears.

(ii)

An Extraordinary Event shall not result in Charges to Sears being higher than such Charges would have been if the rates and charges then specified in the applicable Transaction Document had been applied, unless and to the extent such Extraordinary Event results in New Services (e.g., Sears requires that CSC create a new infrastructure to support an acquired Entity). Sears may, at its sole option, elect, for each Extraordinary Event, at any time to forego its rights under this Section 13.6 (Extraordinary Events), and instead apply the rates and charges specified in the applicable Transaction Document to adjust the Charges.

13.7	Proration.
	Periodic charges under a Transaction Document shall be computed on a calendar-month basis, and shall be prorated for any partial month on a calendar-day basis, unless expressly stated otherwise in a Transaction Document.
13.8	Refundable Items.

(a)	Prepaid Amounts. Where the Eligible Recipients have prepaid for a service or function (e.g., prepaid software maintenance) for which CSC is assuming financial responsibility under this Agreement, CSC shall refund to Sears, upon either Party identifying the prepayment, that portion of such prepaid expense which is attributable to periods on and after the applicable Commencement Date.
(b)	Refunds and Credits. If CSC receives a refund, credit, discount or other rebate for Equipment, Software or other goods or services paid for by the Eligible Recipients on a Pass-Through Expense basis, then CSC shall (i) notify Sears of such refund, credit, discount or rebate and (ii) promptly pay the full amount of such refund, credit, discount or rebate to Sears. ***.

13.9	Repricing.
	If and to the extent provided for in a Transaction Document, each pricing element for Services specified in a Transaction Document shall be subject to repricing (“Repricing”) as provided below. Upon the occurrence of a Repricing event specified in the applicable Transaction Document, as and to the extent requested by Sears, in Sears’ sole discretion,

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

56

CSC shall promptly, but in no event more than thirty (30) days after the occurrence of such Repricing event, provide to Sears a written document detailing proposed new Charges for each pricing element subject to Repricing, which proposed new Charges shall take into account (a) the facts and circumstance giving rise to the Repricing event, (b) Sears’ expected future consumption of the applicable Service, and (c) the terms and conditions applicable to such Service. The Parties shall, within thirty (30) days after Sears receives CSC’s proposed new Charges, negotiate in good faith the revised pricing to be applied to each pricing element subject to Repricing. CSC covenants that the Charges it proposes in connection with each Repricing shall be competitive with those available to Sears from other providers for similar Services, volumes and performance standards.

13.10

Benchmarking.

(a)

Required Benchmark Reviews. At the intervals set forth, if any, in the applicable Transaction Document, the Parties shall participate in collaborative benchmarking reviews with an independent Third Party selected by the Parties (a “Benchmarker”) to compare the quality and cost of the Services against the quality and cost of well-managed tier one information technology service providers performing similar services to ensure that Sears is receiving from CSC pricing and levels of service that are competitive with market rates, prices and service levels, given the nature, volume and type of Services provided by CSC hereunder (each a “Benchmarking”). The Parties shall each pay one-half of the charges and reimbursable expenses to be paid to the Benchmarker for each Benchmarking. In conducting the Benchmarking, the Benchmarker shall consider the following factors, as well as any other appropriate factors, and shall adjust the prices as and to the extent appropriate: (i) whether supplier transition charges are paid by the customer as incurred or amortized over the term of the applicable agreement; (ii) the extent to which supplier pricing includes the purchase of the customer’s existing assets; (iii) the extent to which supplier pricing includes the cost of acquiring future assets; (iv) the extent to which this Agreement calls for supplier to provide and comply with unique Sears requirements; and (v) whether Service Taxes are included in such pricing or stated separately in supplier invoices. Prior to commencement of a Benchmarking the Parties shall mutually agree with the Benchmarker on the methodology to be used to perform such Benchmarking. If the Parties cannot, in good faith, agree upon a Benchmarker or either Party disputes, in good faith, the methodology to be used by the Benchmarker, then either Party may submit a notice to the other Party, stating the nature of the disagreement and identifying with particularity the basis of such Party’s dispute and the matter shall immediately thereafter be resolved, in good faith, pursuant to Section 22 (Dispute Resolution).

(b)

Other Price Reviews. From time to time during the Term of the applicable Transaction Document, Sears may, at its own cost, engage a Benchmarker to conduct a Benchmarking or similar competitive review.

57

(c)	General. Any Benchmarker engaged by the Parties or by Sears shall execute an appropriate non-disclosure agreement. CSC shall cooperate fully, in a collaborative manner, with Sears and the Benchmarker and shall provide reasonable access to the Benchmarker during such effort, all at CSC’s cost and expense. The Benchmarking shall be conducted so as not to unreasonably disrupt CSC’s operations under this Agreement.
(d)	Results of Required Benchmarking. For any Benchmarking required under the applicable Transaction Document, the Benchmarker shall submit a written report to both Parties setting forth the Benchmarker’s findings and conclusions (the “Benchmark Results”).
(e)	Non-Competitive Charges. If the Benchmark Results indicate (after resolution of any dispute as provided in Section 13.10(d) (Results of Required Benchmarking)), that the Charges being paid by Sears for the Benchmarked Services under the applicable Transaction Document are greater than the lowest twenty-five percent (25%) of the prices charged by other well-managed information technology service providers for services of a similar nature, type and volume (the “Benchmark Standard”), or the service levels associated with the contracts reviewed in creating the Benchmark Standard are more stringent than those in effect under such Transaction Document, CSC shall adjust the Charges downward to reflect the Benchmark Results, including an appropriate adjustment for any less-stringent service levels reflected by the Benchmark Results, effective as of earlier of: (i) the date specified in the Transaction Document; or (ii) the date the Benchmark Results are first delivered to both Parties. The Charges under this Agreement shall not be increased as the result of any such Benchmarking.

13.11	Most Favored Customer.
	***.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

58

14.	INVOICING AND PAYMENT
14.1	Invoicing.

(a) Invoice. Within five (5) days after the beginning of each month, CSC shall present Sears with a written invoice for any Charges due and owing for the preceding month (the “Monthly Invoice”), and the applicable rates for such Charges based on the rate card set forth in the applicable Transaction Document. CSC shall not invoice Sears for any advance or concurrent charges or other amounts. CSC shall submit all Monthly Invoices to the following address:

Sears, Roebuck and Co.
c/o Accounts Payable
P.O. Box 957437
Hoffman Estates, Illinois 60179-7437
IT Manager: Sears VP Operations/Engineering
IT Ledger Code: 704-OP

or to such other address as may be specified by Sears from time to time upon notice to CSC. Each invoice must reference the Sears IT Manager, Sears IT Ledger Code and applicable Transaction Document number.

(b)

Form and Data. At Sears’ request, CSC shall provide separate Monthly Invoices for each Eligible Recipient then receiving Services, allocated among such Eligible Recipients based on the charge-back data generated by CSC and the allocation formula provided by Sears. Each invoice shall be in a form as may be reasonably acceptable to Sears and shall (i) comply with all applicable legal, regulatory and accounting requirements, (ii) contain transaction-level detail and other data sufficient to permit Sears to validate and verify volumes and fees, (iii) permit Sears to charge-back internally to the same organizational level and at the same level of detail in use by Sears as of the applicable Commencement Date, (iv) include accurate “bill to” designators, (v) segregate the Charges for (1) taxable Services, (2) non-taxable Services, (3) items for which CSC functions merely as a paying agent for Sears (including leasing and licensing arrangements) that are non-taxable or have previously been subject to tax, (4) the type and amount of tax due on taxable Services billed by CSC (by taxing jurisdiction), and (5) other taxes (if any) collected by CSC under this Agreement, and (vi) otherwise meet the Eligible Recipients’ billing requirements. Each invoice shall include the pricing calculations and related data utilized to establish the Charges. Each invoice, and the data underlying each invoice, shall be delivered to Sears electronically in a form and format compatible with and suitable for automated input into Sears’ Systems and its processes (e.g., as a fixed or delimited flat file or other mutually agreed-upon file format). If requested by Sears, the Parties shall work together to develop additional procedures for invoicing formats and methods for invoice reconciliation.

59

(c)	Credits. To the extent a credit may be due to Sears pursuant to this Agreement or any Transaction Document, CSC shall provide Sears with an appropriate credit against amounts then due and owing. If such credit to Sears exceeds the Charges payable by Sears to CSC over a two (2) month period, then any excess shall be paid to Sears at the end of such two (2) month period.
(d)	Time Limitation. If CSC fails to invoice Sears for any amount within ninety (90) days after the month in which the Services in question are rendered or the expense incurred, CSC shall be deemed to have waived any right it may otherwise have to invoice for and collect such amount (and Sears shall have no obligation to pay such amounts).

14.2 Payment.

(a)

Timing. Subject to the other provisions of this Section 14 (Invoicing and Payment), Sears shall initiate payment (e.g., by check, wire transfer, application of a credit due Sears) of all properly invoiced amounts within thirty (30) calendar days after receipt of a proper and correct Monthly Invoice as provided for under Section 14.1 (Invoicing) unless (a) such 30th day is a Saturday, Sunday or bank holiday, in which case such amounts shall be due on the next banking day or (b) the amount in question is disputed in accordance with Section 14.4 (Disputed Charges), in which case Sears shall initiate payment of the undisputed portion of such Monthly Invoice as provided in this Section 14.2 (Payment). Any undisputed amount due under this Agreement for which a time for payment is not otherwise specified also shall be payable as provided in this Section 14.2 (Payment).

(b)

Interest. If any properly invoiced amount remains unpaid by Sears after the payment due date specified in Section 14.2(a) (Timing), CSC may impose an interest charge until such amount is paid at the Contract Rate per month; provided, that CSC shall not impose an interest charge on the portion of Charges that Sears is disputing in accordance with Section 14.4 (Disputed Charges). Additionally, if CSC fails to timely issue any credit to (or pay) Sears for any amounts owing hereunder, such amounts shall accrue interest until paid by CSC at the Contract Rate per month.

14.3	Set Off.
	Sears shall have the right to set off any amounts properly due Sears in connection with this Agreement against any undisputed amounts owed to CSC under this Agreement.
14.4	Disputed Charges.
	Sears may withhold payment of particular Charges ***, that Sears disputes in good faith, subject to the following:

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

60

(a)	Description and Explanation. If Sears disputes any CSC Charges, Sears shall promptly notify CSC and provide a description of the particular Charges in dispute and an explanation of the reason why Sears disputes such Charges, ***.
(b)	No Waiver. Neither the failure to dispute any Charges or other amounts prior to payment nor Sears’ failure to withhold any such Charges or amounts shall constitute, operate or be construed as a waiver of any right Sears may otherwise have to dispute any Charge or other amount or recover any such items previously paid.
(c)	***.
(d)	***.

15.	SEARS DATA AND OTHER CONFIDENTIAL INFORMATION
15.1	Sears Ownership of Sears Data.
	Sears Data is and shall remain the property of the applicable Eligible Recipients. CSC shall promptly deliver Sears Data (or the portion of such Sears Data specified by Sears) to Sears in the format and on the media prescribed by Sears (a) at any time at Sears’ request, (b) at the end of the Term of the applicable Transaction Document and the completion of all requested Termination Assistance Services, or (c) with respect to particular Sears Data, at such earlier date that such data are no longer required by CSC to

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

61

perform the Services. Neither CSC, its Affiliates nor the CSC Personnel shall withhold any Sears Data as a means of resolving any dispute. Sears Data shall not be utilized by CSC, its Affiliates or the CSC Personnel for any purpose other than the performance of Services under this Agreement and shall not be sold, assigned, leased or otherwise commercially exploited by or on behalf of CSC or any CSC Personnel. Neither CSC, its Affiliates nor the CSC Personnel shall possess or assert any lien or other right against or to Sears Data.

15.2

Safeguarding Sears Data.

(a) Safeguarding Procedures.

(i)

CSC shall establish and maintain environmental, safety and facility procedures, data security procedures and other safeguards against the destruction, loss, unauthorized access or alteration of Sears Data in the possession of CSC or the CSC Personnel that are no less rigorous than the most rigorous procedures and safeguards maintained by Sears or CSC from time to time, and at least adequate to meet the requirements of Sears’ records retention policy and applicable Laws. CSC shall revise and maintain such procedures and safeguards upon Sears’ request. Sears shall have the right to establish backup security for Sears Data and to keep backup copies of the Sears Data in Sears’ possession at Sears’ expense if Sears so chooses. If CSC, its Affiliates or their Subcontractors revoke access to any of its Systems for any CSC Personnel for any reason (e.g., resignation, termination, security purposes, etc.), and such Personnel have or in the past have been given access to Sears Provided Systems, CSC shall immediately (1) notify Sears’ designated security contact of such revocation of access rights, and (2) revoke such CSC Personnel’s access to all Sears Provided Systems for which CSC has operational responsibilities.

(ii)

CSC shall remove all Sears Data from any media, CSC Provided Systems and CSC Managed Systems taken out of service ***, and from any Sears Provided Systems that are taken out of service by CSC Personnel and shall securely erase all Sears Data from such media and Systems. No media on which Sears Data is stored may be used or re-used to store data of any other customer of CSC or to deliver data to a Third Party, including another CSC customer, unless Sears Data has been securely erased from such media. Where this Agreement calls for off-site storage of Sears Data, CSC shall use a commercially acceptable off-site storage facility. All backup and off-site storage shall be in full compliance with all confidentiality provisions of this Agreement.

(b) Reconstruction Procedures. As part of the Services, CSC shall be responsible for developing and maintaining commercially reasonable procedures for the reconstruction of destroyed, lost or altered Sears Data, including any procedures

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

62

explicitly set forth in this Agreement. If and to the extent that such destruction, loss or alteration was caused by CSC, its Affiliates, CSC Personnel, any CSC Provided System or CSC Managed System, CSC shall be responsible for the cost of restoring such data.

15.3 Confidentiality.

(a)

Confidential Information. This Section 15.3 (Confidentiality) shall apply to any information exchanged between the Parties regarding the Services or any proposed services or other business, regardless of whether the Parties enter into a Transaction Document regarding such proposed business. CSC’s obligations pursuant to this Section 15.3 (Confidentiality) shall be in addition to, and not in lieu of, CSC’s obligations provided for elsewhere in this Agreement.

(b)

Confidential Business Information.

(i) Definition. The term “Confidential Business Information” means any information, whether disclosed in oral, written, visual, electronic or other form, disclosed by, or on behalf of, a Party or such Party’s Affiliates (and, as to Sears, the other Eligible Recipients) and their Personnel (the “Disclosing Party”) to the other Party or such Party’s Affiliates (the “Receiving Party”) or to Receiving Party’s Personnel or which the Receiving Party or its Personnel observe in connection with this Agreement, whether before or after the date of this Agreement; that (1) if in tangible form or other media that can be converted to readable form, is marked clearly as “confidential” (or with a similar term) when disclosed, or (2) if oral or visual, is either (A) identified as “confidential” (or with a similar term) at the time of disclosure and is promptly summarized in a writing marked as such thereafter, or (B) treated as confidential by the Disclosing Party and would reasonably be understood to be confidential, whether or not so marked. Sears’ Confidential Business Information shall include, without the need to mark it as such, Sears Data and Sears’, Sears Affiliates’ and the other Eligible Recipients’: business plans, strategies, forecasts, projects and analyses; customer lists, customer contracts, customer information, rates and pricing, information with respect to competitors, strategic plans, Sears Provided Systems, CSC Managed Systems, CSC Designated Contracts, account information and research information; financial information (including assets, expenditures, mergers, acquisitions, divestitures, billings collections, revenues and finances); employee and vendor information; system designs and requirements, architectures, structure and protocols (including all hardware, software and specifications and documentation related thereto); facilities, business units and product lines, plans for business mergers, acquisitions or divestitures; rate information; plans for the development and marketing of new products, financial forecasts and budgets; information regarding businesses, plans, operations, third-party contracts, licenses, internal or external audits, law suits, regulatory compliance or

63

other information or data obtained, received, transmitted, processed, stored, archived or maintained by CSC under this Agreement; and other business processes and proprietary information. The Disclosing Party’s Confidential Business Information shall remain the property of such Entity.

(ii)	Failure to Denote as Confidential. Subject to Section 15.3(b)(i)(2)(B), if the Disclosing Party fails to denote Confidential Business Information as “confidential” (or with a similar term) prior to disclosure, and later does so, and such Confidential Business Information would not otherwise be considered as such pursuant to Section 15.3(b)(i) (Definition), the Receiving Party shall, after receiving such notice, treat such information as Confidential Business Information of the Disclosing Party to the extent such untimely notice does not prejudice the Receiving Party.
(iii)	Treatment of Confidential Business Information. The Receiving Party shall use at least the same degree of care and discretion to safeguard and prevent disclosure, publication or dissemination of any Confidential Business Information received from the Disclosing Party as the Receiving Party uses to avoid unauthorized disclosure, publication or dissemination of its own information (or information of its customers) of a similar nature, but not less than reasonable care. Further, the Receiving Party shall: (1) use the Disclosing Party’s Confidential Business Information only in connection with the Receiving Party’s performance of its obligations or its full enjoyment of its rights under this Agreement, and (2) not disclose the Disclosing Party’s Confidential Business Information except to its Personnel who have a need to know such Confidential Business Information in connection with the performance of the Receiving Party’s obligations or the full enjoyment of its rights under this Agreement. CSC shall restrict disclosure of Sears’ Confidential Business Information to the CSC Personnel who have executed a written agreement by which they agree to be bound by terms substantially similar to this Section 15.3 (Confidentiality). In any case, the Receiving Party is liable for any unauthorized disclosure or use of Confidential Business Information by any of its Personnel.
(iv)	Exceptions to Confidential Treatment. The obligations under this Section 15.3(b) (Confidential Business Information) do not apply to any Confidential Business Information that the Receiving Party can demonstrate:

(1)	the Receiving Party possessed prior to disclosure by the Disclosing Party, or its Affiliates, without an obligation of confidentiality;
(2)	is or becomes publicly available without breach of this Agreement by the Receiving Party;

64

(3)	is independently developed by the Receiving Party without use of any Confidential Business Information of the Disclosing Party; or
(4)	is received by the Receiving Party from a Third Party that does not have an obligation of confidentiality to the Disclosing Party or its Affiliates.

(v)

Disclosure. If, in the reasonable opinion of its legal counsel, a Receiving Party is: (1) required by Law to disclose any Confidential Business Information of the Disclosing Party, including in connection with any legal proceeding, or (2) such disclosure would be material in any legal proceeding concerning the Confidential Business Information, the Services provided for hereunder or this Agreement, then the Receiving Party may disclose such information to the applicable arbitrator, court or other governmental authority, etc., as the case may be, and shall not thereby be considered to have breached its obligations under this Section 15.3(b) (Confidential Business Information) for such disclosure; provided, however, that in each case, the Receiving Party shall, to the extent it may legally do so, notify the Disclosing Party a reasonable time prior to such disclosure of the Confidential Business Information to be disclosed and the identity of the Third Party requiring such disclosure in order that the Disclosing Party may interpose an objection to such disclosure, take action to assure confidential handling of the Confidential Business Information or take such other action as it deems appropriate to protect the Confidential Business Information. The Receiving Party shall use commercially reasonable efforts to cooperate with the Disclosing Party in its efforts to seek a protective order or other appropriate remedy or, if such protective order or other remedy is not obtained, to obtain assurance that confidential treatment shall be accorded such Confidential Business Information.

(vi)

Duration. The Receiving Party’s obligations under this Section 15.3(b) (Confidential Business Information) shall survive the termination or completion of the applicable Transaction Document for a period of five (5) years from the date that the applicable Confidential Business Information was initially disclosed.

(c) Confidential Personal Information.

(i) General. CSC agrees that all information about the Eligible Recipients (including their respective Affiliates’ individual customers and Personnel), provided to CSC or the CSC Personnel by Eligible Recipients, including names, addresses, telephone numbers, account numbers, customer lists and demographic, financial and transaction information, as well as employee lists and company telephone or e-mail directories and any other information that is subject to applicable Privacy Laws (collectively, “Confidential Personal Information”) shall be deemed confidential.

65

This Section 15.3(c) (Confidential Personal Information) shall not apply to information independently developed by CSC without the use of Confidential Personal Information; provided that neither CSC nor the CSC Personnel are using such information on Eligible Recipients’ behalf. If information may be deemed to be both Sears Business Information and Sears Confidential Personal Information, the provisions of this Section 15.3(c) (Confidential Personal Information) shall control.

(ii)	Treatment of Confidential Personal Information. CSC shall use Confidential Personal Information only as necessary to perform the Services and its other obligations under this Agreement. CSC shall not duplicate or incorporate the Confidential Personal Information into its own records or databases. CSC shall restrict disclosure of Confidential Personal Information to those CSC Personnel who have a need to know such information to perform the Services and who have first agreed in writing to be bound by terms substantially similar to this Section 15.3(c) (Confidential Personal Information). CSC shall be liable for any unauthorized disclosure or use of Confidential Personal Information by any CSC Personnel.
(iii)	Non-Disclosure of Confidential Personal Information. CSC shall not disclose the Confidential Personal Information to any third party including Affiliates of CSC, agents, independent contractors except Exempt Subcontractors and Subcontractors approved by Sears, without prior written consent of Sears and the written agreement of such third party to be bound by terms substantially similar to this Section 15.3(c) (Confidential Personal Information). Unless otherwise prohibited by applicable Law, CSC shall: (1) immediately notify Sears of any legal process served on CSC for the purpose of obtaining Confidential Personal Information; and (2) permit Sears or its Affiliates adequate time to exercise its legal options to prohibit or limit such disclosure.
(iv)	CSC Policies for Confidential Personal Information. CSC shall establish and maintain written policies and procedures designed to: (1) ensure the security and the confidentiality of the Confidential Personal Information; (2) protect against any anticipated threats or hazards to the security or integrity of such information; and (3) protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer or data subject. Copies of such policies and procedures shall be provided to Sears by CSC upon Sears’ request.
(v)	CSC Notification for Confidential Personal Information. CSC shall notify Sears promptly upon the discovery of the actual or potential loss, unauthorized disclosure or unauthorized use of the Confidential Personal Information and shall indemnify and hold harmless the Eligible Recipients for such loss, unauthorized disclosure or unauthorized use, including Attorneys’ Fees pursuant to Section 20.1 (Indemnity by CSC).

66

(vi) CSC Breach. A material breach by CSC or the CSC Personnel of this Section 15.3(c) (Confidential Personnel Information) shall be a material breach of this Agreement. In addition, Sears shall be entitled to the recovery of any pecuniary gain realized by CSC or the CSC Personnel from the unauthorized use or disclosure of Confidential Personal Information.

