-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lm7k9OOnY4D8AWhRrUIAZSIS3KCLPTHOz5SPpUGcjZHLiAUEUr+/3c5VTVYB2DpZ umABDKuP1zQtodg4KBHcYQ== 0000088255-99-000006.txt : 19990322 0000088255-99-000006.hdr.sgml : 19990322 ACCESSION NUMBER: 0000088255-99-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990102 FILED AS OF DATE: 19990319 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEARS ROEBUCK ACCEPTANCE CORP CENTRAL INDEX KEY: 0000088255 STANDARD INDUSTRIAL CLASSIFICATION: SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153] IRS NUMBER: 510080535 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04040 FILM NUMBER: 99568632 BUSINESS ADDRESS: STREET 1: 3711 KENNETT PIKE CITY: GREENVILLE STATE: DE ZIP: 19807 BUSINESS PHONE: 3028883112 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-K _X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 2, 1999 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file number 1-4040 SEARS ROEBUCK ACCEPTANCE CORP. (Exact name of registrant as specified in its charter) Delaware 51-0080535 (State of Incorporation) (I.R.S. Employer Identification No.) 3711 Kennett Pike, Greenville, Delaware 19807 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 302/888-3100 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered 6.75% Notes due September 15, 2005 New York Stock Exchange 7.00% Notes due March 1, 2038 New York Stock Exchange 6.95% Notes due October 23, 2038 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 . Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of February 27, 1999, the Registrant had 350,000 shares of capital stock outstanding, all of which were held by Sears, Roebuck and Co. Registrant meets the conditions set forth in General Instruction I1(a) and (b) of Form 10-K and is therefore filing this report with a reduced disclosure format. DOCUMENTS INCORPORATED BY REFERENCE Part I of this Form 10-K incorporates by reference certain information from the Sears, Roebuck and Co.'s 1998 Annual Report to Shareholders. PART I Item 1. Business. Sears Roebuck Acceptance Corp.("SRAC") is a wholly-owned finance subsidiary of Sears, Roebuck and Co.("Sears"). To meet certain capital requirements of its businesses, Sears borrows on a short-term basis through the issuance of notes to, and from time to time sells receivable balances to, SRAC. SRAC obtains funds through the issuance of commercial paper and long-term debt, which includes intermediate-term loans, medium-term notes and discrete underwritten debt. SRAC's income is derived primarily from the earnings on its investment in the notes and receivable balances of Sears. Under a letter agreement between SRAC and Sears, the interest rate on Sears notes is calculated so that SRAC maintains an earnings to fixed charges ratio of at least 1.25. The yield on the investment in Sears notes is related to SRAC's borrowing costs and, as a result, SRAC's earnings fluctuate in response to movements in interest rates and changes in Sears borrowing requirements. SRAC's commercial paper ratings provide for first tier eligibility under Rule 2a-7 promulgated by the Securities and Exchange Commission under the Investment Company Act. The ratings are P-1 from Moody's Investor Services, Inc.,F-1 from Fitch IBCA, Inc., D-1 from Duff & Phelps Credit Rating Co., and A-2 from Standard & Poor's. Long-term ratings are A2 from Moody's Investor Services, Inc., A from Fitch IBCA, Inc., A from Duff & Phelps Credit Rating Co., and A- from Standard & Poor's. SRAC and Sears have entered into agreements for the benefit of certain debtholders of SRAC under which Sears, for so long as required by the applicable documents, will continue to own all of the outstanding voting stock of SRAC and will pay SRAC such amounts that, when added to other available earnings, will be sufficient for SRAC to maintain an earnings to fixed charges ratio of not less than 1.10. In June 1998, SRAC extended to April 2003 the termination date on $4,125 million of the commitments in its $5 billion revolving credit facility. The termination date for $875 million in commitments remains April 2002. In October 1998, SRAC and certain banks agreed to increase by $60 million the portion of the credit facility terminating April 2003. In November 1998, SRAC entered into a $1 billion 364-day revolving credit facility with a syndicate of banks. In addition, Sears and SRAC renewed their joint $40 million credit facility with 42 minority-owned banks. This facility expires in November 1999. As of January 2, 1999, SRAC had backup credit facilities totaling $6.1 billion that continued to provide support for 100% of commercial paper outstanding. Pursuant to the syndicated credit agreements between SRAC and various banks, the letter agreement between SRAC and Sears concerning SRAC's investment in Sears notes may not be amended, waived, terminated, or modified (except that SRAC's fixed charge coverage ratio may be reduced to as low as 1.15) without the approval of such banks. 2 SRAC received two capital contributions from Sears totaling $450 million in 1998.The capital contributions provide additional strength to SRAC's balance sheet and allow SRAC to issue additional debt given current covenant restrictions. SRAC ended 1998 with an equity position of $2.8 billion and a debt-to-equity ratio of 5.5:1, compared to 6.7:1 at the end of 1997. As of February 28, 1999, SRAC had 9 employees. Item 2. Properties. The company leases 5,865 square feet of an office building located in Greenville, Delaware. Item 3. Legal Proceedings. None. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. None. Item 6. Selected Financial Data. Not applicable. 3 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition SRAC's investment in Sears notes increased to $18.0 billion at year-end 1998 from $16.6 billion at the end of 1997. Short-term borrowings at the end of 1998 were $4.2 billion, a $1.0 billion decrease from the prior year. Total debt outstanding increased in 1998 to $15.3 billion from $14.4 billion. SRAC's investment and debt levels increase as Sears funds its term debt maturities and other cash requirements through SRAC. Results of Operations SRAC's total revenues of $1,234 million for 1998 increased from $960 million in 1997 and $689 million in 1996. The increases in revenue resulted from higher balances of earning assets during each year. In 1998, SRAC's average cost of short-term funds decreased 2 basis points to 5.58%. Average outstanding short-term debt of $4.5 billion increased $500 million from the 1997 level. The weighted average interest rate on SRAC term debt issued in 1998 was 6.43% compared to 6.78% for 1997. The decrease in rate was due to a general decline in interest rates. The following issuances were placed during 1998: *$478 million of fixed-rate medium-term notes, with a weighted average coupon of 6.03% and average term of 5.7 years *$50 million of variable-rate medium-term notes, with an average term of one year. *$2 billion of discrete underwritten notes, with a weighted average coupon of 6.53% and average term of 20 years. The growth in total outstanding debt contributed to increases in interest and related expenses throughout 1998. SRAC's interest and related expenses of $979 million for 1998 increased from $763 million in 1997 and $546 million in 1996. SRAC's net income increased to $163 million in 1998 from $125 million in 1997 and $92 million in 1996. The financial information appearing in this Annual Report on Form 10-K is presented in historical dollars, which do not reflect the decline in purchasing power that results from inflation. As is the case for most financial companies, substantially all of SRAC's assets and liabilities are monetary in nature. Interest rates on SRAC's investment in Sears notes areset to provide fixed charge coverage of at least 1.25 times, thereby insulating SRAC from the effects of inflation-based interest rate increases. 4 Year 2000 Year 2000 compliance is the ability of information systems to recognize and process dates and date-sensitive information including the year 2000 and beyond (commonly referred to as Year 2000 or Y2K). Year 2000 compliance is critical to SRAC because SRAC and many of its service providers, as well as other third parties that facilitate trades in SRAC securities, rely on information systems to operate their businesses. SRAC, with assistance from Sears, is in the process of making its operations Year 2000 compliant. With respect to information systems, equipment and third party relationships that are specific to SRAC and not otherwise used corporate-wide at Sears, SRAC is implementing its plan in coordination with Sears. Pursuant to an agreement between SRAC and Sears, SRAC is relying on Sears implementation of Sears Year 2000 effort as to information systems, equipment and third party relationships that SRAC uses in conjunction with Sears. For a detailed description of Sears Year 2000 plan, see "Year 2000" beginning on page 29 of Sears 1998 Annual Report to Shareholders and the related "Cautionary Statement Regarding Forward Looking Information" on page 25 of Sears Annual Report, incorporated herein by reference in response to Item 7 hereof. To date, SRAC has only utilized internal resources and Sears resources in connection with its Year 2000 plan relating to the information systems, equipment and third party areas that are specific to SRAC. The costs relating to such effort, together with the SRAC's share of the costs relating to Sears corporate-wide Year 2000 effort, have not been and are not anticipated to be material. SRAC's plan focuses on three areas-information systems, equipment and third parties- and generally covers six stages: *Inventorying SRAC's systems (including equipment with embedded chips), service providers and other third parties; *Assessing whether a Year 2000 compliance issue exists for each system, provider and other third party; *Remediating each system with a Year 2000 compliance issue by performing any necessary enhancements, upgrades, modifications or replacements; *Testing each remediated system by using a date simulation testing tool for future dates that trigger specific processing; *Certifying each mission critical (vital to business operations)system, which involves performing final testing for validation of Year 2000 compliance; and *Contingency planning to mitigate Year 2000 compliance risks. Only the inventory, assessment and contingency planning stages apply to service providers and other third parties. The information systems area includes: *Proprietary and third party information systems; *Related hardware, software and data and telephone networks; and, *Information systems service providers. SRAC expects the inventorying, assessment, remediation and initial testing of information systems that are specific to SRAC to be completed by the end of the first quarter of 1999. SRAC expects to complete final certification of its mission critical information systems by mid-1999. 5 The equipment area includes equipment and systems that contain embedded computer technology such as elevators and security systems. SRAC has completed its assessment of these systems and, based on assurances from third parties, believes they present little Year 2000 exposure or risk. The third party area consists of investors that purchase SRAC securities and the entities that serve as intermediaries between SRAC and those investors. The intermediaries include banks, issuing agents and electronic transfer agents. Many of these entities are regulated by the federal government, with their Year 2000 compliance efforts subject to government oversight. Based on public disclosures by these entities in documents filed with the Securities and Exchange Commission, on their company Internet sites or in response to inquiries from SRAC, SRAC believes that the third party intermediaries that are vital to SRAC's business will be Year 2000 compliant. Contingency Plans SRAC has for many years had in place a continuity plan to address business interruptions. SRAC, with assistance from Sears, is modifying its continuity plan to address the particular challenges that would arise if critical systems, equipment or third parties are not Year 2000 compliant. SRAC expects to finalize these modifications by July 1999. Risks SRAC believes that its most significant Year 2000 risk factors are: * The failure of SRAC to timely remediate its information systems for trading securities; * The failure of any of the following to be Year 2000 compliant: the securities depository through which trades in SRAC securities are settled; the participant bank that is SRAC's conduit to the securities depository; or the federal reserve wire system (which SRAC's banks use to transfer funds in connection with SRAC's trading and other activities); or * The failure of Sears to timely complete its Year 2000 effort to such an extent that Sears suffers a material adverse effect on its business, financial condition or results of operations. Although the occurrence of any of these scenarios could have a material adverse effect on SRAC, SRAC does not believe that any of these scenarios or any other Year 2000 compliance issues that would materially affect SRAC's operations are reasonably likely to occur. Cautionary Statement Regarding Forward Looking Information Certain statements made in this Annual Report on Form 10-K are forward looking statements and are made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. As such, they involve risks and uncertainties that could cause actual results to differ materially. SRAC's forward looking statements are based on assumptions about many important factors. With respect to the discussion of Year 2000 matters, these include assumptions about the technical skills of employees and independent contractors, the representations and preparedness of third parties, vendors' performance of services required by Sears and the collateral effects of Year 2000 compliance issues on Sears and SRAC's business partners and customers. While SRAC believes its assumptions are reasonable, it cautions that it is impossible to predict the impact of certain factors which could cause actual results to differ materially from expected results. 6 Item 7A. MARKET RISK The following table provides information about SRAC's financial instruments that are sensitive to changes in interest rates. Interest rate risk is managed through strategic use of fixed rate and variable rate debt. Weighted-average variable rates are based on rates in effect at the most recent reset date. The fair value of SRAC's long-term, fixed rate debt was estimated by discounting estimated cash flows based on SRAC's current borrowing rates for debt with similar maturities. The carrying amount of commercial paper and long-term, variable-rate debt approximates fair value. All items described in the table below are non-trading. - ------------------------------------------------------------------------------- 1998 - ------------------------------------------------------------------------------ dollars in millions, except percent There- Fair 1999 2000 2001 2002 2003 after Total Value - ------------------------------------------------------------------------------ Liabilities Commercial Paper 4,243 - - - - - 4,243 4,243 Average Interest Rate 5.40% - - - - - 5.40% Long Term Debt Fixed Rate Amount 560 1,456 2,018 1,413 2,150 3,404 11,001 11,368 Average Interest Rate 6.40% 6.27% 6.63% 6.75% 6.46% 6.83% 6.61% Variable Rate Amount 50 25 - - - - 75 75 Average Interest Rate 5.05% 5.28% - - - - 5.12% - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 1997 - ------------------------------------------------------------------------------ dollars in millions, except percent There- Fair 1998 1999 2000 2001 2002 after Total Value - ------------------------------------------------------------------------------ Liabilities Commercial Paper 5,249 - - - - - 5,249 5,249 Average Interest Rat 5.89% - - - - - 5.89% Long Term Debt Fixed Rate Amount 335 560 1,306 2,018 1,413 3,225 8,857 9,111 Average Interest Rate 6.13% 6.40% 6.32% 6.63% 6.75% 6.85% 6.65% Variable Rate Amount 250 50 25 - - - 325 325 Average Interest Rat 5.71% 5.81% 5.89% - - - 5.74% - ------------------------------------------------------------------------------ 7 Item 8. Financial Statements and Supplementary Data. SEARS ROEBUCK ACCEPTANCE CORP. STATEMENTS OF INCOME (millions, except ratio of earnings to fixed charges) 1998 1997 1996 ------ ------ ------ Revenues - -------- Earnings on notes of Sears $1,221 $948 $672 Earnings on receivable balances purchased from Sears 8 7 7 Earnings on cash equivalents 5 5 10 ----- ----- ----- Total revenues 1,234 960 689 Expenses - -------- Interest expense and amortization of debt discount/premium 979 763 546 Operating expenses 4 4 2 ----- ----- ----- Total expenses 983 767 548 ----- ----- ----- Income before income taxes 251 193 141 Income taxes 88 68 49 ----- ----- ----- Net income $163 $125 $92 ----- ----- ----- Ratio of earnings to fixed charges 1.26 1.25 1.26 See notes to financial statements. 8 SEARS ROEBUCK ACCEPTANCE CORP. STATEMENTS OF FINANCIAL POSITION (millions, except share data) 1998 1997 ------- ------- Assets - ------ Cash and cash equivalents $ 94 $ 5 Notes of Sears 17,990 16,561 Receivable balances purchased from Sears 90 89 Other assets 73 61 --------- --------- Total assets $18,247 $16,716 --------- --------- Liabilities - ----------- Commercial paper (net of unamortized discount of $25 and $25) $4,243 $5,249 Intermediate-term loans - 50 Medium-term notes 5,976 6,033 Discrete underwritten debt(net of unamoritized discount of $16 and $1) 5,084 3,099 Accrued interest and other liabilities 169 123 --------- --------- Total liabilities 15,472 14,554 --------- --------- Commitments and Contingent Liabilities Stockholder's Equity - -------------------- Capital stock, par value $100 per share 500,000 shares authorized 350,000 shares issued and outstanding 35 35 Capital in excess of par value 1,150 700 Retained income 1,590 1,427 --------- --------- Total stockholder's equity 2,775 2,162 --------- --------- Total liabilities and stockholder's equity $18,247 $16,716 --------- --------- See notes to financial statements. 9 SEARS ROEBUCK ACCEPTANCE CORP. STATEMENTS OF STOCKHOLDER'S EQUITY (millions) 1998 1997 1996 -------- -------- -------- Capital stock $35 $35 $35 -------- -------- -------- Capital in excess of par value: Beginning of year 700 350 - Capital contribution 450 350 350 -------- -------- -------- End of year $1,150 $700 $350 -------- -------- -------- Retained income: Beginning of year $1,427 $1,302 $1,210 Net income 163 125 92 -------- -------- -------- End of year $1,590 $1,427 $1,302 -------- -------- -------- Stockholder's equity $2,775 $2,162 $1,687 -------- -------- -------- See notes to financial statements. 10 SEARS ROEBUCK ACCEPTANCE CORP. STATEMENTS OF CASH FLOWS (millions) 1998 1997 1996 -------- -------- -------- Cash Flows From Operating Activities - ------------------------------------ Net income $163 $125 $92 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other noncash items 10 8 4 Decrease (increase) in other assets 6 47 (60) Increase in other liabilities 46 59 40 -------- -------- -------- Net cash provided by operating activities 225 239 76 Cash Flows From Investing Activities - ------------------------------------ Increase in notes of Sears (1,429) (4,952) (3,212) (Increase) decrease in receivable balances purchased from Sears (1) (13) 5 -------- -------- -------- Net cash used in investing activities (1,430) (4,965) (3,207) Cash Flows From Financing Activities - ------------------------------------ (Decrease)increase in commercial paper, primarily 90 days or less (1,006) 1,925 (1,127) Decrease in agreements with bank trust departments - (82) (55) Proceeds from issuance of long-term debt 2,484 3,442 4,323 Payments for redemption of long-term debt (634) (1,132) (275) Proceeds from capital contribution 450 350 350 -------- -------- -------- Net cash provided by financing activities 1,294 4,503 3,216 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 89 (223) 85 Cash and cash equivalents, beginning of year 5 228 143 -------- -------- -------- Cash and cash equivalents, end of year $94 $5 $228 -------- -------- -------- Supplemental Disclosure of Cash Flow Information Cash paid during the year Interest paid $947 $694 $510 Income taxes 93 66 48 See notes to financial statements 11 NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Sears Roebuck Acceptance Corp.("SRAC"), a wholly-owned subsidiary of Sears, Roebuck and Co. ("Sears"), is principally engaged in the business of acquiring short-term notes of Sears and, to a lesser extent, purchasing receivable balances from Sears, using proceeds from its short-term borrowing programs (primarily the direct placement of commercial paper) and the issuance of long-term debt (intermediate-term loans, medium-term notes, and discrete underwritten debt). Under a letter agreement between SRAC and Sears, the interest rate on the Sears notes is presently calculated so that SRAC maintains an earnings to fixed charges ratio of at least 1.25. Cash and cash equivalents is defined to include all highly liquid investments with maturities of three months or less. Receivables purchased from Sears are purchased at par and are interest-bearing. The results of operations of SRAC are included in the consolidated federal income tax return of Sears. Tax liabilities and benefits are allocated as generated by SRAC, regardless of whether such benefits would be currently available on a separate return basis. SRAC's fiscal year ends on the Saturday closest to December 31. Fiscal year-ends were January 2, 1999 (52 weeks), January 3, 1998 (53 weeks) and December 28, 1996 (52 weeks). In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 1999. SRAC is currently evaluating the effect this statement might have on its financial position or results of operations. 2. FEDERAL INCOME TAXES Federal income taxes provided for by SRAC amounted to $88 million, $68 million, and $49 million for the fiscal years 1998, 1997, and 1996, respectively. These amounts represent current income tax provisions calculated at an effective income tax rate of 35%. No deferred tax provisions were necessary. 3. COMMERCIAL CUSTOMER RECEIVABLE BALANCES SRAC purchases commercial customer receivable balances ("CCRB") from Sears. The receivables are purchased, with recourse, and SRAC earns interest on the outstanding balance. The receivables are made up of credit accounts Sears has established with merchants and contractors for bulk purchases from Sears and are predominantly paid within 30 days. Each month, SRAC purchases new receivables and receives collections on previously purchased receivables. 12 4. COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS SRAC has obtained funds through the direct placement of commercial paper (issued in maturities of one to 270 days) and, prior to 1998, from borrowings under agreements with bank trust departments. Selected details of SRAC's borrowings are shown below. Weighted-average interest rates are based on the actual number of days in the year, and borrowings are net of unamortized discount. (millions) 1998 1997 -------- -------- Commercial paper outstanding $4,268 $5,274 Less: Unamortized discount 25 25 -------- -------- Commercial paper outstanding (net) $4,243 $5,249 -------- -------- Average and Maximum Balances(net) 1998 1997 ------------------- ------------------- Maximum Maximum (millions) Average (month-end) Average (month-end) ------------------- ------------------- Commercial paper $4,514 $5,366 $3,952 $5,249 Agreements with bank trust dept. - - 55 117 ------------------- ------------------- Weighted Average Interest Rates 1998 1997 ------------------- ------------------- Average Year-end Average Year-end ------------------- ------------------- Commercial paper 5.58% 5.40% 5.60% 5.89% Agreements with bank trust dept. - - 5.63% - ------------------- ------------------- 5. INTERMEDIATE-TERM LOANS At year-end 1997, SRAC had a $50 million intermediate-term loan which SRAC prepaid in April 1998. The rate on this loan was indexed to LIBOR with a set basis point spread. The weighted average rate on this loan for 1998 was 5.87% compared to 5.97% in 1997. 