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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER 333-42935
BELK, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 56-2058574
(State of incorporation) (IRS Employer Identification No.)
2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH 28217-4500
CAROLINA
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code:
(704) 357-1000
Securities registered pursuant to Section 12(b)of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if 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]
The aggregate market value of the common equity held by non-affiliates of
the Registrant (assuming for these purposes, but without conceding, that all
executive officers and directors are "affiliates" of the Registrant) as of April
15, 1999 (based on the book value per share of Common Stock of the Registrant,
as of January 30, 1999) was $233,587,346. 55,226,783 shares of common stock were
outstanding as of April 15, 1999, comprised of 55,196,065 shares of the
registrant's Class A Common Stock, par value $0.01, and 30,718 shares of the
registrant's Class B Common Stock, par value $0.01.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held on May 26, 1999 are incorporated herein by reference in Part III.
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BELK, INC.
TABLE OF CONTENTS
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ITEM NO. PAGE NO.
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PART I
1. Business.................................................... 3
2. Properties.................................................. 10
3. Legal Proceedings........................................... 11
4. Matters Submitted to a Vote of Security Holders............. 11
PART II
5. Market Information for Registrant's Common Equity and
Related Stockholder Matters................................. 12
6. Selected Financial Data..................................... 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
7A. Quantitative and Qualitative Disclosure About Market Risk... 19
8. Financial Statements and Supplementary Data................. 20
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 40
PART III
10. Directors and Executive Officers of the Registrant.......... 40
11. Executive Compensation...................................... 40
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 40
13. Certain Relationships and Related Transactions.............. 40
PART IV
14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K.................................................... 41
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THIS INFORMATION CONTAINS FORWARD-LOOKING STATEMENTS
Certain statements made in this report, and other written or oral
statements made by or on behalf of the Company, may constitute "forward-looking
statements" within the meaning of the federal securities laws. Statements
regarding future events and developments and the Company's future performance,
as well as our expectations, beliefs, plans, estimates or projections relating
to the future, are forward-looking statements within the meaning of these laws.
You can identify these forward-looking statements through our use of words such
as "may," "will," "intend," "project," "expect," "anticipate," "believe,"
"estimate," "continue," or other similar words. Forward-looking statements
include information concerning possible or assumed future results from
merchandising, marketing and advertising, our ability to be competitive in the
retail industry, the expected benefits of our new systems and technology,
including our efforts to address Year 2000 issues, and the expected increase in
our sales through our proprietary charge card program.
We have also made statements in this document with respect to significant
enhanced results that we expect from the Reorganization (as defined herein).
Such expected benefits include: long-term efficiencies, significant expense
savings through reduced taxes, improved cash management and more cost-effective
financing, a more intensified customer focus and a unified approach to
marketing, merchandising and advertising. In expecting such results, we have
made certain assumptions regarding our ability to consolidate functions and
combine resources to realize efficiencies, the extent of overlap among each of
the Belk stores and our ability to effectively manage the stores on a larger
scale. These forward-looking statements are subject to certain risks and
uncertainties which may cause our actual results to differ significantly from
the results we discuss in such forward-looking statements. We believe that these
forward-looking statements are reasonable; however, you should not place undue
reliance on such statements.
Risks and uncertainties that might cause our results to differ from those
we project in our forward-looking statements include, but are not limited to:
1. general economic and business conditions, both nationally and in our
market areas;
2. levels of consumer debt and bankruptcies;
3. changes in interest rates;
4. changes in buying, charging and payment behavior among our customers;
5. the effects of weather conditions on seasonal sales in our market
areas;
6. seasonal fluctuations in net income due to increased consumer spending
during the holiday season, timing of new store openings, merchandise
mix, the timing and level of markdowns and historically low first
quarter results;
7. competition among department and specialty stores and other retailers,
including luxury goods retailers, general merchandise stores, mail
order retailers and off-price and discount stores;
8. the competitive pricing environment within the department and specialty
store industries;
9. our ability to compete on merchandise mix, quality, style, service,
convenience and credit availability;
10. the effectiveness of our advertising, marketing and promotional
campaigns;
11. our ability to determine and implement appropriate merchandising
strategies, merchandise flow and inventory turnover levels;
12. our ability to generate liquidity and reduce debt through our accounts
receivable securitization program;
13. our realization of planned synergies and cost savings from our recent
corporate reorganization and our planned organizational restructuring;
14. any adverse effects of the Year 2000 problem on our operations and our
vendors;
15. our ability to contain costs;
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16. changes in our business strategy or development plans;
17. our ability to hire and retain key personnel;
18. changes in laws and regulations, including changes in accounting
standards, tax statutes or regulations, environmental and land use
regulations, and uncertainties of litigation; and
19. our ability to obtain capital to fund any growth or expansion plans.
Our other filings with the Securities and Exchange Commission may contain
additional information concerning the risks and uncertainties listed above, and
other factors you may wish to consider. Upon request, we will provide copies of
these filings to you free of charge.
Our forward-looking statements are based on current expectations and speak
only as of the date of such statements. We undertake no obligation to publicly
update or revise any forward-looking statement, even if future events or new
information may impact the validity of such statements.
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PART I
ITEM 1. BUSINESS
GENERAL
Belk, Inc., together with its subsidiaries (collectively, the "Company" or
"Belk"), is the largest privately-owned department store business in the United
States, with total revenues of approximately $2.1 billion for the fiscal year
ended January 30, 1999. The Company and its predecessors have been successfully
operating department stores since 1888 by delivering superior service and by
providing merchandise that meets customers' needs for fashion, value and
quality.
The Company operates 211 retail department stores in 13 states in the
southeastern United States. Belk stores seek to provide customers the
convenience of one-stop shopping, with a dominant merchandise mix and extensive
offerings of brands, styles, assortments and sizes. Belk stores sell top
national brands of fashion apparel, shoes and accessories for women, men and
children, as well as cosmetics, home furnishings, housewares, gifts and other
types of quality merchandise. The Company also sells exclusive private label
brands, which offer customers differentiated merchandise selections at better
values. Larger Belk stores may include hair salons, restaurants, optical centers
and other amenities.
Although the Company operates 46 Belk stores that exceed 100,000 square
feet in size, most Belk stores range in size from 50,000 to 80,000 square feet.
Most of the Belk stores are anchor tenants in major regional malls and shopping
centers, primarily in medium and smaller markets. The Company operates two
stores that sell limited selections of cosmetics, hosiery and accessories for
women under the "Belk Express" store name. The Belk stores occupy in the
aggregate approximately 17 million square feet of space.
Management of the Belk stores is organized into regional operating
divisions, with each unit headed by a division president. Each division
supervises a number of stores and maintains an administrative office in the
markets served by the division. Division offices provide overall management and
support for the Belk stores in their regions. Belk Stores Services, Inc.
("BSS"), a subsidiary of the Company, coordinates the operations of Belk stores
on a company-wide basis by providing services to the Belk division offices and
stores such as merchandising, marketing, advertising and sales promotion,
information systems, human resources, public relations, accounting, real estate
and store planning, credit, legal, tax, distribution and purchasing.
The Company was incorporated in Delaware in November 1997. The Company's
principal executive offices are located at 2801 West Tyvola Road, Charlotte,
North Carolina 28217-4500, and its telephone number is (704) 357-1000.
REORGANIZATION AND RESTRUCTURING
In fiscal year 1999, Belk began realizing the benefits of the merger and
reorganization of the former 112 Belk corporations into Belk, Inc., which became
effective on May 2, 1998 (the "Reorganization"). The Reorganization has allowed
the Company to create a more streamlined legal structure, and the Company
expects to realize significant expense savings through reduced taxes, improved
cash management and more cost-effective financing. As an example of corporate
efficiencies resulting from the Reorganization, the Company is in the process of
forming and chartering a subsidiary that will operate as Belk National Bank in
the State of Georgia. The new bank, which is expected to begin operations in May
1999, will enable the Company to standardize the interest rate terms of Belk
charge customer accounts across the 13 states in which Belk operates and to set
competitive interest rates comparable to other key retailers.