(d)	Return or Destruction of Confidential Information. Within ten (10) days following the earlier of (i) termination or expiration of this Agreement or any Transaction Document or (ii) completion of any Services for which such Confidential Personal Information has been provided, CSC shall, at Sears’ discretion, either return Sears’ Confidential Information, and all copies and derivatives thereof, to Sears, and certify in writing to Sears that such Confidential Information and all copies and derivatives thereof have been destroyed in such a manner that it cannot be retrieved.
(e)	Loss of Confidential Information. Each Party shall (i) immediately notify the other Party of any actual or potential breach of security, unauthorized possession, use, knowledge, disclosure or loss of such other Party’s Confidential Information, including Sears Data, in contravention of this Agreement, (ii) promptly furnish to the other Party all known details and assist such other Party in investigating and/or preventing the recurrence of such possession, use, knowledge, disclosure or loss, (iii) cooperate with the other Party in any investigation or litigation deemed necessary by such other Party to protect its rights, and (iv) promptly use all commercially reasonable efforts to prevent further possession, use, knowledge, disclosure or loss of Confidential Information in contravention of this Agreement. Each Party shall bear any costs it incurs in complying with this Section 15.3(e) (Loss of Confidential Information). Furthermore, CSC shall, at no additional charge, perform a Root Cause Analysis of any security failure regarding a CSC Provided System, a CSC Managed System or unauthorized access to Sears Provided Systems originating directly or indirectly from any CSC Provided Systems, CSC Managed Systems or CSC Personnel and provide Sears with such reasonable assurances as Sears shall request that such breach or potential breach shall not recur; ***.
(f)	No Implied Rights. Nothing contained in this Section 15.3 (Confidential Information) shall be construed as (i) obligating a Party to disclose its Confidential Information to the other Party, (ii) granting to or conferring on a Party any express or implied rights or license to any Confidential Information of

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

67

the other Party, or (iii) limiting or affecting any rights or licenses granted to either Party elsewhere in this Agreement.

15.4 File Access.

Sears Personnel authorized by the Sears Relationship Manager shall have unrestricted access to, and the right to review and retain the entirety of, all computer or other files containing Sears Data, as well as all Systems and network logs, system parameters and documentation, and all such files and other information provided to the Eligible Recipients shall be complete. CSC shall not delay access by Sears to any of such files or other materials or information. CSC shall provide to the Sears Relationship Manager all passwords, codes, comments, keys, documentation and the locations of any such files and other materials promptly upon the request of Sears, including Equipment and Software keys and such information as to format, encryption (if any) and any other specification or information necessary for the Eligible Recipients to retrieve, read, revise and/or maintain such files and information.

16. OWNERSHIP

16.1 CSC Provided Systems.

(a)	Ownership of CSC Provided Systems. Subject only to the licenses granted to the Eligible Recipients by CSC under this Agreement, title to all CSC Provided Systems shall not be affected by this Agreement and shall at all times remain with CSC (or with CSC’s or its Subcontractors’ licensors).
(b)	*** — Patents.

(i)

Acknowledgement. CSC acknowledges and agrees that (i) it may be given access to the Eligible Recipients’ respective business operations and Confidential Information during the course of CSC’s performance of the Services, and (ii) by virtue of such access, it may develop and patent related business methods and innovations.

(ii)

CSC and its Affiliates. CSC covenants, on behalf of itself, its Affiliates and their respective employees (while acting within the scope of their employment) and their successors and assigns, that they shall not, and shall cause each of its Affiliates and their respective employees to not, enforce or assert, during the Term and thereafter, against ***, or any of their Personnel (in connection with such Personnel’s relationship with Sears), any United States or foreign patent at any time owned, acquired or controlled by CSC, any of its Affiliates or their respective employees claiming any business method or innovation related to the retail industry or any other aspect of the *** respective products, services, methods of operation or relating to any Confidential Information of any ***,

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

68

	or any of their Personnel (in connection with such Personnel relationship with Sears); ***.
(iii)	Sears Cooperation. If during the Term, a ***, implements, after the Effective Date of any applicable Transaction Document, any process, method of operation or System *** is an infringement of such CSC Patent, then Sears will, upon CSC’s written request, ***.
(iv)	Subcontractors. In addition, except as expressly provided otherwise in a Transaction Document, CSC shall cause all Subcontractors (and their respective Affiliates) to not enforce or assert, during the Term and thereafter, against the Eligible Recipients any United States or foreign patent at any time owned, acquired or controlled by any such Subcontractor (or any of its Affiliates) claiming any business method or innovation related to the retail industry or any other aspect of the Eligible Recipients’ respective products, services or businesses or relating to any Confidential Information of any Eligible Recipient, except for patents claiming inventions that were not invented, developed, conceived, reduced to practice or otherwise discovered as a result of, pursuant to or in connection with the Services or this Agreement.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

69

16.2 Sears Provided Systems.

Subject only to the license granted by Sears to CSC in Section 10.6 (License to Sears Provided Systems), title to all Sears Provided Systems shall not be affected by this Agreement and shall at all times remain with Sears (or with the Eligible Recipients’ licensor(s)), and CSC shall and hereby does, without further consideration, assign to Sears any and all right, title or interest that CSC, its Affiliates or the CSC Personnel may now or hereafter possess in or to the Sears Provided Systems. To the fullest extent permissible by applicable Law, all copyrightable aspects of any Sears Provided Systems developed by CSC or the CSC Personnel shall be considered “works made for hire” (as that term is used in Section 101 of the United States Copyright Act, as amended) and owned by Sears. For purposes of clarity, if a Deliverable to be owned by Sears pursuant to this Section 16.2 (Sears Provided Systems) contains a Derivative Work based upon any pre-existing work in which a Third Party has rights and such pre-existing work was provided to CSC by an Eligible Recipient for use with such Deliverable or was incorporated into such Deliverable by CSC Personnel with Sears’ prior written consent, then the assignment and transfer to Sears of rights, title and interest in and to such Derivative Work pursuant to this Section 16.2 (Sears Provided Systems) shall be subject to such Third Party’s rights, if any. CSC acknowledges that, as between CSC, CSC Personnel and Sears, Sears (and its successors and assigns) shall have the right to obtain and hold in their own name any Intellectual Property Rights in and to the Sears Provided Systems. CSC shall execute any documents and take any other actions reasonably requested by Sears to effectuate the purposes of this Section 16.2 (Sears Provided Systems). If and to the extent that CSC uses a Third Party to create Derivative Works, modifications, enhancements or other Deliverables based upon (or for) a Sears Provided System, and a related portion of such Sears Provided System was licensed to Sears by such Third Party prior to the commencement of such work, then, CSC may not be able to get from such Third Party the ownership rights provided for in this Section 16.2 (Sears Provided Systems). If such Third Party will not provide such ownership rights, then CSC will not commence the applicable Services and instead CSC will inform Sears in writing of the intellectual property rights such Third Party will provide, and will request that Sears either or approve or reject such lessor rights (which approval Sears may withhold in its sole discretion). After notice from CSC that it can not get such rights, CSC shall be relieved from providing such Services until Sears has expressly accepted or rejected such lesser rights. If Sears rejects such rights, CSC shall be thereafter relieved from providing such Services and the Parties shall equitably adjust the resulting Charges. If Sears does accept such lesser rights, such change will be documented in a Service Addenda to the Agreement prior to commencement of the applicable Services.

16.3 Deliverables.

(a) License to Sears. Unless otherwise expressly set forth in the applicable Transaction Document, CSC shall and hereby does grant to Sears a perpetual, assignable, unrestricted, worldwide, royalty-free, irrevocable, non-exclusive right and license to copy, use, display, modify, create Derivative Works based upon, distribute, sublicense and otherwise enjoy all Deliverables (including any CSC Provided Software or CSC Provided Materials incorporated into such Deliverables or necessary to operate such Deliverables) to the same extent as if Sears were the sole owner thereof, without an obligation to account to CSC. For

70

the avoidance of doubt, the parties agree that in the event both this Section 16.1(a) and Section 16.3 (Sears Provided Systems) could apply in a particular circumstance, that Section 16.3 (Sears Provided Systems) shall control over this Section.

(b)

Restrictions. CSC shall not incorporate into any Deliverable any CSC Provided Systems or other Third Party Materials for which CSC does not have the right to grant the license provided for under Section 16.3(a) (License to Sears).

(c)

Source Code and Documentation. CSC shall, upon Sears’ request, provide Sears with the source code and documentation for all Deliverables that are Software, on media and in a format reasonably requested by Sears. Such source code shall be sufficient to allow a reasonably knowledgeable and experienced programmer to maintain and support such Deliverables; and the user documentation for such Deliverables shall accurately describe, in terms understandable by a typical end user, the functions and features of such Deliverables and the procedures for exercising such functions and features.

16.4 General Knowledge.

This Agreement shall not preclude either Party from using its general knowledge, skills and experience; provided, however, that, in each case, such Party does not use or disclose in connection therewith any of the Confidential Information of the other Party or its Affiliates (or in case of Sears, any Eligible Recipient) or infringe or misappropriate any Intellectual Property Rights of the other Party or its Affiliates (or in case of Sears, any Eligible Recipient).

16.5 Other Rights.

Except as expressly specified in this Agreement, nothing in this Agreement shall be deemed to grant to one Party, by implication, estoppel or otherwise, license rights, ownership rights or any other Intellectual Property Rights in any Materials owned by the other Party or any Affiliate of the other Party (or, in the case of Sears, owned by any Eligible Recipient).

16.6 Copyright Legends.

Each Party agrees to reproduce copyright legends which appear on any portion of the Materials which may be owned by the other Party or third parties.

17. REPRESENTATIONS, WARRANTIES AND COVENANTS

17.1 By CSC.

CSC represents, warrants and covenants (as to future performance) to Sears (on its behalf and on behalf of the Eligible Recipients) as follows:

71

(a)

Work Standards. The Services shall be rendered with promptness and diligence and shall be executed in a workmanlike manner, in accordance with the Service Levels, the best practices and professional standards required under this Agreement. CSC shall use adequate numbers of qualified individuals and all CSC Personnel shall have suitable training, education, experience, competence and skill to perform the Services. CSC shall provide such individuals with sufficient training as to new products and services prior to the implementation of such products and services in any Eligible Recipient’s environment.

(b)

Maintenance.

(i)

CSC Responsibility. Unless otherwise agreed, CSC shall maintain the CSC Provided Systems and CSC Managed Systems and Deliverables so that they operate substantially in accordance with their respective Specifications, including (1) maintaining Equipment in good operating condition, subject to normal wear and tear, (2) undertaking repairs and preventive maintenance on such Equipment in accordance with the applicable manufacturer’s recommendations and requirements, and (3) performing maintenance on such Software in accordance with the applicable Software supplier’s documentation, recommendations and requirements.

(ii)

Refresh. CSC shall, subject to Section 6.5 (Technology) or as otherwise agreed by the Parties, Upgrade or replace such CSC Provided Systems and CSC Managed Systems as necessary to satisfy its obligations under this Agreement, at no additional cost to Sears.

(c) Efficiency and Cost Effectiveness. CSC shall use commercially reasonable efforts to provide the Services in the most cost-effective manner consistent with the required level of quality and performance. Without limiting the generality of the foregoing, such actions shall include:

(i)	Timing of Actions. Making adjustments in the timing of actions (consistent with Sears’ priorities and schedules for the Services and CSC’s obligation to meet the Service Levels).
(ii)	Timing of Functions. Delaying or accelerating, as appropriate, the performance of non-critical functions within limits acceptable to Sears.
(iii)	Systems Optimization. Tuning or optimizing CSC Provided Systems and CSC Managed Systems (including memory) to optimize performance and minimize costs.
(iv)	Usage Scheduling. Controlling its use of the CSC Provided Systems, CSC Managed Systems and the Sears Provided Systems by scheduling usage, where possible, to lower cost/utilization periods.

72

(v) Efficiency. Efficiently using resources for which Sears is charged under this Agreement, consistent with industry norms, and compiling data concerning such efficient use in segregated and auditable form whenever possible.

(d)	CSC Provided Systems/CSC Managed Systems/Deliverables. CSC is either the owner of, or authorized to use, any and all CSC Provided Systems, CSC Managed Systems (but not including any CSC Managed Systems provided under the Excluded Agreements) and Deliverables, and the use thereof by CSC, the CSC Personnel and the Eligible Recipients in accordance with this Agreement shall not infringe or misappropriate any Intellectual Property Rights of any Third Party. As to any such CSC Provided Systems, CSC Managed Systems and Deliverables that CSC does not own but is authorized to use, CSC shall, prior to the use thereof in connection with the Services, advise Sears as to the ownership and extent of CSC’s rights with regard to such items to the extent any limitation in such rights would impair CSC’s performance of its obligations under this Agreement and obtain Sears’ written consent to such limitations.
(e)	Deliverables. All Deliverables (when delivered, but excluding interim Deliverables for which the applicable project plan calls for a later final Deliverable) shall be free from error, shall comply with the requirements, if any, set forth in the applicable Transaction Document and, except as expressly specified otherwise in a Transaction Document, shall be fully compatible with any and all Software and Equipment that such Deliverable was intended to be interfaced or otherwise operated with.
(f)	Non-Infringement. Except as otherwise provided in this Agreement, CSC and the CSC Personnel shall perform CSC’s responsibilities under this Agreement in a manner that does not infringe, or constitute an infringement or misappropriation of, any Intellectual Property Rights of any third party; provided, however, that CSC shall not have any obligation or liability to the extent any infringement or misappropriation is caused by (i) modifications to CSC Provided Systems, CSC Managed Systems or Deliverables made by Eligible Recipients, without the knowledge or approval of CSC, (ii) Sears’ or the other Eligible Recipients’ combination of CSC Provided Systems, CSC Managed Systems or Deliverables with items not furnished, specified or reasonably anticipated by CSC or contemplated by this Agreement or known by CSC Personnel to be used with such items, (iii) a breach of this Agreement by Sears, (iv) the failure of Sears to use corrections or modifications provided by CSC, without additional charge and with notice of actual infringement, offering equivalent or superior features and functionality, or (v) CSC Managed Systems, except to the extent that such infringement or misappropriation arises from the failure of CSC to obtain the necessary licenses or Required Consents or to abide by the Third Party Contracts associated with such CSC Managed Systems. CSC shall not use or create materials in connection with the Services which are libelous, defamatory or obscene.

73

(g) Authorization.

(i)	Corporate Existence. CSC is a corporation duly incorporated, validly existing and in good standing under all applicable Laws;
(ii)	Corporate Power and Authority. CSC has the requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement;
(iii)	Legal Authority. CSC has obtained all licenses, authorizations, approvals, consents or permits required to perform its obligations under this Agreement under all applicable federal, state or local laws and under all applicable rules and regulations of all authorities having jurisdiction over the Services, except to the extent the failure to obtain any such license, authorizations, approvals, consents or permits is, in the aggregate, immaterial;
(iv)	Due Authorization. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by the requisite corporate action on the part of CSC; and
(v)	No Violation or Conflict. The execution, delivery and performance of this Agreement shall not constitute a violation of any judgment, order or decree; a material default under any material contract by which CSC or any of its material assets are bound; or an event that would, with notice or lapse of time, or both, constitute such a default.

(h)

Sears Code of Conduct and Privacy Policies. CSC acknowledges that it has been furnished a copy of Sears Code of Business Conduct (the “Code of Conduct”) and Sears Privacy Policies (collectively, the “Privacy Policy”) and that Sears’ associates are required to follow the Code of Conduct and Privacy Policy. CSC shall at all times support and abide by the Code of Conduct and Privacy Policy, as they may be modified from time to time by Sears, and shall not take any action to induce Sears Personnel to violate the Code of Conduct or Privacy Policy. In addition neither CSC, its Affiliates nor the CSC Personnel have given nor shall give commissions, payments, kickbacks, lavish or extensive entertainment, or other inducements of more than minimal value to any Sears Personnel in connection with this Agreement. CSC acknowledges that the giving of any such payments, gifts, entertainment or other thing of value is strictly in violation of the Code of Conduct, and may result in the termination of this Agreement for cause by Sears, in whole or in part, and any or all other existing and future contracts between the Parties. CSC shall report to Sears immediately any violation of or attempt to violate the Code of Conduct or Privacy Policy.

(i)

Unauthorized Code.

74

(i)

General. CSC shall cooperate with Sears and shall take commercially reasonable actions and precautions consistent with the applicable Transaction Document to prevent the introduction and/or proliferation of Unauthorized Code into an Eligible Recipient’s environment or any Sears Provided System, CSC Provided System or CSC Managed System or Deliverables. Without limiting CSC’s other obligations under this Agreement, if Unauthorized Code is found in any such systems, CSC shall exercise all commercially reasonable efforts, at no additional charge to Sears, to eliminate and reduce the effects of such Unauthorized Code and, if the Unauthorized Code causes a loss of operational efficiency or loss of data, to mitigate such losses and restore such data with generally accepted data restoration techniques; ***.

(ii)

Items Containing Unauthorized Code. Without the prior written consent of Sears, neither CSC nor the CSC Personnel shall use any Software or Equipment or Systems that includes Unauthorized Code in connection with the Services and neither CSC, its Affiliates nor their Personnel shall insert, or permit insertion of, any Unauthorized Code into any Sears Provided System, CSC Provided System or CSC Managed System or Deliverables. *** With respect to any Unauthorized Code that is included in such Software or Equipment or Systems, neither CSC, its Affiliates nor its Personnel shall invoke or cause to be invoked such Unauthorized Code at any time, including upon expiration or termination of this Agreement or any Transaction Document for any reason, without Sears’ prior written consent, which may be withheld in Sears’ sole discretion. ***.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

75

(j) Compliance with Laws.

(i)	Compliance by CSC. With respect to the CSC Provided Systems, CSC Managed Systems and Deliverables, the provision of the Services and the performance of CSC’s obligations under this Agreement, CSC shall, and shall cause its Affiliates and the CSC Personnel to, (1) comply with all Sears Rules and Laws from the Effective Date and at all times thereafter during the Term of this Agreement (including any Termination Assistance Services period(s)), including those Sears Rules and Laws relating to security, safety, health and the environment, and shall identify and procure all permits, certificates, approvals and inspections required under such Laws and (2) comply with changes in Sears Rules and Laws and at CSC’s expense, develop and implement any necessary modifications to the Services, upon Sears’ approval of such proposed changes, prior to the deadline for such requirement or change. If a charge of non-compliance by CSC with any Law occurs, CSC shall promptly notify Sears of such charge. CSC shall take all commercially reasonable precautions to avoid injury, property damage, spills or emissions of hazardous substances, materials or waste, and other dangers to persons, property or the environment, including by providing to CSC Personnel appropriate training. CSC shall ensure that neither CSC nor any CSC Personnel commits, and use all reasonable efforts to ensure that no business visitor or invitee of CSC or CSC Personnel commits, any act in violation of any Laws in any Sears Facility or any act in violation of any Eligible Recipient’s insurance policies or in breach of an Eligible Recipient’s obligations under any applicable real estate leases in such Sears Facilities (in each case, to the extent CSC has received notice of such insurance policies or real estate leases or should reasonably be expected to know of such obligations or limitations).
(ii)	Compliance with Privacy Laws. CSC shall (1) comply with the Sears data protection and privacy policies disclosed by Sears to CSC from time to time and (2) provide Sears with such assistance as Sears may reasonably require to fulfill its responsibilities under the Privacy Laws. CSC shall, in good faith, work with Sears to adopt and implement such contract clauses as Sears deems reasonably necessary.
(iii)	Notice of Laws. CSC shall notify Sears of any Laws and changes in Laws applicable to the Services and shall identify the impact of such Laws and changes in Laws with respect to such Services. Subject to its non-disclosure obligation under other customer contracts, CSC shall make commercially reasonable efforts to obtain information regarding such requirements from other customer engagements and to communicate such information to Sears in a timely manner.

76

(k)	Notice of Adverse Impact. As of each applicable Commencement Date, CSC is not aware of any failure by CSC (including the CSC Personnel) to comply with its obligations under this Agreement or any other situation that (i) has impacted or reasonably could be expected to impact the maintenance of any Eligible Recipient’s financial integrity or internal controls, the accuracy of any Eligible Recipient’s financial, accounting, manufacturing quality or human resources records and reports or compliance with the Code of Conduct, Privacy Policies, Sears Rules, Sears Standards or any Laws, or (ii) has had or reasonably could be expected to have any other material adverse impact on the Services in question or the impacted business operations of the Eligible Recipients. If CSC at any time becomes aware of any such situation, then CSC shall (A) immediately notify Sears Relationship Manager of such situation and the expected impact, and (B) with the assistance of Sears, formulate an appropriate plan to mitigate the impact of, and to correct, the situation; provided, however, that changes to CSC’s performance as a result of such plan shall be subject to Sears’ prior consent.
(l)	Interoperability. Except as expressly specified otherwise in a Transaction Document, the CSC Provided Systems and Deliverables shall be fully interoperable with the Sears Provided Systems and the CSC Managed Systems that are used to run or that interface with, or that otherwise interact with, the CSC Provided Systems and Deliverables, including for receipt of the Services.
(m)	Pass-Through. CSC shall enforce any representations, warranties, covenants and indemnities granted to CSC its Affiliates or the CSC Personnel by Third Parties regarding any Software or other Materials, Equipment and/or Services, including the CSC Provided Systems and Deliverables, on behalf of the Eligible Recipients to the extent reasonably requested to do so by Sears and to the extent CSC is permitted to do so under the terms of the applicable agreements with those Third Parties, unless CSC determines that it is not commercially reasonable for it to do so and CSC provides to Sears an alternative, equivalent remedy and CSC reimburses Sears for any additional costs Sears incurs as a result of such alternative remedy.

17.2 By Sears.

Sears represents, warrants and covenants (as to future performance) to CSC as follows:

(a) Non-Infringement. Except as otherwise provided in this Agreement, Sears shall perform its responsibilities under this Agreement in a manner that does not infringe, or constitute an infringement or misappropriation of, any Intellectual Property Rights of any third party; provided, however, that Sears shall not have any obligation or liability to the extent any infringement or misappropriation is caused by (i) modifications to Sears Provided Systems or CSC Managed Systems not made by the Eligible Recipients, (ii) CSC or the CSC Personnel’s combination of Sears Provided Systems or CSC Managed Systems with items not furnished by the Eligible Recipients (provided, however, that Acquired Assets shall not be deemed furnished by the Eligible Recipients), (iii) the failure of CSC

77

or the CSC Personnel to use corrections or modifications provided by Sears (or the other Eligible Recipients), without additional charge and with notice of actual infringement, offering equivalent or superior features and functionality, or (iv) Third Party Materials, except to the extent that Sears (or CSC on Sears’ behalf) is responsible under this Agreement for obtaining Required Consents for such Third Party Materials and such infringement or misappropriation arises from the failure to obtain such Required Consents or to abide by the limitations of the applicable licenses for such Third Party Materials. The Eligible Recipients shall not use or create Materials in connection with the Services which are libelous, defamatory or obscene.

(b) Authorization.

(i)	Corporate Existence. Sears is a corporation duly incorporated, validly existing and in good standing under all applicable Laws;
(ii)	Corporate Power and Authority. Sears has the requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement;
(iii)	Legal Authority. Sears has obtained all licenses, authorizations, approvals, consents or permits required to perform its obligations under this Agreement under all applicable federal, state or local laws and under all applicable rules and regulations of all authorities having jurisdiction over the Services, except to the extent the failure to obtain any such license, authorizations, approvals, consents or permits is, in the aggregate, immaterial;
(iv)	Due Authorization. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by the requisite corporate action on the part of Sears; and
(v)	No Violation or Conflict. The execution, delivery and performance of this Agreement shall not constitute a violation of any judgment, order or decree; a material default under any material contract by which Sears or any of Sears’ material assets are bound; or an event that would, with notice or lapse of time, or both, constitute such a default.