13 6. MEDIUM-TERM NOTES AND DISCRETE UNDERWRITTEN DEBT Medium-term notes and discrete underwritten debt are issued with either a floating rate indexed to LIBOR or a fixed rate. (dollars in millions; term in years) ISSUANCE Avg. Avg. 1998 Avg. Orig. 1997 Avg. Orig. Volume Coupon Term Volume Coupon Term ------ ------ ---- ------ ------ ---- Fourth Quarter: Medium-term notes $ 30 5.73% 7.3 $ 789 6.29% 4.0 Discrete debt $ 550 6.86% 34.6 $ 550 7.16% 24.6 Year: Medium-term notes $ 528 6.00% 5.3 $1,665 6.55% 4.9 Discrete debt $2,000 6.53% 20.0 $1,800 6.95% 12.8 GROSS OUTSTANDING Avg. Avg. 01/02/99 Avg. Remain. 01/03/98 Avg. Remain. Balance Coupon Term Balance Coupon Term -------- ------ ------ ------- ------ ------- Medium-term notes $5,976 6.55% 3.9 $6,033 6.53% 3.4 Discrete debt $5,100 6.70% 14.0 $3,100 6.84% 9.9 MATURITIES Medium-term Discrete Year notes debt - --------------------------------- 1999 $ 610 $ - 2000 1,231 250 2001 2,018 - 2002 813 600 2003 900 1,250 Thereafter 404 3,000 - --------------------------------- Total $5,976 $5,100 ================================= 14 7. BACK-UP LIQUIDITY SRAC continued to provide support for 100% of its outstanding commercial paper through its investment portfolio and credit facilities. SRAC's investment portfolio fluctuated from a low of $1 million to a high of $680 million in 1998. Credit facilities as of January 2, 1999 were as follows: Expiration Date (millions) - ---------------------------------------------------------------- April 2003 $4,185 April 2002 875 November 1999 1,000 November 1999 40 - ---------------------------------------------------------------- $6,100 ================================================================ SRAC pays commitment fees on the unused portions of the above credit facilities. The annualized fees at January 2, 1999 on these credit lines were $4 million. 8. LETTERS OF CREDIT AND OTHER COMMITMENTS SRAC is the guarantor of a $70 million promissory note issued by Sears, Roebuck de Puerto Rico, Inc. under the terms of a July 1998 private placement. The note has a stated maturity of April, 1999. SRAC issues import letters of credit to facilitate Sears purchase of goods from foreign suppliers. At January 2, 1999, letters of credit totaling $145 million were outstanding. SRAC has no liabilities with respect to this program other than the obligation to pay drafts under the letters of credit that, if not reimbursed by Sears on the day of the disbursement, are automatically converted into demand borrowings by Sears from SRAC. To date, all SRAC disbursements have been reimbursed on a same-day basis. SRAC also issues irrevocable letters of credit to third parties on behalf of Sears. At January 2, 1999 irrevocable letters of credit totaling $27 million were outstanding. SRAC has issued a standby letter of credit to a financial institution in order to secure Sears obligation to repurchase defaulted accounts related to the sale of receivables by a former affiliate. At January 2, 1999, a $91 million letter of credit was outstanding. The receivables are expected to liquidate by year-end 1999. 15 9. FINANCIAL INSTRUMENTS In the normal course of business, SRAC invests in certain notes of Sears and purchases commercial customer receivable balances from Sears. SRAC's financial instruments (both assets and liabilities), with the exception of medium-term notes and discrete underwritten debt, are short-term or variable in nature and as such, their carrying value approximates fair value. Medium-term notes and discrete underwritten debt are valued based on quoted market prices when available or discounted cash flows, using interest rates currently available to SRAC on similar borrowings. The fair values of these financial instruments areas follows: - --------------------------------------------------------------------------- 1998 1997 Carrying Fair Carrying Fair (millions) Value Value Value Value - --------------------------------------------------------------------------- Medium-term notes $ 5,976 $6,135 $ 6,033 $6,205 Discrete underwritten debt(net) 5,084 5,308 3,099 3,181 10. QUARTERLY FINANCIAL DATA (UNAUDITED) First Second Third Fourth Quarter Quarter Quarter Quarter 1998 1997 1998 1997 1998 1997 1998 1997 (millions) ------------ ------------ ----------- ------------ Operating Results Combined earnings from Sears notes and CCRB $302 $207 $305 $224 $303 $233 $319 $291 Total revenues 304 208 306 225 304 234 320 293 Interest & related expenses 241 166 243 179 241 187 254 231 Total expenses 242 167 244 179 242 187 255 234 Income before income taxes 62 41 62 46 62 47 65 59 Net income 40 27 41 29 40 31 42 38 Ratio of earnings to fixed charges 1.26 1.25 1.26 1.25 1.26 1.25 1.26 1.25 (billions) Averages Earning assets* $17.6 $12.5 $17.5 $12.8 $17.6 $13.6 $19.0 $15.9 Short-term debt 5.1 3.9 3.9 3.9 4.0 3.4 5.1 4.8 Long-term debt 9.7 6.8 10.9 7.5 11.0 8.3 10.9 8.8 Cost of short-term debt 5.63% 5.46% 5.56% 5.58% 5.59% 5.65% 5.35% 5.74% long-term debt 6.58% 6.43% 6.56% 6.49% 6.52% 6.56% 6.58% 6.56% *Notes and receivable balances of Sears and invested cash. 16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. Not applicable. Item 11. Executive Compensation. Not applicable. Item 12. Security Ownership of Certain Beneficial Owners and Management. Not applicable. Item 13. Certain Relationships and Related Transactions. Not applicable. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) The following documents are filed as a part of this report: 1. An "Index to Financial Statements" has been filed as a part of this report on page S-1 hereof. 2. No financial statement schedules are included herein because they are not required or because the information is contained in the financial statements and notes thereto, as noted in the "Index to Financial Statements" filed as part of this report. 3. An "Exhibit Index" has been filed as part of this report beginning on page E-1 hereof. (b) Reports on Form 8-K: A current report on Form 8-K dated November 24, 1998 was filed with the Securities and Exchange Commission on December 10, 1998 [Item 7]. 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 ACCEPTANCE CORP. (Registrant) \S\ George F. Slook By George F. Slook* Vice President, Finance and Assistant Secretary March 19, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date Keith E. Trost* Director and President ) (Principal Executive ) Officer) ) ) ) George F. Slook* Director and ) Vice President, Finance ) March 19, 1999 and Assistant Secretary ) (Principal Financial and ) Accounting Officer) ) ) ) Jeffrey N. Boyer* Director ) ) ) James D. Constantine* Director ) ) ) Alan J. Lacy* Director ) ) ) Stanley H. Wright* Director ) ) ) Larry R. Raymond* Director ) *\ George F. Slook, Individually and as Attorney-in-Fact 18 SEARS ROEBUCK ACCEPTANCE CORP. INDEX TO FINANCIAL STATEMENTS PAGE STATEMENTS OF INCOME 8 STATEMENTS OF FINANCIAL POSITION 9 STATEMENTS OF STOCKHOLDER'S EQUITY 10 STATEMENTS OF CASH FLOWS 11 NOTES TO FINANCIAL STATEMENTS 12-16 INDEPENDENT AUDITORS' REPORT S-2 S-1 INDEPENDENT AUDITORS' REPORT To the Stockholder and Board of Directors of Sears Roebuck Acceptance Corp. Greenville, Delaware We have audited the accompanying statements of financial position of Sears Roebuck Acceptance Corp. (a wholly-owned subsidiary of Sears, Roebuck and Co.) as of January 2, 1999 and January 3, 1998, and the related statements of income, stockholder's equity, and cash flows for each of the three years in the period ended January 2, 1999. These financial statements are the responsibility of Sears Roebuck Acceptance Corp.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects,the financial position of Sears Roebuck Acceptance Corp. as of January 2, 1999 and January 3, 1998, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 1999 in conformity with generally accepted accounting principles. /S/ Deloitte & Touche LLP Deloitte & Touche LLP Philadelphia, Pennsylvania January 22, 1999 S-2 EXHIBIT INDEX 3(a) Certificate of Incorporation of the Registrant, as in effect at November 13, 1987 [Incorporated by reference to Exhibit 28(c) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1987*]. 3(b) By-laws of the Registrant, as in effect at February 6, 1996 [Incorporated by reference to Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995*]. 4(a) $5,000,000,000 Credit Agreement dated as of April 28, 1997 among the Registrant, the Banks listed on the signature pages thereof, the Agent, the Senior Managing Agent, the Managing Agents, Co-Arrangers, Co-Agents and Lead Managers referred to therein [Incorporated by reference to Exhibit 4(a) to the Registrant's Current Report on Form 8-K dated April 28, 1997*]. 4(b) Form of Registrant's Investment Note Agreement [Incorporated by reference to Exhibit 4(c) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991*]. 4(c) The Registrant hereby agrees to furnish the Commission, upon request, with each instrument defining the rights of holders of long-term debt of the Registrant with respect to which the total amount of securities authorized does not exceed 10% of the total assets of the Registrant. 4(d) Form of 6.90% Note [Incorporated by reference to Exhibit 4 to the Registrant's Current Report on Form 8-K dated August 2, 1996*]. 4(e) Form of 6 1/2% Note [Incorporated by reference to Exhibit 4(a) to the Registrant's Current Report on Form 8-K dated June 8, 1995*]. 4(f) Form of Fixed-Rate Medium-Term Note Series I [Incorporated by reference to Exhibit 4(b) to the Registrant's Current Report on Form 8-K dated June 8, 1995*]. 4(g) Form of Floating Rate Medium-Term Note Series I [Incorporated by reference to Exhibit 4(c) to the Registrant's Current Report on Form 8-K dated June 8, 1995*]. 4(h) Form of 6 3/4% Note [Incorporated by reference to Exhibit 4(d) to the Registrant's Current Report on Form 8-K dated June 8, 1995*]. - ---------------------------------- *Sec File No. 1-4040 E-1 EXHIBIT INDEX (cont'd) 4(i) Fixed Charge Coverage and Ownership Agreement dated May 15, 1995 between Sears, Roebuck and Co. and the Registrant [Incorporated by reference to Exhibit 4(e) to the Registrant's Current Report on Form 8-K dated June 8, 1995*]. 4(j) Fixed Charge Coverage and Ownership Agreement dated February 20, 1997 between Sears, Roebuck and Co. and the Registrant [Incorporated by reference to Exhibit 4(b) to the Registrant's Current Report on Form 8-K dated April 28, 1997*]. 4(k) Form of 6.70% Note [Incorporated by reference to Exhibit 4 to the Registrant's Current Report on Form 8-K dated November 19, 1996*]. 4(l) Form of 6 1/8% Note [Incorporated by reference to Exhibit 4 to the Registrant's Current Report on Form 8-K dated January 23, 1996*]. 4(m) Form of Fixed-Rate Medium-Term Note Series II [Incorporated by reference to Exhibit 4(a) to the Registrant's Current Report on Form 8-K dated March 28, 1996*]. 4(n) Form of Floating Rate Medium-Term Note Series II [Incorporated by reference to Exhibit 4(b) to the Registrant's Current Report on Form 8-K dated March 28, 1996*]. 4(o) Form of Fixed-Rate Medium-Term Note Series III Incorporated by reference to Exhibit 4(a) to the Registrant's Current Report on Form 8-K dated August 22, 1996*]. 4(p) Form of Floating Rate Medium-Term Note Series III [Incorporated by reference to Exhibit 4(b) to the Registrant's Current Report on Form 8-K dated August 22, 1996*]. 4(q) Indenture dated as of May 15, 1995 between the Registrant and The Chase Manhattan Bank [Incorporated by reference to Exhibit 4(b) to Amendment No. 1 to Registration Statement No. 33-64215*]. 4(r) Extension Agreement dated March 1, 1996, between Sears, Roebuck and Co. and the Registrant [Incorporated by reference to Exhibit 4(k) to the Registrant's Annual Report on Form 10-K dated December 30, 1995*]. ________________________ * SEC File No. 1-4040. ** Filed herewith. E-2 EXHIBIT INDEX (cont'd) 4(s) Extension Agreement dated August 22, 1996, between Sears, Roebuck and Co. and the Registrant [Incorporated by reference to Exhibit 4(c) to the Registrant's Current Report on Form 8-K dated August 22, 1996*]. 4(t) Form of 6.625% Note [Incorporated by reference to Exhibit 4 to the Registrant's Current Report on Form 8-K dated February 27, 1997*]. 4(u) Form of 6.95% Note [Incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated July 9, 1997*]. 4(v) Form of 7.00% Note [Incorporated by reference to Exhibit 4.4 to the Registrant's Current Report on Form 8-K dated July 9, 1997*]. 4(w) Form of Fixed-Rate Medium-Term Note Series IV [Incorporated by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated July 9, 1997*]. 4(x) Form of Floating Rate Medium-Term Note Series IV [Incorporated by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K dated July 9, 1997*]. 4(y) Form of 6.70% Note [Incorporated by reference to Exhibit 4(a) to the Registrant's Current Report on Form 8-K dated October 14, 1997*]. 4(z) Form of 7.50% Note [Incorporated by reference to Exhibit 4(b) to the Registrant's Current Report on Form 8-K dated October 14, 1997*]. 4(aa) Form of 6.875% Note [Incorporated by reference to Exhibit 4(c) to the Registrant's Current Report on Form 8-K dated October 14, 1997*]. 4(bb) Form of 6.75% Note [Incorporated by reference to Exhibit 4(a) to the Registrant's Current Report on Form 8-K dated January 8, 1998*]. 4(cc) Form of Fixed-Rate Medium-Term Note Series V [Incorporated by reference to Exhibit 4(a) to the Registrant's Current Report on Form 8-K dated February 23, 1998*] 4(dd) Form of Floating Rate Medium-Term Note Series V [Incorporated by reference to Exhibit 4(b) to the Registrant's Current Report on Form 8-K dated February 23, 1998*]. __________________________ * SEC File No. 1-4040. ** Filed herewith. E-3 EXHIBIT INDEX (cont'd) 4(ee) Form of Global 7.00% Note [Incorporated by reference to Exhibit 4(c)to the Registrant's Current Report on Form 8-K dated February 23, 1998*]. 4(ff) Form of Global 6.00% Note [Incorporated by reference to Exhibit 4(c)to the Registrant's Current Report on Form 8-K dated March 13, 1998*]. 4(gg) Form of Global 6.95% Note [Incorporated by reference to Exhibit 4(c)to the Registrant's Current Report on Form 8-K dated October 16, 1998*]. 4(hh) Form of Global 6.50% Note [Incorporated by reference to Exhibit 4(c)to the Registrant's Current Report on Form 8-K dated November 24, 1998*]. 4(ii) $1,000,000,000 Credit Agreement dated as of November 30, 1998 among the Registrant, the Banks listed on the signature pages thereof, The Chase Manhattan Bank, as Administrative Agent, Citibank, N.A., as Syndication Agent, and Bank of America NT&SA and The First National Bank of Chicago, as Co-Documentation Agents.** 4(jj) Form of Extension Agreement extending the term of aggregate commitments of $4,125 million under the Amended and Restated $5,000,000,000 Credit Agreement dated as of April 28, 1997.** 4(kk) Letter Agreement dated October 30, 1998 between the Registrant and The Huntington National Bank relating to a $60 million commitment under the Amended and Restated $5,000,000,000 Credit Agreement dated April 28, 1997.** 10(a) Letter Agreement dated as of October 17, 1991 between Registrant and Sears, Roebuck and Co. [Incorporated by reference to Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991*]. 10(b) Letter Agreement dated as of September 2, 1986 between Registrant and Sears, Roebuck and Co. [Incorporated by reference to Exhibit 10 to the Registrant's Current Report on Form 8-K dated September 2, 1986*]. * SEC File No. 1-4040. ** Filed herewith. E-4 EXHIBIT INDEX (cont'd) 10(c)(1) Agreement to Issue Letters of Credit dated December 3, 1985 between Sears, Roebuck and Co. and Registrant [Incorporated by reference to Exhibit 10(i)(1) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1987*]. 10(c)(2) Letter Agreement dated March 11, 1986 amending Agreement to Issue Letters of Credit dated December 3, 1985 [Incorporated by reference to Exhibit 10(i)(2) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1987*]. 10(c)(3) Letter Agreement dated November 26, 1986 amending Agreement to Issue Letters of Credit dated December 3, 1985 [Incorporated by reference to Exhibit 10(i)(3) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1987*]. 12 Calculation of ratio of earnings to fixed charges.** 23 Consent of Deloitte & Touche LLP.** 24 Power of attorney.** 27 Financial Data Schedule.** 99 Pages 25, 29 and 31 of the Sears, Roebuck and Co. Annual Report [Incorporated by reference to Exhibit 13(ii) of the Sears, Roebuck and Co. Annual Report on Form 10-K for the fiscal year ended January 2, 1999].*** _______________________ * SEC File No. 1-4040. ** Filed herewith. ***SEC File No. 1-416 E-5 Exhibit 12 SEARS ROEBUCK ACCEPTANCE CORP. CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES 1998 1997 1996 (dollars in millions) INCOME BEFORE INCOME TAXES $251 $193 $ 141 PLUS FIXED CHARGES: Interest 969 755 537 Amortization of debt discount/premium 10 8 9 ------- ------- ------- TOTAL FIXED CHARGES 979 763 546 ------- ------- ------- EARNINGS BEFORE INCOME TAXES AND FIXED CHARGES $1,230 $ 956 $687 ======= ======= ======= RATIO OF EARNINGS TO FIXED CHARGES 1.26 1.25 1.26 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-30879 and 333-62847 of Sears Roebuck Acceptance Corp. on Forms S-3 of our report dated January 22, 1999, appearing in this Annual Report on Form 10-K of Sears Roebuck Acceptance Corp. for the year ended January 2, 1999. \s\Deloitte & Touche LLP DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania March 18, 1999 EX-27 2
5 12-MOS JAN-02-1999 JAN-02-1999 94,000,000 0 18,080,000,000 0 0 18,247,000,000 0 0 18,247,000,000 4,412,000,000 11,060,000,000 35,000,000 0 0 2,740,000,000 18,247,000,000 0 1,234,000,000 0 0 4,000,000 0 979,000,000 251,000,000 88,000,000 163,000,000 0 0 0 163,000,000 0 0
EX-24 3 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a director or officer, or both, of SEARS ROEBUCK ACCEPTANCE CORP., a Delaware corporation (the "Corporation"), does hereby constitute and appoint, JEFFREY N. BOYER, BRENDAN J. MCKEOUGH, GEORGE F. SLOOK and KEITH E. TROST, with full power to each of them to act alone, as the true and lawful attorneys and agents of the undersigned, with full power of substitution and esubstitution to each of said attorneys, to execute, file and deliver any and all instruments and to do any and all acts and things which said attorneys and agents, or any of them, deem advisable to enable the Corporation to comply with the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereto, relating to annual reports on Form 10-K including specifically, but without limitation of the general authority hereby granted, the power and authority to sign his name in the name and on behalf of the Corporation, as indicated below opposite his signature, to annual reports on Form 10-K or any amendment thereto; and each of the undersigned does hereby fully ratify and confirm all that said attorneys and agents, or any of them, or the substitute of any of them, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have subscribed these presents, as of the 11th day of March, 1999. NAME TITLE /s/: KEITH E. TROST Director and President Keith E. Trost (Principal Executive Officer) /s/: GEORGE F. SLOOK Director and Vice President, Finance George F. Slook (Principal Financial and Accounting Officer) NAME TITLE /s/:Jaffrey N. Boyer Director Jeffrey N. Boyer /s/:James D. Constantine Director James D. Constantine /s/:Alan J. Lacy Director Alan J. Lacy /s/:larry R. Raymond Director Larry R. Raymond /s/:Stanley H. Wright Director Stanley H. Wright EX-4 4 Exhibit 4(ii) 1 [EXECUTION COPY] $1,000,000,000 CREDIT AGREEMENT dated as of November 30, 1998 among Sears Roebuck Acceptance Corp., The Banks Listed Herein, The Chase Manhattan Bank, as Administrative Agent, Citibank, N.A., as Syndication Agent and Bank of America NT&SA and The First National Bank of Chicago, as Co-Documentation Agents TABLE OF CONTENTS Page ARTICLE 1Definitions Section 1.01. Definitions 1 Section 1.02. Accounting Terms and Determinations 14 ARTICLE 2The Credits Section 2.01. Commitments to Lend 15 Section 2.02. Notice of Committed Borrowing 15 Section 2.03. Money Market Borrowings 16 Section 2.04. Notice to Banks; Funding of Loans 20 Section 2.05. Notes 21 Section 2.06. Mandatory Termination of Commitments and Repayment of Loans 21 Section 2.07. Interest Rates 22 Section 2.08. Facility Fee 25 Section 2.09. Optional Termination or Reduction of Commitments 25 Section 2.10. Method of Electing Interest Rates 26 Section 2.11. Optional Prepayments 27 Section 2.12. General Provisions as to Payments 28 Section 2.13. Funding Losses 29 Section 2.14. Computation of Interest and Fees 29 Section 2.15. Taxes 29 Section 2.16. Regulation D Compensation 32 Section 2.17. Optional Increase in Commitments 33 ARTICLE 3Conditions Section 3.01. Effectiveness of Agreement 34 Section 3.02. Borrowings 35 ARTICLE 4Representations and Warranties Section 4.01. Corporate Existence and Power 36 Section 4.02. Corporate and Governmental Authorization; No Contravention 37 Section 4.03. Binding Effect 37 Section 4.04. Financial Information 37 Section 4.05. Litigation 38 Section 4.06. Compliance with ERISA 38 Section 4.07. Environmental Matters 39 Section 4.08. Taxes 39 Section 4.09. Subsidiaries 39 Section 4.10. Full Disclosure 39 ARTICLE 5Covenants Section 5.01. Information 39 Section 5.02. Maintenance of Property; Insurance 42 Section 5.03. Conduct of Business and Maintenance of Existence 42 Section 5.04. Compliance with Laws 42 Section 5.05. Letter Agreement 43 Section 5.06. Negative Pledge 43 Section 5.07. Consolidations, Mergers and Sales of Assets 44 Section 5.08. Use of Proceeds 45 Section 5.09. Subsidiary Debt 45 Section 5.10. Fixed Charge Coverage 45 Section 5.11. Debt 45 ARTICLE 6Defaults Section 6.01. Events of Default 46 Section 6.02. Notice of Default 48 ARTICLE 7The Administrative Agent Section 7.01. Appointment and Authorization 48 Section 7.02. Administrative Agent and Affiliates 48 Section 7.03. Action by Administrative Agent 49 Section 7.04. Consultation with Experts 49 Section 7.05. Liability of Administrative Agent 49 Section 7.06. Indemnification 49 Section 7.07. Credit Decision 50 Section 7.08. Successor Administrative Agent 50 Section 7.09. Administrative Agent's Fee 50 Section 7.10. Syndication Agent and Co- Documentation Agents 50 ARTICLE 8Change in Circumstances Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair 51 Section 8.02. Illegality 51 Section 8.03. Increased Cost and Reduced Return 52 Section 8.04. Base Rate Loans Substituted for Affected Fixed Rate Loans 54 Section 8.05. Substitution of Bank 55 ARTICLE 9Miscellaneous Section 9.01. Notices 55 Section 9.02. No Waivers 55 Section 9.03. Expenses; Documentary Taxes; Indemnification 56 Section 9.04. Sharing of Set-offs 56 Section 9.05. Amendments and Waivers 57 Section 9.06. Successors and Assigns 57 Section 9.07. Collateral 59 Section 9.08. Governing Law; Submission to Jurisdiction 59 Section 9.09. Counterparts; Integration 60 Section 9.10. Restrictions on Transfers 60 Section 9.11. Confidentiality 60 Section 9.12. WAIVER OF JURY TRIAL 61 COMMITMENT SCHEDULE Exhibit A - Note Exhibit B - Notice of Committed Borrowing Exhibit C - Notice of Interest Rate Election Exhibit D - Money Market Quote Request Exhibit E - Invitation for Money Market Quotes Exhibit F - Money Market Quote Exhibit G - Opinion of Counsel for the Borrower Exhibit H - Opinion of Special Counsel for the Administrative Agent Exhibit I - Assignment and Assumption Agreement Exhibit J - Terms of Subordination CREDIT AGREEMENT CREDIT AGREEMENT dated as of November 30, 1998 among SEARS ROEBUCK ACCEPTANCE CORP., the BANKS listed on the signature pages hereof, CITIBANK N.A., as Syndication Agent, BANK OF AMERICA NT&SA and THE FIRST NATIONAL BANK OF CHICAGO, as Co-Documentation Agents and THE CHASE MANHATTAN BANK, as Administrative Agent. ARTICLE 1 Definitions Section 1.1. Definitions. The following terms, as used herein, have the following meanings: "Absolute Rate Auction" means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03. "Account" means an open-end charge plan for specified Persons, maintained by Sears or an Affiliate of Sears. "Adjusted CD Rate" has the meaning set forth in Section 2.07(b). "Administrative Agent" means The Chase Manhattan Bank in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity. "Administrative Questionnaire" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank. "Affiliate" of a given Person means any other Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such given Person. "Agreement" means this Credit Agreement as same may be amended from time to time. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office. "Assessment Rate" has the meaning set forth in Section 2.07(b). "Assignee" has the meaning set forth in Section 9.06(c). "Bank" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors. "Base Rate" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "Base Rate Loan" means (i) a Committed Loan which bears interest at the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or the provisions of Article VIII or (ii) an overdue amount which was a Base Rate Loan immediately before it became overdue. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Borrower" means Sears Roebuck Acceptance Corp., a Delaware corporation, and its successors. "Borrower's 1997 Form 10-K" means the Borrower's annual report on Form 10-K for 1997, as filed with the Commission pursuant to the Exchange Act (excluding the exhibits thereto). "Borrowing" means a borrowing hereunder consisting of Loans made to the Borrower at the same time by the Banks pursuant to Article II on a single date and for a single Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans and a "Fixed Rate Borrowing" is a Borrowing comprised of Fixed Rate Loans) or by reference to the provisions of Article II under which participation therein is determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.01 in which all Banks participate in proportion to their Commitments, while a "Money Market Borrowing" is a Borrowing under Section 2.03 in which the Bank participants are determined on the basis of their bids in accordance therewith). "CD Base Rate" has the meaning set forth in Section 2.07(b). "CD Loan" means (i) a Committed Loan which bears interest at a rate determined with reference to the CD Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or (ii) an overdue amount which was a CD Loan immediately before it became overdue. "CD Margin" has the meaning set forth in Section 2.07(b). "CD Reference Banks" means The Chase Manhattan Bank, Citibank N.A., Bank of America NT&SA and The First National Bank of Chicago. "Co-Documentation Agents" means each of Bank of America NT&SA and The First National Bank of Chicago, each in its capacity as a co-documentation agent hereunder. "Commission" means the Securities and Exchange Commission. "Commitment" means, with respect to each Bank listed on the Commitment Schedule, the amount set forth opposite such Bank's name on the Commitment Schedule, as such amount may be reduced from time to time pursuant to Section 2.09 or increased from time to time pursuant to Section 2.17. "Commitment Schedule" means the Commitment Schedule attached hereto. "Committed Loan" means a loan made by a Bank pursuant to Section 2.01. "Consolidated Debt" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated Net Income" means, for any period, the net income of the Borrower and its Consolidated Subsidiaries for such period. "Consolidated Stockholder's Equity" means as of any date the total stockholder's equity of the Borrower and its Consolidated Subsidiaries, plus the amount of any SRAC Subordinated Debt, as of such date. "Consolidated Subsidiary" means at any date any Subsidiary or other Person the accounts of which are consolidated with those of the Borrower in its consolidated financial statements as of such date. "Consolidated Tangible Net Worth" means at any date the Consolidated Stockholder's Equity less the consolidated Intangible Assets of the Borrower and its Consolidated Subsidiaries, all determined as of such date. For purposes of this definition "Intangible Assets" means the amount (to the extent reflected as an asset on the consolidated statement of financial position of the Borrower and its Consolidated Subsidiaries) of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) subsequent to July 4, 1998 in the book value of any asset owned by the Borrower or a Consolidated Subsidiary and (ii) all unamortized debt discount and expense to the extent reflected as an asset on a consolidated statement of financial position of Borrower and its Consolidated Subsidiaries, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, anticipated future benefit of tax loss carry-forwards, copyrights, organization or developmental expenses and other intangible assets. "Debt" of any Person means, at any date, without duplication, (i) all obligations of such Person for borrowed money properly recordable as a liability on the financial statements of such Person, (ii) all obligations of such Person, properly recordable as a liability on the financial statements of such Person, evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property except trade accounts payable arising in the ordinary course of business, (iv) the net present value of future minimum lease payments under capital leases, (v) all direct recourse payment obligations of such Person in respect of any accounts receivable sold by such Person, (vi) all Debt (as defined in clauses (i) through (v) above) of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, and (vii) all Debt (as defined in clauses (i) through (vi) above) of others Guaranteed by such Person; provided that SRAC Subordinated Debt shall not be deemed to be Debt for the purpose of determining the Debt of the Borrower. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Designated Default" means (x) any Event of Default, (y) any event or condition which, with the giving of notice or lapse of time or both, would become an Event of Default (other than any event or condition referred to in clause (e) or (f) of Section 6.01) or (z) any event or condition that entitles the holder of any Material SRAC Debt or Material Company Material Debt, or any Person acting on any such holder's behalf, to accelerate the maturity thereof (but in the case of any event or condition referred to in clause (e) of Section 6.01, only after the expiration of the three Domestic Business Day period referred to in such clause (e)). "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City or Chicago are authorized by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Administrative Agent; provided that any Bank may so designate separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and its CD Loans, on the other hand, in which case all references herein to the Domestic Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Domestic Loans" means CD Loans or Base Rate Loans or both. "Domestic Reserve Percentage" has the meaning set forth in Section 2.07(b). "Effective Date" means the date this Agreement becomes effective in accordance with Section 3.01. "Environmental Laws" means any and all federal, state and local statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, licenses, agreements or other governmental restrictions relating to the protection of the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment or otherwise relating to the generation, processing, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes, or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Group" means the Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or Affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or Affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent. "Euro-Dollar Loan" means (i) a Committed Loan which bears interest at a rate determined with reference to the London Interbank Offered Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or (ii) an overdue amount which was a Euro-Dollar Loan immediately before it became overdue. "Euro-Dollar Margin" has the meaning set forth in Section 2.07(c). "Euro-Dollar Reference Banks" means the principal London offices of The Chase Manhattan Bank, Citibank N.A., Bank of America NT&SA and The First National Bank of Chicago. "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). "Event of Default" has the meaning set forth in Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to The Chase Manhattan Bank on such day on such transactions as determined by the Administrative Agent. "Fixed Charge Coverage Ratio" means, for any period, the Borrower's ratio of earnings to fixed charges, determined for such period in accordance with Item 503(d) of Regulation S-K promulgated by the Commission, as in effect on the date hereof. "Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01) or any combination of the foregoing. "Group of Loans" means at any time a group of Committed Loans consisting of (i) all Loans which are Base Rate Loans at such time, (ii) all Loans which are CD Loans having the same Interest Period at such time or (iii) all Loans which are Euro-Dollar Loans having the same Interest Period at such time; provided that, if Loans of any particular Bank are converted to or made as Base Rate Loans pursuant to Section 8.02 or 8.04, such Loans shall be included in the same Group or Groups of Loans from time to time as they would have been in if they had not been so converted or made. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt (as defined in clauses (i) through (vi) of the definition of Debt) of any other Person or in any manner providing for the payment of any such Debt of any other Person or otherwise protecting the holder of such Debt against loss (whether by agreement to keep-well, to purchase assets, goods, securities or services, or to take-or-pay or otherwise), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a correlative meaning. "Interest Period" means: (1) with respect to each Euro-Dollar Loan, a period commencing on the date of Borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter (or such other number of months thereafter as the Borrower, the Administrative Agent and all the Banks may agree), as the Borrower may elect in the applicable Notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (c) below, be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which begins before and would otherwise end after the Termination Date shall end on the Termination Date. (2) with respect to each CD Loan, a period commencing on the date of Borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending 30, 60, 90 or 180 days thereafter (or such other number of days thereafter as the Borrower, the Administrative Agent and all the Banks may agree), as the Borrower may elect in the applicable Notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (b) below, be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which begins before and would otherwise end after the Termination Date shall end on the Termination Date. (3) with respect to each Money Market LIBOR Borrowing, the period commencing on the date of such Borrowing and ending such whole number of months thereafter as the Borrower may elect in accordance with Section 2.03; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (c) below, be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which begins before and would otherwise end after the Termination Date shall end on the Termination Date. (4) with respect to each Money Market Absolute Rate Borrowing, the period commencing on the date of such Borrowing and ending such number of days thereafter (but not less than 30 days) as the Borrower may elect in accordance with Section 2.03; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (b) below, be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which begins before and would otherwise end after the Termination Date shall end on the Termination Date. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "Letter Agreement" means the letter agreement dated September 28, 1984 between the Borrower and Sears, as amended as of October 17, 1991, and as the same may further be amended from time to time in accordance with the terms thereof and of Section 5.05. "LIBOR Auction" means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.03. "Lien" means (i) any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of any asset recorded as such on the financial statements of the Borrower or any Subsidiary or (ii) the interest of a vendor or lessor under any conditional sales agreement, capital lease or other title retention agreement relating to any asset recorded as such on the financial statements of the Borrower or any Subsidiary. "Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money Market Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money Market Loans or any combination of the foregoing. "London Interbank Offered Rate" has the meaning set forth in Section 2.07(c). "Margin Stock" has the meaning set forth in Regulation U. "Material Company" means any of the Borrower, any Subsidiary, Sears, any Person of which Sears is a subsidiary or any Material Sears Subsidiary. "Material Company Material Debt" means any Debt or Debts of any Material Company other than the Borrower or any Subsidiary, arising in one or more related or unrelated transactions, in an aggregate principal amount not less than $100,000,000. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $75,000,000. "Material Sears Subsidiary" means any Sears Subsidiary having consolidated total assets in excess of $6,000,000,000 at the time of any determination of its status hereunder. "Material SRAC Debt" means any Debt or Debts or SRAC Subordinated Debt of the Borrower and/or one or more Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal amount not less than $50,000,000 (other than the Loans). "Money Market Absolute Rate" has the meaning set forth in Section 2.03(d). "Money Market Absolute Rate Loan" means a loan to be made by a Bank pursuant to an Absolute Rate Auction. "Money Market Lending Office" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Administrative Agent; provided that any Bank may from time to time by notice to the Borrower and the Administrative Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Money Market LIBOR Loan" means a loan to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.01(a)). "Money Market Loan" means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan. "Money Market Margin" has the meaning set forth in Section 2.03(d). "Money Market Quote" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.03. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "Non-U.S. Bank" shall mean any Bank other than a Bank that is organized under the laws of the United States or any State thereof or the District of Columbia. "Notes" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto (either immediately before giving effect to the Agreement or after giving effect thereto), evidencing the obligation of the Borrower to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" means a Notice of Committed Borrowing (as defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in Section 2.03(f)). "Notice of Interest Rate Election" has the meaning set forth in Section 2.10. "Obligor" means, with respect to any Account, the Person or Persons obligated to make payments with respect to such Account, including any guarantor thereof. "Parent" means, with respect to any Bank, any Person controlling such Bank. "Participant" has the meaning set forth in Section 9.06(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Prime Rate" means the rate of interest publicly announced by The Chase Manhattan Bank in New York City from time to time as its Prime Rate. "Receivable" means, at any date, any amounts owing at such date by the Obligors under an Account, including, without limitation, amounts owing for the payment of goods and services, cash advances, if applicable, finance charges and other charges, if any. "Reference Banks" means the CD Reference Banks or the Euro-Dollar Reference Banks, as the context may require, and "Reference Bank" means any one of such Reference Banks. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Banks" means at any time Banks having at least 66-2/3% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes evidencing at least 66-2/3% of the aggregate unpaid principal amount of the Loans. "Revolving Credit Period" means the period from and including the Effective Date to and including the Termination Date. "Sears" means Sears, Roebuck and Co., a New York corporation, and its successors. "Sears Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions are at the time directly or indirectly owned or controlled by Sears or one or more other Sears Subsidiaries, or by Sears and one or more other Sears Subsidiaries, provided that any such securities or other ownership interests held in a fiduciary capacity for others, or as portfolio investments, by Sears (to the extent it engages in a financial or insurance business) or by any Sears Subsidiary engaged in the insurance business or a financial business shall be disregarded for purposes of this definition. "SRAC Preferred Stock" means at any time one or more series of preferred stock of the Borrower outstanding at such time; provided that (i) neither the voluntary or involuntary liquidation preference nor the redemption price of all such preferred stock outstanding at any time shall exceed $150,000,000 and (ii) the terms of such preferred stock shall not grant voting rights to the holders thereof to elect members of the board of directors of the Borrower except the right to elect not more than the lesser of two members or 25% of the members of such board upon the failure of the Borrower to pay dividends or similar contingency. "SRAC Subordinated Debt" means any indebtedness for borrowed money of the Borrower to any of (w) Sears, (x) a Wholly-Owned Subsidiary of Sears, (y) a corporation of which Sears is a Wholly-Owned Subsidiary or (z) a Wholly-Owned Subsidiary of a corporation described in clause (y) above, evidenced by notes or other evidences of indebtedness for borrowed money which is made subordinate and junior in right of payment to the Notes and such other indebtedness for borrowed money of the Borrower as may be specified (whether expressly or by category) in the instruments evidencing such indebtedness (the Notes and all other obligations of the Borrower hereunder and such other indebtedness of the Borrower to which the SRAC Subordinated Debt is subordinate and junior being herein called "Superior Debt") by provisions no less favorable to the holders of the Superior Debt than those set forth in Exhibit J. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. "Syndication Agent" means Citibank N.A., in its capacity as syndication agent hereunder. "Termination Date" means November 29, 1999 or, if such date is not a Euro-Dollar Business Day, then the next preceding Euro-Dollar Business Day. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all benefits under such Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "Wholly-Owned Subsidiary" of a given Person means any Person all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the given Person or one or more other Wholly-Owned Subsidiaries or by the given Person and one or more other Wholly-Owned Subsidiaries. Section 1.2. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with U.S. generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited financial statements delivered to the Banks by the Borrower pursuant to this Agreement; provided that, if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any provision hereof to eliminate the effect of any change after the date hereof in such generally accepted accounting principles (which, for purposes of this proviso shall include the generally accepted application or interpretation thereof) on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Banks wish to amend any such provision for such purpose), then such provision shall be interpreted and the Borrower's compliance with such provision shall be determined, and all accounting determinations with respect thereto shall be made, on the basis of such generally accepted accounting principles in effect immediately before the relevant change in such generally accepted accounting principles became effective, until either such notice is withdrawn or such provision is amended in a manner satisfactory to the Borrower and the Required Banks. ARTICLE 2 The Credits Section 2.1. Commitments to Lend. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section from time to time during the Revolving Credit Period in amounts such that the aggregate principal amount of Committed Loans by such Bank at any one time outstanding shall not exceed the amount of its Commitment. Each Borrowing under this Section shall be in a minimum amount of $25,000,000 or any larger multiple of $5,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.02(b)) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, prepay Loans (to the extent permitted by Section 2.11) and reborrow at any time during the Revolving Credit Period under this Section. Section 2.2. Notice of Committed Borrowing. The Borrower shall give the Administrative Agent notice, substantially in the form attached hereto as Exhibit B (a "Notice of Committed Borrowing"), not later than 11:00 A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y) the second Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (i) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (ii) the aggregate amount of such Borrowing, (iii) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate or at a rate based upon the CD Base Rate or the London Interbank Offered Rate, and (iv) in the case of a Fixed Rate Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. Section 2.3. Money Market Borrowings. (a) The Money Market Option. In addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth in this Section, request the Banks during the Revolving Credit Period to make offers to make Money Market Loans to the Borrower. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) Money Market Quote Request. When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Administrative Agent by telex or facsimile transmission a Money Market Quote Request substantially in the form of Exhibit D hereto so as to be received no later than 10:00 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $25,000,000 or a larger multiple of $5,000,000 (or an amount equal to the aggregate amount available in accordance with Section 3.02(b), if less than $25,000,000), (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given until the Borrower has notified the Administrative Agent of its acceptance or non- acceptance of the Money Market Quotes relating to any outstanding Money Market Quote Request. (c) Invitation for Money Market Quotes. Promptly upon receipt of a Money Market Quote Request, the Administrative Agent shall send to the Banks by telex or facsimile transmission an Invitation for Money Market Quotes substantially in the form of Exhibit E hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) Submission and Contents of Money Market Quotes. (i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Administrative Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market Quotes submitted by the Administrative Agent (or any affiliate of the Administrative Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Administrative Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction. Subject to Articles III and VI, any Money Market Quote so made shall be irrevocable except with the written consent of the Administrative Agent given on the instructions of the Borrower. (ii)Each Money Market Quote shall be in substantially the form of Exhibit F hereto and shall in any case specify: (A) the proposed date of Borrowing, (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate, (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "Money Market Absolute Rate") offered for each such Money Market Loan, and (E) the identity of the quoting Bank. A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes. (iii) Any Money Market Quote shall be disregarded if it: (A) is not substantially in conformity with Exhibit F hereto or does not specify all of the information required by subsection (d)(ii); (B) contains qualifying, conditional or similar language; (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in subsection (d)(i). (e) Notice to Borrower. The Administrative Agent shall promptly notify the Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Administrative Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Administrative Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered, and the identity of the respective Banks submitting such offers, and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. (f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Administrative Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e). In the case of acceptance, such notice (a "Notice of Money Market Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that: (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request, (ii)the principal amount of each Money Market Borrowing must be (A) $25,000,000 or a larger multiple of $5,000,000, (B) an amount equal to the aggregate amount available in accordance with Section 3.02(b), if less than $25,000,000 or (C) the aggregate principal amount of offers, if less than both $25,000,000 and the amount referred to in clause (B), (iii) acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be, and (iv)the Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement. (g) Allocation by Administrative Agent. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Administrative Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Administrative Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Administrative Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. Section 2.4. Notice to Banks; Funding of Loans. (a) Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than (x) 1:00 P.M. (New York City time) on the date of each Base Rate Borrowing, (y) 12:00 Noon (New York City time) on the date of any Money Market Absolute Rate Borrowing and (z) 11:00 A.M. (New York City time) on the date of any other Borrowing, each Bank shall make available its ratable share of such Borrowing, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address specified in or pursuant to Section 9.01. Unless the Administrative Agent determines that any applicable condition specified in Article III has not been satisfied, the Administrative Agent will make the funds so received from the Banks available to the Borrower promptly after the Administrative Agent's receipt thereof at the Administrative Agent's aforesaid address. (c) Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing (or, in the case of any Base Rate Borrowing, prior to 11:00 A.M. (New York City time) on the date of such Borrowing) that such Bank will not make available to the Administrative Agent such Bank's share of such Borrowing, the Administrative Agent may assume that such Bank has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsection (b) of this Section 2.04 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Administrative Agent, the Administrative Agent shall notify the Borrower thereof as soon as practicable, and such Bank and the Borrower severally agree to repay to the Administrative Agent forthwith on demand (delivered, in the case of the Borrower, in accordance with the next succeeding sentence) such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.07 and (ii) in the case of such Bank, the Federal Funds Rate. Any such demand for repayment shall be made first upon such Bank and, if such Bank shall have failed to repay such amount within two Euro-Dollar Business Days after such demand, then upon the Borrower. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. Section 2.5. Notes. (a) The Loans of each Bank shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Each Bank may, by notice to the Borrower and the Administrative Agent, request that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.01(b), the Administrative Agent shall mail such Note to such Bank. Each Bank shall record the date and amount of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. Section 2.6. Mandatory Termination of Commitments and Repayment of Loans. Each Money Market Loan included in any Money Market Borrowing shall mature, and the principal amount thereof (together with accrued interest thereon) shall be due and payable, on the last day of the Interest Period applicable to such Money Market Borrowing. The Commitment for each Bank shall terminate on the Termination Date, and all Loans (including without limitation any Money Market Loans) then outstanding (together with accrued interest thereon) shall be due and payable on such date. Section 2.7. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable monthly in arrears on the date in each calendar month that numerically corresponds to the date such Loan is made (or, in the case of any calendar month in which there is no such date, on the last day of such month) and on each date a Base Rate Loan is converted to a Fixed Rate Loan. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each CD Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the CD Margin plus the Adjusted CD Rate applicable to such Interest Period; provided that if any CD Loan or any portion thereof shall, as a result of clause (2)(b) of the definition of Interest Period, have an Interest Period of less than 30 days, such portion shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 90 days, at intervals of 90 days after the first day thereof. Any overdue principal of or interest on any CD Loan of any Bank shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the CD Margin plus the Adjusted CD Rate applicable to such Loan on the day before such payment was due and (ii) the rate applicable to Base Rate Loans for such day. The "Adjusted CD Rate" applicable to any Interest Period means a rate per annum determined pursuant to the following formula: * ACDR = Adjusted CD Rate CDBR = CD Base Rate DRP = Domestic Reserve Percentage AR = Assessment Rate * The amount in brackets being rounded upward, if necessary, to the next higher 1/100 of 1%. The "CD Base Rate" applicable to any Interest Period is the rate of interest determined by the Administrative Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of recognized standing for the purchase at face value from each CD Reference Bank of its certificates of deposit in an amount comparable to the principal amount of the CD Loan of such CD Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period. The "CD Margin" means 0.375%. "Domestic Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Domestic Reserve Percentage. "Assessment Rate" means for any day the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. 327.4(a) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of such institution in the United States. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate. (c) Each Euro-Dollar Loan of any Bank shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin plus the London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. The "London Interbank Offered Rate" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. The "Euro-Dollar Margin" means 0.25%. (d) Any overdue principal of or interest on any Euro-Dollar Loan of any Bank shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the Euro-Dollar Margin plus the London Interbank Offered Rate applicable to such Loan on the day before such payment was due and (ii) the Euro-Dollar Margin plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than six months as the Administrative Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Euro-Dollar Reference Banks are offered to such Euro-Dollar Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day). (e) Subject to Section 8.01(a), each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(c) as if the related Money Market LIBOR Borrowing were a Committed Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.03. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.03. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Money Market Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the Base Rate for such day. (f) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower (by facsimile) and the Banks (by telex or facsimile) of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. The Administrative Agent will, at the request of the Borrower, furnish such additional information concerning the calculation of the interest rate on any Fixed Rate Loan as the Borrower may reasonably request. (g) Each Reference Bank agrees to use its best efforts to furnish quotations to the Administrative Agent as contemplated hereby. If any Reference Bank does not furnish a timely quotation, the Administrative Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. Section 2.8. Facility Fee. The Borrower shall pay to the Administrative Agent for the account of each Bank a facility fee for each day at a rate per annum of 0.07% (x) from and including the Effective Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety), on the daily amount of such Bank's Commitment (whether used or unused) and (y) from and including the Termination Date (or such earlier date of termination) to but excluding the date the Loans shall be repaid in their entirety, on the daily outstanding principal amount of the Loans of such Bank. Accrued fees under this Section shall be payable quarterly on each March 31, June 30, September 30 and December 31 prior to the Termination Date and upon the date of termination of the Commitments in their entirety (and, if later, the date the Loans shall be repaid in their entirety). Section 2.9. Optional Termination or Reduction of Commitments . During the Revolving Credit Period, the Borrower may, upon at least three Domestic Business Days' notice to the Administrative Agent (and the Administrative Agent shall promptly notify the Banks of such notice), (i) terminate the Commitments at any time, if no Loans are outstanding at such time or (ii) proportionately reduce from time to time by an aggregate amount of $25,000,000 or any larger multiple of $5,000,000, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans. If the Commitments are terminated in their entirety, all accrued fees shall be payable on the effective date of such termination. Section 2.10. Method of Electing Interest Rates. (a) The Loans included in each Committed Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Committed Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Committed Loans (subject in each case to the provisions of Article VIII), as follows: (i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to CD Loans as of any Domestic Business Day or to Euro-Dollar Loans as of any Euro-Dollar Business Day; (ii) if such Loans are CD Loans, the Borrower may elect to convert such Loans to Base Rate Loans or Euro-Dollar Loans or elect to continue such Loans as CD Loans for an additional Interest Period, in each case effective on the last day of the then current Interest Period applicable to such Loans; or (iii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans or CD Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, in each case effective on the last day of the then current Interest Period applicable to such Loans. Each such election shall be made by delivering a notice substantially in the form attached hereto as Exhibit C (a "Notice of Interest Rate Election") to the Administrative Agent at least three Euro-Dollar Business Days before the conversion or continuation selected in such notice is to be effective (unless the relevant Loans are to be converted from Domestic Loans to Domestic Loans of the other type or continued as Domestic Loans of the same type for an additional Interest Period, in which case such notice shall be delivered to the Administrative Agent at least three Domestic Business Days before such conversion or continuation is to be effective). A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each $25,000,000 or any larger multiple of $5,000,000. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Committed Loans (or portion thereof) to which such notice applies; (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection (a) above; (iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if such new Loans are Fixed Rate Loans, the duration of the initial Interest Period applicable thereto; and (iv) if such Loans are to be continued as CD Loans or Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. (c) Upon receipt of a Notice of Interest Rate Election from the Borrower pursuant to subsection (a) above, such notice shall not thereafter be revocable by the Borrower and the Administrative Agent shall promptly notify each Bank of the contents thereof. If the Borrower fails to deliver a timely Notice of Interest Rate Election to the Administrative Agent for any Group of Fixed Rate Loans, such Loans shall be converted into Base Rate Loans on the last day of the then current Interest Period applicable thereto. (d) An election by the Borrower to change or continue the rate of interest applicable to any Group of Loans pursuant to this Section 2.10 shall not constitute a "Borrowing" subject to the provisions of Section 3.02. Section 2.11. Optional Prepayments. (a) The Borrower may, upon at least one Domestic Business Day's notice to the Administrative Agent, prepay a Group of Base Rate Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.01(a)) in whole at any time, or from time to time in part in amounts aggregating $25,000,000 or any larger multiple of $5,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group. (b) The Borrower may, upon at least three Domestic Business Days' notice to the Administrative Agent, in the case of a Group of CD Loans or upon at least three Euro-Dollar Business Days' notice to the Administrative Agent, in the case of a Group of Euro-Dollar Loans, prepay the Loans comprising such Group in whole at any time, or from time to time in part, in amounts aggregating $25,000,000 or any larger multiple of $5,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment; provided that in the case of any such prepayment in whole or in part on any day other than the last day of any Interest Period applicable to such Group of Loans, the Borrower shall reimburse each Bank for any loss or expense incurred by it as a result of any such prepayment in accordance with Section 2.13. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group. The Borrower may not prepay all or any portion of the principal amount of any Money Market Loan (other than any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.01(a)) prior to the maturity thereof. (c) Upon receipt of a notice of prepayment pursuant to this Section, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower. Section 2.12. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 11:00 A.M. (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address referred to in Section 9.01. The Administrative Agent will promptly distribute to each Bank its ratable share of each such payment received by the Administrative Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Money Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate. Section 2.13. Funding Losses. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is converted to a Base Rate Loan (pursuant to Article VI or VIII or otherwise, but excluding any payment pursuant to Section 2.06) on any day other than the last day of an Interest Period applicable thereto, or the end of an applicable period fixed pursuant to Section 2.07(d), or if the Borrower fails to borrow or prepay any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.04(a) or 2.11(c), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it, including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or conversion or failure to borrow or prepay, provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error, and provided further that such loss shall in no event exceed the interest which would have been payable for the balance of such Interest Period or other period, less the applicable CD Margin or Euro-Dollar Margin, as the case may be. Such Bank will, at the request of the Borrower, furnish such additional information concerning the determination of such loss as the Borrower may reasonably request. Section 2.14. Computation of Interest and Fees. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). Section 2.15. Taxes. (a) All payments of principal, interest and fees to be made by the Borrower or the Administrative Agent (in respect of such amounts received by it from the Borrower) pursuant to this Agreement to any Bank with respect to any Loan or fee shall be made free and clear of and without reduction or withholding for or on account of any present or future income, excise, or other taxes, levies, imposts, duties, charges, or fees of whatever nature now or hereafter imposed by any governmental or other taxing authority, excluding any taxes on or measured by overall net income (all such non-excluded taxes, levies, imposts, deductions, charges or withholdings, "Taxes"), unless the withholding or other payment of such Taxes is required by applicable law. In the event that the Borrower or the Administrative Agent is required by applicable law to make any such withholding or deduction of Taxes with respect to any Loan or fee, the Borrower shall pay to the Administrative Agent or such Bank additional amounts as may be necessary in order that the net amount received by such Administrative Agent or Bank after the required withholding or other payment (including any required withholding or other payment on such additional amounts) shall equal the amount the Administrative Agent or such Bank would have received had no such withholding or other payment been made; provided, however, that no such additional amounts shall be paid by the Borrower (i) except on account of Taxes imposed by the United States (or any political subdivision, possession, territory or taxing authority thereof or therein) and (ii) on account of any federal withholding tax imposed by the United States of America ("United States Tax"): (1) if such Bank or a Participant of such Bank shall have delivered Internal Revenue Service Form 4224 ("Form 4224") to the Borrower pursuant to clause (b) or (c) of this Section 2.15 and such Bank or Participant shall at any time not be entitled to complete exemption from United States Tax for any reason other than a change in United States federal income tax law, regulation or official interpretation of such law after the date hereof (or, in the case of any Assignee or Participant, the date of the relevant assignment or participation agreement); or (2) if such Bank or a Participant of such Bank shall have delivered Internal Revenue Service Form 1001 ("Form 1001") to the Borrower pursuant to clause (b) or (c) of this Section 2.15 and such Bank or Participant shall at any time not be entitled to complete exemption from United States Tax for any reason other than (i) an amendment, modification or revocation of an applicable income tax convention or a change in official position regarding the application or interpretation of such treaty after the date hereof (or, in the case of any Assignee or Participant, the date of the relevant assignment or participation agreement) or (ii) a change in United States federal income tax laws, regulation or official interpretation of such law after the date hereof (or, in the case of any Assignee or Participant, the date of the relevant assignment or participation agreement); or (3) if such Bank or a Participant of such Bank shall have failed to comply with its obligations pursuant to clause (b) or (c) of this Section 2.15. (b) Each Bank that is a Non-U.S. Bank hereby severally covenants and agrees to and for the benefit of the Borrower and the Administrative Agent that (1) at, or prior to, the Effective Date, such Non-U.S. Bank shall have delivered to both the Borrower and the Administrative Agent either: (i) two accurate and complete original signed copies of Form 1001, appropriately completed and claiming complete exemption from withholding and deduction of United States Taxes, with respect to each three-year calendar period, any portion of which falls within the Revolving Credit Period, dated as of the date hereof; or (ii) two accurate and complete original signed copies of Form 4224, appropriately completed and claiming complete exemption from withholding and deduction of United States Taxes, with respect to each tax year of such Bank, any portion of which falls within the Revolving Credit Period, dated as of the date hereof; and (2) in each fiscal year of such Bank after the Effective Date, at or prior to the first scheduled payment date in such fiscal year, such Non-U.S. Bank shall have delivered to both the Borrower and the Administrative Agent either: (i) two accurate and complete original signed copies of Form 1001, appropriately completed and claiming complete exemption from withholding and deduction of United States Taxes, with respect to the three-year calendar period commencing with the then current calendar year; or (ii) two accurate and complete original signed copies of Form 4224, appropriately completed and claiming complete exemption from withholding and deduction of United States Taxes, with respect to such Bank's then current tax year. (c) Each Non-U.S. Bank severally covenants and agrees to deliver to the Borrower and the Administrative Agent: (1) before or promptly after the date on which any form previously delivered by such Bank pursuant to Section 2.15(b) may no longer be relied upon by the Borrower and the Administrative Agent as a result of an act by such Bank, two accurate and complete original signed copies of Form 1001 or Form 4224 (or such additional or successor forms as shall be adopted from time to time by the relevant United States taxing authorities), appropriately completed and claiming complete exemption from withholding and deduction of United States Taxes, to replace the like form previously delivered by such Non-U.S. Bank; and (2) if any form previously delivered by such Non-U.S. Bank pursuant to Section 2.15(b) may no longer be relied upon by the Borrower and the Administrative Agent for any reason (other than as a result of an act by the Bank), two accurate and complete original signed copies of Form 4224 or Form 1001, as the case may be, (or such additional or successor forms as shall be adopted from time to time by the relevant United States taxing authorities), appropriately completed and claiming complete exemption from withholding and deduction of United States Taxes, as the Borrower or the Administrative Agent may reasonably request. Notwithstanding the foregoing subsections (b)(2), (c)(1) and (c)(2) of this Section 2.15, a Non-U.S. Bank will not be required to provide a form if due to any change in treaty, law or regulation or official interpretation that occurred after the date hereof (or, in the case of any Non-U.S. Bank that is an Assignee or any Participant complying with subsections (b)(2), (c)(1) and (c)(2) of this Section 2.15 pursuant to Section 9.06(b), the date of the relevant assignment or participation agreement) and prior to the date on which any such delivery would otherwise be required, all such forms are inapplicable or such Bank is not entitled to any exemption from the United States Tax as claimed in the form previously delivered. In any such case, each Non-U.S. Bank shall provide such forms as the Borrower or the Administrative Agent may reasonably request to establish entitlement, if any, to any reduction in United States Tax to which such Bank may be entitled from and after the occurrence of any such change in treaty, law or regulation. (d) In the event that