Belk has recently announced plans to streamline its organizational
structure by consolidating its thirteen operating divisions into four expanded
regional divisions to be headquartered in Charlotte and Raleigh, North Carolina,
Greenville, South Carolina and Jacksonville, Florida. The consolidation should
permit the Company to intensify its customer focus by achieving more unified and
consistent execution of its marketing, merchandising and advertising strategies
and by simplifying decision-making processes. The Company should also realize
long-term efficiencies and cost savings which it believes will increase
stockholder value. It is anticipated that the consolidation will take place
during the second quarter of fiscal year 2000.
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BUSINESS STRATEGY
Belk's mission is to be the dominant department store in its markets, by
selling merchandise to customers that meets their needs for fashion, selection,
value, quality and service. To achieve this mission, Belk's business strategy
includes five key elements: (i) a target customer focus; (ii) focused
merchandise assortments; (iii) compelling sales promotions; (iv) distinctive
customer service; and (v) a winning store and market strategy.
Target Customer Focus. Belk's target customer is a 35 to 54 year old
female who has a job and is career oriented; who has a family income of $35,000
to $75,000 per year; who buys for herself and her family; and who is style
conscious and seeks updated fashions and quality basic merchandise. The Company
plans to maintain its target customer focus by conducting ongoing research to
determine target customer needs, such as annual customer satisfaction surveys
and customer focus group studies. Belk believes that its focus on meeting the
target customer's needs will produce profitable sales increases in other key
merchandise areas, including junior's apparel, accessories and shoes; men's and
children's apparel, accessories and shoes; cosmetics; home furnishings and
household merchandise; and gifts.
The Company intends to respond aggressively to changing customer shopping
and service needs through effective communication with customers and consumer
research. The Company also seeks to maximize customer convenience through
effective inventory management that ensures consistently high inventory levels
of basic and advertised merchandise, effective store layout, merchandise signing
and visual display, and quick and efficient transactions at the point of sale.
The Company also strives to continue to attract and retain well-qualified
associates who provide a high level of friendly, personal service to enhance the
customer's shopping experience.
Focused Merchandise Assortments. The Company hopes to position itself
through its target customer focus to take advantage of significant sales growth
opportunities in its women's apparel (including special sizes), accessories and
shoe businesses. The Company has launched merchandise initiatives focused on
providing its target customer with in-depth assortments of updated, branded
fashions for career, casual and social occasions.
Compelling Sales Promotions. Belk is modifying its sales promotion
strategy to focus on promoting merchandise which the target customer desires, to
offer her more compelling sale discounts, and to provide adequate inventory to
support all sales promotion events.
Distinctive Customer Service. The Company's customer research has
determined that Belk generally differentiates itself from competitors because of
the level of service its stores provide. Belk intends to continue its tradition
of employing knowledgeable sales associates who approach customers, help when
needed and provide quick checkout.
Winning Store And Market Strategy. The Company has an explicit
company-wide store and market strategy focused on maximizing return on
investment and improving its competitive position. The approach to investing in
new markets and expanding existing facilities includes a disciplined real estate
evaluation process using a balanced scorecard, rigorous financial measures, and
sound investment guidelines.
The Company also maintains ongoing initiatives aimed at improving
productivity and efficiency throughout the organization, including a
"floor-ready" merchandise program that speeds delivery of merchandise to the
sales floor, continued development of credit programs for customers and the use
of computer-based training programs.
GROWTH STRATEGY
The Company intends to selectively open new stores in new and existing
markets in order to increase sales, market share and customer loyalty. As the
consolidation of the department store industry continues, the Company will also
seek out and consider store acquisitions that offer opportunities and growth
into contiguous markets. The Company has invested approximately $360 million
over the past five years in building new stores and expanding and renovating
existing stores.
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Management of the Company believes that there are significant opportunities
for growth in existing Belk markets where the Belk name and reputation are well
known. Although the Company will take advantage of opportunities to expand into
large markets, the Company will focus its expansion in medium-sized markets with
little department store competition, with store units in the 50,000 to 80,000
square foot size range.
In a transaction completed with Dillard's, Inc. on September 22, 1998, Belk
obtained seven former Mercantile, Inc. stores, which enabled the Company to
enter the Jacksonville, Florida market with four dominant stores, and to return
to the Columbia, South Carolina market with three strongly positioned stores.
The new stores have a total combined size of approximately 1.127 million square
feet of space. In exchange, Dillard's, Inc. received eight Belk stores located
in Richmond, Virginia and the Tidewater, Virginia market and one store in
Chattanooga, Tennessee, with a total combined size of approximately 935,000
square feet of space. In a transaction with Elder-Beerman Stores Corp.,
completed on October 27, 1998, the Company acquired the former Stone & Thomas
department stores at Fashion Square in Charlottesville, Virginia, and Mercer
Mall in Bluefield, West Virginia. The stores, with a combined size of
approximately 111,000 square feet of space, are scheduled to be renovated and
converted to Belk men's stores during fiscal year 2000 to complement the
Company's existing stores in those malls.
The Company also established a new Hair, Nail and Spa Division, which began
operating salons in the three Belk stores in Columbia, South Carolina, and two
of the Belk stores in Jacksonville, Florida, in February 1999.
In determining where to open new stores in the future, the Company's
management will evaluate demographic information such as income and education
levels, age and occupation, availability of prime real estate locations,
existing and potential competitors and the number of Belk stores in the same or
contiguous market areas. Management will also analyze store and market sales and
income data and seek to identify economies of scale available in advertising,
distribution and other expenses as part of its process for determining new store
sites and markets for expansion.
In addition to the transaction with Dillard's, Inc., the Company opened
seven new stores in fiscal year 1999, which had a combined total size of
approximately 364,000 square feet of space. In fiscal year 2000, Belk plans to
open five new stores which will have a combined size of approximately 245,000
square feet of space, as well as major expansions of five existing stores with a
total combined new space of approximately 206,000 square feet.
New stores opened in fiscal year 1999 included:
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NEW OR EXISTING
LOCATION SQUARE FEET DATE OF OPENING MARKET
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Canton, GA, Riverstone Plaza............. 60,065 February 11, 1998 New
Smithfield, NC, Centre Pointe Plaza...... 58,936 February 26, 1998 Existing
Suffolk, VA, Suffolk Shopping Center..... 46,062 June 3, 1998 New
Cookeville, TN, Jackson Plaza............ 60,034 July 29, 1998 New
Garner, NC, North Station................ 46,244 August 6, 1998 New
Columbia, SC, Columbiana Centre.......... 185,000 September 23, 1998 New
Columbia, SC, Dutch Square Mall.......... 209,000 September 23, 1998 New
Columbia, SC, Richland Fashion Mall...... 182,000 September 23, 1998 New
Jacksonville, FL, Avenues Mall........... 200,000 September 23, 1998 New
Jacksonville, FL, Regency Square Mall.... 123,114 September 23, 1998 New
Jacksonville, FL, Roosevelt Square....... 70,000 September 23, 1998 New
Orange Park, FL, Orange Park Mall........ 101,000 September 23, 1998 New
Simpsonville, SC, Fairview Market........ 48,497 October 14, 1998 New
Douglas, GA.............................. 45,195 October 21, 1998 Existing
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New stores and major store expansions scheduled for completion in fiscal
year 2000 include:
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NEW OR EXISTING
LOCATION SQUARE FEET DATE OF OPENING MARKET
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Clinton, NC, Sampson Crossing............... 48,497 March 17, 1999 Existing
Morganton, NC, Fiddler's Run................ 49,473 March 17, 1999 Existing
Mt. Pleasant, SC, Mt. Pleasant Towne 61,317 April 21, 1999 Existing
Centre....................................