17.3 Disclaimer.

EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY EXPRESS OR IMPLIED REPRESENTATIONS, WARRANTIES OR COVENANTS TO THE OTHER PARTY, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT. IN ADDITION, CSC ACKNOWLEDGES THAT THE SEARS PROVIDED SYSTEMS AND THE CSC

78

MANAGED SYSTEMS ARE PROVIDED BY THE ELIGIBLE RECIPIENTS TO CSC ON AN AS-IS, WHERE-IS BASIS AND SEARS AND THE OTHER ELIGIBLE RECIPIENTS EXPRESSLY DISCLAIM ANY EXPRESS OR IMPLIED REPRESENTATIONS, WARRANTIES OR COVENANTS AS TO SUCH SEARS PROVIDED SYSTEMS AND CSC MANAGED SYSTEMS, OR THE CONDITION OR SUITABILITY OF SUCH SEARS PROVIDED SYSTEMS AND CSC MANAGED SYSTEMS FOR USE BY CSC TO PROVIDE THE SERVICES, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT.

17.4 Effect.

All representations, warranties and/or covenants made in any provision of this Master Agreement by either Party shall be true when made and remain true throughout the Term and the Term of each Transaction Document.

18. AUDIT RIGHTS

18.1 Contract Records.

CSC shall, and shall cause its Affiliates and all CSC Personnel and suppliers to, maintain complete and accurate records of and supporting documentation for all Charges, all Sears Data and all transactions, authorizations, System Changes, implementations, soft document access, reports, analyses, data or information created, generated, collected, processed or stored by CSC in the performance of its obligations under this Agreement (“Contract Records”). CSC shall maintain such Contract Records in accordance with generally accepted accounting principles for the applicable jurisdiction applied on a consistent basis. CSC shall retain Contract Records in accordance with Sears’ record retention policy as modified from time to time and provided to CSC in writing.

18.2 Sears Audit.

(a)

General. CSC shall, and shall cause its Affiliates and the CSC Personnel to, allow Sears (and internal, governmental and other external auditors, inspectors, regulators and other representatives that Sears may designate from time to time or that may have jurisdiction over one or more Eligible Recipients) (collectively, “Sears Audit Designees”) to conduct audits and examinations of the operations of CSC, its Affiliates and the CSC Personnel as described in this Section 18 (Audit Rights).

(b)

Operational and Financial Audits. CSC shall, and shall cause its Affiliates and the CSC Personnel to, provide to Sears Audit Designees access to CSC Personnel, to the facilities at or from which Services are then being provided and to Contract Records and other pertinent information, all to the extent relevant to the Services and CSC’s obligations under this Agreement. Such access shall be provided for the purpose of performing audits and inspections of Sears and the other Eligible Recipients’ businesses, to (i) verify the accuracy, completeness and integrity of

79

the Sears Data and Contract Records, (ii) verify the accuracy and completeness of Charges, Pass-Through Expenses and Out-of-Pocket Expenses, (iii) examine the financial controls, processes and procedures utilized by CSC and the performance of CSC’s financial obligations, (iv) examine the Systems that process, store, support and transmit that data, (v) examine the controls (e.g., organizational controls, input/output controls, System modification controls, processing controls, System design controls and access controls) and the privacy, security, disaster recovery and back-up practices and procedures, (vi) examine CSC’s performance of the Services and the measurement and reporting tools, performance metrics and reporting procedures for the Services, (vii) verify CSC’s reported performance against the applicable Service Levels, (viii) examine CSC’s measurement, monitoring and management tools, and (ix) enable the Eligible Recipients to meet applicable legal, regulatory and contractual requirements, in each case to the extent applicable to the Services and/or Charges. CSC shall provide any assistance reasonably requested by Sears or its designee in conducting any such audit and shall make requested personnel, records and information available during the Term and thereafter, during the period specified in Sears’ records retention policy, as it may be modified from time to time.

18.3 SAS 70 Audit.

CSC shall, on an annual basis, retain an independent auditor to perform an audit of the electronic data processing environment(s) and locations used by CSC to provide the Services. Such audit shall conform to the Statement of Auditing Standards No. 70 (“SAS 70”) or successor substitute statement adopted by the American Institute of Certified Public Accountants or other relevant body, and at least every other year such audit shall be a “Type II” audit under SAS 70 Guidelines. CSC shall provide Sears a reasonable opportunity to comment on each planned audit, and provide suggested modifications (consistent with and in accordance with SAS 70) to the planned audit prior to the commencement of the audit. CSC shall provide Sears with a copy of the review resulting from each SAS 70 audit and shall, as soon as reasonably practicable, remedy any material deficiencies revealed by such audit. In addition, to the extent a SAS 70 audit (or equivalent audit) is conducted with respect to a CSC Facility at or from which the Services are provided, CSC shall promptly provide a copy of the resulting audit report to Sears. CSC shall respond to such report in accordance with Section 18.7 (Remedial Obligations).

18.4 Governmental or Other Non-Sears Audits.

Sears and the other Eligible Recipients may be subject to regulation and audit by governmental bodies, standards organizations, other regulatory authorities, customers or other parties to contracts with an Eligible Recipient under applicable Laws, rules, regulations, standards and contract provisions. If an Eligible Recipient is required by a governmental body, standards organization or regulatory agency having jurisdiction over an Eligible Recipient to have an audit or inspection of the Services then being provided to an Eligible Recipient or information concerning an Eligible Recipient held by CSC under this Agreement, CSC shall allow the governmental body, standards organization or

80

regulatory agency exercising jurisdiction over the business of an Eligible Recipient to conduct such an audit or inspection as it relates to CSC’s provision of the Services, or such information concerning an Eligible Recipient held by CSC, under this Agreement. In addition, if a customer or other party to a contract with an Eligible Recipient exercises its right to audit or inspect an Eligible Recipient’s books, records, documents or accounting practices, CSC shall provide all cooperation requested by the Eligible Recipient in responding to such audits or requests for information.

18.5 Audit Process.

CSC shall provide Sears, and any Sears Audit Designees, access to the facilities, Systems, books, records and information related to the provision of the Services as reasonably necessary to perform audits described in this Section 18 (Audit Rights), including assisting Sears and Sears Audit Designees in testing their data files, programs and procedures and operation of audit software. To the extent permitted by applicable Laws, CSC shall provide Sears, and its designees, with a copy of the findings of any such governmental audit.

18.6 Security Testing.

Without limiting the generality of Section 18.2(b) (Operational and Financial Audits), Sears Audit Designees may, from time to time, without prior notice, perform security audits of CSC, its Affiliates and their Personnel, which may include penetration testing and other exploits of CSC Provided Systems, CSC Managed Systems and Sears Provided Systems and Deliverables (“Security Testing”). CSC, on behalf of itself, its Affiliates and their Personnel, shall and hereby does grant Sears permission to perform such Security Testing. *** Notwithstanding anything to the contrary contained herein, Sears shall have no obligation to provide CSC with, and CSC shall not be entitled to receive, copies of the results of any Security Testing.

18.7 Remedial Obligations.

CSC and Sears shall meet to review each audit report promptly after the issuance thereof. CSC shall respond to each audit report in writing within thirty (30) days from receipt of such report, unless a shorter response time is specified in such report. If any audit or inspection reveals that CSC has failed to comply with this Agreement, any generally accepted accounting principle or other audit requirement or any Law or standard (including SAS 70) relating to the performance of CSC’s obligations under this Agreement, CSC shall, at CSC’s sole cost and expense, remedy such failures as soon as reasonably practical, but in no event later than required by any auditing governmental body, standards organization or regulatory authority, as the case may be. In addition, if any audit or examination, including an internal CSC audit, reveals that CSC has overbilled Sears or if an audit reveals any breach of this Agreement, CSC shall promptly pay Sears: (a) the amount of such overbilling that Sears has paid (net of underbilling discovered by such audit), plus (b) interest at the Contract Rate per month accruing from

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

81

the original date the error was made until the date such credit is paid, plus (c) the reasonable costs and expenses of the audit incurred by Sears; provided, however, that CSC’s obligation under this clause (c) above shall not exceed one-half of the amount due under clause (a) above.

18.8 General Procedures.

(a)	Access. Notwithstanding the intended breadth of Sears’ audit rights, during any audits pursuant to this Section 18 (Audit Rights) Sears shall not allow Sears or Sears Personnel access to (i) the proprietary information of other CSC customers, or (ii) CSC locations that are not related to the Eligible Recipients or the Services, (iii) material protected by the attorney-client or other legal privilege, or (iv) data to the extent not related to the CSC’s provision of Services or CSC’s obligations under this Agreement.
(b)	Notice. In performing audits, Sears shall endeavor to provide CSC with twenty-four (24) hour advance notice of such audits (other than Security Testing audits). Access for such audits shall be provided by CSC at reasonable hours, except as may be required on an emergency basis; provided, however, that any such audit may not unreasonably interfere with CSC’s performance of its obligation under this Agreement or compromise any reasonable security processes or procedures. All audits shall be conducted in a reasonable manner. CSC, its Affiliates and the CSC Personnel shall provide the Services described in this Section 18 (Audit Rights) at no additional charge to Sears.
(c)	Exit Conference. Following any audit, Sears shall conduct (in the case of an internal audit), or request its external auditors or examiners to conduct, an exit conference with CSC to obtain factual concurrence with issues identified in the review.
(d)	Audit Workspace. Sears and/or the Sears Audit Designee shall be given adequate private workspace in which to perform an audit, plus access to photocopiers, telephones, facsimile machines, computer hook-ups and any other facilities or equipment needed for the performance of the audit.

18.9 CSC Breach.

***

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

82

19. INSURANCE AND RISK OF LOSS

19.1 Insurance.

(a) Requirements. CSC shall, and shall require its and its Affiliates’ Subcontractors to, obtain and maintain in full force and effect the following insurance during the Term and the Term of each Transaction Document (including any Termination Assistance Services period thereunder); ***

(i) Workers’ Compensation and Employer’s Liability Insurance.

(1)	Statutory Workers’ Compensation insurance, including coverage for all costs, benefits and liabilities under workers’ compensation and similar laws that may accrue in favor of any person employed by CSC, in all states where CSC performs Services in accordance with applicable Law.
(2)	Employer’s Liability Insurance with minimum limits of *** per employee by accident/*** per employee by disease/*** policy limit by disease (or, if higher, the policy limits required by applicable Law).

(ii)	Commercial General Liability Insurance. Commercial General Liability Insurance (including coverage for Contractual Liability assumed by CSC under this Agreement, Premises-Operations, Completed Operations-Products, Independent Contractors, and explosion, collapse and underground property damage hazards) providing coverage for bodily injury, personal and advertising injury and property damage with combined single limits of not less than *** per occurrence and *** the aggregate per CSC policy year.
(iii)	Commercial Business Automobile Liability Insurance. Commercial Business Automobile Liability Insurance, including coverage for all owned, non-owned, leased and hired vehicles providing coverage for bodily injury and property damage liability with combined single limits of not less than *** per accident, except as may otherwise be required by Law.
(iv)	Professional Liability Insurance. Professional Liability (also known as Errors and Omissions Liability) Insurance covering acts, errors and omissions arising out of CSC’s operations or Services in an amount not

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

83

	less than *** per claim and *** in the aggregate per CSC policy year.
(v)	Comprehensive Crime Insurance. Comprehensive Crime Insurance, including Employee Dishonesty and Computer Fraud Insurance covering losses arising out of or in connection with any fraudulent or dishonest acts committed by CSC employees, acting alone or with others, in an amount not less than *** per loss and *** in the aggregate per CSC policy year.
(vi)	All-Risk Property Insurance. All-risk property insurance covering loss or damage to CSC owned or leased Equipment and other property in an amount not less than the full replacement cost of such Equipment and property.
(vii)	Excess Coverage. Excess coverage with respect to Sections 19.1(a)(i)(2) (Workers’ Compensation and Employer’s Liability Insurance), (ii) (Commercial General Liability Insurance), and (iii) (Commercial Business Automobile Liability Insurance) with a minimum combined single limit of ***.

CSC may satisfy the minimum limits requirements of this Section 19.1(a) (i), (ii), (iii), and (iv) (Requirements) by any combination of primary liability and umbrella and/or excess liability coverage that result in the same protection to CSC and the Sears Indemnified Parties. To satisfy this insurance requirement for non-owned and hired vehicles, CSC may extend its commercial general liability insurance to provide insurance for such vehicles. Any annual aggregate limit must be stated separately as to the Services or twice the required limit. The policies required under this Section 19.1 (Insurance) must be on an occurrence basis except for Professional Liability Insurance which is on a per claim basis. For policies that are on a per claim basis, CSC will maintain equivalent policies for at least 4 years after the expiration or termination of this Agreement. CSC shall purchase the insurance required by Section 19.1 (Insurance) from companies having a rating of A-/VII or better in the current Best’s Insurance Reports published by A. M. Best Company, Inc.

(b) Endorsements. CSC’s insurance policies as required in this Agreement under Sections 19.1(a)(ii) (Commercial General Liability Insurance) and 19.1(a)(iii) (Commercial Business Automobile Insurance) shall name Sears, its Affiliates and their respective employees, as Additional Insureds for any and all liability arising at any time in connection with CSC’s performance under this Agreement, with the standard separation of insureds provision or an endorsement for cross-liability coverage. The CSC insurance policies required under Sections 19.1(a)(v) (Comprehensive Crime Insurance) and 19.1(a)(vi) (All Risk Property Insurance) shall name Sears and its Affiliates as loss payees in connection with any insurable interest of Sears for loss or damage of such property under this Agreement. Should any policy expire or be canceled during the Term or any Exhibit Term and

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

84

CSC fails to procure replacement insurance as specified herein with 30 days of notice from Sears, Sears reserves the right (but not the obligation) upon notice to CSC to procure such insurance and to deduct the cost thereof from any sums due CSC under this Agreement; provided that CSC’s liability for such replacement insurance procured by Sears shall terminate 30 days after CSC provides written evidence to Sears that CSC has procured (and paid the premium for a minimum of three months after the date of such notice) such required insurance. All insurance required under this Section 19.1 (Insurance) shall be primary insurance and any other valid insurance existing for the other Eligible Recipients’ benefit shall be excess of such primary insurance. CSC shall obtain such endorsements to its policy or policies of insurance as are necessary to cause the policy or policies to comply with the requirements stated in this Agreement.

(c)	Certificates. CSC shall provide Sears with certificates of insurance evidencing compliance with this Section 19 (Insurance and Risk of Loss) (including evidence of renewal of insurance) signed by authorized representatives of the respective carriers for each year that this Agreement is in effect. Each certificate of insurance shall provide that the issuing company shall not cancel, reduce or otherwise materially alter the insurance afforded under the above policies unless notice of such cancellation, reduction or material alteration has been provided at least thirty (30) days in advance to Sears at the addresses for Sears specified in Section 26.3 (Notices).
(d)	No Implied Limitation. The obligation of CSC and its Subcontractors to provide the insurance specified in this Agreement shall not limit in any way any obligation or liability of CSC provided elsewhere in this Agreement. The rights of the Eligible Recipients to insurance coverage under policies issued to or for the benefit of one or more of them are independent of this Agreement and shall not be limited by this Agreement.
(e)	Insurance Subrogation. With respect to insurance coverage to be provided by CSC pursuant to this Section 19.1 (Insurance) except professional liability, the insurance policies shall provide that the insurance companies waive all rights of subrogation against CSC, the Eligible Recipients and their respective Affiliates and Personnel. CSC waives its rights to recover against the Eligible Recipients, including their respective Personnel in subrogation or as subrogee for another party.
(f)	***

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

85

19.2 Risk of Loss.

(a)

General. Except as otherwise provided in Section 20.1(k) (CSC Acts or Omissions) or Section 20.2(g) (Sears Acts or Omissions), (i) each Party shall be responsible for risk of loss of, and damage to, any Equipment, Software, Systems or other Materials in its or its Affiliates’ or their Personnel’s possession or control, and (ii) such Party shall be responsible for the cost of any necessary repair or replacement of such Equipment, Software, Systems or other Materials due to an Event of Loss. CSC shall be deemed to possess and control all Equipment, Software and other Materials located in its own Facilities or in portions of Sears Facilities used by CSC to provide the Services. Each Party shall promptly notify the other of any damage (except normal wear and tear), destruction, loss, theft or governmental taking of any item of Equipment, Software, Systems or other Materials (“Event of Loss”). For Events of Loss for which Sears is responsible, such repair or replacement shall not be considered part of CSC’s Service obligations, but CSC shall, if requested by Sears, coordinate and oversee repair or replacement performed by a Third Party on a Pass-Through Expenses basis, or by CSC at agreed-upon prices.

(b)

Waiver. Each Party waives all rights to recover against the other Party, its Affiliates (and as to Sears, any Eligible Recipients) and their Personnel for damage, destruction, loss, theft or governmental taking of their respective real or tangible personal property (whether owned or leased) from any cause to the extent (i) covered by insurance required to be maintained by such Party under this Agreement, including their respective deductibles or self-insured retentions, and (ii) insurance proceeds are actually received by such Party for such loss. CSC and Sears shall cause their respective insurers to issue appropriate waivers of subrogation rights endorsements to all property insurance policies required to be maintained by each Party.

20. INDEMNITIES

20.1 Indemnity by CSC.

CSC shall defend, indemnify and hold harmless the Eligible Recipients, including their respective Personnel (collectively, the “Sears Indemnified Parties”) from any and all Losses and threatened Losses arising out of any claims, demands, suits or causes of action by Third Parties (collectively, “Claims”) (excluding Claims brought by Sears and its Affiliates, and their Subcontractors, but including Claims brought by other Sears Personnel) that result or are alleged to result, in whole or in part, from or in connection with any of the following:

(a) Breach of This Agreement. CSC’s or CSC’s Personnel’s breach of this Agreement, including any representations, warranties or covenants set forth in this Agreement. ***.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

86

(b)	CSC Designated Contracts. CSC’s decision to terminate or failure to observe or perform any duties or obligations to be observed or performed on or after the applicable Commencement Date by CSC with respect to any CSC Designated Contracts or any Third Party Contracts related to Acquired Assets and/or CSC Managed Systems.
(c)	Licenses, Leases or Contracts. CSC’s failure to observe or perform any duties or obligations to be observed or performed on or after the applicable Commencement Date by CSC with respect to Third Party Contracts associated with any CSC Provided Systems or CSC Managed Systems; ***.
(d)	Sears Data or Confidential Information. CSC’s breach of its obligations with respect to Sears Data or Sears Confidential Information.
(e)	Infringement. Infringement or misappropriation or alleged infringement or alleged misappropriation of any Intellectual Property Rights in contravention of Section 17.1(d) (CSC Provided Systems/CSC Managed Systems) or Section 17.1(f) (Non-Infringement).
(f)	Government Claims. Claims by government regulators or agencies for fines, penalties, sanctions or other remedies to the extent such fines, penalties, sanctions, or other remedies caused by any breach of any obligation under this Agreement, including any obligation related to Laws, by CSC or any CSC Personnel or any other failure by CSC or CSC Personnel to perform CSC’s responsibilities under this Agreement.
(g)	Taxes. Taxes, including interest and penalties, that are the responsibility of CSC under Section 13.4 (Taxes).
(h)	Shared Facility Services. Services, products or Systems (not constituting Services provided pursuant to this Agreement) provided by CSC to a Third Party from any shared CSC Facility or using any shared CSC resources and not constituting Services provided to an Eligible Recipient pursuant to this Agreement.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

87

(i)	Affiliate, CSC Personnel or Assignee Claims. Any Claim, other than an indemnification Claim under this Agreement, initiated by (i) a CSC Affiliate or CSC Personnel asserting rights in connection with this Agreement or any Services to be provided hereunder, or (ii) any entity to which CSC assigned, transferred, pledged or otherwise encumbered its rights to receive payments from Sears under this Agreement.
(j)	Background and Drug Checks. Any Claim by any third party, including CSC Personnel or individuals seeking employment or a contract with CSC, that alleges injury or harm arising from the administration of drug or background checks in connection with this Agreement.
(k)	CSC Acts or Omissions. ***
(l)	Employment Claims. Any Claim (including claims by Transitioned Personnel) relating to any (i) joint employment of CSC Personnel by Sears, any other Eligible Recipients (including their respective Personnel), (ii) violation by CSC, its Affiliates or other CSC Personnel of any Laws or any common law protecting persons or members of protected classes or categories, including Laws prohibiting discrimination or harassment on the basis of a protected characteristic, (iii) liability arising or resulting from the employment or engagement of CSC Personnel (including Transitioned Personnel) by CSC, its Affiliates or other CSC Personnel (including liability for any social security or other employment taxes, workers’ compensation claims and premium payments, and contributions applicable to the wages and salaries of such CSC Personnel), (iv) payment or failure to pay any salary, wages or other compensation due and owing to any CSC Personnel (including Transitioned Personnel from and after their Employment Effective Dates), (v) employee pension or other benefits of any CSC Personnel (including Transitioned Personnel) accruing from and after their Employment Effective Date, (vi) other aspects of the employment relationship of CSC Personnel (including Transitioned Personnel) with CSC, its Affiliates or other CSC Personnel or the termination of such relationship, including Claims for wrongful discharge, Claims for breach of express or implied employment contract and increases in unemployment insurance premiums, and/or (vii) liability resulting from representations (whether oral or written) to the Transitioned Personnel made, or alleged to have been made, by CSC, its Affiliates or other CSC Personnel, or other acts or omissions with respect to the Transitioned Personnel by such persons or entities, including any act, omission or representation made in connection with the interview, selection, hiring and/or transition process, the offers of employment made to such employees, the failure to make offers to any such employees or the terms and conditions of such offers (including compensation and employee benefits), except, in each case, to the extent resulting from the wrongful actions of Sears, the Eligible Recipients, errors or inaccuracies in the information provided by Sears and faithfully communicated

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

88

by CSC or the failure of the Eligible Recipients to comply with Sears’ responsibilities under this Agreement.

(m)	Environmental Claims. The generation, storage, use, handling, discharge, other release or disposal of any materials that are regulated by the federal government or any state or local government during use, transportation, handling, storage, treatment and/or disposal/recycling by CSC Personnel or at facilities owned or controlled by CSC Personnel.
(n)	Violation of Laws. The violation by CSC or its Personnel of any Law.

20.2 Indemnity by Sears.

Sears agrees to defend, indemnify and hold harmless CSC, its Affiliates and the CSC Personnel and their successors and assigns from any Losses and threatened Losses arising out of any Claims (excluding the Claims of CSC, its Affiliates and their Subcontractors but including Claims by other CSC Personnel) (each, a “CSC Indemnified Party”) that result, or are alleged to result, in whole or in part, from or in connection with any of the following:

(a)	Breach of This Agreement. Sears’ breach of this Agreement, including any representations, warranties or covenants set forth in this Agreement.
(b)	Licenses, Leases or Contracts. Sears’ failure to observe or perform any duties or obligations to be observed or performed by Sears or the other Eligible Recipients under any of the applicable Third Party Contracts associated with Sears Provided Systems ***.
(c)	Pre-Commencement Date Matters. Any Eligible Recipients’ failure to observe or perform any duties or obligations to be observed or performed prior to the applicable Commencement Date by the Eligible Recipients under any of the Third Party Contracts related to Sears Provided Systems, CSC Managed Systems or the Acquired Assets to the extent CSC notifies Sears of such Claims within twelve (12) months after the assignment or transfer to CSC of the applicable Third Party Contract.
(d)	CSC’s Confidential Business Information. Sears’ breach of its obligations with respect to CSC’s Confidential Business Information.
(e)	Infringement. Infringement or misappropriation or alleged infringement or alleged misappropriation of any Intellectual Property Rights in contravention of Section 17.2(a) (Non-Infringement).