the Borrower will be required to pay an additional amount pursuant to Section 2.15(a) to any Bank, the Borrower shall have the rights set forth in Section 8.05. The agreements in this Section 2.15 shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. Section 2.16. Regulation D Compensation. For so long as any Bank is required to maintain reserves against "Eurocurrency liabilities" (or any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of such Bank to United States residents), and, as a result, the cost to such Bank (or its Euro-Dollar Lending Office) of making or maintaining its Euro-Dollar Loans is increased, then such Bank may require the Borrower to pay, contemporaneously with each payment of interest on the Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such Bank at a rate per annum up to but not exceeding the excess of (i) (A) the applicable London Interbank Offered Rate divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank wishing to require payment of such additional interest (x) shall so notify the Borrower and the Administrative Agent, in which case such additional interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at the place indicated in such notice with respect to each Interest Period commencing at least three Euro-Dollar Business Days after the giving of such notice and (y) shall furnish to the Borrower at least five Euro-Dollar Business Days prior to each date on which interest is payable on the Euro-Dollar Loans an officer's certificate setting forth the amount to which such Bank is then entitled under this Section (which shall be consistent with such Bank's good faith estimate of the level at which the related reserves are maintained by it). Each such certificate shall be accompanied by such information as the Borrower may reasonably request as to the computation set forth therein. Section 2.17. Optional Increase in Commitments. At any time, if no Default shall have occurred and be continuing, the Borrower may, if it so elects, increase the aggregate amount of the Commitments, either by designating a bank not theretofore a Bank to become a Bank (such designation to be effective only with the prior written consent of the Administrative Agent, which consent will not be unreasonably withheld) or by agreeing with an existing Bank that such Bank's Commitment shall be increased. Upon execution and delivery by the Borrower and such Bank or other bank of an instrument in form satisfactory to the Administrative Agent, such existing Bank shall have a Commitment as therein set forth or such other bank shall become a Bank with a Commitment as therein set forth and all the rights and obligations of a Bank with such a Commitment hereunder; provided that: (a) the Borrower shall provide prompt notice of such increase to the Administrative Agent, who shall promptly notify the Banks; (b) no Commitment of any Bank shall exceed, as a result of such increase, 20% of the aggregate amount of the Commitments (after giving effect to such increase); and (c) the amount of such increase, together with all other increases in the aggregate amount of the Commitments pursuant to this Section 2.17 since the date of this Agreement, does not exceed $250,000,000. Upon any increase in the aggregate amount of the Commitments pursuant to this Section 2.17, within five Domestic Business Days, in the case of any Group of Base Rate Loans then outstanding, and at the end of the then current Interest Period, in the case of each Group of Euro-Dollar Loans and Group of CD Loans then outstanding, the Borrower shall prepay or repay such Group in its entirety and, to the extent the Borrower elects to do so and subject to the conditions specified in Article III, the Borrower shall reborrow Committed Loans from the Banks in proportion to their respective Commitments after giving effect to such increase, until such time as all outstanding Committed Loans are held by the Banks in such proportion. ARTICLE 3 Conditions Section 3.1. Effectiveness of Agreement. This Agreement shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05): (a) receipt by the Administrative Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (b) receipt by the Administrative Agent for the account of each Bank of a duly executed Note dated on or before the Effective Date complying with the provisions of Section 2.05; (c) receipt by the Administrative Agent of an opinion of counsel for the Borrower, who may be Latham & Watkins or Senior Counsel for Sears, or a combination thereof, substantially in the form of Exhibit G hereto; (d) receipt by the Administrative Agent of an opinion of Davis Polk & Wardwell, special counsel for the Administrative Agent, substantially in the form of Exhibit H hereto; (e) receipt by the Administrative Agent, for its own account and for the account of the Banks parties thereto, of all fees payable on or before the Effective Date; and (f) receipt by the Administrative Agent of all documents it may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent; provided that the Agreement shall not become effective or be binding on any party hereto unless all of the foregoing conditions are satisfied not later than December 14, 1998. The Administrative Agent shall promptly notify the Borrower and the Banks of the Effective Date, and such notice shall be conclusive and binding on all parties hereto. Section 3.2. Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be; (b) the fact that, immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments; (c) the fact that, immediately before and after such Borrowing, there shall not have occurred and be continuing any Designated Default; (d) the fact that the representations and warranties of the Borrower contained in this Agreement (other than in Section 4.04(c) hereof) shall be true on and as of the date of such Borrowing; and (e) the fact that there shall have been no material adverse change in the business, consolidated financial position or Consolidated Net Income of the Borrower and its Consolidated Subsidiaries since July 4, 1998 not disclosed in writing to the Banks on or prior to the date of such Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (b), (c), (d) and (e) of this Section. For all purposes of this Agreement, (a) no change in consolidated financial position of the Borrower and its Consolidated Subsidiaries shall be deemed material and adverse unless such change is a reduction in Consolidated Stockholder's Equity of the Borrower and its Consolidated Subsidiaries of 5% or more as compared with Consolidated Stockholder's Equity as at the date of the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries most recently delivered under Section 4.04 or 5.01 hereof, (b) no change in Consolidated Net Income shall be deemed to be material and adverse unless such change is a reduction therein for a period of the four most recent full consecutive fiscal quarters in respect of which results of operations have been made available to the public ("most recent four quarters") of 25% or more as compared with Consolidated Net Income for the period of four consecutive fiscal quarters immediately preceding the most recent four quarters and (c) no change in business shall be deemed material and adverse unless it would be required to be disclosed in an annual report on Form 10-K (or successor reports) filed with the Commission on the date as of which the existence of a material adverse change is being determined. It is understood that, for all purposes of this Agreement, no change in business shall be deemed to be required to be so disclosed if, in the written opinion of counsel for the Borrower, the laws, rules and regulations then applicable to required disclosure in Forms 10-K (or successor reports) do not require such disclosure. Such an opinion will be deemed sufficient for purposes hereof if it shall be based on (i) such investigation of law as such counsel shall have deemed necessary in the circumstances and (ii) facts as certified in writing to such counsel by officers of the Borrower or its Affiliates, it being understood that counsel shall have no duty to independently verify any such facts. In case Borrower relies on such an opinion of counsel, it will promptly distribute a copy thereof to each Bank. ARTICLE 4 Representations and Warranties The Borrower represents and warrants that: Section 4.1. Corporate Existence and Power. The Borrower has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware with full corporate power to conduct its business as presently conducted. Section 4.2. Corporate and Governmental Authorization; No Contravention. (a) The Borrower has full corporate power to enter into this Agreement and to issue the Notes and to comply with all of the provisions of this Agreement and the Notes, and all necessary corporate proceedings of the Borrower have been duly taken to authorize the execution, delivery and performance of this Agreement and the issuance of the Notes by the Borrower. (b) The issuance by the Borrower of the Notes and compliance by the Borrower with all of the provisions of this Agreement will not conflict with or result in a breach which would constitute a material default under, or result in the creation or imposition of any Lien, charge or encumbrance upon any of the property or assets of the Borrower, material to the Borrower, pursuant to the terms of, any indenture, loan agreement, or other agreement or instrument for borrowed money to which the Borrower is a party or by which the Borrower may be bound or to which any of the property or assets of the Borrower, material to the Borrower, is subject, nor will such action result in any material violation of the provisions of the Certificate of Incorporation or the By-Laws of the Borrower or any statute or any order, rule or regulation applicable to the Borrower of any court or any Federal, state or other regulatory authority or other governmental body having jurisdiction over the Borrower, and no consent, approval, authorization or other order of, or filing with, any court or any such regulatory authority or other governmental body is required for the issuance by the Borrower of the Notes and the compliance by the Borrower with all of the provisions of this Agreement; provided, that the Borrower makes no representations or warranties with respect to any usury laws or any securities or blue sky laws of political subdivisions of the United States or any laws or treaties of any country (or political subdivision thereof) other than the United States. Section 4.3. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower and the Notes, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower. The Letter Agreement is in full force and effect and constitutes a valid and binding agreement of the Borrower and Sears. Section 4.4. Financial Information. (a) The statement of financial position of the Borrower as of January 3, 1998 and the related statements of income, shareholder's equity and cash flows for the fiscal year then ended, reported on by Deloitte & Touche LLP and set forth in the Borrower's 1997 Form 10-K, a copy of which has been delivered to the Administrative Agent for each of the Banks, present fairly in all material respects, in conformity with generally accepted accounting principles, the financial position of the Borrower as of such date and its results of operations and cash flows for such fiscal year. (b) The unaudited statement of financial position of the Borrower as of July 4, 1998 and the related unaudited statements of income and cash flows for the 26 weeks then ended, set forth in the Borrower's quarterly report for the 13 week period ended July 4, 1998 as filed with the Commission on Form 10-Q, a copy of which (excluding the exhibits thereto) has been delivered to the Administrative Agent for each of the Banks, present fairly in all material respects, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the financial position of the Borrower as of such date and its results of operations and cash flows for such 26 week period (subject to normal year-end adjustments). (c) Since July 4, 1998, there has been no material adverse change in the business, financial position or results of operations of the Borrower not disclosed in writing to the Banks prior to the date of this Agreement. Section 4.5. Litigation. The Borrower does not know of any pending legal or governmental proceeding required to be described in the Annual Report on Form 10-K of the Borrower most recently filed with the Commission pursuant to the Exchange Act, or in the Quarterly Reports on Form 10-Q of the Borrower filed with the Commission pursuant to the Exchange Act subsequent thereto, which is not described as required, and the Borrower does not know of any pending legal or governmental proceedings not so described which would be required to be described in a subsequent filing with the Commission and which have not been previously disclosed in writing to the Banks. Section 4.6. Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. Section 4.7. Environmental Matters. The Borrower has reasonably concluded that Environmental Laws are unlikely to have a material adverse effect on the business, consolidated financial condition or results of operations of the Borrower and its Consolidated Subsidiaries. Section 4.8. Taxes. All United States Federal income tax returns and all other material tax returns which are required to be filed have been filed by or on behalf of the Borrower and its Subsidiaries and all taxes due with respect to the Borrower and its Subsidiaries pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary have been paid. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. Section 4.9. Subsidiaries. At the date of this Agreement, the Borrower has no Subsidiaries. If during the term of this Agreement, the Borrower shall acquire or otherwise come to have one or more Subsidiaries, each of such corporate Subsidiaries shall be a corporation duly incorporated and validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, and shall have full corporate powers to conduct its business as conducted. Section 4.10. Full Disclosure. All written factual information heretofore furnished by the Borrower to the Administrative Agent or any Bank for purposes of or in connection with this Agreement was true and accurate in all material respects on the date as of which such information was stated or certified; provided that the Borrower makes no representations or warranties with respect to any projections or other non- factual information contained in any such information. ARTICLE 5 Covenants The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: Section 5.1. Information. The Borrower will deliver to each of the Banks: (a) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a statement of financial position of the Borrower as of the end of such fiscal year and the related statements of income, shareholder's equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Deloitte & Touche LLP or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a statement of financial position of the Borrower as of the end of such quarter and the related statements of income, shareholder's equity and cash flows for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Borrower's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.10 and 5.11 on the date of such financial statements and (ii) stating whether any Event of Default or any event or condition which, with the giving of notice or lapse of time or both, would become an Event of Default, exists on the date of such certificate and, if any Event of Default or any such event or condition then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements to the effect that in the course of their examination of such statements, nothing came to their attention that caused them to believe that the Borrower was not in compliance with any of the terms, covenants, provisions or conditions of Sections 5.01 to 6.01, inclusive, insofar as such terms, covenants, provisions or conditions came within the scope of their examination; (e) within five days after any officer of the Borrower obtains knowledge of any Event of Default or any event or condition which, with the giving of notice or lapse of time or both, would become an Event of Default, if such Event of Default or event or condition is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (f) promptly after the commencement thereof, notice of all actions, suits or proceedings of the type described in Section 4.05; (g) promptly after the filing thereof, copies (without exhibits thereto) of all registration statements (other than any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the Commission; (h) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; and (i) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Administrative Agent, at the request of any Bank, may reasonably request. If during the term of this Agreement, the Borrower shall acquire or otherwise come to have one or more Subsidiaries, the financial statements required to be delivered pursuant to clauses (a) and (b) above shall be consolidated financial statements of the Borrower and its Consolidated Subsidiaries. Section 5.2. Maintenance of Property; Insurance. (a) The Borrower will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower will insure or act as self-insurer, and will cause each Subsidiary to insure or act as self-insurers, to such extent as the Borrower may determine to be not unreasonably prejudicial to the interests of the Banks. Section 5.3. Conduct of Business and Maintenance of Existence . Subject to Section 5.07, the Borrower will, and will cause each Subsidiary to, engage exclusively in (i) the business now conducted by the Borrower, including the extension of credit to Sears pursuant to the Letter Agreement, (ii) the purchase of Receivables from Sears or its Affiliates on terms and conditions reasonably determined by the Borrower to be substantially as favorable to the Borrower or such Subsidiary as the terms and conditions which would apply in a similar transaction with a Person that is not an Affiliate of the Borrower and/or (iii) insurance or financial activities supporting businesses conducted by Sears or any of its Affiliates. Subject to Section 5.07, the Borrower will preserve, renew and keep in full force and effect, and will cause each Subsidiary to preserve, renew and keep in full force and effect their respective corporate existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that the Borrower may terminate the corporate existence of any Subsidiary if such termination could not reasonably be expected to have a material adverse effect on the business, consolidated financial position or consolidated net income of the Borrower and its Consolidated Subsidiaries taken as a whole, or otherwise to be materially disadvantageous to the Banks. Section 5.4. Compliance with Laws. The Borrower will make all good faith efforts to comply, and cause each Subsidiary to make all good faith efforts to comply, with all material applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings. Section 5.5. Letter Agreement. The Borrower will not, without the prior written consent of the Required Banks, amend, waive, terminate or otherwise modify any provision of the Letter Agreement; provided that the Borrower may amend the Letter Agreement to reduce the fixed charge coverage ratio set forth in paragraph 3 thereof to no less than 1.15. The Borrower will perform all its obligations under the Letter Agreement and will enforce the Letter Agreement and all notes and other instruments delivered thereunder against Sears in accordance with their respective terms. Section 5.6. Negative Pledge. Neither the Borrower nor any Subsidiary will create, assume or suffer to exist any Lien securing Debt on any asset now owned or hereafter acquired by it, except: (a) any Lien existing on the date of this Agreement; (b) any Lien existing on any asset of any corporation at the time such corporation becomes a Subsidiary and not created in contemplation of such event; (c) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset, provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition thereof; (d) any Lien on any asset of any corporation existing at the time such corporation is merged with or consolidated with or otherwise acquired by the Borrower or a Subsidiary and not created in contemplation of such event; (e) any Lien existing on any asset prior to the acquisition thereof by the Borrower or a Subsidiary and not created in contemplation of such acquisition; (f) any Lien on assets to secure obligations incurred in connection with the issuance of revenue bonds, interest on which is exempt from Federal income tax pursuant to Section 103(b) of the Internal Revenue Code; (g) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this Section, provided that such Debt is not increased and is not secured by any additional assets; (h) any Lien arising pursuant to any order of attachment, distraint or similar legal process arising in connection with court proceedings so long as the execution or other enforcement thereof is effectively stayed and the claims secured thereby are being contested in good faith by appropriate proceedings; (i) any Lien on Margin Stock, but only if the value of all such Margin Stock of the Borrower and its Subsidiaries exceeds 25% of the value of the total assets subject to this Section and then only to the extent of such excess; and (j) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt in an aggregate principal amount not to exceed 5% of Consolidated Tangible Net Worth at any time outstanding. Section 5.7. Consolidations, Mergers and Sales of Assets. The Borrower shall not merge or consolidate with, or sell or transfer all or substantially all of its property and assets to, any Person, except that nothing herein shall prevent any consolidation or merger of the Borrower with or into any other corporation organized under the laws of the United States or any state thereof which is (w) Sears, (x) a Wholly-Owned Subsidiary of Sears, (y) a corporation of which Sears is a Wholly-Owned Subsidiary or (z) a Wholly-Owned Subsidiary of a corporation described in clause (y) above, or any consolidation or merger of any other such corporation with or into the Borrower, or any sale or transfer of all or substantially all of the property and assets of the Borrower to any other such corporation lawfully entitled to acquire the same; provided, that (i) immediately after giving effect to such consolidation, merger, sale or transfer, no Designated Default shall have occurred and be continuing; and (ii) the Borrower covenants that any such consolidation, merger, sale or transfer shall be upon the conditions that the due and punctual payment of the principal and accrued interest on the Notes, and the due and punctual performance and observance of all the terms, covenants and conditions of this Agreement to be kept or performed by the Borrower shall, by an agreement supplemental hereto, be assumed by the corporation (other than the Borrower) formed by or resulting from any such consolidation or merger, or which shall have received the transfer of all or substantially all of the property and assets of the Borrower, just as fully and effectually as if such successor had been the original Borrower; and in the event of any such sale or transfer the predecessor Borrower may be dissolved, wound up and liquidated at any time thereafter. Section 5.8. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower for its general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock, other than in the ordinary course of business of Sears or any Sears Subsidiary and then only in compliance with Regulation U. Section 5.9. Subsidiary Debt. The Borrower will not permit any Subsidiary to issue, assume, incur or have outstanding any Debt or capital stock having any preference as to dividends or upon any distribution of assets except (a) such Debt or stock issued to and held by Borrower and/or one or more Wholly-Owned Subsidiaries of the Borrower, (b) such Debt or stock of a Subsidiary whose business activities are confined exclusively to raising capital outside the United States, financing the Borrower and its other Subsidiaries and other activities incidental thereto, (c) such Debt or stock of a Person existing at the time such Person is merged or consolidated with or otherwise acquired by the Borrower or a Subsidiary and not created in contemplation thereof and (d) other such Debt or stock which, in the aggregate, does not exceed at any time 5% of Consolidated Tangible Net Worth (with such stock taken at the higher of its voluntary or involuntary liquidation preference), it being understood that such Debt and stock referred to in clauses (b), (c) and (d) shall be permitted under this Section only if, at the time, the provisions of this Agreement other than this Section would permit the Borrower to issue, assume, incur or have outstanding an equal amount of its own Debt in the same amount together with all other Debt of the Borrower then outstanding. Section 5.10. Fixed Charge Coverage. The Fixed Charge Coverage Ratio for any fiscal quarter will be not less than 1.15. Section 5.11. Debt. Consolidated Debt will at no time exceed 700% of Consolidated Tangible Net Worth. For purposes of this Section any preferred stock of a Consolidated Subsidiary held by a Person other than the Borrower or a Wholly-Owned Subsidiary of the Borrower that is a Consolidated Subsidiary shall be included, at the higher of its voluntary or involuntary liquidation value, in "Consolidated Debt" and in the "Debt" of such Consolidated Subsidiary. ARTICLE 6 Defaults Section 6.1. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay (i) any principal of any Loan when due or (ii) any interest on any Loan or any fee or any other amount payable by it hereunder within ten days after the due date thereof; (b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.05 to 5.11, inclusive, for more than five days; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after written notice thereof has been given to the Borrower by the Administrative Agent at the request of any Bank; (d) any representation, warranty, certification or statement made by the Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made); (e) (i) the Borrower or any Subsidiary shall fail to make any payment in respect of any Material SRAC Debt within three Domestic Business Days after the date when due (or, if longer, within any applicable grace period provided in the relevant instrument or agreement with respect thereto); or (ii) any Material Company other than the Borrower or any Subsidiary shall fail to make any payment in respect of any Material Company Material Debt within three Domestic Business Days after the date when due (or, if longer, within any applicable grace period provided in the relevant instrument or agreement with respect thereto); (f) any event or condition shall occur which results in the acceleration of the maturity of (x) any Material SRAC Debt or (y) any Material Company Material Debt, in any case by holders thereof exercising their rights so to accelerate; (g) any Material Company shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against any Material Company seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 90 days; or an order for relief shall be entered against any Material Company (in an involuntary case or other proceeding against such Material Company) under the federal bankruptcy laws as now or hereafter in effect; (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $10,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $50,000,000; (j) a judgment or order for the payment of money in excess of $10,000,000 shall be rendered against the Borrower or any Subsidiary and such judgment or order shall continue unsatisfied and unstayed (pursuant to laws, rules or court orders) for a period of 10 days; (k) other than by reason of a transaction permitted by Section 5.07 in which Sears is the successor or transferee, either Sears or a corporation organized under the laws of the United States or any state thereof which is (i) a Wholly-Owned Subsidiary of Sears, (ii) any such corporation of which Sears is a Wholly-Owned Subsidiary or (iii) a Wholly-Owned Subsidiary of a corporation described in clause (ii) above, shall cease to own beneficially and free and clear of all Liens 100% of the issued and outstanding capital stock of the Borrower (or any transferee of the property and assets of the Borrower pursuant to a transaction permitted by Section 5.07), other than any SRAC Preferred Stock; or (l) the Letter Agreement shall for any reason cease to be in full force and effect; then, and in every such event, the Administrative Agent shall (i) if requested by the Required Banks, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by the Required Banks, by notice to the Borrower declare the Notes (together with accrued interest thereon) to be, and the Notes shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) above, without any notice to the Borrower or any other act by the Administrative Agent or the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. Section 6.2. Notice of Default. The Administrative Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE 7 The Administrative Agent Section 7.1. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Administrative Agent to take such action as administrative agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Administrative Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. Section 7.2. Administrative Agent and Affiliates. The Chase Manhattan Bank shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Administrative Agent, and The Chase Manhattan Bank and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if it were not the Administrative Agent hereunder. Section 7.3. Action by Administrative Agent. The obligations of the Administrative Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to take any action with respect to any Event of Default or any event or condition which, with the giving of notice or lapse of time or both, would become an Event of Default, except as expressly provided in Article VI. Section 7.4. Consultation with Experts. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable to any Bank for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. Section 7.5. Liability of Administrative Agent. Neither the Administrative Agent nor any of its directors, officers, agents, or employees shall be liable to any Bank for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article III, except receipt of items required to be delivered to the Administrative Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Administrative Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties. Section 7.6. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify the Administrative Agent (to the extent not reimbursed by the Borrower pursuant to a claim made by the Administrative Agent pursuant to Section 9.03) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from the Administrative Agent's gross negligence or willful misconduct) that the Administrative Agent may suffer or incur in connection with this Agreement or any action taken or omitted by the Administrative Agent hereunder. Section 7.7. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. Section 7.8. Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $100,000,000. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder; provided that until such acceptance, the retiring Administrative Agent shall continue to perform its obligations as Administrative Agent hereunder. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent. Section 7.9. Administrative Agent's Fee. The Borrower shall pay to the Administrative Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Administrative Agent. Section 7.10. Syndication Agent and Co- Documentation Agents. Neither the Syndication Agent nor either Co-Documentation Agent shall have any responsibility or obligation under this Agreement in its capacity as Syndication Agent or Co-Documentation Agent, as the case may be. ARTICLE 8 Change in Circumstances Section 8.1. Basis for Determining Interest Rate Inadequate or Unfair . If on or prior to the first day of any Interest Period for any Fixed Rate Borrowing: (a) the Administrative Agent is advised by the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the relevant market for such Interest Period, or (b) in the case of a Committed Borrowing, Banks having 50% or more of the aggregate amount of the Commitments advise the Administrative Agent that the Adjusted CD Rate or the London Interbank Offered Rate, as the case may be, as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Banks of funding their CD Loans or Euro-Dollar Loans, as the case may be, for such Interest Period, the Administrative Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, or to convert outstanding Loans into CD Loans or Euro-Dollar Loans, as the case may be, shall be suspended and (ii) each outstanding CD Loan or Euro-Dollar Loan, as the case may be, shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Administrative Agent at least one Domestic Business Day before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day. Section 8.2. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans, or to convert outstanding Loans into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Bank shall, if practicable, with the consent of the Borrower (which consent shall not unreasonably be withheld), designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, (i) the Borrower shall be entitled upon its request to a reasonable explanation of the factors underlying such notice and (ii) each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan to such day. Section 8.3. Increased Cost and Reduced Return. (a) In the event that (x) after the Effective Date, in the case of any Committed Loan or any obligation to make Committed Loans or (y) on or after the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change therein or in the interpretation or application thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by any Bank with any request or directive after the Effective Date (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) does or shall subject such Bank to any additional tax of any kind whatsoever with respect to this Agreement, any Note or any Fixed Rate Loan made by it, or change the basis or the applicable rate of taxation of payments to such Bank of principal, interest or any other amount payable hereunder (except for (A) the imposition of or change in any tax on or measured by the overall net income of such Bank, (B) the imposition of or change in any United States Tax described in Section 2.15(a) in respect of which the Borrower is not obligated to pay an additional amount by reason of the proviso to Section 2.15(a) or (C) the imposition of or change in any income tax imposed by any governmental or other taxing authority of or in any jurisdiction other than the United States); (ii) does or shall impose, modify or hold applicable any reserve, special deposit, insurance assessment, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Bank which are not otherwise included in the determination of the rate of interest on Fixed Rate Loans hereunder; or (iii) does or shall impose on such Bank any other condition; and the result of any of the foregoing is to increase the cost to such Bank of making or maintaining Fixed Rate Loans or to reduce any amount receivable hereunder or under any Note with respect thereto, then, in any such case, the Borrower shall promptly pay such Bank, upon its demand, any additional amounts necessary to compensate such Bank for such increased cost or reduced amount receivable which such Bank deems to be material as determined by such Bank with respect to its Fixed Rate Loans. (b) If any Bank shall have determined that, after the Effective Date, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the Effective Date, which will entitle such Bank to compensation pursuant to this Section and will, if practicable, with the consent of the Borrower (which consent shall not unreasonably be withheld), designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth in reasonable detail its computation of the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. Notwithstanding the foregoing subsections (a) and (b) of this Section 8.03, the Borrower shall only be obligated to compensate any Bank for any amount arising or accruing both: (i) during (A) any time or period commencing (x) in the case of subsection (a), not earlier than the first day of any Interest Period in effect on the date on which, and (y) in the case of subsection (b), not earlier than the date on which, such Bank notifies the Administrative Agent and the Borrower that it proposes to demand such compensation and identifies to the Administrative Agent and the Borrower the statute, regulation or other basis upon which the claimed compensation is or will be based and (B) any time or period during which, because of the retroactive application of such statute, regulation or other basis, such Bank did not know that such amount would arise or accrue; and (ii) within six months prior to any demand therefor, accompanied by a certificate of such Bank claiming compensation and setting forth in reasonable detail its computation of the additional amount or amounts to be paid to it hereunder. This Section shall survive the termination of this Agreement and payment of the outstanding Loans. Section 8.4. Base Rate Loans Substituted for Affected Fixed Rate Loans. If (i) the obligation of any Bank to make or maintain Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03(a) and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Administrative Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply: (a) all Loans which would otherwise be made by such Bank as (or continued as or converted into) CD Loans or Euro-Dollar Loans, as the case may be, shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks), and (b) after each of its CD Loans or Euro-Dollar Loans, as the case may be, has been repaid (or converted to a Base Rate Loan), all payments of principal which would otherwise be applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate Loans instead. If such Bank notifies the Borrower that the circumstances giving rise to such notice no longer apply, the principal amount of each such Base Rate Loan shall be converted into a CD Loan or Euro-Dollar Loan, as the case may be, on the first day of the next succeeding Interest Period applicable to the related CD Loans or Euro-Dollar Loans of the other Banks. Section 8.5. Substitution of Bank. If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02, (ii) any Bank has demanded compensation or given notice of its intention to demand compensation under Section 8.03 or (iii) the Borrower is required to pay any additional amount to any Bank pursuant to Section 2.15(a), the Borrower shall have the right, with the assistance of the Administrative Agent, to seek a mutually satisfactory substitute bank or banks (which may be one or more of the Banks) to replace such Bank under this Agreement. ARTICLE 9 Miscellaneous Section 9.1. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, facsimile transmission or similar writing) and shall be given to such party: (w) in the case of the Borrower, at its address or telecopy number set forth on the signature pages hereof, (x) in the case of the Administrative Agent, at its address, telecopy number or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address, telecopy number or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address, telecopy number or telex number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by telecopy or any other means, when delivered at the address specified in this Section (and confirmed by telephone by the sender, in the case of any telecopy notice to the Borrower); provided that notices to the Administrative Agent under Article II or Article VIII shall not be effective until received. Section 9.2. No Waivers. No failure or delay by the Administrative Agent or any Bank or the Borrower in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Section 9.3. Expenses; Documentary Taxes; Indemnification. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Administrative Agent, including fees and disbursements of special counsel for the Administrative Agent, in connection with the preparation of this Agreement, any waiver or consent hereunder or any amendment hereof or any Event of Default or any event or condition which, with the giving of notice or lapse of time or both, would become an Event of Default or any alleged Event of Default or such event or condition hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Administrative Agent and each Bank, including fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. The Borrower shall indemnify each Bank against any transfer taxes, documentary taxes, assessments or similar charges made by any governmental authority solely by reason of the execution and delivery of this Agreement or the Notes. (b) The Borrower agrees to indemnify the Administrative Agent and each Bank and their respective affiliates (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder (i) for its own gross negligence or willful misconduct as determined by a court of competent jurisdiction or (ii) in respect of any litigation instituted by (x) any Participant against any Bank or the Administrative Agent, (y) any Bank against any Participant, any Bank or the Administrative Agent, or (z) any holder of any security of any Bank (in its capacity as such) against any Bank, to the extent any such litigation does not arise out of any misconduct (alleged in good faith by such Bank) by or on behalf of the Borrower. Section 9.4. Sharing of Set-offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest then due with respect to any Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest then due with respect to any Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest then due with respect to the Notes held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Notes. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. Section 9.5. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Administrative Agent are affected thereby, by the Administrative Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks pursuant to Section 2.09 or an increase of Commitments in accordance with Section 2.17) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder (except that, in the case of a reduction in the principal of or rate of interest on Loans comprising a single Money Market Borrowing, only the signatures of the Borrower and the Banks making Loans included in such Borrowing shall be required), (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for the termination of any Commitment or (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. Section 9.6. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement (other than pursuant to a transaction permitted by Section 5.07) without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.05 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article VIII with respect to its participating interest. If, pursuant to this Section 9.06(b), any interest in this Agreement or any Note is proposed to be transferred to any Participant that is not a bank organized under the laws of the United States or any State thereof or the District of Columbia, such proposed Participant shall, as a condition to the effectiveness of such transfer, (i) deliver Internal Revenue Service forms as provided in Section 2.15(b) to the transferor Bank with copies to the Borrower and (ii) make the covenants specified in subsections (b)(2), (c)(1) and (c)(2) of Section 2.15 for the benefit of the transferor Bank, the Borrower and the Administrative Agent. All such covenants shall be made by an instrument in writing in form and substance satisfactory to the Borrower. (c) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part of all (such proportionate part to comprise a Commitment of not less than $10,000,000), of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit I hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower and the Administrative Agent; provided that if an Assignee is an Affiliate of such transferor Bank, no such consent shall be required, but such transferor Bank shall deliver to the Borrower five Domestic Business Days' prior written notice of any such assignment and, promptly after the effectiveness thereof, a copy of the relevant Assignment and Assumption Agreement; and provided further that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of $2,000. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 2.15. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Participant shall be entitled to receive any greater payment under Section 8.03 than the relevant transferor Bank would have been entitled to receive with respect to the rights transferred. No Assignee or other transferee of any Bank's rights (other than a Participant, whose rights shall be governed by the immediately preceding sentence) shall be entitled to receive any greater payment under Section 8.03 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made (x) with the Borrower's prior written consent, (y) by reason of the provisions of Section 8.02 or 8.03 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or (z) at a time when the circumstances giving rise to such greater payment did not exist. Section 9.7. Collateral. Each of the Banks represents to the Administrative Agent and each of the other Banks that it in good faith is not relying upon any Margin Stock as collateral in the extension or maintenance of the credit provided for in this Agreement. Section 9.8. Governing Law; Submission to Jurisdiction. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Section 9.9. Counterparts; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement (and, solely with respect to information delivered by the Borrower to the Banks prior to the date hereof, the confidentiality letter executed by each of the Banks listed on the signature pages hereto) constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. Section 9.10. Restrictions on Transfers. Each Bank agrees that it will not, except by operation of law, transfer or propose to transfer all or any portion of its rights and obligations under this Agreement and the Note held by it, or any participation therein to any Person except (i) banks (including without limitation Federal Reserve Banks) or trust companies empowered by law to accept deposits or (ii) their corporate parents or their Affiliates which are in the business of lending money and which are either wholly owned by them or are Wholly-Owned Subsidiaries of a common corporate parent, unless such Bank shall have first delivered to the Borrower an opinion of counsel as to the legality of the transfer (including compliance of such transfer with applicable federal securities laws) and such other matters as the Borrower may reasonably request, which opinion shall be satisfactory in form and substance to the Borrower. Each Bank agrees that it will not transfer all or any portion of any Note held by it, or any participation therein, in violation of applicable securities laws. Section 9.11. Confidentiality. The Administrative Agent and each Bank represent that they will maintain the confidentiality of any written or oral information provided under this Agreement by or on behalf of the Borrower that has been identified by its source as confidential (hereinafter collectively called "Confidential Information"), subject to the Administrative Agent's and each Bank's (a) obligation to disclose any such Confidential Information pursuant to a request or order under applicable laws and regulations or pursuant to a subpoena or other legal process, (b) right to disclose any such Confidential Information to its bank examiners, Affiliates, auditors, counsel and other professional advisors and to other Banks, (c) right to disclose any such Confidential Information in connection with any litigation or dispute involving the Banks and the Borrower or any of its Subsidiaries and Affiliates and (d) right to provide such information to Participants (as defined in subsection 9.06(b)), prospective Participants to which sales of participating interests are permitted pursuant to subsection 9.06(b) and prospective Assignees to which assignments of interests are permitted pursuant to subsection 9.06(c), but only if (i) the Borrower has theretofore given its written consent to the participation to such Participant or prospective Participant or the assignment to such prospective Assignee, (ii) such Participant, prospective Participant or prospective Assignee agrees in writing to maintain the confidentiality of such information on terms substantially similar to those of this Section as if it were a "Bank" party hereto and (iii) the Borrower receives copies of such written agreement prior to the release of such information. Notwithstanding the foregoing, any such information supplied to a Bank, Participant, prospective Participant or prospective Assignee under this Agreement shall cease to be Confidential Information if it is or becomes known to such Person by other than unauthorized disclosure, or if it becomes a matter of public knowledge. Section 9.12. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. SEARS ROEBUCK ACCEPTANCE CORP. By: /s/ George F. Slook Name: George F. Slook Title: Vice President, Finance 3711 Kennett Pike Greenville, Delaware 19807 Telefax: (302) 888-3156 BANKS THE CHASE MANHATTAN BANK, as Bank and Administrative Agent By: /s/Barry K. Bergman Name: Barry K. Bergman Title: Vice President Address:270 Park Avenue New York, NY 10017 Attention: Barry K. Bergman Facsimile number: 212-270-5646 with a copy to: Chase Securities Inc. Address: 270 Park Avenue New York, NY 10017 Attention: John Shen Facsimile number: 212-270-1063 CITIBANK, N.A., as Bank and Syndication Agent By:/s/Robert A. Snell Name: Robert A. Snell Title: As attorney in fact BANK OF AMERICA NT&SA, as Bank and Co-Documentation Agent By: /s/ Bridget Garavalia Name:Bridget Garavalia Title: Managing Director THE FIRST NATIONAL BANK OF CHICAGO, as Bank and Co-Documentation Agent By: /s/ John Runger Name: John Runger Title: Managing Director BANCA DI ROMA S.P.A. By: /s/ Joyce Montgomery Name: Joyce Montgomery Title: Assistant Vice President By:/s/Claudio Perna Name: Claudio Perna Title: Sr. Vice President & Branch Manager FIRST UNION NATIONAL BANK By: /s/ Margaret Gibbons Name: Margaret Gibbons Title: Senior Vice President MELLON BANK, N.A. By:/s/Richard J. Schaich Name: Richard J. Schaich Title: AVP PNC BANK, NATIONAL ASSOCIATION By:/s/Robert G. Krasnow Name: Robert G. Krasnow Title: SVP WACHOVIA BANK, N.A. By:/s/Todd J. Eagle Name: Todd J. Eagle Title: Vice President WELLS FARGO BANK, N.A. By:/s/Steven A. Newell Name: Steven A. Newell Title: Assistant Vice President By: /s/Frieda Youlios Name:Frieda Youlios Title: Vice President FLEET NATIONAL BANK By: /s/Robert T. P. Storer Name: Robert T. P.Storer Title: S.V.P. BANCO POPULAR DE PUERTO RICO By: /s/Hector A. Vina Name: Hector A. Vina Title: Vice President By:/s/John Incandela Name: John Incandela Title: Vice President FIRSTAR BANK MILWAUKEE, N.A. By:/s/R. Bruce Anthony Name: R. Bruce Anthony Title: Assistant Vice President BANCA NAZIONALE DEL LAVORO S.P.A. - NEW YORK BRANCH By:/s/Giulio Giovine Name: Giulio Giovine Title: Vice President By:/s/Leonardo Valentini Name: Leonardo Valentini Title: First Vice President BANKBOSTON, N.A. By:/s/Kathleen Dimock Name: Kathleen Dimock Title: Vice President BANK OF HAWAII By:/s/Donna R. Parker Name: Donna R. Parker Title: Vice President THE BANK OF NEW YORK By:/s/Michael Flannery Name: Michael Flannery Title: Vice President CREDIT SUISSE FIRST BOSTON By:/s/Kristin Lepri Name: Kristin Lepri Title: Associate By:/s/Joel Glodowski Name: Joel Glodowski Title: Managing Director HIBERNIA NATIONAL BANK By:/s/Angela Bentley Name: Angela Bentley Title: Portfolio Manager KEYBANK NATIONAL ASSOCIATION By:/s/Lawrence A. Mack Name: Lawrence A. Mack Title: Senior Vice President THE NORTHERN TRUST COMPANY By:/s/Mark Taylor Name: Mark Taylor Title: 2nd Vice President SOUTHTRUST BANK, NATIONAL ASSOCIATION By:/s/Noble James Name: Noble James Title: Vice President FIRST TENNESSEE BANK NATIONAL ASSOCIATION By:/s/James H. Moore, Jr. Name: James H. Moore, Jr. Title: Vice President NATIONAL CITY BANK By:/s/Jeffrey L. Hawthorne Name: Jeffrey L.Hawthorne Title:Vice President Total Commitments $1,000,000,000 COMMITMENT SCHEDULE Bank Commitment The Chase Manhattan Bank $85,000,000 Citibank, N.A. $75,000,000 Bank of America NT&SA $75,000,000 The First National Bank of Chicago $75,000,000 Banca di Roma S.p.A. $65,000,000 First Union National Bank $65,000,000 Mellon Bank, N.A. $50,000,000 PNC Bank, National Association $50,000,000 Wachovia Bank, N.A. $50,000,000 Wells Fargo Bank, N.A. $50,000,000 Fleet National Bank $35,000,000 Banco Popular de Puerto Rico $30,000,000 Firstar Bank Milwaukee, N.A. $30,000,000 Banca Nazionale del Lavoro S.p.A. - New $25,000,000 York Branch BankBoston, N.A. $25,000,000 Bank of Hawaii $25,000,000 The Bank of New York $25,000,000 Credit Suisse First Boston $25,000,000 Hibernia National Bank $25,000,000 KeyBank National Association $25,000,000 The Northern Trust Company $25,000,000 SouthTrust Bank, National Association $25,000,000 First Tennessee Bank National Association $20,000,000 National City Bank $20,000,000 Total $1,000,000, 000 EXHIBIT A NOTE New York, New York , ____ For value received, SEARS ROEBUCK ACCEPTANCE CORP., a Delaware corporation (the "Borrower"), promises to pay to the order of _________________ (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the dates provided for in the Credit Agreement and, in any event, on the maturity date provided for therein. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of The Chase Manhattan Bank, 270 Park Avenue, New York, New York. All Loans made by the Bank and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the Credit Agreement dated as of November 30, 1998 among the Borrower, the banks parties thereto, the Syndication Agent and Co- Documentation Agents referred to therein and The Chase Manhattan Bank, as Administrative Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. This Note is subject, and reference is hereby made, to the terms and provisions of the Credit Agreement, including the transfer restrictions set forth in Section 9.10 thereof and the provisions for mandatory and optional prepayment hereof and the acceleration of the maturity hereof. SEARS ROEBUCK ACCEPTANCE CORP. By Title: Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL Date Amount of Loan Amount of Notation Principal Made By Repaid EXHIBIT B NOTICE OF COMMITTED BORROWING1 Borrowing Request No. _____________ The Chase Manhattan Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Attention: _______________ This notice shall constitute a "Notice of Committed Borrowing" pursuant to Section 2.02 of the Credit Agreement dated as of November 30, 1998 among Sears Roebuck Acceptance Corp. (the "Borrower"), the Banks parties thereto, the Syndication Agent and Co- Documentation Agents referred to therein and The Chase Manhattan Bank, as Administrative Agent (the "Administrative Agent") (as amended from time to time, the "Credit Agreement"). Capitalized terms not otherwise defined herein have the meanings ascribed to them in the Credit Agreement. 1. The date of the Borrowing will be _______________, ____. 2. The principal amount of the Borrowing will be $____________.2 3. The Borrowing will consist of [CD Loans] [Euro-Dollar Loans] [Base Rate Loans]. [4. The initial Interest Period for such Loans shall be _____________.]3 [5.] Transfer Instructions: [insert appropriate delivery instructions, which shall include bank and account number] SEARS ROEBUCK ACCEPTANCE CORP. By: Title: Date: EXHIBIT C NOTICE OF INTEREST RATE ELECTION The Chase Manhattan Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Attention: _______________ This notice shall constitute a "Notice of Interest Rate Election" pursuant to Section 2.10 of the Credit Agreement dated as of November 30, 1998 among Sears Roebuck Acceptance Corp. (the "Borrower"), the Banks parties thereto, the Syndication Agent and Co- Documentation Agents referred to therein and The Chase Manhattan Bank, as Administrative Agent (the "Administrative Agent") (as amended from time to time, the "Credit Agreement"). Capitalized terms not otherwise defined herein have the meanings ascribed to them in the Credit Agreement. 1. The principal amount of the Group of Loans (or portion thereof) to which this notice applies is $__________. 2. The date on which the conversion/continuation selected is to be effective is __________, ____ (the "Election Date"). 3. The Group of Loans (or portion thereof) to which this notice applies is [all or a portion of all Base Rate Loans currently outstanding] [all or a portion of all CD Loans currently outstanding having an Interest Period of ___ days and ending on the Election Date] [all or a portion of all Euro-Dollar Loans currently outstanding having an Interest Period of __ months and ending on the Election Date].1 4a. The Group of Loans (or portion thereof) which are to be converted will bear interest [at the Base Rate] [based upon the CD Rate] [based upon the Euro-Dollar Rate]. 4b. The Group of Loans (or portion thereof) which are to be continued will bear interest [at the Base Rate] [based upon the CD Rate] [based upon the Euro-Dollar Rate]. [5. The Interest Period for such Loans shall be ____________.]2 SEARS ROEBUCK ACCEPTANCE CORP. By: Title: Date: __________________, ____ EXHIBIT D Form of Money Market Quote Request [Date] To: The Chase Manhattan Bank (the "Administrative Agent") From: Sears Roebuck Acceptance Corp. (the "Borrower") Re: Credit Agreement (the "Credit Agreement") dated as of November 30, 1998 among the Borrower, the Banks parties thereto, the Syndication Agent and Co-Documentation Agents referred to therein and The Chase Manhattan Bank, as Administrative Agent We hereby give notice pursuant to Section 2.03 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________ Principal Amount1 Interest Period2 $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Terms used herein have the meanings assigned to them in the Credit Agreement. SEARS ROEBUCK ACCEPTANCE CORP. By Title: EXHIBIT E Form of Invitation for Money Market Quotes To: [Name of Bank] Re: Invitation for Money Market Quotes to Sears Roebuck Acceptance Corp. (the "Borrower") Pursuant to Section 2.03 of the Credit Agreement (the "Credit Agreement") dated as of November 30, 1998 among the Borrower, the Banks parties thereto, the Syndication Agent and Co-Documentation Agents therein and The Chase Manhattan Bank, as Administrative Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________ Principal Amount Interest Period $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.] (New York City time) on [date]. The Chase Manhattan Bank, as Administrative Agent By: Authorized Officer EXHIBIT F Form of Money Market Quote To: The Chase Manhattan Bank (the "Administrative Agent") Re: Money Market Quote to Sears Roebuck Acceptance Corp. (the "Borrower") In response to your invitation on behalf of the Borrower dated _____________, ____, we hereby make the following Money Market Quote on the following terms: 1. Quoting Bank: ________________________________ 2. Person to contact at Quoting Bank: ______________________________ 3. Date of Borrowing: ____________________* 4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates: Principal Interest Money Market Amount** Period*** [Margin****] [Absolute Rate*****] $ $ [Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $____________.]** * As specified in the related Invitation. ** Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger multiple of $1,000,000. (notes continued on following page) We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Credit Agreement (the "Credit Agreement") dated as of November 30, 1998 among the Borrower, the Banks parties thereto, the Syndication Agent and Co-Documentation Agents referred to therein and The Chase Manhattan Bank, as Administrative Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Very truly yours, [NAME OF BANK] Dated:_______________ By:__________________________ Authorized Officer *** Not less than one month or not less than 30 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. **** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". ***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%). EXHIBIT G-1 OPINION OF COUNSEL FOR THE BORROWER [Effective Date] To the Banks and the Administrative Agent Referred to Below c/o The Chase Manhattan Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Ladies and Gentlemen: I am the Assistant General Counsel - Corporate Securities of Sears, Roebuck and Co. ("Sears"). The Sears Law Department, under my supervision, has acted as counsel to Sears Roebuck Acceptance Corp. (the "Borrower") and Sears in connection with the Credit Agreement (the "Credit Agreement") dated as of November 30, 1998 among the Borrower, the Banks parties thereto, the Syndication Agent and Co-Documentation Agents referred to therein and The Chase Manhattan Bank, as Administrative Agent. This opinion is rendered to you at the request of the Borrower pursuant to Section 3.01(c) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. I have obtained and with your consent, as evidenced by your signature on the Credit Agreement, to which a form of this opinion is attached, relied upon, to the extent I deem appropriate, certificates of officers of the Borrower and of public officials as to factual matters. I call to your attention the fact that in rendering my opinion, I am expressing my views only as to the federal laws of the United States and the General Corporation Law of the State of Delaware, and I express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or as to any matters of municipal law or any local agencies. My opinion in paragraph 3 below is based upon the consideration of only those statutes, rules and regulations which in my experience are normally applicable to bank credit transactions. Based on the foregoing, I am of the opinion that as of the date hereof: 1. The Borrower has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware with full corporate power to conduct its business as presently conducted. 2. The Borrower has full corporate power to enter into the Credit Agreement and to issue the Notes and to comply with all of the provisions of the Credit Agreement and the Notes, and all necessary corporate proceedings of the Borrower have been duly taken to authorize the execution, delivery and performance of the Credit Agreement and the issuance of the Notes by the Borrower. The Credit Agreement has been duly executed and delivered by the Borrower, and the Notes issued by the Borrower on the date hereof have been duly issued by the Borrower. 3. The execution and delivery by the Borrower of the Credit Agreement and the issuance by the Borrower of the Notes and compliance by the Borrower with all of the provisions of the Credit Agreement and the Notes will not conflict with or result in a breach which would constitute a material default under, or result in the creation or imposition of any Lien, charge or encumbrance upon any of the property or assets of the Borrower, material to the Borrower, pursuant to the terms of any material indenture, loan agreement or other agreement or instrument for borrowed money to which the Borrower is a party or by which the Borrower may be bound or to which any of the property or assets of the Borrower, material to the Borrower, is subject, nor will any such action conflict with or result in a breach which would constitute a material default under, or result in the creation or imposition of any Lien, charge or encumbrance upon any of the property or assets of Sears, material to Sears and its subsidiaries, taken as a whole, pursuant to the terms of any indenture, loan agreement or other agreement or instrument for borrowed money relating to a principal amount of outstanding indebtedness not less than $100,000,000 to which Sears is a party or by which Sears may be bound or to which any of the property or assets of Sears, material to Sears and its subsidiaries, taken as a whole, is subject, nor will such action result in any material violation of the provisions of the Certificate of Incorporation or the By-Laws of the Borrower or, to the best of my knowledge, any statute or any order, rule or regulation applicable to the Borrower of any court or any federal, state or other regulatory authority or other governmental body having jurisdiction over the Borrower, and, to the best of my knowledge, no consent, approval, authorization or other order of, or filing with, any court or any such regulatory authority or other governmental body is required for the execution and delivery by the Borrower of the Credit Agreement and the issuance by the Borrower of the Notes and the compliance by the Borrower with all of the provisions of the Credit Agreement and the Notes; provided that I express no opinion with respect to any securities or blue sky laws of political subdivisions of the United States or any laws or treaties of any country (or political subdivision thereof) other than the United States. 4. To the best of my knowledge, there is no pending legal or governmental proceeding (i) required to be described in the Borrower's 1997 Form 10-K or in the Quarterly Reports on Form 10-Q of the Borrower filed with the Commission pursuant to the Exchange Act subsequent thereto, which are not described as required or (ii) which would be required to be described in a Quarterly Report on Form 10-Q filed by the Borrower if such filing were made on the date hereof. 5. The Borrower has no Subsidiaries. I express no opinion as to the compliance by the parties to the Credit Agreement (other than the Borrower) with any state or federal laws or regulations applicable to the transactions contemplated by the Credit Agreement because of the nature of their business. This opinion is furnished by me as counsel for the Borrower to you, and is solely for your benefit in connection with the transactions covered hereby, and is not to be otherwise used, circulated or relied upon without my express prior written consent. Very truly yours, EXHIBIT G-2 OPINION OF LATHAM AND WATKINS, SPECIAL COUNSEL TO THE BORROWER [Effective Date] To the Banks and the Administrative Agent Referred to Below c/o The Chase Manhattan Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Attn: [ ] Ladies and Gentlemen: We have acted as counsel to Sears Roebuck Acceptance Corp. (the "Borrower") in connection with the Credit Agreement (the "Agreement") dated as of November 30, 1998 between the Borrower and the Banks party thereto (the "Banks"). This opinion is rendered to you pursuant to the terms of the Agreement. Capitalized terms defined in the Agreement are used herein as therein defined. As counsel to the Borrower, we have made such legal and factual examinations, including an examination of originals or copies certified or otherwise identified to our satisfaction of such documents, corporate records and other instruments, as we have deemed necessary or appropriate for purposes of this opinion. We have obtained and relied upon, to the extent we deem appropriate, certificates of officers or other executives of the Borrower and of public officials as to factual matters. We call to your attention the fact that, in rendering our opinion, we are expressing our views only as to the laws of the State of New York, and we express no opinion with respect to the applicability thereto or the effect thereon of the laws of any other jurisdiction or as to any matters of municipal law or the laws of any local agencies. On the basis of the foregoing and in reliance thereon, we are of the opinion that, as of the date hereof: The Agreement constitutes a valid and binding agreement of the Borrower and the Notes constitute valid and binding obligations of the Borrower, each enforceable in accordance with its terms, except as the foregoing may be limited by (i) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights; (ii) the effect of general principles of equity (whether considered in a proceeding in equity or at law) and by the discretion of the court before which any proceeding therefor may be brought; and (iii) the unenforceability of any provision requiring the payment of attorneys' fees, except to the extent that a court determines such fees to be reasonable. In rendering our opinion, we have assumed that the Borrower and each Bank is duly incorporated or organized, validly existing and, to the extent applicable in the relevant jurisdiction, in good standing under the laws of its jurisdiction of incorporation or other organization and has the requisite corporate power and authority to execute and deliver the Agreement and to perform its obligations under the Agreement; that the Agreement has been duly authorized, executed and delivered by the Borrower and each Bank and that the Agreement constitutes each Bank's legal, valid and binding obligation, enforceable against each Bank in accordance with its terms; and that the signatures on all documents examined by us are genuine, and that all documents submitted to us as originals are authentic and all documents submitted to us as copies conform to the authentic original documents, assumptions which we have not independently verified. We express no opinion as to the compliance by any Bank with any state or federal laws or regulations applicable to the transactions contemplated by the Agreement because of the nature of its business. This opinion is furnished by us as counsel for the Borrower to you, and is solely for your benefit in connection with the transaction covered hereby, and is not to be otherwise used, quoted, circulated or relied upon without our express prior written consent. Very truly yours, EXHIBIT H OPINION OF SPECIAL COUNSEL FOR THE ADMINISTRATIVE AGENT [Effective Date] To the Banks and the Administrative Agent Referred to Below c/o The Chase Manhattan Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Dear Sirs: We have participated in the preparation of the Credit Agreement (the "Credit Agreement") dated as of November 30, 1998 among Sears Roebuck Acceptance Corp., a Delaware corporation (the "Borrower"), the Banks parties thereto (the "Banks"), the Syndication Agent and Co-Documentation Agents referred to therein and The Chase Manhattan Bank, as Administrative Agent (the "Administrative Agent"), and have acted as special counsel for the Administrative Agent for the purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that: 1. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate powers and have been duly authorized by all necessary corporate action. 