Bluefield, W. VA, Mercer Mall............... 37,000 August 4, 1999 Existing
(Expansion -- Men's & Home Store)
Jacksonville, FL, Regency Square............ 64,836 August 18, 1999 Existing
(Expansion)
Paragould, AK............................... 33,579 October 13, 1999 Existing
Greenville, TX, Crossroads Mall............. 52,275 October 20, 1999 Existing
Charlottesville, VA, Fashion Square......... 60,007 October 20, 1999 Existing
(Expansion -- Men's & Home Store)
Kill Devil Hills, NC, Dare Center........... 12,151 October 27, 1999 Existing
(Expansion)
Southern Pines, NC, Pinecrest Plaza......... 32,400 November, 1999 Existing
(Expansion -- Men's Store)
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MERCHANDISING
Belk stores feature quality name brand and private label merchandise in
moderate to upper-middle price ranges, providing fashion, selection and value to
customers. The merchandise mix is targeted to middle and upper-income customers
shopping for their families and homes, and includes a wide selection of fashion
apparel, accessories and shoes for men, women and children, as well as
cosmetics, home furnishings, housewares, gift and guild, jewelry, candy and
other types of department store merchandise. The Company's merchandise
initiatives are focused on meeting the needs of its target customer and boosting
profitable sales in women's apparel, accessories and shoes. The goal is to
position Belk stores as the leaders in their markets in providing updated career
and casual fashion assortments, with greater depth of style, selection and
value.
The Company's "New Directions" department provides updated career and
casual looks for Belk's target customer and features lines by such vendors as
Clio, John Paul Richard and AGB. Belk's exclusive Madison Studio and Kim Rogers
brands also offer quality updated casual and career fashions at attractive price
points for the target customer.
Belk stores offer complete assortments of the most desirable national
brands. Most Belk stores are the leading sellers in their markets of such top
"mega-brands" as Estee Lauder, Clinique, Lancome, Liz Claiborne, Tommy Hilfiger,
Polo Ralph Lauren, Calvin Klein, Lee, Levi, Nike, Reebok, Bali and others. The
Company has enjoyed excellent long-time relationships with many top apparel and
cosmetics suppliers and often enters into arrangements to distribute apparel,
accessories and cosmetics on an exclusive basis. This enhances the Belk stores'
image as a fashion leader and enables Belk stores to offer customers exclusive
and original styles that are not generally available in other stores in their
markets.
Belk stores also offer a number of exclusive private label brands which
provide customers with merchandise that is comparable in quality and style with
national brands at substantial savings. In addition to Madison Studio and Kim
Rogers, other Belk private label brands, which include J. Khaki, Meeting Street,
Saddlebred, Andhurst, Nursery Rhyme and Home Accents, provide outstanding value
for customers and differentiate Belk from its competitors.
The Company intends to keep fresh seasonal inventory in stock at stores
throughout the year and to maintain inventory levels that provide optimum
in-stock positions. Belk stores place special emphasis on
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maintaining high levels of inventory of advertised and basic items to ensure
that consumers can buy the merchandise they want.
MARKETING
The Company's primary marketing strategy emphasizes direct communications
with customers through personal contact and the use of multi-faceted
advertising, marketing and sales promotion programs. This strategy encompasses
extensive mass media print and broadcast advertising, direct mailings to charge
customers, comprehensive store visual merchandising and signing, in-store
special events (e.g., fashion shows, trunk shows, celebrity and designer
appearances) and magazine and billboard advertising.
Major sales promotions and sales events are planned and implemented in Belk
stores throughout the year. The Company regularly produces advertising circulars
which are distributed to millions of customers via newspaper inserts or direct
mailings, and the cost of many of these mailings is funded in part or in whole
by vendors. The Company intends to use creative advertising that effectively
communicates the Company's merchandise offerings, fashion image and reputation
for superior service to store customers in a variety of media.
Belk's strategy to achieve more compelling sales promotions includes:
- focusing on advertising and promoting merchandise that the Company's
target customer desires;
- having sales that offer more attractive discounts than competitors;
- providing appropriate inventory levels to support key sales events;
- using clearance sales to gain a competitive advantage;
- using a coordinated approach to sales promotion events (including a
master sales promotion calendar) in order to establish a consistent image
of Belk in its markets; and
- measuring and communicating sales promotion results more rigorously.
Belk intends to employ its strategic marketing initiatives and strategies
in order to develop and enhance the equity of the Belk brand, strengthen its
relationship with and become the desired destination for the target customer,
and create and strengthen "one-to-one" relationships with customers.
Belk Web Site. The Company's internet web site at www.Belk.com provides
the latest information about the Company and its merchandise offerings and sales
promotions. The site receives well over a million hits each year from customers
throughout Belk's market area and beyond. The Company plans to further develop
and utilize the web site as a primary marketing and customer communication
vehicle, and is considering the implementation of on-line shopping in the
future.
Belk Customer Database Marketing Program. Belk's "one-to-one" relationship
marketing program allows the Company to communicate and advertise more
effectively with customers based on their particular merchandise needs and
shopping preferences. A computerized customer database provides information on
the purchasing behavior and shopping patterns of Belk charge customers. This
enables the Company to customize its advertising and sales promotions to attract
target customers. Moreover, the program has substantially reduced the costs and
improved the effectiveness of the Company's direct mail advertising. Belk plans
to expand its customer database to include customers who use "third party"
credit cards -- Visa, MasterCard and American Express. When added to Belk charge
customers, these customers produce approximately 65% of the Company's total
sales volume.
The Company will carefully monitor marketing and sales promotion efforts
and media mix to ensure that customers are being reached effectively and
efficiently and that stores generate the maximum return possible on their
advertising expenditures.
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BELK PROPRIETARY CHARGE PROGRAMS
The Company offers its customers the convenience of paying for their
purchases on credit, using a variety of charge payment programs. These programs
include:
- 30-day revolving account;
- interest-free 30-60-90 day account;
- interest-free Table Top plan (for china, crystal, silver and other gift
purchases); and
- interest-free Fine Jewelry plan.
Management of the Company believes it can increase sales by generating
additional sales from existing Belk charge customers. The Company had 1.9
million active Belk charge customers in fiscal year 1999, which included 90,000
customers who live outside of existing market areas. Belk credit sales for
fiscal year 1999 were 38.6% of total sales compared to 38.7% for fiscal year
1998.
The Company intends to promote use of the Belk charge cards by existing
Belk charge customers, as well as to increase the number of new Belk cardholders
through targeted marketing campaigns and active solicitation efforts within Belk
stores. The "BelkSelects" affinity program for top Belk charge customers is
designed to attract profitable new customers, increase sales from existing
customers and increase the active Belk credit card account base. The program
offers a number of special benefits and services, such as free deluxe gift
wrapping and free basic alterations, to charge customers who have made Belk
charge purchases totaling $800 or more in the past 12 months. Approximately
451,000 Belk charge customers have been identified as prospective BelkSelects
customers.
BUYING
The Company's highly qualified and experienced buyers and merchants
carefully monitor the merchandise mix of the Company's stores to maximize sales
and profitability. The planning process involves a continuous review of
merchandise needs by department and demand center, as well as on an individual
store basis. Historically, Belk stores have remained in touch with local
customers and markets by using a decentralized buying process. In order to
achieve a more efficient buying process, however, the Company evolved to a
buying process conducted by regional division offices. Buyers in the regional
division offices work together with corporate buyers at BSS and local store
personnel to ensure that each Belk store receives the merchandise needed to meet
the needs of its local customers.