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

89

(f)	Taxes. Taxes, including interest and penalties, that are the responsibility of Sears under Section 13.4 (Taxes).
(g)	Eligible Recipients’ Acts or Omissions. Any Claim that an act or failure to act of Sears or Sears Personnel (other than Sears Personnel for which CSC is responsible) ***.
(h)	Eligible Recipient Claims. Any Claim, other than an indemnification Claim or a Claim pursuant to Section 19 (Insurance and Risk of Loss) under this Agreement, initiated by Sears’ Affiliates or by Sears’ and its Affiliates’ Subcontractors asserting rights in connection with this Agreement or any Services to be provided under this Agreement; provided, however, that this provision shall not apply to Claims brought by Sears on behalf of the other Eligible Recipients.
(i)	Violation of Laws. The violation by Sears or its Personnel of any Law.

20.3 Infringement.

(a) CSC Provided Systems, CSC Managed Systems or Deliverables. If any portion of the Services, including any CSC Provided Systems, CSC Managed Systems or Deliverables that is subject to the indemnity under Section 20.1(e) (Infringement) are found, or in CSC’s reasonable opinion are likely to be found, to infringe upon or misappropriate any Intellectual Property Rights of any third party in any country in which Services are to be performed or received under this Agreement, or the continued use of the foregoing is enjoined, CSC shall, in addition to defending, indemnifying and holding harmless the Sears Indemnified Parties as provided in Section 20.1(e) (Infringement) and any other rights Sears may have under this Agreement, promptly and at its own cost and expense and in such a manner as to minimize the disturbance to the Eligible Recipients’ business activities, do one of the following:

(i)	Obtain Rights. Obtain for the Eligible Recipients the right to continue using the Services, including such CSC Provided Systems, CSC Managed Systems and Deliverables.
(ii)	Modification. Modify the Service in question, including the applicable CSC Provided Systems, CSC Managed Systems and Deliverables, so that such Service is no longer infringing (provided that *** such Services as contemplated by this Agreement and/or as previously enjoyed by the Eligible Recipients under this Agreement).
(iii)	Replacement. If either of the foregoing are not commercially feasible, either: (i) provide functionally equivalent or superior replacement Services to the Eligible Recipients and reimburse Sears for any additional

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

90

cost to the Eligible Recipients, including costs of modifying Sears Provided Systems to permit them to interface and interoperate properly with such revised Services; or (ii) reimburse Sears for all costs and expenses (including any CSC fees, consultant fees and other transition expenses) of obtaining such replacement Services.

(b) Sears Provided Systems. If any Sears Provided System supplied by Sears that is subject to the indemnity under Section 20.2(e) (Infringement) is found, or in Sears’ reasonable opinion is likely to be found, to infringe upon or misappropriate any Intellectual Property Rights of any third party in any country in which Services are to be performed or received under this Agreement, or the continued use of the foregoing is enjoined, Sears may elect to, in its sole discretion and at its own cost and expense (subject to Section 7.1(c) (Sears Responsibilities) and Section 20.2(e) (Infringement)):

(i)	Obtain Rights. Obtain for CSC the right to continue using such Sears Provided System;
(ii)	Modification. Modify the Sears Provided System in question so that it is no longer infringing;
(iii)	Replacement. Replace the Sears Provided System with a non-infringing System; or
(iv)	Removal. Cease providing such Sears Provided System.

Within ten (10) Business Days of a request by Sears, CSC shall notify Sears in writing of: (I) any adverse affect on the Services, and/or *** subsections (ii), (iii) or (iv) above. The Parties shall work together in good faith, to mitigate any such adverse effect and the cost of any such election to Sears. If Sears does make an election under subsections (ii), (iii) or (iv) above: (x) the Parties shall, if applicable, equitably adjust the terms of the applicable Procurement Document, including any Service Levels applicable thereto, to take Sears into account the elimination of such Sears Provided Systems and (y) *** mitigated by the Parties. Sears may elect to stop receiving a portion of the Services in order to mitigate such costs.

20.4 Indemnification Procedures.

With respect to Third Party Claims that are subject to this Section 20 (Indemnities) (other than as provided in Section 20.5 (Indemnification Procedures — Governmental Claims) with respect to Claims covered by Section 20.1(f) (Government Claims)), the following procedures shall apply:

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

91

(a)	Notice. Promptly after receipt by any Entity entitled to indemnification under this Agreement of notice of the commencement or threatened commencement of any Claim in respect of which the indemnitee shall seek indemnification hereunder, the indemnitee shall notify the indemnitor of such Claim. No delay or failure to so notify an indemnitor shall relieve it of its obligations under this Agreement except to the extent that such indemnitor has suffered actual prejudice by such delay or failure. Within fifteen (15) days following receipt of notice from the indemnitee relating to any Claim, but no later than ten (10) Business Days before the date on which any response to a complaint or summons is due, the indemnitor shall notify the indemnitee that the indemnitor is assuming control of the defense and settlement of that Claim (a “Notice of Assumption”).
(b)	Procedure Following Notice of Defense. If the indemnitor delivers a Notice of Assumption within the required notice period, the indemnitor shall assume sole control over the defense and settlement of the Claim; provided, however, that (i) the indemnitor shall keep the indemnitee fully apprised at all times as to the status of the defense, and (ii) the indemnitor shall obtain the prior written approval of the indemnitee before: (x) entering into any settlement asserting any liability against the indemnitee for such Claim, (y) imposing any obligations or restrictions on the indemnitee or (z) ceasing to defend against such Claim. The indemnitor shall not be liable for any legal fees or expenses incurred by the indemnitee following the delivery of a Notice of Assumption; provided, however, that (i) the indemnitee shall be entitled to employ counsel at its own expense to participate in the handling of the Claim, and (ii) the indemnitor shall pay the fees and expenses associated with such counsel if, in the reasonable judgment of the indemnitee, based on an opinion of counsel, there is a conflict of interest with respect to such Claim which is not otherwise resolved or if the indemnitor has requested the assistance of the indemnitee in the defense of the Claim or the indemnitor has failed to defend the Claim diligently.
(c)	Procedure Where No Notice of Assumption Is Delivered. If the indemnitor does not deliver a Notice of Assumption relating to any Claim within the required notice period, the indemnitee shall have the right to defend the Claim in such manner as it may deem appropriate. The indemnitor shall promptly reimburse the indemnitee for all such reasonable costs and expenses incurred by the indemnitee, including reasonable Attorneys’ Fees. The indemnitor shall not be obligated to indemnify the indemnitee for any amount paid or payable by such indemnitee in the settlement of any Claim if (i) the indemnitor has delivered a timely Notice of Assumption and such amount was agreed to without the written consent of the indemnitor, (ii) the indemnitee has not provided the indemnitor with notice of such Claim and a reasonable opportunity to respond thereto, or (iii) the time period within which to deliver a Notice of Assumption has not yet expired.

20.5 Indemnification Procedures — Governmental Claims.

Sears shall be entitled, at its option, to have any Claim involving indemnification under Section 20.1(f) (Government Claims) handled pursuant to Section 20.4 (Indemnification

92

Procedures) or to retain sole control over the defense and settlement of such Claim; provided, however, that, in the latter case, Sears shall (a) consult with CSC on a regular basis regarding Claim processing (including actual and anticipated costs and expenses) and litigation strategy, (b) reasonably consider any CSC settlement proposals or suggestions, and (c) use commercially reasonable efforts to minimize any amounts payable or reimbursable by CSC. Sears shall notify CSC when Sears elects to exercise the rights provided in the preceding sentence. Sears shall not enter into any settlement asserting any liability against CSC for such Claims without CSC’s prior written consent.

20.6 Mixed Claims.

Notwithstanding anything to the contrary contained in Section 20.4 (Indemnification Procedures) but subject to Section 20.5 (Indemnification Procedures — Governmental Claims), in the event that both Parties are entitled under this Section 20 to invoke the other Party’s defense obligations with respect to the same Claim or a group of related Claims, then CSC shall assume the defense of the Sears Indemnified Parties with respect to such Claim or related Claims, as the case may be, and upon the rendering of a final, non-appealable order by a court or arbitrator of competent jurisdiction with respect to such Claim or Claims, Sears shall reimburse CSC for any reasonable Attorneys’ Fees and other reasonable Out-of-Pocket Expenses incurred by CSC in defending such Claim or Claims to the extent that the Sears Indemnified Parties are found to be liable under such Claim or Claims. For example, if a Third Party sues both Sears and CSC claiming that Sears’ employees and CSC’s employees were negligent in causing injury to such Third Party, (a) CSC would assume the defense of such a Claim, and (b) if, by a final, non-appealable order by a court of competent jurisdiction, Sears were found to be 60% liable and CSC were found to be 40% liable for such injuries, Sears would reimburse CSC for 60% of the reasonable Attorneys’ Fees and other Out-of-Pocket Expenses incurred by CSC in defending such Claim.

20.7 Independent Obligations.

The obligations of CSC and Sears to defend, indemnify and hold harmless the Sears Indemnified Parties and the CSC Indemnified Parties, respectively, under this Section 20 (Indemnities) shall be independent of each other and any other obligations of the Parties under this Agreement.

21. LIABILITY

21.1 Force Majeure.

(a) General. Subject to Section 21.1(d) (Disaster Recovery), no Party shall be liable for any default or delay in the performance of its obligations under this Agreement if and to the extent such default or delay is caused, directly or indirectly, by fire, flood, earthquake, elements of nature or acts of God, wars, riots, civil disorders, rebellions or revolutions, acts of terrorism, *** or any other similar cause beyond the reasonable control of such Party (each, a “Force Majeure Event”), except to the

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

93

extent that the non-performing Party is at fault in failing to prevent or causing such default or delay, and provided that such default or delay cannot reasonably be circumvented by the non-performing Party through the use of alternate sources, disaster recovery plans and workaround plans or other means (including to the extent within the scope of the Services under this Agreement, the performance of disaster recovery services). ***

(b)

Duration and Notification. In such Force Majeure Event, the non-performing Party shall be excused from further performance or observance of the obligation(s) so affected, subject to Section 21.1(a) (General), for as long as such circumstances prevail and such Party continues to use all commercially reasonable efforts to recommence performance or observance whenever and to whatever extent possible without delay. Any Party so prevented, hindered or delayed in its performance shall, as quickly as practicable under the circumstances, notify the Party to whom performance is due by telephone (to be confirmed in writing within one (1) day of the inception of such delay) and describe at a reasonable level of detail the circumstances of the Force Majeure Event, the steps being taken to address such Force Majeure Event and the expected duration of such Force Majeure Event.

(c)

Substitute Services; Termination. If any event described in Section 21.1(a) (General) has prevented, hindered or delayed or is reasonably expected to prevent, hinder or delay the performance by CSC or the CSC Personnel of Services for longer than the recovery period specified in the applicable disaster recovery plan or for more than ten (10) Business Days, then Sears may require CSC, to the extent practicable, to promptly procure such Services from an alternate source.

(i) To the extent that it was a CSC Facility impacted, CSC shall be solely liable for payment for such services from the alternate source ***; provided, however, that Sears continues to pay the portion of Charges under the applicable Transaction Document that apply to those Services that it continues to receive from CSC (directly or from such an alternate source). CSC shall diligently pursue either a restoration and/or replacement of the affected CSC Facilities and CSC will use its commercially reasonable efforts to relocate such Services to a CSC Facility within ***. If ***, CSC has not been able to restore the impacted CSC Facilities or move the Services to another CSC location, then Sears shall have the option of *** (b) partially or fully terminating the Services (in which case Sears would not have to pay any Termination Charges as to the impacted Services, *** Termination Charges for the non-impacted Services terminated by Sears).

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

94

(ii)

If the Force Majeure event impacts a Sears Facility, at which CSC was to perform its Services, then Sears may require CSC to provide such an alternate Services provider within *** of Sears request, pursuant to Section 4.5 (Additional Services). If Sears has not restored or replaced the impacted Sears Facility within ***, then Sears shall have the option of partially or fully terminating the Services (in which case Sears would not have to pay any Termination Charges as to the impacted Services *** Termination Charges for the non-impacted Services terminated by Sears).

(iii)

If CSC does not provide an alternative provider of such Services within *** of the Force Majeure Event, then Sears may terminate this Agreement or any Transaction Document, but only with respect to the portion of the Services so affected, without payment of Termination Charges. In the event of such partial termination, the Charges payable under this Agreement shall be equitably adjusted to reflect those terminated Services.

(d)	Disaster Recovery. The occurrence of a Force Majeure Event shall not relieve CSC of its obligation to (i) implement its disaster recovery plan for the facilities used in providing the Services, and (ii) provide any disaster recovery services described in an applicable Transaction Document.
(e)	Payment Obligation. If CSC fails to provide Services in accordance with this Agreement due to the occurrence of a Force Majeure Event, all amounts payable to CSC hereunder shall be equitably adjusted in a manner such that Sears is not required to pay any amounts for Services that it is not receiving whether from CSC or from an alternate source at CSC’s expense pursuant to Section 21.1(c) (Substitute Services; Termination). CSC shall not have the right to additional payments or an increase in per unit consumption charges as a result of any Force Majeure Event (e.g., if a decrease in consumption of a Service under a Transaction Document would have resulted in an increase in the “per unit” charges under the rate card under such Transaction Document, but such decrease in consumption was due to a Force Majeure Event, then such increase would not apply).
(f)	Allocation of Resources. Without limiting CSC’s obligations under this Agreement, whenever a Force Majeure Event causes CSC to allocate limited resources between or among CSC’s customers and Affiliates, the Eligible Recipients shall receive at least the same treatment as comparable CSC customers with respect to such limited resources. In no event shall CSC re-deploy or re-assign any Key Personnel to another customer or account in the event of the occurrence of a Force Majeure Event.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

95

21.2 Limitation of Liability.

(a)	Exclusions from Liability. EXCEPT AS PROVIDED IN THIS SECTION 21.2 (LIMITATION OF LIABILITY), NEITHER PARTY NOR ITS AFFILIATES (NOR, IN THE CASE OF SEARS, ANY ELIGIBLE RECIPIENT) SHALL BE LIABLE TO THE OTHER PARTY FOR INDIRECT, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES, INCLUDING LOST PROFITS, REGARDLESS OF THE FORM OF THE ACTION OR THE THEORY OF RECOVERY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
(b)	Liability Cap. Additionally, except as provided below, the total aggregate liability of either Party (including its Affiliates, and, in the case of Sears, any Eligible Recipient), for all claims asserted by the other Party under or in connection with this Agreement, regardless of the form of the action or the theory of recovery, shall be limited to ***.
(c)	Other. The exclusions from liability set forth in Section 21.2(a) (Exclusions from Liability) above and the liability cap set forth in Section 21.2(b) (Liability Cap above shall ***.
(d)	Exceptions to Limitations of Liability. The limitations of liability set forth in Sections 21.2(a) (Exclusions from Liability) and 21.2(b) (Liability Cap) shall not apply with respect to:

(i) Losses caused by the willful misconduct, fraud or gross negligence of a Party, its Affiliates (or, in the case of Sears, any Eligible Recipient), or their respective Personnel.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

96

(ii)	The Parties’ respective obligations under Section 20.1 (Indemnity by CSC) and Section 20.2 (Indemnity by Sears).
(iii)	Losses related to personal injury, including death, and damage to tangible property caused by the negligent or intentional acts of a Party, its Affiliates (or, in the case of Sears, any Eligible Recipient), or their respective Personnel.
(iv)	Either Party’s obligation to pay litigation costs and Attorneys’ Fees incurred by the other Party in enforcing the terms of this Agreement as set forth in Section 26.4 (Legal Expenses).
(v)	Losses caused by: (A) the willful abandonment of any significant portion (which shall be determined by taking into account the actual or potential impact on the businesses of each Sears Related Business) of the Services contracted for under this Agreement, including any Termination Assistance Services; and/or (b) wrongful termination of this Agreement or any Transaction Document by CSC. For purposes of the foregoing, “willful abandonment” means, with respect to any Services, that CSC or its Subcontractors have elected not to provide such Services, although CSC or such Subcontractor is capable of providing them, or CSC or its Subcontractors have intentionally acted, or failed to act, in a manner to avoid its obligation to provide such Services (e.g., if CSC elects not to renew a required governmental license and therefore is not able to provide the Services).
(vi)	Losses caused by any breach of CSC’s obligations under Section 15.3(c) (Confidential Personal Information) related to an intentional misuse of Confidential Personal Information.

(e) Items Not Considered Damages. The following shall not be considered damages subject to, and shall not be counted toward the liability exclusion or cap specified in, Section 21.2(a) (Exclusions from Liability) or 21.2(b) (Liability Cap):

(i)	Service Level Credits assessed against CSC pursuant to a Transaction Document.
(ii)	Charges withheld by Sears in accordance with this Agreement due either to incorrect Charges by CSC or ***.
(iii)	Amounts paid by Sears but subsequently recovered from CSC due either to incorrect Charges by CSC ***.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

97

(iv) Invoiced Charges, Pass-Through Expenses and other amounts that are due and owing to either Party under this Agreement.

(f)

Waiver of Liability Cap. If, at any time, the total aggregate liability of CSC under or in connection with this Agreement exceeds, or in connection with any Third Party claim against any Eligible Recipient is claimed by Sears to exceed, fifty percent (50%) of the liability cap specified in Section 21.2(b) (Liability Cap) and, upon receipt of the request of Sears, CSC refuses to waive such cap and/or increase the available cap to an amount at least equal to the original liability cap with respect to liability accruing on or after the receipt of such request from Sears, then Sears may terminate this Agreement or any Transaction Document, in whole or in part, without payment of Termination Charges. Upon CSC’s request, Sears will provide to CSC any information CSC reasonably requests regarding such Claim, to the extent Sears (or such Eligible Recipients) has such information. If the liability cap specified in Section 21.2(b) (Liability Cap) is increased pursuant to this Section 21.2(f) (Waiver of Liability Cap) and Sears fails in connection with the claim(s), giving rise to such increase to recover or incur damages or a monetary settlement sufficient to make CSC’s total aggregate liability under this Agreement exceed fifty percent (50%) of the original liability cap, the liability cap specified in Section 21.2(b) (Liability Cap) shall automatically revert to the amount thereof immediately prior to such increase, without limiting the effectiveness of this Section 21.2(f) (Waiver of Liability Cap) as to any subsequent liability or potential liability of CSC under this Agreement.

(g)

Acknowledged Direct Damages. The following shall be considered direct damages and CSC shall not assert that they are indirect, consequential, exemplary or punitive damages to the extent they result from CSC’s breach of this Agreement:

(i)	Costs and expenses of recreating or reloading any lost, stolen or damaged Sears Data that was in the CSC’s, its Affiliates’ or the CSC Personnel’s custody or that was lost or damaged by CSC Provided Systems or CSC Personnel, subject to Sears maintaining reasonable backup procedures with respect to such Sears Data; provided, however, that CSC is not otherwise obligated to provide such backup as part of the Services.
(ii)	Costs and expenses of implementing a work-around in respect of a failure to provide the Services or any part thereof.
(iii)	Costs and expenses of replacing lost, stolen or damaged Sears Provided Systems that are in the CSC’s, its Affiliates’ or the CSC Personnel’s custody.
(iv)	Cover damages, including the costs and expenses incurred to procure the Services or corrected Services from an alternate source, to the extent in excess of CSC’s Charges under this Agreement (which Sears shall not be

98

	obligated to pay while Sears is procuring Services from such alternate source).
(v)	Wages, salaries and other charges, including overtime, for existing or additional Personnel, and related Personnel expenses (e.g., travel costs, telecommunications charges and similar charges, etc.) incurred by the Eligible Recipients, including overhead allocations of the Eligible Recipients, in connection with clauses (i) through (iv) above or otherwise due to CSC’s or CSC Personnel’s failure to perform in accordance with this Agreement.
(vi)	Costs and expenses incurred to bring the Services in-house or to contract to obtain the Services from an alternate source, including the costs and expenses associated with the retention of external consultants and legal counsel to assist with any re-sourcing.
(vii)	Damages of an Eligible Recipient that would be direct damages if they had instead been suffered by Sears.

21.3 Public Telecommunications Transmissions.

In the case of transmission of data via public telecommunications facilities permitted under this Agreement, CSC shall not be responsible for corruption, damage, loss or mistransmission of, or loss of security with respect to, data during such transmission unless and to the extent such corruption, damage, loss, mistransmission or loss of security is attributable to CSC’s failure to comply with its obligations (including data security requirements) under this Agreement, including the obligation to (a) provide the Services (including data security requirements) in accordance with the accepted practices of well- managed tier one providers of information technology services, (b) provide and maintain the technology required to detect and correct any corrupt, damaged, lost or mistransmitted data and require retransmission of any such corrupt, damaged, lost or mistransmitted data, (c) provide for encryption of Confidential Personnel Information while in transmission, and (d) perform other Services appropriate to assist in the resolution of such corruption, damage, loss or mistransmission (e.g., backup and data recovery).

22. DISPUTE RESOLUTION

22.1 Informal Dispute Resolution.

Prior to the initiation of formal dispute resolution procedures with respect to any dispute, other than as provided in Section 22.1(d) (Prerequisite to Formal Proceedings) or Section 26.15 (Equitable Remedies), the Parties shall first attempt to resolve such dispute informally, as follows:

(a) Initial Effort. The Parties agree that the Sears Relationship Manager and the CSC Account Executive shall attempt in good faith to resolve all disputes (other

99

than those described in Section 22.1(d) (Prerequisite to Formal Proceedings) or Section 26.15 (Equitable Remedies)). If the Sears Relationship Manager and the CSC Account Executive are unable to resolve a dispute in an amount of time that either Party deems reasonable under the circumstances (e.g., 15-30 days), such Party may refer the dispute for resolution to the senior corporate executives specified in Section 22.1(b) (Escalation) upon notice to the other Party.

(b)	Escalation. Within five (5) Business Days of a notice under Section 22.1(a) (Initial Effort) referring a dispute for resolution by senior corporate executives, the Sears Relationship Manager and the CSC Account Executive shall each prepare and provide to President of the CSC Technology Management Group and the Sears Vice President of Operations and Engineering, respectively, summaries of the non-privileged relevant information and background of the dispute, along with any appropriate non-privileged supporting documentation, for their review. The designated senior corporate executives shall confer as often as they deem reasonably necessary in order to gather and furnish to the other all non-privileged information with respect to the matter in issue that is appropriate and germane in connection with its resolution. The designated senior corporate executives shall discuss the problem and negotiate in good faith in an effort to resolve the dispute without the necessity of any formal proceeding. The specific format for the discussions shall be left to the discretion of the designated senior corporate executives, but may include the preparation of agreed-upon statements of fact or written statements of position.
(c)	Provision of Information. During the course of negotiations under Section 22.1(a) (Initial Effort) or Section 22.1(b) (Escalation), all reasonable requests made by one Party to another for non-privileged information, reasonably related to the dispute, shall be honored in order that each of the parties may be fully advised of the other’s position. In addition, as part of the negotiations under Section 22.1(b), CSC shall provide, upon Sears’ request, CSC’s internal costs to the extent that such information is relevant to resolving the underlying dispute. All negotiation shall be strictly confidential and used solely for the purposes of settlement. Any materials prepared by one Party for these proceedings shall not be used as evidence by the other Party in any subsequent arbitration or litigation; provided, however, the underlying facts supporting such materials are discoverable to the extent provided in the applicable proceeding; provided, further, that disclosure of such materials pursuant to this process shall not prejudice a Party’s ability to seek such discovery.
(d)	Prerequisite to Formal Proceedings. Formal proceedings for the resolution of a dispute may not be commenced until the earlier of:

(i) the designated senior corporate executives under Section 22.1(b) (Escalation) concluding in good faith that amicable resolution through continued negotiation of the matter does not appear likely; or

100

(ii) thirty (30) days after the notice under Section 22.1(a) (Initial Effort) referring the dispute to senior corporate executives.