2. The Credit Agreement constitutes a valid and binding agreement of the Borrower and the Notes constitute valid and binding obligations of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, EXHIBIT I ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, ____ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), SEARS ROEBUCK ACCEPTANCE CORP. (the "Borrower") and THE CHASE MANHATTAN BANK, as Administrative Agent (the "Administrative Agent"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the Credit Agreement dated as of November 30, 1998 among the Borrower, the Assignor and the other Banks parties thereto, as Banks, the Syndication Agent and Co-Documentation Agents referred to therein and the Administrative Agent (the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $__________; WHEREAS, Committed Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with a corresponding portion of its outstanding Committed Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, the Borrower and the Administrative Agent and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds an amount equal to $_________.1 It is understood that any facility fees accrued to the date hereof are for the account of the Assignor and such fees accruing with respect to the Assigned Amount from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. SECTION 4. Taxes. [The Assignee agrees (to the extent it is permitted to do so under the laws and any applicable double taxation treaties of the United States, the jurisdiction of such Assignee's incorporation, and the jurisdictions in which such Assignee's Domestic Lending Office and Euro-Dollar Lending Office are located) to execute and deliver to the Administrative Agent for delivery to the Borrower at the times and for the periods required pursuant to Section 2.15 of the Credit Agreement, two accurate and complete original signed copies of Form 1001 or Form 4224 (or any successor form), appropriately completed and claiming complete exemption from withholding and deduction of United States Taxes. Attached hereto are two accurate and complete original signed copies of Form 1001 with respect to each three-year calendar period, any portion of which falls within the Revolving Credit Period, dated as of the date hereof, or two accurate and complete signed copies of Form 4224 with respect to each tax year of the Assignee, any portion of which falls within the Revolving Credit Period, dated as of the date hereof, as applicable. The Assignee hereby represents and warrants to the Borrower and the Administrative Agent that on the date hereof it is permitted to take the actions described in this Section 4 under the laws and any applicable double taxation treaties of the jurisdictions specified above.]2 [The Assignee represents to the Borrower and the Administrative Agent that it is not a Non-U.S. Bank.]3 SECTION 5. Consent of the Borrower and the Administrative Agent. This Agreement is conditioned upon the consent of the Borrower and the Administrative Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by the Borrower and the Administrative Agent is evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein. SECTION 6. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 8. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By: Title: [ASSIGNEE] By: Title: SEARS ROEBUCK ACCEPTANCE CORP. By: Title: THE CHASE MANHATTAN BANK, as Administrative Agent By: Title: EXHIBIT J TERMS OF SUBORDINATION1 Section 1. Subordination to Superior Debt. The Borrower and the lender of the SRAC Subordinated Debt (the "Lender") agree for the benefit of the holders of the Superior Debt that the SRAC Subordinated Debt shall, to the extent hereinafter set forth, be subordinate and junior in right of payment to all Superior Debt of the Borrower. Section 2. Borrower Not to Make Payments hereunder in Certain Circumstances. (a) Upon the maturity of all or any part of the Superior Debt by lapse of time, acceleration or otherwise, such Superior Debt shall first be paid in full, or such payment shall be duly provided for in cash or in a manner satisfactory to the holders of such Superior Debt, before any payment by the Borrower or any Subsidiary is made on account of the principal of or premium, if any, or interest on the notes issued hereunder (the "SRAC Subordinated Notes") or to acquire any of the SRAC Subordinated Notes or on account of any sinking fund for the SRAC Subordinated Notes. (b) In the event and during the continuation of any Event of Default or any event or condition that, with the giving of notice or the lapse of time or both, would become an Event of Default (as such term is defined in the Credit Agreement, provided that any such event or condition that would become an Event of Default only upon both the giving of notice of such event or condition by the Administrative Agent to the Borrower and the lapse of time shall constitute such an event or condition for purposes of this Agreement only if the Administrative Agent shall have given such notice to the Borrower) with respect to any Superior Debt (each such Event of Default or any such event or condition that, with the giving of notice or the lapse of time, or both, being referred to in this Agreement as a "Superior Debt Default"), (i) no payment shall be made by the Borrower or any Subsidiary on or with respect to the principal of, or, premium, if any, or interest on, the SRAC Subordinated Notes or to acquire any SRAC Subordinated Notes or on account of any sinking fund for the SRAC Subordinated Notes unless and until such Superior Debt Default shall have been remedied, nor shall any such payment be made if after giving effect, as if paid, to such payment, any Superior Debt Default would exist and (ii) no holder of SRAC Subordinated Notes shall demand, accept or receive, any direct or indirect payment (in cash or property or by setoff, exercise of contractual or statutory rights or otherwise) of or on account of any SRAC Subordinated Notes, notwithstanding the terms of the SRAC Subordinated Notes or of any agreement or instrument which governs the SRAC Subordinated Notes, and no such payment shall be due. (c) Unless and until all principal of, premium, if any, and interest on, and all other obligations of the Borrower under, the Superior Debt shall have been paid in full, no holder of SRAC Subordinated Notes will commence or maintain any action, suit or any other legal or equitable proceeding against the Borrower, or join with any creditor in any such proceeding, under any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar law, unless the holders of Superior Debt shall also join in bringing such proceeding, provided that this Section 2(c) shall not prohibit a holder of SRAC Subordinated Notes from filing a proof of claim or otherwise participating in any such proceeding not commenced by it. Section 3. SRAC Subordinated Notes Subordinated to Prior Payment of all Superior Debt on Dissolution, Liquidation or Reorganization of Borrower. In the event of any insolvency or bankruptcy proceedings, and any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to the Borrower or to its creditors, in their capacity as creditors of the Borrower, or to substantially all of its property, and in the event of any proceedings for voluntary liquidation, dissolution or other winding up of the Borrower, whether or not involving insolvency or bankruptcy, then: (a) the holders of all Superior Debt shall first be entitled to receive payment in full of the principal thereof, premium, if any, interest and all other amounts payable thereon (accruing before and after the commencement of the proceedings) before the holders of the SRAC Subordinated Notes are entitled to receive any payment on account of the principal of, premium, if any, or interest on the SRAC Subordinated Notes; and (b) all SRAC Subordinated Notes shall forthwith (notwithstanding the terms of Section 2) become due and payable and any payment or distribution of assets of the Borrower of any kind or character, whether in cash, property or securities to which the holders of the SRAC Subordinated Notes would be entitled, but for the provisions of these Terms of Subordination, shall be paid or distributed by the liquidating trustee or agent or other person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or other trustee or agent, directly to the Administrative Agent or any other representative on behalf of the holders of Superior Debt, to the extent necessary to make payment in full of all principal, premium, if any, interest and all other amounts payable on all Superior Debt remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of the Superior Debt. Section 4. Rights of Holders of Superior Debt; Subrogation. (a) Should any payment or distribution or security or the proceeds of any thereof be collected or received by any holder of SRAC Subordinated Notes in respect of the SRAC Subordinated Notes, and such collection or receipt is prohibited hereunder prior to the payment in full of the Superior Debt, such holder will forthwith deliver the same to the Administrative Agent for the equal and ratable benefit of the holders of the Superior Debt in precisely the form received (except for the endorsement or the assignment of or by such holder where necessary) for application to payment of all Superior Debt in full, after giving effect to any concurrent payment or distribution to the holders of Superior Debt and, until so delivered, the same shall be held in trust by such holder as the property of the holders of the Superior Debt. (b) All payments and distributions received by the Administrative Agent in respect of the SRAC Subordinated Notes, to the extent received in or converted into cash, may be applied by the Administrative Agent first to the payment of any and all reasonable out-of-pocket expenses (including attorney's fees and legal expenses) paid or incurred by the Administrative Agent or such representative in enforcing the provisions hereof or in endeavoring to collect or realize upon the SRAC Subordinated Notes or any security therefor, and any balance thereof shall, solely as between any holder of the SRAC Subordinated Notes, on the one hand, and the holders of the Superior Debt, on the other hand, be applied by the Administrative Agent in such order of application as the Administrative Agent may from time to time select, toward the payment of the Superior Debt remaining unpaid. (c) No holder of SRAC Subordinated Notes shall be subrogated to the rights of the holders of the Superior Debt to receive payments or distributions of assets of the Borrower until all amounts payable with respect to the Superior Debt shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of the Superior Debt of any cash, property or securities to which any holder of SRAC Subordinated Notes would be entitled except for these provisions shall, as between the Borrower, its creditors other than the holders of the Superior Debt, and such holders of SRAC Subordinated Notes, be deemed to be a payment by the Borrower to or on account of the Superior Debt. The provisions of this Agreement are and are intended solely for the purpose of defining the relative rights of holders of SRAC Subordinated Notes, on the one hand, and the holders of the Superior Debt, on the other hand. (d) Subject to the payment in full of all Superior Debt, the holders of the SRAC Subordinated Notes shall be subrogated (equally and ratably with the holders of all subordinated indebtedness of the Borrower which, by its terms, is not superior in right of payment to the SRAC Subordinated Notes, and ranks on a parity with the SRAC Subordinated Notes) to the rights of the holders of Superior Debt to receive payments or distributions of cash, property or securities of the Borrower applicable to the Superior Debt until all amounts owing on the SRAC Subordinated Notes shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the SRAC Subordinated Notes of cash, property, securities or other assets by virtue of the subrogation herein provided which otherwise would have been made to the holders of the Superior Debt shall, as between the Borrower, its creditors other than the holders of Superior Debt and the holders of the SRAC Subordinated Notes, be deemed to be a payment to or on account of the SRAC Subordinated Notes. The holders of SRAC Subordinated Notes agree that, in the event that all or any part of any payment made on account of the Superior Debt is recovered from the holders of Superior Debt as a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law, any payment or distribution received by the holders of SRAC Subordinated Notes on account of the SRAC Subordinated Notes at any time after the date of the payment so recovered, whether pursuant to the right of subrogation provided for in this Section 4(d) or otherwise, shall be deemed to have been received by such holders of SRAC Subordinated Notes in trust as the property of the holders of the Superior Debt and such holders shall forthwith deliver the same to the Administrative Agent for the equal and ratable benefit of the holders of the Superior Debt for application to payment of all Superior Debt in full. Section 5. Renewals, Extensions and Increases of Superior Debt. Each holder of SRAC Subordinated Notes by his acceptance thereof thereby waives any and all notice of renewal, extension, accrual or increase in the amount of any of the Superior Debt, present or future, and agrees and consents that without notice to or assent by any holder or holders of the SRAC Subordinated Notes: (i) the obligation and liabilities of the Borrower or any other party or parties for or upon the Superior Debt (or any promissory note, security document or guaranty evidencing or securing the same) may, from time to time, in whole or in part, be renewed, extended, increased, modified, amended, accelerated, compromised, supplemented, terminated, sold, exchanged, waived or released; (ii) the Administrative Agent or any other representative acting on behalf of the holders of the Superior Debt and the holders of the Superior Debt may exercise or refrain from exercising any right, remedy or power granted by or in connection with any agreements relating to the Superior Debt; and (iii) any balance or balances of funds with any holders of the Superior Debt at any time standing to the credit of the Borrower may, from time to time, in whole or in part, be surrendered or released; all as the Administrative Agent or any other representative or representatives acting on behalf of the holders of the Superior Debt and the holders of the Superior Debt may deem advisable and all without impairing, abridging, diminishing, releasing or affecting the subordination of the SRAC Subordinated Notes to the Superior Debt provided for herein. Section 6. Obligation of Borrower Unconditional. Nothing contained in these Terms of Subordination or in the SRAC Subordinated Notes is intended to or shall impair, as between the Borrower, its creditors other than the holders of the Superior Debt, and the holders of the SRAC Subordinated Notes, the obligation of the Borrower, which is absolute and unconditional, to pay to the holders of the SRAC Subordinated Notes the principal of, premium, if any, and interest on the SRAC Subordinated Notes, as and when the same shall become due and payable (except as provided in Section 2), by lapse of time, acceleration or otherwise, in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the SRAC Subordinated Notes and other creditors of the Borrower other than the holders of the Superior Debt, nor shall anything herein or therein prevent the trustee or the holder of any SRAC Subordinated Notes (i) from taking all appropriate actions to preserve its rights under the SRAC Subordinated Notes not inconsistent with the rights of the holders of the Superior Debt under these Terms of Subordination, or (ii) from exercising all remedies otherwise permitted by applicable law upon default under the SRAC Subordinated Notes, subject to the rights, if any, of the holders of the Superior Debt under Section 2 of these Terms of Subordination and in respect of cash, property or securities of the Borrower otherwise payable or delivered to such holders of SRAC Subordinated Notes upon the exercise of any such remedy. Section 7. Miscellaneous. Each holder of SRAC Subordinated Notes by its acceptance thereof thereby acknowledges and agrees that the holders of the Superior Debt have relied upon and will continue to rely upon the subordination provided for herein in entering into the agreements relating to Superior Debt and in extending credit to the Borrower pursuant thereto. (b) No present or future holder of Superior Debt shall be prejudiced in his right to enforce the subordination contained herein in accordance with the terms hereof by any act or failure to act on the part of the Borrower or any holder of the SRAC Subordinated Notes. The subordination provisions contained herein are for the benefit of the holders of the Superior Debt from time to time and, so long as Superior Debt is outstanding under any agreement, may not be rescinded, cancelled or modified in any way without the prior written consent thereto of all holders of Superior Debt. (c) The subordination provisions hereof shall be binding upon any holder of the SRAC Subordinated Notes and upon the heirs, legal representatives, successors and assigns of any holder of the SRAC Subordinated Notes; and, to the extent that any holder of the SRAC Subordinated Notes is either a partnership or a corporation, all references herein to any holder of the SRAC Subordinated Notes shall be deemed to include any successor or successors, whether immediate or remote, to such partnership or corporation. (d) These Terms of Subordination shall be construed in accordance with and governed by the laws of the State of New York. _______________________________ 1PREFERENCE 1 ArticleNumber=1 SectionNumber=1.0 ParagraphNumber=(a) Sub1=(i) Sub2=(A) Sub3=(1) Sub4= Sub5= 1 Deliver no later than 11:00 A.M. (New York City time) on (x) the day of a Base Rate Borrowing, (y) the second Domestic Business Day before a CD Borrowing and (z) the third Euro-Dollar Business Day before a Euro-Dollar Borrowing. 2 Must be aggregate principal amount of $25,000,000 or any larger multiple of $5,000,000 (or the aggregate amount available in accordance with Section 3.02(b) of the Credit Agreement, if less). 3 Applicable only in the case of a Fixed Rate Borrowing. For CD Rate Loans, insert "30 days," "60 days," "90 days" or "180 days" (subject to the definition of Interest Period). For Euro-Dollar Loans, insert "one month," "two months," "three months" or "six months" (subject to the definition of Interest Period). 1 May apply to a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each $25,000,000 or any larger multiple of $5,000,000. 2 Applicable only in the case of a Fixed Rate Borrowing. For CD Loans, insert "30 days," "60 days," "90 days" or "180 days." For Euro-Dollar Loans, insert "one month," "two months," "three months" or "six months." The Interest Period, however, may be changed by agreement of the parties (see "Interest Period" in Section 1.01 of the Credit Agreement). 1 Amount must be $25,000,000 or a larger multiple of $5,000,000 (or an amount equal to the aggregate amount available in accordance with Section 3.02(b), if less than $25,000,000). 2 Not less than one month (LIBOR Auction) or not less than 30 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. 1 Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any up- front fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. 2 Use if such Assignee is a Non-U.S. Bank. 3 Use if such Assignee is not a Non-U.S. Bank. 1 These Terms of Subordination refer to the Credit Agreement (the "Credit Agreement") dated as of November 30, 1998 among Sears Roebuck Acceptance Corp., the Banks parties thereto, the Syndication Agent and Co- Documentation Agents referred to therein and The Chase Manhattan Bank, as Administrative Agent. Capitalized terms used but not defined herein are used herein as defined in the Credit Agreement. EX-4 5 Exhibit 4(jj) [Bank Letterhead] Sears Roebuck Acceptance Corp 3711 Kennett Pike Greenville, DE 19807 Attention: Keith E. Trost [Bank Name and Address] RE: Amended and Restated Credit Agreement dated as of April 28, 1997(as amended, the "Credit Agreement") among Sears Roebuck Acceptance Corp., the Banks parties thereto, the Senior Managing Agent, Managing Agents, Co-Arrangers, Co-Agents and Lead Managers referred to therein and Morgan Guaranty Trust Company of New York, as Agent. Dear Sir or Madam: The undersigned Bank (the "Bank") hereby agrees to extend, effective as of June 3, 1998 (the "Extension Effective Date"), the Termination Date for the Bank under the Credit Agreement referred to above until April 22, 2003. Terms defined in the Credit Agreement are used herein as therein defined. This Extension Agreement shall be construed in accordance with and governed by the laws of the State of New York, Very truly yours, [Bank Name] By: Title: Agreed and accepted: SEARS ROEBUCK ACCEPTANCE CORP. By: Title: EX-4 6 Sears Roebuck Acceptance Corp. Exhibit 4(kk) 3711 Kennett Pike Greenville, Delaware 19807 October 30, 1998 Huntington Banks Vice President Global Services The Huntington National Bank 6620 Parkdale Place Suite R Indianapolis, IN 46254 Attention: Ms. Christin A. Fulton, CCM Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, NY 10260 Attention- Mr. John Mikolay Ladies and Gentlemen: Each of Sears Roebuck Acceptance Corp. (the "Borrower") and The Huntington National Bank (the "New Bank") refers to the Amended and Restated Credit Agreement (the "Credit Agreement") dated as of April 28, 1997 and as amended to date among the Borrower, the Banks parties thereto, the Senior Managing Agent, Managing Agents, Co-Arrangers, Co-Agents and Lead Managers referred to therein, and Morgan Guaranty Trust Company of New York, as Agent, and to the provisions of Section 2.17 of the Credit Agreement ("Section 2.17") providing for an increase of the aggregate amount of the Commitments at the option of the Borrower. This letter (the "Letter") is being delivered in satisfaction of the requirement in Section 2.17 that the Borrower and the New Bank deliver an instrument in form satisfactory to the Agent with respect to any increase of Commitments thereunder. Capitalized terms used but not defined herein are used as defined in the Credit Agreement. 1. The Borrower hereby designates the New Bank to become a Bank under the Credit Agreement with a Commitment of $60,000,000 (the "New Commitment Amount") and with a Termination Date of April 22, 2003 (the "New Termination Date"). The New Bank hereby accepts such designation and agrees, upon the effectiveness of this Letter as provided in Section 4 below, to be a Bank in all respects, and to have all of the rights and be obligated to perform the obligations of a Bank, under the Credit Agreement, with a Commitment equal to the New Commitment Amount and a Termination Date initially of the New Termination Date. 2. The Borrower represents and warrants that: (a) on and as of the date hereof, and after giving effect to the increase in Commitments contemplated by this Letter, (i) no Default has occurred and is continuing and (ii) each of the representations and warranties of the Borrower in the Credit Agreement is true and correct in all material respects; (b) no Commitment of any Bank shall exceed, as a result of such increase provided by this Letter,10% of the aggregate amount of the Commitments (after giving effect to such increase); and (c) the amount of the increase provided by this Letter is the first increase in the aggregate amount of the Commitments pursuant to Section 2.17; accordingly, the aggregate amount of all increases in the Commitments pursuant to Section 2.17 since the date of the Credit Agreement does not exceed $1,250,000,000. New Bank 3. The Assignee represents to the Borrower and the Agent that it is not a Non-U.S. Bank. 4. This Letter (i) shall be governed by and construed in accordance with the laws of the State of New York, (ii) may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument and (iii) shall become effective as of October 30, 1998, provided that on or prior to such date the Agent shall have received from each of the Borrower and the New Bank and the Agent a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Agent) that such party has signed a counterpart hereof. The execution of a counterpart hereof by the Agent shall constitute the Agent's prior written consent to the designation of the New Bank as a Bank. Very truly yours, SEARS ROEBUCK ACCEPTANCE CORP. By /s/George F. Slook Name: George F. Slook Title: Vice President, Finance THE HUNTINGTON NATIONAL BANK By /s/Carol Degner Name: Carol Degner Title: Sr. Vice President Consented to as of the date first written above: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, AS AGENT By /s/Glenda Irving Name: Glenda Irving Title: Vice President By /s/Robert Bottamedi Name: Robert Bottamedi Title: Vice President -----END PRIVACY-ENHANCED MESSAGE-----