As part of its target customer strategy, the Company is implementing
changes in its merchandising structure and the roles and responsibilities of its
merchants at BSS and in the divisions, to strengthen the buying process and
ensure the effective execution of the Company's strategic merchandising
initiatives.
SYSTEMS AND TECHNOLOGY
The Company continues to make significant investments in technology and
information systems in order to drive sales growth, improve operating efficiency
and support its overall business strategy. A total of approximately $50 million
was invested in point-of-sale equipment and information technology during fiscal
year 1999, approximately $6.8 million of which was used for the development of
new systems.
The Company places a priority on the development and implementation of
computerized systems to support its merchandising, sales floor, inventory and
logistics initiatives. These systems enable the Company's management to quickly
identify sales trends, order, track and distribute merchandise, manage markdowns
and monitor merchandise mix and inventory levels. Examples of new or enhanced
systems that were in development or implementation phases in fiscal year 1999
include:
Merchandise Planning and Tracking -- provides for top-down and
bottom-up merchandise planning; allows planning to the class level and
enables accurate tracking of merchandise performance;
Point Of Sale -- electronic terminals speed up sales transactions,
ensure accuracy, and improve customer service on the sales floor; and
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Price Management -- provides electronic price lookup and markdowns at
the point of sale, assuring greater accuracy and higher margins.
Top priority systems for fiscal year 2000 include:
Auto Replenishment -- improves inventory turns by automatically
alerting suppliers when merchandise inventories need to be replenished;
Inventory Scanning -- enables associates to take stock counts
electronically to update unit and financial information; and
Floor Ready Systems -- new system enhancements to support the
Company's "floor-ready" initiatives will improve cycle time and in-stock
position, allow for faster merchandise replenishment, and enable the
Company to manage the supply chain more effectively and move the latest
fashions and styles onto the sales floor as quickly as possible.
Once implemented, the Company's floor ready, pool stock and merchandise
replenishment initiatives will provide the order fulfillment capabilities needed
to sell merchandise over the internet. Belk views this as a major opportunity to
expand market share in the future.
YEAR 2000 ISSUES
The year 2000 ("Y2K") presents a problem for computer systems that were not
designed to handle any dates beyond the year 1999. This is a complex problem, as
almost every computer operation will be affected in some manner by the rollover
of the last two digits to "00." As a result, Belk's software and hardware will
have to be modified prior to December 31, 1999 in order to remain functional and
be ready for the year 2000 ("Y2K Ready"). If the computer systems are not
modified, they may produce erroneous information or otherwise fail to function
properly. The Company has committed significant resources to a company-wide
initiative, aimed at identifying and resolving Y2K issues and achieving a smooth
transition of the business into the next millennium. The initiative, which began
in the fall of 1995, addresses every facet of the Company's business, with the
goal of ensuring the continuity of all of the Company's mission-critical
business processes before, during and after the Y2K calendar change.
Substantially all of the Company's systems were Y2K Ready on March 31,
1999. Rigorous testing has begun and will continue throughout 1999. Contingency
plans for all critical areas of the business were also completed on March 31,
1999, with testing of these plans also continuing throughout the year. The total
cost of the Y2K project is estimated to be $5.7 million and is being funded
through operating cash flows. The Company is expensing all costs associated with
these system changes. As of January 30, 1999, $4.9 million had been expensed. A
more complete discussion of the Company's response to Y2K issues is contained
under the heading "Year 2000 Issues" in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
NON-RETAIL BUSINESSES
Several of the Company's subsidiaries engage in businesses that indirectly
or directly support the operations of the retail department stores. The
non-retail businesses include United Electronic Services, Inc. ("UES"), a wholly
owned subsidiary of Belk, Inc., which provides equipment maintenance services,
primarily on cash registers, but also on other equipment. UES provides such
services to the Company pursuant to contracts with BSS.
INDUSTRY AND COMPETITION
The Company operates retail department stores in the highly competitive and
dynamic retail apparel industry. Management of the Company believes that the
principal competitive factors for retail department store operations include
merchandise selection, quality, value, customer service and convenience. The
Company believes its stores are strong competitors in all of these areas. The
Company's primary competitors are traditional department stores, mass
merchandisers, national apparel chains, designer boutiques, individual
9
<PAGE> 12
specialty apparel stores and direct marketing firms, including Federated
Department Stores, Inc., The May Department Stores Company, Dillard's, Inc.,
Sak's, Inc., J.C. Penney Company, Inc., Wal-Mart Stores, Inc. and Sears, Roebuck
& Co.
TRADEMARKS AND SERVICE MARKS
BSS owns all of the principal trademarks and service marks now used by the
Company, including "Belk" and "All for You". These marks are registered with the
United States Patent and Trademark Office. The term of each of these
registrations is generally ten years, and they are generally renewable
indefinitely for additional ten-year periods, as long as they are in use at the
time of renewal. Most of the trademarks, trade names and service marks employed
by the Company are used in the Company's private label program. The Company
intends to vigorously protect its trademarks and service marks and initiate
appropriate legal action whenever necessary.
ASSOCIATES
As of January 30, 1999, the Company had approximately 22,000 full-time and
part-time associates. Because of the seasonal nature of the retail business, the
number of associates is highest during the holiday shopping period in November
and December. The Company as a whole considers its relations with associates to
be good. None of the associates of the Company are represented by unions or
subject to collective bargaining agreements.
ITEM 2. PROPERTIES
STORE LOCATIONS
As of January 30, 1999, the Company operated a total of 212 retail stores
in the following states:
<TABLE>
<S> <C> <C>
Alabama -- 3 Maryland -- 2 Tennessee -- 3
Arkansas -- 2 Mississippi -- 1 Texas -- 2
North
Florida -- 19 Carolina -- 77 Virginia -- 19
South West
Georgia -- 39 Carolina -- 39 Virginia -- 2
Kentucky -- 4
</TABLE>
117 Belk stores are located in regional malls, 87 are in strip shopping
centers and 8 are free standing units. Approximately 89% of the gross square
feet of the typical Belk store is devoted to selling space to ensure maximum
operating efficiencies. A majority of the stores are either new or have
undergone renovations within the past ten years. The new and renovated stores
feature the latest in retail design, including attractive exteriors and
interiors. The interiors are designed to create an exciting, comfortable and
convenient shopping environment for customers. They include the latest lighting
and merchandise fixturing, as well as quality decorative floor and wall
coverings and other special decor. The store layout is designed for ease of
shopping, and store signing is used to help customers identify and locate
merchandise.
As of January 30, 1999, the Company owned 59 stores outright, leased 141
stores under operating leases, and owned 12 stores under ground leases. The
typical operating lease has an initial term of between 15 and 20 years, with
four renewal periods of five years each, exercisable at the Company's option.
The typical ground lease has an initial term of 20 years, with four renewal
periods of five years each, exercisable at the Company's option.
10
<PAGE> 13
NON-STORE FACILITIES
The Company also owns or leases the following distribution centers,
regional group offices and headquarters facilities:
<TABLE>
<CAPTION>
BELK PROPERTY LOCATION OWN/LEASE
- ------------- --------------- ---------
<S> <C> <C>
Belk, Inc. Raleigh, NC Division Office.................. Raleigh, NC Lease
Belk, Inc. Fayetteville, NC Division Office............. Fayetteville,
NC Lease
Belk, Inc. Atlanta, GA Division Office.................. Norcross, GA Lease
Belk, Inc. Greenville, SC Division Office............... Greenville, SC Own
Belk, Inc., Gastonia, NC Division Office................ Gastonia, NC Own
Belk, Inc. Charleston, SC Division Office............... Summerville, SC Own
Belk, Inc. Charlotte, NC Division Office................ Charlotte, NC Own
Belk, Inc. Richmond, VA Division Office................. Richmond, VA Lease
Belk Stores Services, Inc. Offices -- LakePointe........ Charlotte, NC Own
Belk Distribution Center................................ Fayetteville,
NC Lease
Belk Distribution Center................................ Morrisville, NC Own
Belk Distribution Center................................ Greensboro, NC Lease
Belk Distribution Center................................ Mauldin, SC Lease
Belk Distribution Center................................ Summerville, SC Lease
</TABLE>
OTHER
The Company owns various other real property, including primarily former
store locations. Such property is not material, either individually or in the
aggregate, to the Company's results of operations or financial condition.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in various legal actions which are incidental to its
business. Management of the Company believes that none of the various actions
and proceedings involving the Company will have a material adverse effect on the
Company's financial condition or results of operations.