The provisions and time periods specified in this Section 22.1 (Informal Dispute Resolution) shall not be construed to prevent a Party from instituting, and a Party is authorized to institute, formal proceedings earlier to (1) avoid the expiration of any applicable limitations period, (2) preserve a superior position with respect to other creditors, or (3) address a claim arising out of the breach of a Party’s obligations under Section 15 (Sears Data and Other Confidential Information) or a dispute subject to Section 26.15 (Equitable Remedies).

22.2 Arbitration.

(a)	Arbitration. Except for claims arising out of the breach of a Party’s obligations under Section 15 (Sears Data and Other Confidential Information) or disputes subject to Section 26.15 (Equitable Remedies), any controversy or claim arising out of or relating to this Agreement, or any breach thereof, that cannot be resolved using the procedures set forth above in Section 22.1 (Informal Dispute Resolution) shall be finally resolved under the Commercial Arbitration Rules of the American Arbitration Association then in effect; provided, however, that without limiting any rights at law or in equity a Party may have because of an improper termination of this Agreement by the other Party, nothing contained in this Agreement shall limit either Party’s right to terminate this Agreement or a Transaction Document pursuant to Section 23 (Termination).
(b)	Location and Decision. The Arbitration shall take place in Chicago, Illinois, and shall apply the governing law of this Agreement. The decision of the arbitrators shall be final and binding and judgment on the award may be entered in any court of competent jurisdiction. The arbitrators shall be required to state the reasons for their decisions, including findings of fact and law. The arbitrators shall be bound by the warranties, limitations of liability and other provisions of this Agreement. The arbitrators shall not be permitted to decide any claims subject to Section 26.15 (Equitable Remedies) or to award any equitable remedies and to the extent that any claim/counterclaim or series of related claims/counterclaims include demands for both equitable and monetary remedies, then the entire claim/counterclaim, or series of related claims/counterclaims, as applicable, shall be excluded from the arbitrators’ jurisdiction.
(c)	Selection and Qualification of Arbitrators. Within ten (10) days after delivery of written notice (“Notice of Dispute”) by one Party to the other in accordance with this Section, the Parties each shall use good faith efforts to mutually agree upon one (1) arbitrator. If the Parties are not able to agree upon one (1) arbitrator within such period of time, the Parties each shall within ten (10) days: (i) appoint one (1) arbitrator who has at no time ever represented or acted on behalf of either of the Parties, and is not otherwise affiliated with or interested in either of the Parties; and (ii) deliver written notice of the identity of such arbitrator and a copy of his or her written acceptance of such appointment to the other Party. If either

101

Party fails or refuses to appoint an arbitrator within such ten (10) day period, the single arbitrator appointed by the other Party shall decide alone the issues set out in the Notice of Dispute. Within ten (10) days after such appointment and notice, such arbitrators shall appoint a third neutral and independent arbitrator (the “Third Arbitrator”) who shall at no time have ever represented or acted on behalf of either of the Parties, and shall not have otherwise been affiliated with or interested in either of the Parties. In the event that the two (2) arbitrators fail to appoint a Third Arbitrator within ten (10) days of the appointment of the second arbitrator, either arbitrator or either Party may apply for the appointment of a Third Arbitrator to the American Arbitration Association.

(d) General. All arbitrators selected pursuant to this Section shall be practicing attorneys with at least five (5) years’ experience with the technology and/or law applicable to the Services or similar services or transactions. Any such appointment shall be binding upon the Parties; provided, however, that if the parties have agreed upon a single arbitrator, then each Party shall have a one-time right during such arbitration to remove such arbitrator for any reason (in which case the parties shall then re-select their arbitrator(s) as provided above). The Parties shall use best efforts to set the arbitration hearing within sixty (60) days after selection of the arbitrator or arbitrators, as applicable, but in no event shall the arbitration hearing be set more than ninety (90) days after selection of the arbitrator or arbitrators, as applicable. Discovery as permitted by the Federal Rules of Civil Procedure then in effect will be allowed in connection with arbitration to the extent consistent with the purpose of the arbitration and as allowed by the arbitrator or arbitrators, as applicable. In connection with any dispute under Section 13.10 (Benchmarking), the arbitrator or arbitrator(s) shall expressly have the authority to select a Benchmarker and to choose the Benchmarking methodology. The decision or award of the arbitrator or the majority of the three arbitrators, as applicable, shall be rendered within fifteen (15) days after the conclusion of the hearing, shall be in writing, shall set forth the legal and factual basis therefor, and shall be final, binding and nonappealable upon the Parties and may be enforced and executed upon in any court having jurisdiction over the Party against whom the enforcement of such decision or award is sought. During the arbitration, each Party shall bear its own arbitration costs and expenses and all other costs and expenses of the arbitration shall be divided equally between the Parties; provided, however, the arbitrator or arbitrators shall allocate such expenses between the Parties in the final arbitration award in accordance with Section 26.4 (Legal Expenses).

22.3 Continued Performance.

(a) General. During each Exhibit Term and during each Termination Assistance Services period, each Party shall, unless otherwise directed by the other Party, continue performing its obligations under this Agreement while any dispute is being resolved; provided, however, that this provision shall not operate or be construed as extending the Term or prohibiting or delaying a Party’s exercise of any right it may have to terminate the Term as to all or any part of the Services.

102

(b) Non-Interruption of Services. CSC acknowledges and agrees that (i) any interruption to the Services would cause irreparable harm to Sears and the other Eligible Recipients, in which case an adequate remedy at law would not be available, and (ii) pending resolution of any dispute or controversy, it shall not deny, withdraw or restrict CSC’s provision of the Services to any Eligible Recipient under this Agreement, except as specifically and expressly agreed in writing by Sears and CSC.

23. TERMINATION

23.1 Termination for Cause.

(a) Termination By Sears.

(i) Agreement. If CSC:

(1)	commits any material breach of this Agreement (except as provided in clauses (2), and (3) below), including Termination Assistance Services, which is curable by CSC and CSC fails to cure such breach within *** CSC’s receipt of notice thereof;
(2)	commits a material breach of this Agreement that is not capable of being cured;
(3)	commits a breach of this Agreement that is capable of being cured, but is not capable of being cured within the period specified pursuant to clause (1) above,; ***
(4)	commits numerous breaches of its duties or obligations under this Agreement, whether or not cured within applicable cure periods, where such breaches collectively constitute a material breach of this Agreement ***;

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

103

then Sears may, by giving notice to CSC, terminate this Agreement, with respect to all or any part of the Services, in whole or in part, as of a date specified in the notice of termination. All notices of breach required to be given under this Section 23.1(a) (Termination by Sears) shall be given by Sears and contain a description of the breach in reasonable detail. CSC shall not be entitled to any Termination Charges in connection with such a termination for cause. If Sears chooses to terminate this Agreement in part, ***.

(ii) Transaction Document. If CSC:

(1)	commits any material breach of a Transaction Document (except as provided in clauses (2) and (3) below), including Termination Assistance Services, which is curable by CSC and CSC fails to cure such breach within *** CSC’s receipt of notice thereof;
(2)	commits a material breach of any Transaction Document that is not capable of being cured;
(3)	commits a breach of a Transaction Document that is capable of being cured, but is not capable of being cured within the period specified pursuant to clause (1) above; ***
(4)	commits numerous breaches of its duties or obligations under a Transaction Document, whether or not cured within applicable cure periods, where such breaches collectively constitute a material breach of any Transaction Document and CSC fails to (A) within ten (10) days after receiving notice of such breaches, provide a reasonable plan to correct the deficiencies causing such breaches on a permanent basis, or (B) implement such plan, cure such breaches (to the extent they are curable), and permanently cure such deficiencies within thirty (30) days after delivery of such plan; or

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

104

(5) commits any Excessive Service Level Failure, as defined in any Transaction Document;

then Sears may, by giving notice to CSC, terminate all affected Transaction Documents with respect to all or any part of the Services, in whole or in part, as of a date specified in the notice of termination. All notices of breach required to be given under this Section 23.1(a) (Termination by Sears) shall be given by Sears and contain a description of the breach in reasonable detail. CSC shall not be entitled to any Termination Charges in connection with such a termination for cause. If Sears chooses to terminate a Transaction Document in part, ***.

(b) By CSC. CSC may upon notice to Sears terminate a Transaction Document if, and only if, (i) Sears fails to pay Charges in accordance with this Agreement; subject to Sears’ rights under Section 14.4 (Disputed Charges) (ii) CSC provides Sears with a notice of such failure in accordance with Section 26.3 (Notices), and (iii) such amount remains unpaid for at least thirty (30) days after such notice is received by Sears.

23.2 Termination for Convenience.

Unless a different period is set forth in a Transaction Document, Sears may terminate this Agreement with respect to all or any portion of the Services for convenience and without cause upon 180 days’ prior notice; provided, however, that for Services under a Service Addenda, only ten (10) days’ notice shall be required. Sears shall pay to CSC a Termination Charge (as such amount may be reduced from time to time under this Agreement, the “Applicable Termination Charge”), calculated in accordance with Section 23.3 (Termination Charges). Commencing with the first invoice for Services due after the effective date of such termination, CSC shall invoice Sears for (and Sears shall pay in accordance with this Agreement), that portion of the Applicable Termination Charge equal to the difference between the average monthly Charges by CSC over the immediately preceding 12 months and the actual Charges by CSC for Services for such period (the “TC Delta Payment”). The Applicable Termination Charge shall be reduced by each TC Delta Payment made by Sears, and as otherwise provided for in this Agreement. For each following month, a TC Delta Payment shall be calculated and paid by Sears as provided for above, until the Applicable Termination Charge is reduced to twenty percent (20%) of the original Applicable Termination Charge (the “TC Holdback Amount”). The TC Holdback Amount (after adjustment as provided for herein), shall be paid upon completion of any completion of the Services (including any extension thereof, but not including the Termination Assistance Services) under this Agreement. If a purported termination for cause by Sears under Section 23.1 (Termination for Cause) is

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

105

determined by a competent authority not to be properly a termination for cause, then such termination by Sears shall be deemed to be a termination for convenience under this Section 23.2 (Termination for Convenience) (whether or not sufficient notice of such termination was given).

23.3 Termination Charges.

No Termination Charges shall apply under this Agreement unless the applicable Transaction Document states that such Charges will apply. The Parties acknowledge and agree that: (a) any Termination Charges specified in a Transaction Document shall be the maximum amount Sears will be required to pay in the event of a termination for convenience of the Services under such Transaction Document (regardless of whether such Services are terminated at one time, or in a series of terminations (such as for partial terminations)); (b) Termination Charges shall decline over time and, (iii) Termination Charges shall unless otherwise specified in a Transaction Document, no longer apply upon the normal expiration of a Transaction Document or during any renewal period thereof. *** Sears may, from time to time, request that CSC calculate the amount of Termination Charges Sears would be required to pay in the event Sears were to terminate, for convenience, in whole or in part, any Services. CSC shall provide to Sears a detailed estimate of such Charges (broken out by the categories set forth in the definition of Termination Charges), within 30 days after its receipt of Sears’ request. If Sears elects to terminate, for convenience, any Services for which such an estimate has been requested, then the Termination Charges applicable to such termination shall not exceed the lower of: (x) the Termination Charges set forth in the applicable Transaction Document, minus any Termination Charges Sears is already obligated to pay due to previous terminations under such Transaction Document, and (y) the amount set forth in the CSC’s estimate pursuant to this Section 23.3 (Termination Charges).

23.4 Termination Upon CSC Change of Control.

If a change in Control of CSC (or that portion of CSC providing Services under this Agreement) or the Entity that Controls CSC (if any), where such control is acquired, directly or indirectly, in a single transaction or series of related transactions, or all or substantially all of the assets of CSC are acquired by any entity, or CSC is merged with or into another entity to form a new entity, then at any time within twelve (12) months after the last to occur of such events, Sears may at its option terminate this Agreement or any Transaction Document, in whole or in part, by giving CSC at least ninety (90) days’

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

106

prior notice and designating a date upon which such termination shall be effective; provided, however, if such change in Control of CSC involves a competitor of Sears or its Affiliates, Sears may terminate this Agreement, or any Transaction Document, in whole or in part, by giving CSC at least ten (10) days’ prior notice, and such competitor of Sears or its Affiliates shall be prohibited from any contact with Sears Data, Sears Confidential Information and any and all other information about the Sears account, including discussions with CSC Personnel regarding specifics relating to the Services. ***

23.5 Termination Upon Sears’ Mergers and Acquisitions.

If, in a single transaction or series of transactions, Sears acquires Control of or Control of Sears is acquired by any other Entity (by stock sale, asset sale or otherwise) or merges with any other Entity, then, at any time within twelve (12) months after the last to occur of such events, Sears may at its option terminate, for convenience, the Services, in whole or in part, under this Agreement, by giving CSC at least ninety (90) days’ prior notice and designating a date upon which such termination shall be effective. If Sears acquires Control of or Control of Sears is acquired by an Entity that has an existing agreement with CSC (the “Entity Agreement”) for the provision of services similar to the Services (“Other Services”), Sears shall not be required to pay any Termination Charges in connection with the termination of the Services under this Agreement, or the Entity Agreement to the extent that the combined Entity elects, in its sole discretion, to have CSC provide the Services and Other Services to the combined Entity pursuant to the terms of (a) this Agreement; ***.

23.6 Termination for Insolvency.

If either Party (a) files for bankruptcy, (b) becomes or is declared insolvent, or is the subject of any bona fide proceedings related to its liquidation, administration, provisional liquidation, insolvency or the appointment of a receiver or similar officer for it, (c) passes a resolution for its voluntary liquidation, (d) has a receiver or manager appointed over all or substantially all of its assets, (e) makes an assignment for the benefit of all or substantially all of its creditors, (f) enters into an agreement or arrangement for the composition, extension or readjustment of substantially all of its obligations or any class of such obligations, (g) has any of its publicly traded equities delisted from any stock exchange, or (h) experiences an event analogous to any of the foregoing in any jurisdiction in which any material portion of its assets are situated, then the other Party may terminate this Agreement as of a date specified in a termination notice; provided, however, that CSC shall not have the right to exercise such termination under this Section 23.6 (Termination for Insolvency) so long as Sears (within 30 days of such

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

107

notice) pays for the Services to be received hereunder in advance on a month-to-month basis. If any Party elects to terminate this Agreement due to the insolvency of the other Party, such termination shall be deemed to be a termination for cause hereunder.

23.7 Termination for Change in Laws.

If any change in Laws results in an increase of twenty percent (20%) or more in the estimated average monthly Charges for any Service or under any Transaction Document or otherwise has a material adverse impact on CSC’s ability to perform the Services, then Sears may, at its option, terminate the applicable Transaction Document by giving CSC at least ninety (90) days’ prior notice and designating a date upon which such termination shall be effective. CSC shall be entitled to eighty percent (80%) of the Termination Charges that would have been paid in the event of a Termination for Convenience in connection with a termination under this Section 23.7 (Termination for Change in Laws).

23.8 Sears’ Rights Upon CSC’s Bankruptcy.

(a)

General Rights. In the event of CSC’s, any of CSC’s Affiliates’ or any Subcontractors’ bankruptcy or other formal procedure referenced in Section 23.6 (Termination for Insolvency) or of the filing of any petition under bankruptcy laws affecting the rights of CSC or any CSC Personnel which is not stayed or dismissed within thirty (30) days of filing, in addition to the other rights and remedies set forth in this Agreement, to the maximum extent permitted by Law, Sears shall have the immediate right to retain and take possession for safekeeping all Sears Data, Sears Confidential Information and Sears Provided Systems, including Software, Equipment, Systems or Materials to which the Eligible Recipients are or would be entitled during the Term or upon the expiration or termination of this Agreement or any Transaction Document, in the possession or control of CSC or CSC Personnel, as the case may be. CSC shall, and shall cause the CSC Personnel (to the extent not prohibited by Law) to cooperate fully with the Eligible Recipients and assist the Eligible Recipients in identifying and taking possession of the items listed in the preceding sentence. Sears shall have the right to hold such Sears Data, Confidential Information, Software, Equipment, Systems and Materials until such time as the trustee or receiver in bankruptcy or other appropriate insolvency office holder can provide adequate assurances and evidence to Sears that they shall be protected from sale, release, inspection, publication or inclusion in any publicly accessible record, document, material or filing. CSC and Sears agree that without this material provision, Sears would not have entered into this Agreement or provided any right to the possession or use of Sears Data, Sears Confidential Information or Sears Provided Systems covered by this Agreement.

(b)

Sears’ Rights in Event of Bankruptcy Rejection. Notwithstanding any other provision of this Agreement to the contrary, if CSC becomes a debtor under the United States Bankruptcy Code (11 U.S.C. §101 et seq. or any similar Law in any other country (the “Bankruptcy Code”)) and rejects this Agreement pursuant to Section 365 of the Bankruptcy Code (a “Bankruptcy Rejection”), (i) any and all

108

of the licensee and sublicensee rights of Sears and the other Eligible Recipients arising under or otherwise set forth in this Agreement, including the rights of Sears and the other Eligible Recipients referred to in Section 16.6 (Sears’ Rights Upon Expiration or Termination), shall be deemed fully retained by and vested in Sears and the other Eligible Recipients as protected intellectual property rights under Section 365(n)(1)(B) of the Bankruptcy Code and further shall be deemed to exist immediately before the commencement of the bankruptcy case in which CSC is the debtor, (ii) Sears and the other Eligible Recipients shall have all of the rights afforded to non-debtor licensees and sublicensees under Section 365(n) of the Bankruptcy Code, and (iii) to the extent any rights of Sears and the other Eligible Recipients under this Agreement which arise after the termination or expiration of this Agreement are determined by a bankruptcy court not to be “intellectual property rights” for purposes of Section 365(n), all of such rights shall remain vested in and fully retained by Sears and the other Eligible Recipients after any Bankruptcy Rejection as though this Agreement were terminated or expired. Sears shall under no circumstances be required to terminate this Agreement after a Bankruptcy Rejection in order to enjoy or acquire any of its or the other Eligible Recipients’ rights under this Agreement, including without limitation any of the rights referenced in Section 16.6 (Sears’ Rights Upon Expiration or Termination).

23.9 Right to Assume Licenses in Bankruptcy.

In the event of commencement of bankruptcy proceedings by or against an Eligible Recipient, such Entity or its trustee in bankruptcy shall be entitled to assume the licenses granted to such Entity under or pursuant to this Agreement and shall be entitled to retain all of such Entity’s rights thereunder.

24. RIGHTS UPON EXPIRATION OR TERMINATION

24.1 Certain Rights.

Except as expressly provided otherwise in a Transaction Document, upon any expiration or termination (regardless of whether for cause or convenience) of this Agreement or any Transaction Document, the rights provided for in this Section 24 (Rights Upon Expiration Or Termination) shall apply.

24.2 Hiring.

The Eligible Recipients shall be permitted to undertake, without interference from CSC or CSC Affiliates or CSC Subcontractors (including counteroffers), to hire, effective after the expiration or termination of the Services (or the applicable portion thereof) under this Agreement or the applicable Transaction Document, as the case may be, or the completion of any Termination Assistance Services (for which CSC reasonably requires such Personnel’s Services) requested under Section 25 (Termination Assistance Services), any CSC Personnel assigned primarily to the performance of Services within the 12-month period prior to the expiration or termination date. CSC shall waive, and

109

shall cause its Affiliates and Subcontractors to waive, their rights, if any, under contracts with such Personnel restricting the ability of such Personnel to be recruited or hired by the Eligible Recipients. The Eligible Recipients shall have reasonable access to such CSC Personnel for interviews, evaluations and recruitment. Sears shall endeavor to conduct the above-described hiring activity in a manner that is not unnecessarily disruptive of the performance by CSC of its obligations under this Agreement. ***

24.3 Sears Provided Systems and Deliverables.

With respect to Sears Provided Systems and Deliverables, CSC shall, at no cost to Sears:

(a)	Deliver. Deliver to Sears a copy of all Deliverables and all Sears Provided Systems in the format and medium in use by CSC in connection with the Services as of the date Sears requests such items, or the date of such expiration or termination of this Agreement or the applicable Transaction Document, as the case may be; and
(b)	Destroy. Following completion by CSC of any Termination Assistance Services for which Sears Provided Systems are required, destroy or securely erase all tangible embodiments of such Sears Provided Systems then in CSC’s or CSC Personnel’s possession or under its control.

24.4 Sears Facilities.

CSC and CSC Personnel shall vacate the Sears Facilities, in condition at least as good as the condition when made available to CSC, ordinary wear and tear excepted. Such Sears Facilities shall be vacated, at the expiration or termination date of the applicable Transaction Document or the completion of any Services requested by Sears under Section 25 (Termination Assistance Services) requiring such Sears Facilities, whichever is later.

24.5 CSC Provided Systems.

(a)

CSC Provided Circuits and Other Items. CSC shall, upon Sears’ request, and at no additional charge, register, re-register, release, assign and transfer, as the case may be, to Sears (or its designee) all Internet addresses, domain names and toll and toll-free telephone numbers provided by CSC or CSC Personnel to Sears that shall be used by Sears or CSC Personnel primarily in connection with the provision of the Services.

(b)

CSC Provided Equipment.

(i) Right to Purchase/Lease. Unless otherwise agreed to by Sears pursuant to Section 10.3(h) (Other Matters), Sears may have the option (but not the

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

110

obligation) to purchase, or assume the lease for any Equipment, including the Acquired Assets (on the same terms and conditions as are applicable to CSC under such lease and without transfer charges) or buy out the lease for such Equipment (at a price appropriately discounted to reflect the present value of future payments to be made under the lease), owned or leased by CSC or its Affiliates that is used primarily by CSC, its CSC Affiliates or the CSC Personnel to perform the Services. If the terms of such lease do not permit assignment or buyout by Sears as provided above, CSC will, upon Sears’ request, inform Sears of the actual buyout amount that CSC would incur to buy out out such lease (the “CSC Buyout Price”), and then upon Sears’ request, CSC will buyout out such lease and sell such Equipment to Sears at the CSC Buyout Price.

(ii)

Maintenance of Such Equipment. Such Equipment shall be transferred in good working condition, reasonable wear and tear excepted, as of the expiration or termination date of the applicable Transaction Document, or the completion of any Services requiring such Equipment requested by Sears under Section 25 (Termination Assistance Services), whichever is later. CSC shall maintain such Equipment through the date of transfer so as to be eligible for the applicable manufacturer’s maintenance program at no additional charge to Sears.