ITEM 4. MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the
fourth quarter of the fiscal year ending January 30, 1999.
11
<PAGE> 14
PART II
ITEM 5. MARKET INFORMATION FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Neither the Class A Common Stock, par value $.01 per share (the "Class A
Common Stock") nor the Class B Common Stock, par value $.01 per share (the
"Class B Common Stock") was listed or traded on a public market during any part
of fiscal year 1999. There is no established public trading market for either
class of the Company's common stock. As of April 15, 1999, there were
approximately 554 holders of record of the Class A Common Stock and 8 holders of
record of the Class B Common Stock. No dividends were declared by the Company
during the fiscal year ended January 30, 1999; however, the Belk Companies each
declared dividends payable prior to May 2, 1998, the date of the Reorganization.
On March 25, 1999, the Company declared a dividend of $.235 on each share of the
Class A and Class B Common Stock outstanding on April 1, 1999. The amount of
dividends paid out with respect to fiscal year 2000 and each subsequent year
will be determined at the sole discretion of the Board of Directors based upon
the Company's results of operations, financial condition, cash requirements and
other factors deemed relevant by the Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF INCOME DATA:
Revenues............................. $2,091,060 $1,974,102 $1,772,613 $1,685,470 $1,694,422
Cost of goods sold................... 1,422,257 1,341,646 1,205,687 1,149,270 1,151,713
Depreciation and amortization........ 57,141 54,081 51,021 50,832 46,762
Income from operations............... 127,189 107,319 96,908 70,825 92,353
Income from continuing operations.... 57,974 59,672 64,497 42,518 46,893
Income (loss) from discontinued
operations*........................ -- (5,272) 36,873 1,298 1,731
Net income........................... 56,970 54,400 101,370 43,816 48,624
Basic income per share:
From continuing operations......... 1.02 n/a n/a n/a n/a
Net income......................... 1.01 n/a n/a n/a n/a
Cash dividends per share............. n/a n/a n/a n/a n/a
SELECTED BALANCE SHEET DATA:
Accounts receivable, net............. 351,143 353,509 335,914 263,161 262,986
Merchandise inventory................ 482,247 431,169 425,415 365,902 349,610
Working capital...................... 622,969 497,146 442,753 423,543 514,228
Total assets......................... 1,593,918 1,348,502 1,358,900 1,260,979 1,159,735
Short-term debt...................... 4,264 59,323 187,272 116,327 11,000
Long-term debt and capitalized lease
obligations........................ 403,713 299,582 216,010 178,441 214,450
Stockholders' equity................. 787,935 703,785 672,016 748,706 717,284
SELECTED OPERATING DATA:
Number of stores at end of period.... 212 218 250 216 221
Comparable store net revenue
increases (decreases).............. 2.8% 1.2% 2.3% (2.3)% 2.4%
</TABLE>
- ---------------
All years include 52 weeks (364 days), with the exception of the fiscal year
ended February 3, 1996, which includes 368 days.
(*) Income (loss) from discontinued operations represents the operating results
and gain on the sale of BAC, Inc., which owned and operated a mall in
Charlotte, North Carolina, and the operating results of TAGS, LLC, which
owned and operated outlet stores.
12
<PAGE> 15
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In April 1998, the shareholders of the 112 companies previously comprising
the Belk Companies (the "Predecessor Companies") approved the Reorganization of
the Predecessor Companies into the Company effective on May 2, 1998. The
following is a discussion of the historical consolidated or combined financial
condition and results of operations of the Company and the Predecessor
Companies, for each of the fiscal years ended January 30, 1999, January 31, 1998
and February 1, 1997, which should be read in conjunction with the financial
statements, including the notes thereto, included elsewhere in this Form 10-K.
The results of operations for the fiscal year ended January 30, 1999 include
three months of pre-Reorganization historical combined results of the
Predecessor Companies and nine months of post-Reorganization consolidated
results of the Company. Prior to the Reorganization, the Belk-Simpson Company,
Greenville, South Carolina ("Belk-Simpson") was included in the combined
financial statements as a 37% equity investment. Subsequent to the
Reorganization, Belk-Simpson is included in the consolidated financial
statements as a wholly-owned subsidiary. References herein to the "Company"
include the Belk Companies as predecessors to the Company and references herein
to consolidated financial statements include combined financial statements of
the Predecessor Companies for periods prior to the Reorganization.
GENERAL
Acquisitions. The Company acquired a controlling interest in various
corporations, which together operated 42 Leggett stores, in November 1996 (the
"Leggett Acquisition") for $92.0 million. Under the purchase method of
accounting, the assets, liabilities and results of operations associated with
the Leggett Acquisition have been included in the Company's financial position
and results of operations for the 1997 fiscal year since the date of
acquisition. Due to the significant impact on the Company's operations
associated with the Leggett Acquisition, the Company's period-to-period
comparisons for the fiscal years ended January 31, 1998 and February 1, 1997 may
not be meaningful or indicative of future results.
Discontinued Operations. In November 1996, the Company sold its investment
in a wholly-owned subsidiary that owned a retail mall to an unrelated third
party. In October 1997, the Company announced the closing of the TAGS outlet
stores (the "TAGS Stores"), that were operated by TAGS Stores, LLC ("TAGS"). The
operating results of these entities are presented as discontinued operations.
Certain Components of Net Income. Revenues include sales from retail
operations and leased departments. Cost of goods sold include cost of
merchandise, buying, and occupancy expense. Selling, general and administrative
expense ("SG&A") includes payroll, advertising, credit and depreciation expense.
REORGANIZATION AND RESTRUCTURING
In fiscal year 1999, Belk began realizing the benefits of the
Reorganization. The Reorganization has allowed the Company to create a more
streamlined legal structure, and the Company expects to realize significant
expense savings through reduced taxes, improved cash management and more
cost-effective financing. As an example of corporate efficiencies resulting from
the Reorganization, the Company is in the process of forming and chartering a
subsidiary that will operate as Belk National Bank in the state of Georgia. The
new bank, which is expected to begin operations in May 1999, will enable the
Company to standardize the interest rate terms of Belk charge customer accounts
across the 13 states in which Belk operates and to set competitive interest
rates comparable to other key retailers.
Belk has recently announced plans to streamline its organizational
structure by consolidating its thirteen operating divisions into four expanded
regional divisions to be headquartered in Charlotte and Raleigh, North Carolina,
Greenville, South Carolina and Jacksonville, Florida. The consolidation should
permit the Company to intensify its customer focus by achieving more unified and
consistent execution of its marketing, merchandising and advertising strategies
and by simplifying decision making processes. It is anticipated that the
consolidation will take place during the second quarter of fiscal year 2000.