(iii)

Conditions of Transfer. CSC shall assist Sears in identifying each such piece of Equipment and the terms and conditions upon which such Equipment may be sold or assigned to Sears, including any costs to be assumed by Sears. At Sears’ request, the Parties shall negotiate in good faith and agree upon the form and structure of the purchase.

(1)

Owned Equipment. In the case of Equipment owned by CSC or its Affiliates purchased by Sears, CSC shall grant to the Eligible Recipients a warranty of title and a warranty that such Equipment is free and clear of all liens and encumbrances. Such conveyance by CSC to the Sears shall be at the then-current net book value as stated in CSC’s or its Affiliates accounting records; provided, however, that for such purposes net book value shall be calculated in accordance with generally accepted accounting principles, using the depreciation methods used by CSC in preparing its federal income tax returns.

(2)

Leased Equipment. In the case of leased Equipment, CSC shall (A) represent and warrant that the lease is not in default, (B) represent and warrant that all payments thereunder have been made through the date of transfer, and (C) notify Sears of any lessor defaults of which it is aware at the time.

(c) CSC Provided Software. With respect to CSC Provided Software:

111

(i) CSC Software.

(1)

License. With respect to all CSC Provided Software that is CSC Software, CSC shall grant to Sears an irrevocable, perpetual, nonexclusive, worldwide, paid-up license to use, execute, reproduce, display, perform and prepare Derivative Works based upon, and distribute to Eligible Recipients such CSC Software; *** CSC shall deliver to Sears a copy of such CSC Software and all related documentation sufficient to enable the Eligible Recipients to exercise the foregoing license; provided that such Software shall be subject to the confidentiality provisions set forth in Section 15.3 (Confidentiality) above. The foregoing license shall be at no cost to the Eligible Recipients, unless and to the extent such CSC Software is generally licensed to CSC’s other customers on a rental fee basis, and such CSC Software was made available to Sears on a rental fee basis under the applicable Transaction Document, in which case such CSC Software shall be provided to Sears on terms no less favorable than the terms under which Sears was receiving such CSC Software under this Agreement; provided, however, that such CSC Software shall not be deemed to have been provided on a rental fee basis if CSC included any one-time licensing fees associated with such CSC Software in the monthly Charges paid by Sears under this Agreement. ***

(2)

Maintenance. CSC shall offer to provide to Sears, and if and to the extent requested by Sears, CSC shall provide to Sears, Upgrades, maintenance, support and other services for such CSC Software on CSC’s or its Affiliates’, as applicable, then-current standard terms and conditions for such services; provided, however, that the charges for such Services shall not exceed those CSC or its Affiliates, as applicable, customarily charges to its other preferred commercial customers.

(ii) Third Party Software.

(1) License. With respect to CSC Provided Software that is Third Party Software, unless otherwise agreed to by Sears pursuant to

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

112

Section 10.3(h) (Other Matters), CSC shall, at Sears’ option, transfer to Sears all licenses for Third Party Software used primarily to provide Services to Sears (on the same terms and conditions as are applicable to CSC under such license and without transfer charges); provided, however, that Sears shall be entitled to permit the Eligible Recipients to use such Software subject to the same terms as conditions as Sears is entitled to use such Software and subject to any limits on usage that apply to Sears (e.g., if Sears were entitled to five (5) CPU licenses, Sears and the Eligible Recipients can, on a combined basis, only use such Software on five (5) CPUs); ***.

(2) Transfer Fees. To the extent Sears has agreed in advance to pay any fees in connection with its receipt of such licenses, sublicenses or other rights, CSC shall, at Sears’ request, identify the licensing and sublicensing options available to the Eligible Recipients and the license or transfer fees associated with each. CSC shall use commercially reasonable efforts to obtain the most favorable options and the lowest possible transfer, license, re-license, assignment or termination fees for Third Party Materials. CSC shall not commit the Eligible Recipients to paying any such fees or expenses without Sears’ prior approval, which may be withheld in Sears’ sole discretion. If the applicable licensor offers more than one form of license, Sears (not CSC) shall be entitled to select the form of license to be received by the Eligible Recipients.

(iii) Sufficient Licenses. If CSC did not purchase sufficient licenses to provide the Services, and therefore additional licenses will have to be purchased to permit CSC to meet its obligations under this Section 24.5(c), such costs shall be borne by CSC.

24.6 CSC Subcontracts and Third Party Contracts.

CSC shall inform Sears of all subcontracts or Third Party Contracts used primarily by CSC, its CSC Affiliates and any CSC Personnel to perform the Services. Subject to Section 10.3(h) (Other Matters), at Sears’ request, CSC shall, and shall cause any such CSC Affiliates or any CSC Personnel to, permit the Eligible Recipients to assume prospectively any or all such contracts or to enter into new contracts with the Eligible Recipients on substantially the same terms and conditions, including price. CSC shall so assign the designated subcontracts and Third Party Contracts to the Eligible Recipients as of the expiration or termination date of the applicable Transaction Document or the completion of any Termination Assistance Services requested by Sears under Section 25 (Termination Assistance Services) requiring such subcontracts or Third Party Contracts,

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

113

whichever is later. There shall be no charge or fee imposed on the Eligible Recipients by CSC, its Affiliates or any of CSC Personnel for such assignment. CSC shall (1) represent and warrant that it is not in default under such subcontracts and Third Party Contracts, (2) represent and warrant that all payments thereunder through the date of assignment are current, and (3) notify Sears of any Subcontractor’s or Third Party contractor’s default with respect to such subcontracts and Third Party Contracts of which it is aware at the time. CSC shall retain the right to utilize any such Subcontractor or Third Party services in connection with the performance of services for other CSC customers.

24.7 Effect on Termination Charge.

If Sears exercises any of its rights under this Section 24 (Rights Upon Termination), the Termination Charge under the applicable Transaction Document shall be reduced by (a) any amounts paid or payable by Sears (or its designees) to CSC, or its designees, pursuant to this Section 24 (Rights Upon Termination) upon or after termination, or prior to the normal expiration, of the applicable Transaction Document, as the case may be, and (b) all costs and expenses avoided by CSC (including CSC’s applicable profit margins) by Sears (or its designees) hiring CSC Personnel, taking assignment of Third Party Contracts, or exercising any of Sears’ other rights under this Section 24 (Rights Upon Termination).

25. TERMINATION ASSISTANCE SERVICES.

25.1 Duration.

As part of the Services, CSC shall provide to the Eligible Recipients the Termination Assistance Services described in this Section 25 (Termination Assistance Services) and in the applicable Transaction Document.

(a)	Period of Provision. As and to the extent requested by Sears from time to time, CSC shall provide to the Eligible Recipients Termination Assistance Services commencing upon request from Sears at any time or times during the Term of any Transaction Document and continuing for up to twenty-four (24) months following the expiration or termination of any Services.
(b)	Extension(s) of Services and Termination Assistance Services.

(i) Extension(s) of Services (other than Termination Assistance Services). Sears may elect, in its sole discretion, *** notice to CSC, from time to time, to extend all or part of the Services (other than Termination Assistance Services (which are dealt with in clause (ii) below) beyond the expiration or termination date of such Services, in its sole discretion; ***. The terms and conditions of this Master Agreement and the applicable Transaction

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

114

Document(s) shall continue to apply to such Services during such extension, notwithstanding such expiration or termination.

(ii)	Extension(s) of Termination Assistance Services. In addition to the foregoing rights of Sears, Sears also may from time to time elect, in its sole discretion, *** prior notice to CSC, to extend the period following the effective date of any expiration or termination for the performance of Termination Assistance Services with respect to a particular Transaction Document; ***.
(iii)	Other Extension(s). In any event, if Sears provides CSC with less than *** prior notice of any extension of the Services or Termination Assistance Services, or requests for Termination Assistance Services beyond the applicable period referenced in clause (i) or (ii) above, CSC shall nonetheless *** comply with Sears’ request and provide the requested Termination Assistance Services or other Services, as the case may be.
(iv)	Option to Complete Transformation Services. In the event of a termination before all Transformation Services are completed, Sears shall have the right to require CSC to complete all or any portions of such Transformation Services in accordance with the terms and conditions of this Agreement, despite termination of any or all other Services, in which event the Charges set forth in the applicable Transaction Document for such Transformation Services shall be equitably adjusted in proportion to the Service that Sears elects to have CSC complete.

(c) Firm Commitment. CSC shall extend the Services and/or provide Termination Assistance Services (as set forth in this Section 25.1(c) (Firm Commitment)), upon Sears request regardless of the reason for the expiration or termination of this Master Agreement or any Transaction Document; provided, however, that if this Master Agreement or a Transaction Document is terminated by CSC in accordance with Section 23.1(b) (Termination for Cause; By CSC), CSC may require payment by Sears monthly in advance for Services and Termination Assistance Services to be provided or performed under this Section 25 (Termination Assistance Services). At Sears’ request, CSC shall provide Termination Assistance Services directly to an Eligible Recipient or an Entity acquiring Control of an Eligible Recipient; provided, however, that, unless otherwise agreed by the Parties, all such Termination Assistance Services shall be performed subject to and in accordance with the terms and conditions of this Agreement.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

115

(d) Performance. Except as expressly otherwise mutually agreed upon in writing by the Parties, to the extent Sears requests Termination Assistance Services or other Services, such Termination Assistance Services and other Services shall be provided subject to and in accordance with the terms and conditions of this Agreement, with at least the same degree of accuracy, quality, completeness, timeliness, responsiveness and resource efficiency as was required to be provided for the same or similar Services during the Term of the applicable Transaction Document. CSC Personnel (including all Key Personnel) reasonably considered by Sears to be critical to the performance of the Services, including the Termination Assistance Services, shall be retained on the Sears account through the completion of all relevant Termination Assistance Services or other Services, as applicable.

25.2 Scope of Termination Assistance Service.

As part of the Termination Assistance Services and to the extent requested by Sears, CSC shall timely transfer the control and responsibility for all information technology functions and Services previously performed under the applicable Transaction Document by or for CSC to the Eligible Recipients. Additionally, CSC shall provide any and all reasonable assistance requested by Sears to allow:

(a)	***
(b)	***
(c)	***

25.3 General Support.

To the extent requested by Sears, CSC shall (i) assist Sears in developing a written transition plan for the transition of the Services to the Eligible Recipients, which plan shall include (as requested by Sears) capacity planning, facilities planning, human resources planning, telecommunications planning and other planning necessary to effect the transition, (ii) perform programming and consulting services as requested to assist in implementing the transition plan, (iii) train Personnel designated by Sears in the use of any Equipment, Software, Systems, Materials or tools used in connection with the provision of the Services, (iv) catalog all Software, Sears Data, Equipment, Materials, Third Party Contracts and tools used to provide the Services, (v) provide machine readable and printed listings and associated documentation for source code for Software owned by Sears and source code to which Sears is otherwise entitled under this Agreement and assist in its re-configuration, (vi) analyze and report on the space required for the Sears Data and the Software needed to provide the Services, (vii) assist in the execution of a parallel operation, data migration and testing process until the successful completion of the transition to the Eligible Recipients has been successfully completed, (viii) create and provide copies of the Sears Data in the format and on the media reasonably requested by Sears, (ix) provide a complete and up-to-date, electronic copy of

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

116

the Operational Procedures Manual in the format and on the media reasonably requested by Sears, (x) provide other technical assistance as requested by Sears, (xi) provide Sears with information related to the Services that Sears reasonably requests during any Exhibit Term to enable Sears to draft requests for proposal relating to the Services, and (xii) at Sears’ request, provide due diligence information to recipients of such requests for proposal. CSC may or may not be a recipient of any such requests for proposal.

25.4 Rates and Charges.

For Services that Sears was receiving from CSC prior to any expiration or termination of the applicable Transaction Document or the applicable Service, the Charges applicable to such Services (during any extension of such Services beyond such expiration or termination), shall be the Charges that Sears was (or is) paying prior to such expiration or termination, ***. For all Termination Assistance Services, Charges shall be subject to Section 4.5(b) (New Services); provided, however, that (i) to the extent Sears requests a portion (but not all) of the Services included in a particular Charge, the amount to be paid by Sears shall be equitably adjusted in proportion to the portion of the Services included in the applicable Charge that CSC shall not be providing or performing, (ii) to the extent the Termination Assistance Services requested by Sears can be provided by CSC using Personnel and resources then assigned to Sears, there shall be no additional charge to Sears for such Termination Assistance Services, (iii) if the Termination Assistance Services requested by Sears cannot be provided by CSC using Personnel and resources then assigned to Sears, Sears, in its sole discretion, may forego or delay any work activities or temporarily or permanently adjust the work to be performed by CSC, the schedules associated therewith or the Service Levels to permit the performance of such Termination Assistance Services using such Personnel or resources at no additional charge to Sears, and (iv) any Charges to Sears for Termination Assistance shall not exceed the lesser of: (x) rates CSC charges customers (prior to such customer terminating their agreement with CSC), of similar size and volume for such services, and (y) CSC’s actual cost plus ***.

26. GENERAL

26.1 Binding Nature and Assignment.

(a)	Binding Nature. This Agreement shall be binding on the Parties and their respective successors and permitted assigns.
(b)	Assignment. Neither Party may, or shall have the power to, assign this Agreement or any Transaction Document, without the prior written consent of the other, except in the following circumstances:

(i) Either Party may assign its rights and obligations under this Agreement, or any Transaction Document, without the approval of the other Party, to an Affiliate that expressly assumes such Party’s obligations and responsibilities hereunder; provided, however, that the assigning Party

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

117

shall remain fully liable for and shall not be relieved from the full performance of all obligations under this Agreement. Any Party assigning its rights or obligations to an Affiliate in accordance with this Agreement shall, within one (1) Business Day after such assignment, provide notice thereof to the other Party together with a copy of any relevant provisions of the assignment document.

(ii) Sears may assign its rights and obligations under this Agreement or any Transaction Document without the approval of CSC to an Entity acquiring, directly or indirectly, Control of Sears, an Entity into which Sears is merged or an Entity acquiring all or substantially all of Sears’ assets; provided, however, that if such acquisition or merger would result in CSC being required to provide Services that meet the definition of New Services, then such Services shall be treated as New Services under Section 4.5(b) (New Services). The acquirer or surviving Entity shall agree in writing to be bound by the terms and conditions of this Agreement.

(c) Impermissible Assignment. Any attempted assignment that does not comply with the terms of this Section shall be null and void.

26.2 Entire Agreement; Amendment.

This Agreement, including any Appendices and Transaction Documents referred to in this Agreement and attached hereto, each of which is incorporated in this Agreement for all purposes, constitutes the entire agreement between the Parties with respect to the subject matter hereof. There are no agreements, representations, warranties, promises, covenants, commitments or undertakings other than those expressly set forth in this Agreement. This Agreement supersedes all prior agreements, representations, warranties, promises, covenants, commitments or undertakings, whether written or oral, with respect to the subject matter contained in this Agreement. Furthermore, this Agreement shall supersede, and the Eligible Recipients shall not be bound by any “shrink wrap license” which is now or hereafter bundled with the CSC Provided Systems, or any “disclaimers” or “click to approve” terms or conditions now or hereafter contained in the CSC Provided Systems, or any web site of CSC, its Affiliates or CSC’s Personnel that the Eligible Recipients use in connection with the Services. No Transaction Document, amendment, modification, change, waiver or discharge hereof shall be valid or binding unless in a tangible writing (not in electronic form) and manually signed by an authorized representative of the Party against which such amendment, modification, change, waiver or discharge is sought to be enforced.

26.3 Notices.

All notices required or permitted to be given by one Party to the other Party under this Agreement shall be in writing and shall be sufficient if sent by: (a) hand delivery; (b) certified mail, return receipt requested; (c) nationally recognized overnight courier

118

service; or (d) facsimile with electronic confirmation to the sender, to the applicable Party at its address(es) or facsimile number(s) set forth below:

If to Sears:	Sears, Roebuck and Co.
	3333 Beverly Road, Mail Station: B6-157B
	Hoffman Estates, Illinois 60179
	Attn.: VP Operations/Engineering
	Facsimile: (847) 286-7574
With a copy to:	Sears, Roebuck and Co.
	3333 Beverly Road, Mail Station: B5-212B
	Hoffman Estates, Illinois 60179
	Attn.: General Counsel
	Facsimile: (847) 286-2471
If to CSC	Computer Sciences Corporation
	2100 East Grand
	El Segundo, California 90245
	Attn: VP, General Counsel and Secretary
	Facsimile: (310) 322-9767
With a copy to:	Computer Sciences Corporation
	400 Commerce Drive
	Newark, DE 19713
	Attn: Director of Contracts
	Facsimile: (302) 391-6072
With a copy to:	CSC’s Account Executive, which copy shall be provided at the address or facsimile number assigned to CSC’s Account Executive by Sears at the applicable Sears location.

All notices shall be effective: (i) when delivered personally; (ii) three (3) Business Days after being sent by certified mail; (iii) the first Business Day after being sent by a nationally recognized courier; or (iv) on the same Business Day on which it is sent by facsimile; provided such transmittal is complete before 5 p.m. (Central Time) and is followed by notice under clause (i), (ii) or (iii) above. Either Party may change its notice information by giving proper notice of such change to the other Party; provided, however, that such notice shall only be effective upon receipt.

26.4 Legal Expenses.

In the event of an arbitration or litigation arising out of an alleged breach of this Agreement (each a “Dispute”), the prevailing Party shall be entitled to reimbursement of all of its costs and expenses, including reasonable Attorneys’ Fees, incurred in connection with such Dispute, including any appeal therefrom. For purposes of this Section 26.4 (Legal Expenses), the determination of which Party is to be considered the prevailing

119

Party shall be decided by the court of competent jurisdiction or independent party (i.e., arbitrator) that resolves such Dispute. Notwithstanding such determination by such court or independent party, a Party (the “Offeree”) shall not be considered the prevailing party for purposes of this Section 26.4 (Legal Expenses) if (a) the Offeree withholds its acceptance of any settlement of such Dispute proposed by the other Party (the “Offeror”) and (b) the judgment or award ultimately obtained by the Offeree, if any, is not more favorable to the Offeree than such settlement offer. If multiple settlement offers are made but not accepted, the preceding sentence shall apply to the Offeror’s final settlement offer. This provision shall not apply to any proposed settlement that would require an admission of fault by the Offeree or imposes any obligations on the Offeree other than: (i) the payment of money or the issuance of a credit, (ii) release of the claim, and (iii) agreement to keep the terms of the settlement confidential.

26.5 Counterparts.

This Agreement may be executed in several counterparts, all of which taken together shall constitute one single agreement between the Parties hereto. Each Party shall have the right to rely on a facsimile signature on this Agreement, and each Party shall, if the other Party so requests, provide, after such transmission, an originally signed copy of this Agreement to the other Party.

26.6 Headings.

The section headings and the table of contents used in this Agreement are for reference and convenience only and shall not be considered in the interpretation of this Agreement.

26.7 Severability.

If any provision of this Agreement conflicts with the law under which this Agreement is to be construed or if any such provision is held invalid or unenforceable by a court with jurisdiction over the Parties, such provision shall be deemed to be restated to reflect as nearly as possible the original intentions of the Parties in accordance with applicable law. The remaining provisions of this Agreement and the application of the challenged provision to persons or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each such provision shall be valid and enforceable to the full extent permitted by law.

26.8 Jurisdiction.

Each Party irrevocably agrees that any legal action, suit or proceeding brought by it in any way arising out of this Agreement must be brought solely and exclusively in Cook County, Illinois, and each Party irrevocably submits to the sole and exclusive jurisdiction of the courts in Cook County, Illinois in personam, generally and unconditionally with respect to any action, suit or proceeding brought by it or against it by the other Party; provided that either Party may bring an action in another United States jurisdiction to: (a) enforce its rights under Section 20 (Indemnities) if the underlying Claim is pending in such jurisdiction; and (b) interplead the other Party into a Claim pending in such

120

jurisdiction. Further, each Party consents to transfer of all actions filed in foreign jurisdictions to a United States federal or state court. Notwithstanding the foregoing: a Party shall have the right to bring litigation in an applicable foreign jurisdictions (e.g., Canada, India, etc.), to the extent reasonably deemed necessary by such Party, in its sole judgment, in order to either: (i) receive interim injunctive or other equitable relief, including a temporary restraining order; or (ii) to the extent required by such foreign law, litigate, re-litigate or enforce any matter in order to enforce such Party’s rights under this Agreement in such foreign jurisdiction, but only to the extent such disputes or legal action: (A) as to Sears, relates to those Services actually performed by CSC outside the United States; and (B) as to CSC, relates to those Services specifically received by Sears outside the United States.

26.9 Governing Law.

This Agreement, and all questions concerning the validity, interpretation and performance of this Agreement, as well as the ownership of all materials created in connection with this Agreement, and all claims arising out of this Agreement or the Services provided hereunder, shall be governed by and construed in accordance with the applicable laws of the State of Illinois and the United States as such laws are applied to contracts between Illinois residents that are entered into and performed entirely within the State of Illinois, and without giving effect to the principles thereof relating to conflicts of laws. The application of CISG is expressly excluded. If Illinois adopts any form of UCITA during the Term of this Agreement, the Parties hereby agree that UCITA shall not apply to this Agreement or any transactions contemplated hereunder, to the extent that such exclusion is legally permissible under such adopted law. Furthermore, to the extent permitted under Illinois law, each Party waives the benefit all substantive, non-procedural, foreign and international Laws (e.g., the laws of Canada and India), to the extent such Laws would otherwise grant such Party rights which are different than those contemplated under this Agreement.

26.10 Relationship of the Parties.

CSC, in furnishing services to the Eligible Recipients hereunder, is acting as an independent contractor, and CSC has the sole obligation to supervise, manage, contract, direct, procure, perform or cause to be performed all work to be performed by CSC Personnel under this Agreement. Except as expressly provided in this Agreement, CSC is not an agent of the Eligible Recipients and has no right, power or authority, express or implied, to represent or bind the Eligible Recipients as to any matters, except as expressly authorized in this Agreement. Nothing set forth in this Agreement shall be deemed or construed to render the Parties as joint venturers, partners, principals, joint employers, employer and employee of or with the other. CSC’s Personnel are neither employees nor agents of any Eligible Recipient and are not eligible to participate in any employment benefit plans or other conditions of employment available to any Eligible Recipient’s employees. No CSC Personnel retained by CSC to perform work on the Eligible Recipients’ behalf in connection with this Agreement shall be deemed to be an officer, director, employee, agent, Affiliate, contractor or subcontractor of the Eligible Recipients for any purpose. CSC (or its Subcontractors) shall be solely responsible for making or

121

causing to be made all deductions and withholdings from the CSC Personnel’s salaries and other compensation. CSC (or its Subcontractors) shall have exclusive control over the CSC Personnel and over the labor and employee relations, and the policies relating to wages, hours, working conditions or other conditions of the Personnel. CSC, and not Sears, shall be responsible and therefore solely liable for all acts and omissions of CSC Personnel. CSC (or its Subcontractors) shall have the exclusive right to hire, transfer, suspend, lay off, recall, promote, assign, discipline, discharge and adjust grievances with the CSC Personnel. However, at any time Sears shall, without any additional charge to any Eligible Recipient, have the right to require CSC to immediately remove from involvement in any of the Services any Personnel objectionable to Sears for any lawful reason.