13
<PAGE> 16
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to revenues of certain items in the Company's statements of income
and other pertinent financial and operating data.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
SELECTED FINANCIAL DATA
Revenues.............................................. 100.0% 100.0% 100.0%
Cost of goods sold.................................... 68.0 68.0 68.0
Selling, general and administrative expenses.......... 25.9 26.3 26.3
Income from operations................................ 6.1 5.4 5.5
Interest expense, net................................. 1.7 1.8 1.3
Income taxes.......................................... 1.7 1.5 2.2
Income from continuing operations..................... 2.8 3.0 3.6
Discontinued operations............................... -- (0.3) 2.1
Net income............................................ 2.7 2.8 5.7
SELECTED OPERATING DATA
Gross square footage (in thousands)................... 16,591 16,217 14,754
Store revenues per gross sq. ft. ..................... $126 $122 $120
Comparable stores revenues increase................... 2.8% 1.2% 2.3%
Number of stores
Opened.............................................. 8 5 5
Acquired............................................ 7 0 42
Closed.............................................. (21) (37) (13)
Total -- end of period...................... 212 218 250
</TABLE>
COMPARISON OF FISCAL YEARS ENDED JANUARY 30, 1999 AND JANUARY 31, 1998
Revenues. The Company's revenues in fiscal year 1999 increased 5.9%, or
$117 million, to $2.09 billion from $1.97 billion in fiscal year 1998. The
increase was partially due to including the Belk-Simpson revenues in the
consolidated operating results subsequent to the Reorganization, which
contributed $55 million, or 2.6%, in revenues for fiscal year 1999. Excluding
the impact of the Reorganization, revenues for the fiscal year 1999 increased
3.3%, or $62 million, over fiscal year 1998. On a comparable store basis,
revenues increased 2.8% for the year.
Cost of Goods Sold. As a percentage of revenues, cost of goods sold for
fiscal year 1999 and fiscal year 1998 was 68.0%. Fiscal year 1999 cost of goods
sold was negatively impacted by higher levels of markdowns compared to the
markdowns during fiscal year 1998, due to additional markdowns associated with
the stores obtained from Dillard's, Inc. and higher markdowns in existing stores
designed to promote sales in response to a weak retail environment and
unseasonably warm weather during the fall of 1998. The higher markdown levels
were offset by decreases in buying costs due to a more efficient purchasing
structure.
Selling, General and Administrative Expenses. SG&A was $541.6 million in
fiscal year 1999, compared to $518.9 million in fiscal year 1998, an increase of
4.4%. As a percentage of revenues, SG&A decreased to 25.9% in fiscal year 1999
from 26.3% in fiscal year 1998. The decrease is attributable to reductions in
personnel costs due to improved operating efficiencies, partially offset by
decreases in finance charge income on the Company's proprietary credit card
receivables.
During fiscal years 1999 and 1998 the Company's bad debt expense, net of
recovery associated with the issuance of credit on the Belk proprietary credit
cards, was $12.2 million and $13.2 million, respectively. During fiscal years
1999 and 1998, finance charge income on the outstanding Belk proprietary credit
card receivables was $41.3 million and $43.8 million, respectively. Accounts
receivable management and collection services expenses for fiscal years 1999 and
1998 were $20.9 million and $19.9 million, respectively.
14
<PAGE> 17
Income From Operations. Income from operations increased $19.9 million, or
18.5%, to $127.2 million in fiscal year 1999, as compared to $107.3 million in
fiscal year 1998. The increase resulted from increases in revenues and decreases
in SG&A expenses as a percentage of revenues.
The Company's income from operations in fiscal year 1999 was negatively
impacted by approximately $4 million of additional costs incurred in connection
with the store exchange with Dillard's, Inc. These costs consist primarily of
additional markdowns, costs associated with the closing of the surrendered
stores, costs of converting the acquired stores and costs of preparing the
Company's Summerville, South Carolina distribution center for the additional
volume of merchandise processed for the acquired stores.
Interest Expense, Net. Interest expense, net increased $1.4 million, or
4.2%, in fiscal year 1999 compared to fiscal year 1998. The increase resulted
primarily from higher average outstanding borrowings offset by reduced effective
interest rates due to the refinancing of higher rate debt facilities. The
borrowings were utilized to fund the Company's capital expenditures and to
repurchase stock from stockholders exercising their appraisal rights in
connection with the Reorganization.
Net Income. Net income increased by $2.6 million in fiscal year 1999
compared to fiscal year 1998. However, fiscal year 1998 net income includes
$15.9 million of gains on the sale of investments by Belk-Simpson that the
Company recognized as equity in earnings of unconsolidated entities. Excluding
the impact of the Belk-Simpson investment gains, net income for fiscal year 1999
increased $18.5 million, or 48.1%, over fiscal year 1998.
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1998 AND FEBRUARY 1, 1997
Revenues. The Company's revenues in fiscal year 1998 increased 11.4%, or
$201.5 million, to $1.97 billion from $1.77 billion in fiscal year 1997. The
increase resulted primarily from the Leggett Acquisition, which contributed
$285.0 million, or 14.4% in revenues during the fiscal year ended January 31,
1998, as compared to $107.4 million, or 6.1% in revenues during the fiscal year
ended February 1, 1997. Comparable store revenues increased 1.2% for fiscal year
1998 compared to fiscal year 1997. Excluding the impact of the Leggett
Acquisition, revenues in fiscal year 1998 increased 1.4%, or $23.9 million, over
fiscal year 1997.
Cost of Goods Sold. As a percentage of revenues, cost of goods sold for
fiscal year 1998 remained constant at 68.0%. Cost of goods sold increased 11.3%
or $136.0 million from $1.21 billion in fiscal year 1997 to $1.34 billion in
fiscal year 1998, primarily due to the higher revenue volume associated with the
Leggett Acquisition. Excluding the impact of the Leggett Acquisition, cost of
goods sold as a percentage of revenues decreased .1% from fiscal year 1997 to
fiscal year 1998, due to improved inventory management.
Selling, General and Administrative Expenses. SG&A was $518.9 million in
fiscal year 1998, compared to $466.8 million in fiscal year 1997, an increase of
11.2%. As a percentage of revenues, SG&A remained flat at 26.3% for both fiscal
year 1998 and 1997. The Leggett Acquisition resulted in additional SG&A of $80.8
million for fiscal year 1998, as compared to $25.6 million for the three-month
period included in fiscal year 1997. Excluding the impact of the Leggett
Acquisition, SG&A decreased .7% or $3.1 million and was 25.9% of revenues for
fiscal year 1998, compared to 26.5% of revenues for fiscal year 1997. This
decrease is attributable to decreases in payroll and supply expenses realized
through improved operating efficiencies.
During fiscal years 1998 and 1997 the Company's bad debt expense, net of
recovery associated with the issuance of credit on the Belk proprietary credit
cards, was $13.2 million and $10.8 million, respectively. Although bad debt
expense increased $2.4 million due to increased Belk proprietary credit card
sales volume and industry-wide increases in personal bankruptcies, the increase
was offset by an increase in finance charge income of $6.3 million. During
fiscal years 1998 and 1997, finance charge income on the outstanding Belk
proprietary credit card receivables was $43.8 million and $37.6 million,
respectively. Accounts receivable management and collection services expenses
for fiscal years 1998 and 1997 remained flat, at $19.9 million for each year.
Impairment of Long-Lived Assets. The Company evaluates its investment in
long-lived assets on an individual store basis. Based upon an assessment of
historical and projected operating results, it was determined that the carrying
value of certain operating stores was impaired under the criteria defined in
SFAS
15
<PAGE> 18
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of." As a result, the Company recorded pre-tax impairment
charges of $6.3 million and $3.2 million for fiscal years 1998 and 1997,
respectively, to reduce the carrying value of these assets to their estimated
fair value.
Interest Expense, Net. As a percentage of revenues, interest expense, net
increased to 1.8% for fiscal year 1998 as compared to 1.3% in fiscal year 1997.
Interest expense, net increased 52.8% or $12.0 million, to $34.7 million in
fiscal year 1998 from $22.7 million in fiscal year 1997. The increase resulted
primarily from higher average outstanding borrowings and higher effective
interest rates needed to fund the Company's capital expenditures, the Leggett
Acquisition and repurchases of common stock.
Gain (Loss) on Sale of Property and Equipment. The net loss on sale of
property and equipment for the fiscal year ended January 31, 1998 was $1.1
million, compared to a $21.3 million net gain for fiscal year 1997. The fiscal
year 1997 gains resulted primarily from the sale of property and fixtures in
three closed stores in Florida.
Discontinued Operations. During fiscal year 1997, the Company converted
certain Belk clearance center stores to discount outlet stores and opened two
new store locations under the TAGS name. On September 17, 1997, management
decided to close the TAGS Stores. The TAGS Stores were closed in December 1997
after liquidating the stores' inventory.
The operating results for the TAGS Stores subsequent to the conversion to
the TAGS discount outlet format have been presented as discontinued operations.
The Company recognized after-tax losses on the discontinued operations of the
TAGS Stores of $5.3 million for the fiscal year ended January 31, 1998, which
was composed of a $1.3 million after-tax loss on operations and a $4.0 million
after-tax loss on disposal of assets. In addition, a $1.0 million after-tax loss
on operations of the TAGS Stores was recognized for the fiscal year ended
February 1, 1997.
The Company recognized a gain on the sale of a wholly-owned subsidiary that
owned a retail mall of $37.9 million in fiscal year 1997, which was composed of
a $3.6 million after-tax loss on operations and a $41.5 million after-tax gain
on disposal of assets.
Net Income. Net income decreased $47.0 million to 2.8% of revenues in
fiscal year 1998, compared to 5.7% of revenues in fiscal year 1997. This
decrease was due to the one time gain on the sale of a wholly-owned subsidiary
that owned a retail mall of $41.5 million, and the gain on sale of property and
fixtures of three stores in Florida of $13.0 million after-taxes that occurred
during fiscal year 1997.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its revenues, operating income and net
income. The highest revenue period for the Company is the fourth quarter, which
includes the Christmas selling season. A disproportionate amount of the
Company's revenues and a substantial amount of the Company's operating and net
income are realized during the fourth quarter. If for any reason the Company's
revenues were below seasonal norms during the fourth quarter, the Company's
annual results of operations could be adversely affected. The Company's
inventory levels generally reach their highest in anticipation of increased
revenues during these months.
The following table illustrates the seasonality of revenues by quarter as a
percentage of the full year for the fiscal years indicated.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
First quarter............................................... 21.5% 22.8% 21.6%
Second quarter.............................................. 21.7 21.9 22.1
Third quarter............................................... 22.9 23.4 23.5
Fourth quarter.............................................. 33.9 31.9 32.8
</TABLE>
The Company's quarterly results of operations could also fluctuate
significantly as a result of a variety of factors, including the timing of new
store openings.
16
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash on hand, cash flow from
operations and borrowings under debt facilities. Effective on May 2, 1998, the
numerous debt facilities utilized by the Predecessor Companies were assumed by
the Company. The Company consolidated those debt facilities with the combination
of a $300 million variable rate accounts receivable securitization, a $125
million ten-year variable rate bond facility and two seasonal line of credit
agreements totaling $185 million. The Company finalized the $300 million
accounts receivable securitization on June 12, 1998, borrowed $257 million and
used the proceeds to repay a majority of its existing debt. On July 23, 1998,
the Company finalized the $125 million ten year variable rate bond facility and
used the proceeds to retire substantially all of the Company's remaining debt.
In September 1998, the Company replaced a $128.5 million line of credit with a
$150 million line of credit that bears interest at LIBOR plus approximately 60
basis points. The debt facilities place certain restrictions on mergers,
consolidations and the sale of the Company's assets and require maintenance of
minimum financial ratios. The accounts receivable securitization limits
borrowings under the facility to approximately 80% of the Company's customer
accounts receivable.
Although the interest rates on all of the Company's debt agreements vary
with LIBOR or commercial paper rates, the Company has entered into interest rate
swap agreements with various financial institutions to manage the exposure to
changes in interest rates. The amount of indebtedness covered by the interest
rate swaps is $350 million through fiscal year 1999, $325 million for fiscal
year 2000, $300 million for fiscal years 2001 through 2008, and $250 million for
fiscal year 2009.
Operating activities provided cash of $126.4 million during fiscal year
1999, as compared to $91.9 million in fiscal year 1998. The increase in cash
provided by operating activities compared to the prior period was due to
decreases in accounts receivable from customers, increases in accounts payable
and increases in deferred and accrued taxes, partially offset by increases in
merchandise inventory levels and prepaid expenses.
Cash flows from investing activities used cash of $83.1 million during
fiscal year 1999, as compared to $73.0 million in fiscal year 1998. The increase
in cash used for investing activities was primarily due to an increase in
capital expenditures, partially offset by increases in proceeds from the sale of
investments and cash acquired from the acquisition of the Belk-Simpson retail
operations in the Reorganization, which was previously accounted for on the
equity method.
Expenditures for property and equipment were $136.5 million during fiscal
year 1999, compared to $77.3 million in fiscal year 1998. During the third
quarter of fiscal year 1999, the Company purchased two Stone & Thomas department
stores in Virginia and West Virginia, and exchanged nine Belk stores located in
Virginia and Tennessee, plus two additional stores to be constructed, for seven
Mercantile stores located in Jacksonville, Florida and Columbia, South Carolina.
During fiscal year 1999, the Company opened eight new stores and made
significant renovations to and/or expansions of existing stores and updated the
majority of its point-of-sale register systems. While it is difficult to predict
capital expenditures for the Company, capital expenditures over the next three
fiscal years are expected to average approximately $100 million per year.
Net cash used by financing activities amounted to $41.2 million during
fiscal year 1999, including $50.6 million paid to dissenting stockholders in
connection with the Reorganization. During fiscal year 1999, the Company entered
into a $300 million accounts receivable securitization facility, borrowed $257
million under the facility and used the proceeds to repay a majority of its
higher rate debt. The Company also finalized a $125 million ten-year variable
rate bond facility and used the proceeds to retire all of the Company's
remaining higher rate debt and to fund capital expenditures.
Management of the Company believes that cash flows from operations and the
planned credit facilities will be sufficient to cover working capital needs,
capital expenditures and debt service agreements.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) No. 98-1, "Accounting for the costs of Computer
Software Developed or Obtained for Internal Use," which establishes standards
for the costs of computer software developed or obtained for internal use. The
17
<PAGE> 20
Company will implement the statement in fiscal year 2000. The Company expects
implementation of SOP No. 98-1 to result in approximately $4 million of fiscal
year 2000 expenditures to be capitalized that historically would have been
expensed.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes standards for accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The standard is effective for the Company starting in fiscal
year 2001. The impact of SFAS No. 133 on the Company's financial statements has
not been determined.
IMPACT OF INFLATION
While it is difficult to determine the precise effects of inflation,
management of the Company does not believe inflation had a material impact on
the consolidated financial statements for the periods presented.
YEAR 2000 ISSUES
In January 1996, the Company began converting its computer systems to be
Y2K compliant. This was necessary due to the use of two digit fields to
represent the year in many computer systems, which could cause the year "00" to
be recognized as 1900 instead of 2000. Failure to obtain Y2K compliance could
result in significant disruption to the Company's operations and information
processing.
A Y2K executive steering committee was designated to oversee all aspects of
the Company's progress towards Y2K compliancy. Under direction of the steering
committee, the Company has developed a Y2K compliance plan that focuses on 5
major areas as follows:
1. Information systems.
2. Imbedded chip devices.
3. Merchandise vendors.
4. Service providers.
5. User developed or installed software.
The plan generally covers the following 6 phases:
1. Inventory the Company's systems (including all equipment with imbedded
chips), merchandise vendors, service providers, and user developed or
installed software.