26.11 Consents and Approval.

(a)

General. Except where expressly provided as being in the sole discretion of a Party, where agreement, approval, acceptance, consent, confirmation, notice or similar action by either Party is required under this Agreement, such action shall not be unreasonably delayed or withheld (taking into account Sears’ business needs and objectives for entering into this Agreement). An approval or consent given by a Party under this Agreement shall not relieve the other Party from responsibility for complying with the requirements of this Agreement, nor shall it be construed as a waiver of any rights under this Agreement, except as and to the extent otherwise expressly provided in such approval or consent. From time to time, CSC may request, or be entitled to receive, Sears’ “approval” or “sign-off” of project plans or other Deliverables prior to proceeding with the next phase or step of a given project. CSC acknowledges and agrees that (i) Sears is relying upon CSC’s technical expertise in providing such Deliverables, and (ii) any such “approval” or “sign-off” by the Eligible Recipients shall neither be construed as an endorsement by the Eligible Recipients as to the technical means CSC has selected to achieve the required results, nor as a waiver of any of the Eligible Recipients’ rights or CSC’s obligations under this Agreement.

(b)

Written Approval. To the extent CSC is required under this Agreement to obtain Sears’ approval, consent or agreement, such approval, consent or agreement must be in writing and must be signed by or directly transmitted by electronic mail from the Sears Relationship Manager or an authorized Sears representative. Notwithstanding the preceding sentence, the Sears Relationship Manager may agree in advance in writing that as to certain specific matters oral approval, consent or agreement shall be sufficient.

26.12 Waiver of Default; Cumulative Remedies.

(a) Waiver of Default. A delay or omission by either Party hereto to exercise any right or power under this Agreement shall not be construed to be a waiver thereof. A waiver by either of the Parties hereto of any of the covenants to be performed by the other or any breach thereof shall not be construed to be a waiver of any succeeding breach thereof or of any other covenant contained in this Agreement.

122

(b) Cumulative Remedies. All remedies provided for in this Agreement shall be cumulative and in addition to and not in lieu of any other remedies available to either Party at law, in equity or otherwise.

26.13 Survival.

Any provision of this Agreement which contemplates performance or observance subsequent to any termination or expiration of this Agreement shall survive any termination or expiration of this Agreement and continue in full force and effect, including Section 9 (Required Consents), Section 12.1(e) (Restrictions on Performing Services to Sears’ Competitors), Section 13.4 (Taxes), Section 13.8 (Refundable Items), Section 14.2 (Payment), Section 15 (Sears Data and Other Confidential Information), Section 16 (Ownership), Section 17 (Representations, Warranties and Covenants), Section 18 (Audit Rights), Section 19 (Insurance and Risk of Loss), Section 20 (Indemnities), Section 21 (Liability), Section 22 (Dispute Resolution), Section 23 (Termination), Section 24 (Rights Upon Expiration or Termination), Section 25 (Termination Assistance Services), and Section 26 (General). Additionally, all provisions of this Agreement shall survive the expiration or termination of this Agreement to the fullest extent necessary to give the Parties the full benefit of the bargain expressed in this Agreement.

26.14 Publicity.

CSC shall not, without Sears’ prior written consent, directly or indirectly, use or refer to the names, service marks and/or trademarks of Sears or any of its Affiliates, or publicize the existence of this Agreement in any manner, including in any advertising, customer lists, publicity release or sales presentation.

26.15 Equitable Remedies.

CSC acknowledges that, solely for purposes of enabling Sears to obtain equitable relief and for no other purpose, if CSC or any of the CSC Personnel breaches (or attempts or threatens to breach) its obligation to provide Services or Termination Assistance Services as provided in Section 25 (Termination Assistance Services), or its obligation to provide access to computers or files, containing Sears Confidential Personal Information and CSC obligations as such Confidential Personal Information under Section 15 (Sears Data and Other Confidential Information), the *** shall be irreparably harmed and money damages shall not be an adequate remedy for such harm. In such a circumstance, Sears may proceed directly to court. If a court of competent jurisdiction should find that CSC or any CSC Personnel have breached (or attempted or threatened to breach) any such obligations, CSC agrees that without any additional findings of irreparable injury, CSC shall not oppose the entry of an appropriate order compelling performance by CSC and CSC Personnel and restraining it from any further breaches (or attempted or threatened); provided that CSC shall be entitled to defend the claim fully on the merits and may seek to have the court impose conditions such as the payment of amounts due under this Agreement

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

123

26.16 Parties To This Agreement.

Except as set forth in Section 20.1 (Indemnity by CSC), and Section 20.2 (Indemnity by Sears), this Agreement is entered into solely between, and may be enforced only by, Sears and CSC. Sears may enforce, on behalf of the Eligible Recipients, the rights and protections granted to the Eligible Recipients under this Agreement. This Section 26.16 (Parties to this Agreement) shall not prejudice Sears’ rights under Section 21.2(g) (Acknowledge Direct Damages).

26.17 Covenant Against Pledging and Liens.

CSC agrees that, without the prior written consent of Sears, it shall not assign, transfer, pledge, hypothecate or otherwise encumber its rights to receive payments from Sears under this Agreement for any reason whatsoever.

Furthermore, neither CSC nor any CSC Personnel shall file any liens, or by their action or inaction permit, directly or indirectly, any liens to be filed, on or against property (tangible or intangible) of Sears, or any other Eligible Recipient. If any such liens arise as a result of CSC or CSC Personnel’s action or inaction, CSC shall obtain a bond to fully satisfy such liens or otherwise remove such liens at its sole cost and expense within ten (10) Business Days.

26.18 Hiring of Employees.

(a)

Hiring Restriction. Except as otherwise provided in this Agreement, each Party agrees that neither it nor its Affiliates shall employ any person currently employed by the other Party or its Affiliates. Acknowledging that damage resulting from breach of this paragraph would be difficult or impossible to calculate, the breaching Party shall pay, for each such breach, a one-time fee equal to twenty-five percent (25%) of such employee’s first year’s salary with the hiring Party (such amount being deemed liquidated damages and not a penalty). The foregoing sentence shall not limit either Party’s right to seek equitable remedies for such a breach.

(b)

Permitted Hiring. Notwithstanding the foregoing, it shall not be a violation of Section 26.18(a) (Hiring Restriction), if: (i) Sears or its Affiliates hires a person who: (x) has been assigned continuously to work on Services under this Agreement for a period of twelve (12) months or more; or (y) has not worked on Services for the Eligible Recipients during the six (6) month period immediately preceding Sears’ employment of such person; or (z) has left the employ of CSC prior to being offered a position by Sears; or (ii) Sears or its Affiliates hire a person to work in any department other than information technology and e-commerce (collectively, a “Permitted Hiring”). Any and all agreements between CSC or CSC Personnel and their former employees that would in any way conflict with or prohibit Sears or its Affiliates from such Permitted Hiring shall be of no force and effect with regard to such restriction.

124

26.19 Further Assurances.

Each Party covenants and agrees that, subsequent to the execution and delivery of this Agreement and without any additional consideration, each Party shall execute and deliver any further legal instruments and perform any acts that are or may become necessary to effectuate the purposes of this Agreement.

26.20 No Commitment and No Exclusivity.

Except as expressly stated in a Transaction Document, nothing in this Agreement shall give CSC an exclusive right to provide, or require the Eligible Recipients to purchase exclusively from CSC, any of the Services or other products or services, and the Eligible Recipients make no commitments, promises or representations whatsoever as to the amount of business CSC can expect at any time under this Agreement. Any estimates or forecasts of any Eligible Recipients’ future needs for Services are for such Eligible Recipients’ planning purposes only and the Eligible Recipients shall not have any liability for CSC’s reliance thereon. Sears may request information, proposals or competitive bids from Third Parties on the same or different terms than as provided in this Agreement, in which event CSC shall cooperate with such Third Parties as provided in Section 6.1 (Cooperation with Sears Personnel). Factual descriptions of the Services provided or to be provided to the Eligible Recipients shall not be deemed CSC Confidential Business Information and Sears may, without CSC’s consent, disclose such information to Third Parties, including other potential providers of services to Sears. In addition, nothing in this Agreement shall be construed or interpreted as limiting Sears’ right or ability during any Exhibit Term to add or delete Eligible Recipients or to increase or decrease its demand for Services.

26.21 Sears Rules and Compliance.

CSC and Sears agree that that they, their Affiliates (and in case of Sears, the Eligible Recipients) and their Personnel, while working at or visiting the premises of the other Party, shall comply with all Laws and the internal rules and regulations of the other Party communicated in writing to the visiting Personnel, including security procedures. In addition, CSC shall, and shall cause all CSC Personnel to, comply with the security rules and procedures for use of the Eligible Recipients’ electronic resources and all other policies, rules and regulations required by Sears and disclosed to CSC from time to time (collectively, “Sears Rules”) and comply with reasonable requests of the Eligible Recipients’ Personnel pertaining to personal and professional conduct and otherwise conduct themselves in a businesslike manner.

26.22 Interpretation.

The Section and Section headings of this Agreement and of any Appendixes and Transaction Documents under this Agreement are for convenience only and shall not be deemed part of this Agreement. As used in this Agreement (including any Transaction Documents and Appendixes thereto): (i) any defined terms will include the plural as well as the singular and the derivatives of such terms, (ii) references to the word “include” and

125

its derivatives (including “e.g.”) shall be deemed to mean “including but not limited to,” (c) the words “day,” “month,” and “year” mean, respectively, calendar day, calendar month and calendar year, (d) the words “Business Day” means Monday through Friday, excluding any official Sears holidays, and (e) references to Sears’ positions including the Sears Relationship Manager, Sears Vice President of Operations/Engineering and the Sears Chief Information Officer shall include that individual and his or her designee(s). For purposes of clarity, usage of the word “include” or its derivatives is not mean to imply an unlimited scope, and any additional items which are claimed to be inferred by such statement must be reasonably related to the concepts stated before the usage of the “include” or similar term. For example, if a provision stated that: “CSC shall provide Help Desk Services, including answering End User Calls, Level 1 Support, Problem management .         . ..” It would be unreasonable to argue that, by the use of the word “include,” Help Desk Services also consists of hosting web servers. It would be not be unreasonable to argue that Help Desk Services also includes opening Problem Tickets, which is a normal and customary part of Help Desk Services. Unless otherwise expressly stated, (i) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Transaction Document, Appendix, Section, Subsection or other subdivision, and (ii) Section, Subsection and Appendix in this Master Agreement refer to sections and subsections of, and appendices to, this Master Agreement. The Parties agree that any principle of construction or rule of law that provides that an agreement shall be construed against the drafter of the agreement in the event of any inconsistency or ambiguity in such agreement shall not apply to the terms and conditions of this Agreement.

26.23 Export Controls.

CSC will comply with all export control Laws of the United States, including Export Administration Regulations, 15 C.F.R. Chapter VII, subchapter C (the “EAR”), with respect to the Services, CSC Provided Systems and CSC’s Personnel’s use of and any United States or foreign access to Sears Provided Systems and the CSC Managed Systems, including to the extent applicable under such Laws access of such Software from a location outside the United States. Upon Sears’ request, CSC will identify which export Laws (and the applicable classifications related thereto) that apply to Sears Provided Systems. CSC will cooperate with Sears in obtaining any regulatory approvals, permits or licenses that are necessary to enable Sears and the other Eligible Recipients to exercise their rights herein.

26.24 Covenant of Good Faith.

Each Party agrees that, in its respective dealings with the other Party under or in connection with this Agreement, it shall act in good faith.

Signature Page Follows

126

IN WITNESS WHEREOF, the parties have caused this Master Agreement to be executed by their respective duly authorized representatives as of the Effective Date.

Sears, Roebuck and Co.	Computer Sciences Corporation
By: /s/ Gerald F. Kelly, Jr.	By:/s/ R. C. Ricks
Title: Senior Vice President	Title: President, ABD
Date: May 31, 2004	Date: May 31, 2004

APPENDIX A

GLOSSARY

“Acquired Assets” means the Equipment, Software and other assets listed in the applicable Transaction Document that CSC shall acquire as of the Commencement Date.

“Acquired Assets Credit” means the amount set forth in the applicable Transaction Document that CSC shall pay to Sears as consideration for the Acquired Assets.

“Affiliate” means, at the applicable time, (a) with respect to either Party, any Entity that directly or indirectly Controls, is Controlled with or by or is under common Control with, such Party, and (b) with respect to Sears, any Entity that is managed, operated or directed by Sears, is licensed to do business using the Sears’ name, or does business within a Sears store (e.g., Sears’ dealer stores). For purposes of the foregoing, “Control”, and its derivatives, means, with respect to a corporation, the ownership, directly or indirectly, of 50% or more of the voting power to elect directors thereof or, for purposes of foreign corporations, if less than 50%, the amount allowed by applicable law; and with respect to any other Entity, power to direct the management of such Entity.

“Agreement” means this Master Services Agreement, all Transaction Documents to this Master Agreement and all Appendices and other documents incorporated by reference into this Master Agreement and/or such Transaction Documents.

“Appendices” has the meaning given in Section 2.2(e) (Appendices).

“Attorneys’ Fees” means the reasonable costs and expenses incurred by a Party for outside counsel, and related staff, and a reasonable apportionment of the internal costs incurred by a Party for their in-house counsel, and related staff working on the matter at issue.

“Benchmark Results” has the meaning given in Section 13.10(d) (Results of Required Benchmarking).

“Benchmark Standard” has the meaning given in Section 13.10(d) (Non-Competitive Charges).

“Benchmarker” has the meaning given in Section 13.10(b) (Benchmarking).

“Benchmarking” has the meaning given in Section 13.10(b) (Benchmarking).

"Business Day” has the meaning given in Section 26.22 (Interpretation).

“Charges” means the amounts set forth in a Transaction Document (or otherwise set forth in this Agreement) that are payable by Sears for the Services. The term “Charges” includes Pass-Through Expenses and Out-of-Pocket Expenses.

1

“CISG” means the United Nations Convention on the International Sale of Goods.

“Code of Conduct” has the meaning given in Section 17.1(h) (Sears Code of Conduct).

“Commencement Date” means, with respect to a Transaction Document, the date on which CSC shall begin providing Services under such Transaction Document, as defined in such Transaction Document.

“Confidential Business Information” has the meaning given in Section 15.3(b)(i) (Confidential Business Information; Definition).

“Confidential Information” means, collectively, Confidential Business Information and Confidential Personnel Information.

“Confidential Personal Information” has the meaning given in Section 15.3(c)(i) (Confidential Personal Information; General).

“Contract Changes” has the meaning given in Section 4.5(d) (Charges for Contract Changes).

“Contract Rate” means ***.

“Contract Year” means a period during the Term commencing on the first Commencement Date under this Agreement or an anniversary thereof and ending on the date one (1) year thereafter (or, if earlier, on the last day of the Term). If any Contract Year is less than twelve (12) months, the rights and obligations under this Agreement that are calculated on a Contract Year basis will be proportionately adjusted for such shorter period.

“Credit Trigger Event” means a Downgrade Event, a MAC Event or a Default Event.

“CSC” has the meaning given in the preamble to this Master Agreement.

“CSC Account Executive” has the meaning given in Section 12.2 (CSC Account Executive).

“CSC Designated Contract” has the meaning given in Section 10.1(a) (Assignment and Assumption).

“CSC Facilities” means the facilities owned or leased by CSC, its Affiliates or the CSC Personnel and from which any Services are provided.

“CSC Managed System” means (a) any Equipment or Software or System that the applicable Transaction Document specifically states CSC will have operational, but not financial, responsibility for, and (b) any Acquired Assets for which CSC has been unable to obtain a Required Consent for the assignment, sale or transfer to CSC of such Acquired Assets.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

2

“CSC Personnel” means the Personnel of CSC, its Affiliates and their respective Personnel including Subcontractors (e.g., an employee of CSC’s Subcontractor is included within the definition of CSC Personnel).

“CSC Provided Circuits” means all communication circuits owned or leased by CSC or any CSC Affiliate or otherwise provided by CSC Personnel and used in connection with the Services or to which CSC, its Affiliates or the CSC Personnel provides to any Eligible Recipient access in connection with the Services.

“CSC Provided Equipment” means (a) all Acquired Assets, and (b) all Equipment owned or leased by CSC, any CSC Affiliate or otherwise provided by CSC Personnel and used in connection with the Services or to which CSC, its Affiliates, or CSC Personnel provides any Eligible Recipient access in connection with the Services.

“CSC Provided Materials” means all Materials (other than Sears Provided Materials): (a) owned or licensed by CSC or its Affiliates; and (b) provided by CSC Personnel; and, in each such case, used in connection with the Services.

“CSC Provided Software” means all Software owned by, or provided under license to, CSC, any CSC Affiliate or otherwise provided by CSC Personnel and used in connection with the Services or to which CSC provides any Eligible Recipient with access in connection with the Services.

“CSC Provided System” means, collectively, the CSC Provided Circuits, the CSC Provided Equipment, the CSC Provided Materials and the CSC Provided Software, and any Systems consisting of a combination of the foregoing items.

“CSC Software” means all Software owned by CSC or its Affiliates and that has been or shall be used to provide the Services.

“Default Event” means, for purposes of this Agreement and the provision of the Services, (A) an event of default (as such term or any similar term is defined in any material loan agreement of CSC or CSC’s parent Entity (to the extent CSC has a parent Entity)), (B) any other event of default, the occurrence of which would require CSC or CSC’s parent Entity (to the extent CSC has a parent Entity) to notify its lenders or bondholders, or (C) any request for a waiver or extension of, or a forbearance relating to, any event that with notice or the passage of time (or both) would (unless such a waiver, extension or forbearance is obtained) become an event of default by CSC or CSC’s parent Entity (to the extent CSC has a parent Entity) under any material loan agreement of CSC or CSC’s parent Entity (to the extent CSC has a parent Entity) or any indenture or similar agreement governing a bond issue, requiring CSC or CSC’s parent Entity (to the extent CSC has a parent Entity) to make a repayment of principal or interest.

“Deliverables” means ***

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

3

provision of the Services, including all intermediate and partial versions thereof, in whatever form or medium; provided, however, that except as stated in Section 16.3 (Deliverables), the term “Deliverables” shall not include other CSC Provided Software or CSC Provided Materials.

“Derivative Work” means a work based on one or more preexisting works, including a condensation, transformation, translation, modification, expansion or adaptation, that, if prepared without authorization of the owner of the copyright of such preexisting work, would constitute a copyright infringement under applicable Law, but excluding the preexisting work.

“Downgrade Event” means (A) any downgrade of the long term unsecured debt rating of CSC’s or CSC’s parent Entity (to the extent CSC has a parent Entity) below Moody’s rating BA1 or Standard & Poor’s rating BBB-, or (B) the failure of CSC or CSC’s parent Entity (to the extent CSC has a parent Entity) to have a long term unsecured debt rating from both Standard & Poor’s and Moody’s.

“Effective Date” has the meaning given in the preamble to this Master Agreement.

“Eligible Recipients” means, collectively, the following:

(a)	Sears;
(b)	any Entity that is an Affiliate of Sears as of the Effective Date;
(c)	for a period of twenty-four (24) months after such transaction, any Entity that purchases any divested business operation of Sears, or any of its Affiliates, including any division, marketing unit, business unit, research unit or facility;
(d)	for a period of twenty-four (24) months after such transaction, any Entity that is not an Affiliate of Sears and that is created using assets of Sears or any Affiliate of Sears;
(e)	any Entity into which Sears or any Affiliate of Sears merges or consolidates;
(f)	any Entity which merges into or consolidates with Sears or any Affiliate of Sears;
(g)	any Entity, including any corporation, joint venture or partnership in which, on or after the Effective Date, Sears or any Affiliate of Sears has an ownership interest and/or as to which Sears or such Affiliate has management or operational responsibility by law or contract;
(h)	any Entity in which Sears or any of its Affiliates hold significant stock, warrants or debt;
(i)	any customer of an Eligible Recipient identified in clauses (a) through (h) above, but only in connection with the provision of products or services by such Eligible Recipient to such customer;

4

(j)	any person or Entity engaged in the provision of products or services to Sears or an Eligible Recipient identified in clauses (a) through (h) of this definition, but only in connection with the provision of such products or services to Sears or such Eligible Recipient; and
(k)	other Entities to which the Parties agree.

Eligible Recipients shall include the Personnel of the Entities identified as Eligible Recipients in clauses (a) through (k) above and the Eligible Recipients and their Personnel’s respective successors and assigns. Sears shall have the exclusive right, in Sears’ sole discretion, to exercise the rights granted to the Eligible Recipients under this Agreement, to delegate the exercise of such rights to other Eligible Recipients and/or to determine which Eligible Recipients shall be entitled to receive the Services and other benefits of this Agreement.

“Employment Effective Date” means, with respect to each Transitioned Personnel, the date that such Transitioned Personnel begins employment with CSC (or its delegates), in accordance with applicable Laws.

“Entity” means a firm, corporation, partnership (including general partnerships, limited partnerships, and limited liability partnerships), joint venture, trust, limited liability company, limited liability partnership, business trust, association or other organization or entity.

“Equipment” means all computing, networking, communications and related computing equipment (hardware and firmware) and other devices including (a) mainframe, midrange, server and distributed computing equipment and associated attachments, features, accessories, peripheral devices, and cabling, (b) personal computers, laptop computers, workstations and personal data devices and associated attachments, features, accessories, printers, multi-functional printers, peripheral or network devices, and cabling, and (c) voice, data, video and wireless telecommunications and network and monitoring equipment and associated attachments, features, accessories, cell phones, peripheral devices and cabling.

“Exception Project Work” means New Services authorized by Sears Vice President of Operations/Engineering pursuant to Section 4.5(b)(iii) (Exception Project Work).

“Exempt Subcontractors” has the meaning given in Section 6.2(a) (Exempt Subcontractors).

***

“Exhibit” means an exhibit to this Master Agreement as more fully described in Section 2.2(b) (Exhibits).

“Exhibit Term” has the meaning given in Section 3.1(b) (Exhibits).

“Extraordinary Event” has the meaning given in Section 13.6(a) (Definition).

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

5

“Future State Services” means, with respect to any Exhibit, the Services, as modified by the changes/improvements thereto contemplated by the Transformation Plan under such Exhibit.

“Income Tax” means any tax on or measured by the net income of a Party (including taxes on capital or net worth that are imposed as an alternative to a tax based on net or gross income), or taxes which are of the nature of excess profits tax, minimum tax on tax preferences, alternative minimum tax, accumulated earnings tax, personal holding company tax, capital gains tax or franchise tax for the privilege of doing business.

“IBM” International Business Machines Corporation.

“IBM Lotus Notes Agreement” means that certain Exhibit 18: Messaging Services, dated November 1, 2001, to that certain that certain Master Agreement for Services, dated December 15, 2000, between IBM and Sears, including all SSAs and other amendments thereto.

“Intellectual Property Rights” means any patents, patent applications, know-how, processes, designs, industrial design rights, trademarks, domain names, IP addresses, service marks, tradenames, trade dress, copyrights, moral rights, mask works, trade secrets, inventions and technology (whether or not patentable), confidential and proprietary information, software, databases and other collections and compilations of data, rights of publicity/privacy, or other intellectual property rights conferred by contract or by any Law.

“Interim Services” means, with respect to any Exhibit, the Services CSC is to assume on the Commencement Date and provided prior to completion of any Transformation Plan.

“Key Personnel” has the meaning given in Section 12.1 (Key Personnel).

“Laws” means: (i) *** (including, *** methods and manner in which CSC provides Services): all federal, intergovernmental, state, provincial, regional, territorial and local laws, statutes, ordinances, regulations, rules, executive orders, supervisory requirements, directives, circulars, opinions, interpretive letters and other official releases of or by any government (with jurisdiction over such matter), or any authority, department or agency thereof; and (ii) any rules and regulations of stock exchanges and other self-regulating organizations applicable to CSC, CSC’s Affiliates, Sears or any Sears Affiliate.

“Losses” means all losses, liabilities, damages (including punitive and exemplary damages), awards, fines, penalties and claims (including taxes), and all related costs and expenses (including reasonable legal fees and disbursements and costs of investigation, litigation, settlement, judgment, interest and penalties).

“MAC Event” means any event that causes a material adverse change to the business, properties, financial condition or results of operations of CSC or CSC’s parent Entity (to the extent CSC has a parent Entity) or the ability of CSC or CSC’s parent Entity (to the extent CSC has a parent Entity) to perform its obligations under this Agreement.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

6

“Major Release” means a new version of Software that includes changes to the architecture and/or adds new features and functionality in addition to the original functional characteristics of the preceding software release. These releases are usually identified by full integer changes in the numbering, such as from “7.0” to “8.0,” but may be identified by the industry as a major release without the accompanying integer change.

“Managed Third Parties” means any Third Parties who provide Equipment, Software, Systems or services in connection with CSC Managed Systems.

“Materials” means, collectively, Software (in both source and object code form), literary works, documentation, reports, flowcharts, notes, outlines, drawings, other works of authorship, plans, models, specifications, designs, analyses, algorithms, processes, methodologies, ideas, concepts, inventions (whether patentable or reduced to practice), know-how, programming tools, information, data, databases and work product, together with all modifications, replacements, Upgrades, enhancements, document, materials and media related thereto and any Intellectual Property Rights subsisting in each of the foregoing.

“Migration Plan” has the meaning given in the TI Exhibit.

“Migration Services” has the meaning given in the TI Exhibit.

“Minor Release” means a scheduled release containing small functionality updates and/or accumulated resolutions to defects or non-conformances made available since the immediately preceding release (whether Major Release or Minor Release). Minor Releases shall include “Maintenance Releases” which are supplemental to and made available between Major Releases and other Minor Releases, issued and provided under specific vendor service level or maintenance obligations and contain only accumulated resolutions or mandated changes. These releases are usually identified by a change in the decimal numbering of a release, such as “7.12” to “7.13.”

“New Advances” has the meaning given in Section 6.5(g) (CSC Developed Advances).

“New Services” means new services or significant changes to existing Services requested by Sears, (a) that are materially different from the Services, (b) that require materially different levels of effort, resources or expense from CSC, and (c) for which there is no current charging methodology. For example, if: (w) a Transaction Document provides that CSC shall support certain devices; (x) a new device is introduced into the Eligible Recipients’ environment; (y) the new device does not require materially different ongoing effort to support; and (z) there is an existing charging methodology for the existing devices; then the support of the new device shall not be a New Service and the charge for the existing device that most closely matches the new device would apply to the new device. For the avoidance of doubt, New Services shall not include increases in the volume of Services to be provided by CSC.

“No Impact Proposal” has the meaning given in Section 4.5(b) (New Services).

“ODBC” means open database compliant.

7

“Operational Procedures Manual” or “OPM” has the meaning given in Section 5.1 (Operational Procedures Manual).

“Out-of-Pocket Expenses” means reasonable, demonstrable and actual out-of-pocket expenses due and payable to a Third Party by CSC that are approved in advance by Sears or for which CSC is entitled to be reimbursed by Sears under this Agreement. Unless expressly agreed otherwise in writing by the Parties, Out-of-Pocket Expenses shall not include CSC’s overhead costs (or allocations thereof), general and/or administrative expenses or other mark-ups, but shall include taxes on such amounts. Out-of-Pocket Expenses shall be calculated at CSC’s actual incremental expense and shall be net of all rebates and allowances.

“Party” has the meaning given in the preamble to this Master Agreement.

“Pass-Through Expenses” means the costs and expenses identified as such in a Transaction Document or otherwise agreed by the Parties in writing, as such list may be amended from time to time in accordance with this Agreement. Unless otherwise agreed, CSC shall not charge any handling or administrative charge in connection with its processing or review of such invoices.

“Permitted Separation” has the meaning given in Section 12.1(b) (Continuity of Key Personnel).

“Personnel” means the directors, officers, employees, partners, agents, advisers, independent contractors and Subcontractors of a Party, its Affiliates and, as to Sears, the other Eligible Recipients or another Entity, as applicable.

“Privacy Laws” means all Laws relating to data privacy, trans-border data flow or data protection including the Gramm-Leach-Bliley Act, Title V Privacy, Subtitle A Disclosure of Nonpublic Information (15 U.S.C. 6801 et seq.) and various agency implementing regulations and the California Information Practices Act of 1977, as amended, California Civil Code 1798, etc.

“Privacy Policy” has the meaning given in Section 17.1(h) (Sears Code of Conduct).

"Remediation Services” has the meaning given in the TI Exhibit.

“Reports” has the meaning set forth in Section 5.3(a) (Reports).

“Required Consents” means the consents (if any) required to be obtained: (a) to assign or transfer to CSC any Acquired Assets and related CSC Designated Contracts (including related warranties); (b) to grant CSC the right to use and/or access any Sears Provided System or CSC Managed System from within or outside the United States ***; (c) to grant Sears and the other Eligible Recipients (including their customers and Personnel) the right to use and/or access any CSC Provided Systems and Deliverables, as contemplated by this Agreement, from within or outside the United States; (d) to assign or transfer to Sears or its designee CSC Provided Systems and related Third Party Contracts or other rights following the Term of the applicable Transaction Document to the extent provided in

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

8

this Agreement; and (e) all other consents required from Third Parties in connection with CSC’s provision of the Services.

“Root Cause Analysis” means the formal process, specified in the Operational Procedures Manual, to be used by CSC to diagnose the underlying cause of problems at the lowest reasonable level so that corrective action can be taken that shall eliminate repeat failures. CSC shall implement a Root Cause Analysis as further specified in Section 11.3 (Problem Analysis) or as requested by Sears.

“Sears” has the meaning given in the preamble to this Master Agreement.

“Sears Data” means any data or information of any Eligible Recipient that is provided to or obtained by CSC or CSC Personnel in connection with the negotiation and execution of this Agreement or the performance of its obligations under this Agreement, including data and information with respect to the businesses, customer, operations, facilities, products, rates, regulatory compliance, competitors, consumer markets, assets, expenditures, mergers, acquisitions, divestitures, billings, collections, revenues and finances of any Eligible Recipient. Sears Data also means any data or information created, generated, collected or processed by CSC or CSC Personnel in the performance of CSC’s obligations under this Agreement, including data processing input and output, service level measurements, asset information, Reports, Third Party service and product agreements, contract charges and retained and Pass-Through expenses.

“Sears Facilities” means the facilities provided by any Eligible Recipient for the use of CSC or its Personnel to the extent necessary to provide the Services.

“Sears IT Base Case” means, with respect to an Exhibit, the summary financial base case that may be attached to such Exhibit, as well as the detailed financial and budget information.

“Sears Owned Materials” means the Materials that are: (a) owned or acquired by the Eligible Recipients (whether prior to or after the Effective Date); (b) Deliverables that a Transaction Document provides, or the Parties otherwise agree, shall be owned by Sears or the other Eligible Recipients; or (c) Derivative Works, modifications and enhancements to any of the foregoing.

“Sears Personnel” means the Personnel of Sears, including the Personnel of the other Eligible Recipients.

“Sears Provided Circuits” means all communication circuits: (a) owned by or leased (other than by CSC, a CSC Affiliate or CSC Personnel under this Agreement) to any Eligible Recipient(s); and (b) used in connection with the Services.

“Sears Provided Equipment” means all Equipment: (a) owned by or leased (other than by CSC, a CSC Affiliate or CSC Personnel under this Agreement) to any Eligible Recipient(s); and (b) used in connection with the Services.

9

“Sears Provided Materials” means all Materials: (a) owned by or licensed (other than by CSC, a CSC Affiliate or CSC Personnel under this Agreement) to any Eligible Recipient(s) (including the Sears Owned Materials); and (b) used in connection with the Services.

“Sears Provided Software” means all Software: (a) owned by, or provided under license (other than by CSC, a CSC Affiliate or CSC Personnel under this Agreement) to any Eligible Recipient(s); and (b) used in connection with the Services (including application Software).

“Sears Provided Systems” means, collectively, the Sears Provided Circuits, Sears Provided Equipment, Sears Provided Materials and the Sears Provided Software and any Systems consisting of a combination of the foregoing items.

“Sears Related Businesses” means ***.

“Sears Relationship Manager” has the meaning given in Section 7.1(a) (Sears Exhibit Contacts).

“Sears Rules” has the meaning given in Section 26.21 (Sears Rules and Compliance).

“Sears Sites” or “Sites” means the offices or other facilities listed in an Exhibit owned or controlled by the Eligible Recipients at or to which CSC is to provide the Services.

“Sears Standards” has the meaning given in Section 6.4(a) (CSC Support).

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

“Service Addenda” has the meaning given in Section 2.2(d) (Service Addenda).

“Service Level Credits” has the meaning given in Section 11.2 (Service Level Credits) and a Transaction Document.

“Service Levels” means, individually and collectively, the performance standards for the Services set forth in a Transaction Document.

“Service Taxes” means all sales, use, excise and other similar taxes or any governmental duties that are assessed against either Party on the provision of the Services as a whole, or on any particular Service received by Sears or another Eligible Recipient from CSC, excluding Income Taxes.

“Services” means, collectively: (a) the services, functions and responsibilities as are described in Section 4 (Services) and elsewhere in this Agreement as they may be supplemented, enhanced, modified or replaced during the Term of the applicable Transaction Document in accordance with this Agreement; and (b) any New Services, upon Sears’ acceptance of CSC’s proposal for such New Services in accordance with Section 4.5 (Additional Services) and the other provisions of this Agreement.

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

10

“Software” means (a) any machine-readable instructions, any computer software programs, interfaces, routines, any compilation of machine-readable data such as a data base, and any related licensed materials, in any form, (b) any related features, including distributed features, and any whole or partial copies, (c) program listings, programming tools, and similar works in any form that are applicable to any of the foregoing, (d) any modifications, replacements, Upgrades, enhancements, documentation, patch-tapes, additions, addenda, maintenance updates, defect fixes, materials and media related thereto, and (e) any documentation or specifications for the foregoing.

“Specialized Services” has the meaning given in Section 4.4 (Access to Specialized CSC Skills and Resources).

“Specifications” means, with respect to Software, Equipment, Systems or other contract deliverables to be designed, developed, delivered, integrated, installed and/or tested by CSC, the technical, design and/or functional specifications set forth in a Transaction Document, in the original manufacturer’s/licensor’s documentation, in a New Services description requested and/or approved by Sears, or otherwise agreed upon in writing by the Parties. Specifications contained in this Agreement, including any Transaction Document, shall control, in the case of conflict, over those incorporated by reference.

“Statement of Work” or “SOW” has the meaning given in Section 2.2(c).

“Subcontractors” means contractors/subcontractors (of any tier) of a Party or other Entity (including Affiliates of CSC providing Services under this Agreement).

“System” means an interconnected grouping of Equipment, Software and/or communication circuits and associated attachments, features, accessories, peripherals and cabling, and all additions, modifications, substitutions and Upgrades to such System. The term “System” shall include all Systems in use as of the applicable Commencement Date, all additions, modifications, substitutions, Upgrades to such Systems and all Systems installed or developed by or for the Eligible Recipients or CSC, its Affiliates and the CSC Personnel following the Commencement Date.

“System Change” means any change to the Software, Equipment, System or operating environment, including without limitation, changes to programs, manual procedures, job control language statements, distribution parameters or schedules.

“Term” has the meaning given in Section 3.1(a) (Term of Master Agreement, Exhibits, SOWs and Service Addenda) for this Master Agreement, and shall also mean the term of the applicable Transaction Document, as applicable.

“Termination Assistance Services” means the termination/expiration assistance requested by Sears to allow the Services to continue without interruption or adverse effect and to facilitate the orderly transfer of the Services to Sears or its designee, as such assistance is further described in Section 25 (Termination Assistance Services).

11

“Termination Charge” means the costs incurred by CSC during the performance under this Agreement and which are payable as the result of Sears terminating for convenience any Transaction Document, subject to the limitations set forth in Section 23.3 (Termination Charges) and elsewhere in this Agreement. Except as expressly provided otherwise in a Transaction Document, Termination Charges shall be limited to the aggregate of the following items:

(a)	Other Charges. The remaining portion *** for the Services, performed by CSC but not previously paid for (through the Account Management Fees or other Charges) to the extent related to the terminated Services;
(b)	CSC Designated Contracts/Acquired Assets. The remaining portion of Out-of-Pocket costs incurred by CSC (and not previously paid for by Sears) in acquiring from Sears *** terminated Services to the extent such contracts and assets are not (or cannot reasonably be expected to be) utilized by CSC internally or for its other customers; provided that: (i) such CSC Designated Contracts and/or Acquired Assets are not assigned, transferred to, or assumed by Sears (or its designees) pursuant to Section 24 (Rights upon Expiration or Termination); and (ii) such costs shall be reduced by the net proceeds of any disposition of such Acquired Assets;
(c)	CSC Provided Systems. The remaining portion of depreciation/amortization (not previously paid for by Sears), on *** to provide the terminated Services but only to the extent (i) such Systems are not (or cannot reasonably be expected to be) utilized by CSC internally or for its other customers, and (ii) such CSC Provided Systems are not assigned, transferred to, or assumed by Sears (or its designees) pursuant to Section 24 (Rights upon Expiration or Termination); provided that such costs shall be reduced by the net proceeds of any disposition of such CSC Provided Systems.
(d)	Terminated CSC Employees. Demonstrable and actual amounts paid by CSC to *** the terminated Services that are terminated as a direct result of Sears early termination; provided, however, that (i) Sears shall only be liable to reimburse termination benefits which CSC is obligated to provide by Law and/or by policies generally applicable to employees of CSC, (ii) such costs shall be reduced on a proportionate basis to the extent such terminated employee(s) were not engaged on the Sears account, and (iii) this provision shall not apply to any employees that are offered positions by Sears or its designee under Section 24 (Rights upon Expiration or Termination); and
(e)	Third Party Contracts. With respect to *** that are terminated as a direct result of Sears’ early termination of such Services, any Out-of-Pocket costs CSC is required by contract to pay to terminate such contracts; provided that: (i) this provision shall

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

12

not apply to any such contracts that are transferred to Sears or its designee under Section 24 (Rights upon Expiration or Termination); and (ii) if such contracts are used to support multiple CSC customers or CSC’s non-service delivery functions, ***.

The “remaining portion” of depreciation and amortization shall be calculated in accordance with generally accepted accounting principles, applied on a consistent basis, using the methods used by CSC in preparing its federal income tax returns.

The above costs shall only include amounts attributable to periods after the end of the Term of the applicable Transaction Document, if Sears has expressly approved the inclusion of such amounts in advance, and in writing.

The term “Termination Charge” does not include Charges that are payable by Sears for work performed prior to the expiration or termination of the applicable Transaction Document. Charges for partially completed work will be pro-rated based upon the portion of the work that was completed. The term “Termination Charges” does not include Charges and Out of Pocket Expenses payable for: (x) Services, or (y) Termination Assistance Services under this Agreement.

“Third Party” means any person or Entity other than a Party, or such Party’s Affiliates. When used without initial capital letters, “third party” means any person or Entity that is not a party to this Agreement.

“Third Party Contracts” means all agreements between third parties and any Eligible Recipient or CSC, its Affiliates or the other CSC Personnel that have been or shall be used to provide the Services. Third Party Contracts shall include all such agreements in effect as of the applicable Commencement Date, including those contracts identified in the Transaction Document, those as to which the costs are included in the Sears IT Base Case, and those as to which CSC received reasonable notice and/or reasonable access prior to the Commencement Date. Third Party Contracts also shall include those third party agreements entered into by CSC, its Affiliates or the other CSC Personnel following the Commencement Date.

“Third Party Materials” means all Materials that are owned by Third Parties and that have been or shall be used to provide the Services.

“Third Party Software” means all Software provided under license or lease to CSC, its Affiliates, the CSC Personnel or the Eligible Recipients that has been or shall be used to provide the Services.

“TI Exhibit” means Exhibit 1 (Technical Infrastructure Outsourcing) to this Master Agreement, of even date herewith.

“Transaction Document” has the meaning given in Section 2.2(f) (Transaction Document).

*** CONFIDENTIAL MATERIAL REDACTED AND SEPARATELY FILED WITH THE COMMISSION.

13

“Transformation Plan” has the meaning given in the TI Exhibit.

“Transformation Services” has the meaning given in the TI Exhibit.

“Transitioned Personnel” means the Personnel of Sears and its Affiliates who are eligible to be interviewed for employment by CSC (or its delegates) pursuant to an Exhibit. Upon being employed by CSC, such Transitioned Personnel shall be deemed to be CSC Personnel as defined in this Agreement.

“UCITA” means the Uniform Computer Information Transactions Act drafted by the National Conference of Commissioners on Uniform State Laws or any enactment of all or substantially all of such draft.

“Unanticipated IT Change” has the meaning set forth in Section 6.5(f) (Unanticipated IT Change).

“Unauthorized Code” means any feature, routine or device that is intended or designed, either automatically, upon the occurrence of a certain event, upon the taking of or failure to take a certain action or under the control of a third party that is not a Sears Personnel, (a) to disrupt the operation of any Deliverable or any other Eligible Recipient Software, Equipment, data or Systems, (b) to cause any Deliverable or any other Eligible Recipient Software, Equipment, data or Systems to be unintentionally destroyed, erased, damaged or otherwise made inoperable, or (c) to permit a third party that is not a Sears Personnel to destroy, erase, damage or otherwise render inoperable any Deliverable or any other Eligible Recipient Software, Equipment, data or Systems, and shall include any computer virus, worm, trap door, back door, time bomb, malicious program, or any mechanism such as software locks, password checking, CPU serial number checking or time dependency, introduced by the provider of the applicable Software, Equipment, Systems, data or Deliverable that could hinder Sears’ Eligible Recipient’s freedom to fully exercise its license rights to such Software, Equipment, Systems, data or Deliverable under this Agreement.

“United States” means the United States of America, and its states, commonwealths, possessions and territories, including Puerto Rico and the District of Columbia.

“Upgrade” and its derivatives means the updates, renovations, enhancements, additions and/or new versions or releases of Software or Equipment.

“Virus” means any Unauthorized Code that is included with or inserted into any System without the consent of the owner or licensor of the underlying System.

End of Appendix

14

EX-12

Exhibit 12

COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES
SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES
(Unaudited)

	Six
	Months
	Ended		For the Fiscal Year Ended
	7/3/04
(millions, except ratios)	(unaudited)		2003		2002		2001		2000
Fixed Charges
Interest and amortization of debt discount and expense on all indebtedness	$	144	$	1,816	$	1,143	$	1,415	$	1,248
Add interest element implicit in rentals		74		167		157		161		136
		218		1,983		1,300		1,576		1,384
Interest capitalized		0		1		4		11		4
Total fixed charges	$	218	$	1,984	$	1,303	$	1,587	$	1,388
Income
Income before income taxes, minority interest and cumulative effect of change in accounting principle	$	64	$	5,449	$	2,453	$	1,223	$	2,223
Deduct undistributed net income of unconsolidated companies		4		8		20		12		17
		60		5,441		2,433		1,211		2,206
Add
Fixed charges (excluding interest capitalized)		218		1,983		1,300		1,576		1,384
Income before fixed charges and income taxes	$	278	$	7,424	$	3,733	$	2,787	$	3,590
Ratio of income to fixed charges		1.27		3.74		2.86		1.76		2.59

EX-15

August 10, 2004 Exhibit 15

Sears, Roebuck and Co.
3333 Beverly Road
Hoffman Estates, IL 60179

We have made a review, in accordance with standards of the Public Company Accounting Oversight Board (United States), of the unaudited interim financial information of Sears, Roebuck and Co. for the thirteen week and twenty-six week periods ended July 3, 2004 and June 28, 2003, as indicated in our report dated August 10, 2004; because we did not perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended July 3, 2004, is incorporated by reference in Registration Statement Nos. 2-64879, 2-80037, 33-18081, 33-23793, 33-41485, 33-43459, 33-45479, 33-55825, 33-58851, 33-64345, 333-08141, and 333-113532 of Sears, Roebuck and Co.; Registration Statement No. 333-92082 of Sears, Roebuck and Co. and Sears, Roebuck Acceptance Corp.; Registration Statement Nos. 33-64775, 333-18591, and 333-43309 of Sears, Roebuck and Co. and Sears, Roebuck and Co. Deferred Compensation Plan; Registration Statement No. 333-102114 of Sears, Roebuck and Co., the Sears 401(K) Savings Plan (formerly, the Savings and Profit Sharing Fund of Sears Employees and the Sears 401(K) Profit Sharing Plan) and Lands’ End, Inc. Retirement Plan; Registration Statement No. 33-44671 of Sears, Roebuck and Co. and Sears DC Corp.; Registration Statement No. 333-38131 of Sears, Roebuck and Co. and the Sears Associate Stock Ownership Plan; Registration Statement No. 333-52056 of Sears, Roebuck and Co. and the 2000 Employee Stock Plan; Registration Statement No. 333-72514 of Sears, Roebuck and Co. and the 2001 Broad-Based Stock Option Plan; and Registration Statement No. 333-87942 of Sears, Roebuck and Co. and the 2002 Non-Employee Director Stock Plan.

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Chicago, Illinois

EX-31.(A)

Exhibit 31(a)

CERTIFICATIONS

I, Alan J. Lacy, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Sears, Roebuck and Co.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 10, 2004

/s/ Alan J. Lacy Alan J. Lacy
Chairman of the Board of Directors,
  President and Chief Executive Officer of
  Sears, Roebuck and Co.

EX-31.(B)

Exhibit 31(b)

CERTIFICATIONS

I, Glenn R. Richter, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Sears, Roebuck and Co.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 10, 2004

/s/ Glenn R. Richter Glenn R. Richter
Executive Vice President and
  Chief Financial Officer of
  Sears, Roebuck and Co.

EX-32

Exhibit 32

CERTIFICATION
Pursuant to 18 U.S.C. 1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002

     Each of the undersigned, Alan J. Lacy, Chairman of the Board of Directors, President and Chief Executive Officer of Sears, Roebuck and Co. (the “Company”), and Glenn R. Richter, Executive Vice President and Chief Financial Officer of the Company, has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 2004 (the “Report”).

     Each of the undersigned hereby certifies that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 10, 2004

/s/ Alan J. Lacy Alan J. Lacy
Chairman of the Board of Directors,
President and Chief Executive Officer

/s/ Glenn R. Richter Glenn R. Richter
Executive Vice President
and Chief Financial Officer