2. Assess whether Y2K compliance issues exist for each system, device or
provider identified.
3. Establish a timetable and detailed plans for obtaining compliance.
4. Repair and replace systems and/or devices requiring modification.
5. Validate Y2K compliancy through testing of modifications.
6. Develop contingency plans.
* Phases 1, 2, 3 and 6, above, apply to merchandise vendors and service
providers as well as to Company systems.
The Company is 99% complete with testing of all key information technology
("IT") systems, with one remaining system scheduled for completion by the end of
April 1999. The company is 96% complete with the upgrade, replacement and
testing phases of non-IT systems. These systems, such as PBX, security and
heating and air-conditioning systems, include imbedded chip processors that may
be affected by the Y2K issue. Substantially all IT and non-IT systems are
scheduled to be completed by the end of April 1999.
The Company has also surveyed its merchandise vendors as to their Y2K
readiness. The Company has received responses from 99% of its branded
merchandise vendors and 97% of its private label merchandise vendors. Responses
are scored and follow-up conference calls scheduled for all vendors obtaining a
low confidence score. The Company has scored 76% of branded vendor responses and
84% of private label vendor
18
<PAGE> 21
responses with either a moderate or high confidence factor. In addition, 85% of
the Company's EDI trading partners have successfully passed a basic Y2K purchase
order and invoice translator test, with the majority of the remaining trading
partners scheduled before the end of July 1999.
The Company has surveyed all non-merchandise providers as to their Y2K
readiness. These providers include energy and utility companies, real estate
firms, advertising and sales promotion vendors, supplies vendors, transportation
and logistics companies, technology providers, credit services providers and
others. The Company has received responses from over 88% of these providers.
The Company has completed 98% of its Y2K contingency plans for all critical
business processes, with the remainder scheduled for completion before the end
of April 1999. The Company plans to address internal Y2K failures, as well as
failures of key external business providers to support the merchandise and
services needs of the Company. Plans will be tested and maintained throughout
1999, as the Company monitors the Y2K readiness progress of key business
partners.
The total cost of the Y2K project is estimated to be $5.7 million and is
being funded through operating cash flows. This cost primarily consists of
internal labor costs to repair and test IT and non-IT systems. The Company is
expensing all costs associated with the project as incurred. At January 30,
1999, $4.9 million had been expensed. The Company has not experienced any
significant delays in other IT projects due to the implementation of the Y2K
plan.
Although the Company anticipates full Y2K compliance will be substantially
achieved by the end of April 1999, there is the potential for certain of the
Company's systems to experience Y2K failures. This is due to the uncertainties
inherent in the Y2K problem, including key business partner failures, failure to
identify all systems affected, failure to successfully remediate all systems
affected, and other similar uncertainties. A worst case scenario could include
disruption in the Company's ability to advertise, purchase and sell merchandise,
extend customer credit, keep accurate accounting records, and perform customer
service. Should this occur, the Company's liquidity, future operating results
and financial position may be materially impacted.
Readers are cautioned that forward-looking statements contained in this Y2K
discussion should be read in conjunction with the cautionary statement included
in this Form 10-K under "This Information Contains Forward-Looking Statements."
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on its
variable rate debt. The Company uses interest rate swaps to manage the interest
rate risk associated with its borrowings and to manage the Company's allocation
of fixed and variable rate debt. The Company does not use financial instruments
for trading or other speculative purposes and is not a party to any leveraged
financial instruments.
The Company's net exposure to interest rate risk consists of exposure for
variable rate debt in excess of its interest rate swaps. At January 30, 1999,
the Company had $379 million of variable debt and $350 million of offsetting,
pay variable rate, receive fixed rate swaps. The impact on the Company's results
of operations of a one-point interest rate change on the outstanding balance of
unhedged variable rate debt as of January 30, 1999 would not be material.
A discussion of the Company's accounting policies for derivative financial
instruments is included in the Summary of Significant Accounting Policies in
Note 2 to the Company's financial statements.
19
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ 21
Statements of Income........................................ 22
Balance Sheets.............................................. 23
Statements of Stockholders' Equity.......................... 24
Statements of Cash Flows.................................... 25
Notes to Financial Statements............................... 26
</TABLE>
20
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Belk, Inc.:
We have audited the accompanying balance sheets of Belk, Inc. and
Predecessor Companies (as described in Note 1) as of January 30, 1999 and
January 31, 1998, and the related statements of income, stockholders' equity and
cash flows for each of the years in the three-year period ended January 30,
1999. These financial statements are the responsibility of the Company'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, the financial statements referred to above present fairly,
in all material respects, the financial position of Belk, Inc. and Predecessor
Companies as of January 30, 1999 and January 31, 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended January 30, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Charlotte, North Carolina
April 27, 1999
21
<PAGE> 24
BELK, INC. AND PREDECESSOR COMPANIES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues................................................... $2,091,060 $1,974,102 $1,772,613
Cost of goods sold (including occupancy and buying
expenses)................................................ 1,422,257 1,341,646 1,205,687
Selling, general and administrative expenses............... 541,614 518,877 466,841
Impairment of long-lived assets............................ -- 6,260 3,177
---------- ---------- ----------
Income from operations..................................... 127,189 107,319 96,908
Interest expense........................................... (37,132) (39,950) (27,554)
Interest income............................................ 1,026 5,288 4,873
Gain (loss) on sale of property, equipment and
investments.............................................. 597 (597) 23,209
Other income, net.......................................... 757 859 1,817
---------- ---------- ----------
Income from continuing operations before income taxes and
equity in earnings of unconsolidated entities............ 92,437 72,919 99,253
Income taxes............................................... 34,651 29,900 38,802
---------- ---------- ----------
Income from continuing operations before equity in earnings
of unconsolidated entities............................... 57,786 43,019 60,451
Equity in gain on sale of investments of unconsolidated
entities, net of income taxes............................ -- 15,891 3,072
Equity in earnings of unconsolidated entities, net of
income taxes............................................. 188 762 974
---------- ---------- ----------
Income from continuing operations.......................... 57,974 59,672 64,497
Discontinued operations:
Loss from discontinued operations, net of income tax
benefit of $814 and $2,937 for fiscal years 1998, and
1997, respectively.................................... -- (1,273) (4,593)
Gain (loss) on disposal of discontinued operations, net
of income tax expense (benefit) of $(2,411) and
$29,897 for fiscal years 1998 and 1997,
respectively.......................................... -- (3,999) 41,466
---------- ---------- ----------
Net income before extraordinary item....................... 57,974 54,400 101,370
Extraordinary item -- loan prepayment penalty, net of
income tax benefit of $670............................... (1,004) -- --
---------- ---------- ----------
Net income....................................... $ 56,970 $ 54,400 $ 101,370
========== ========== ==========
Basic income per share:
Net income before extraordinary item..................... $ 1.02 N/A N/A
========== ========== ==========
Extraordinary item....................................... $ (0.01) N/A N/A
========== ========== ==========
Net income............................................... $ 1.01 N/A N/A
========== ========== ==========
Weighted average shares outstanding...................... 56,682,252 N/A N/A
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 25
BELK, INC. AND PREDECESSOR COMPANIES
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 18,313 $ 16,263
Accounts receivable, net.................................. 351,143 353,509
Merchandise inventory..................................... 482,247 431,169
Prepaid income taxes...................................... 7,205 5,226
Deferred income taxes..................................... 4,378 7,438
Prepaid expenses and other current assets................. 18,269 26,453
---------- ----------
Total current assets.............................. 881,555 840,058
Investments in unconsolidated entities...................... -- 38,846
Investment securities....................................... 24,164 37,223
Property and equipment, net................................. 560,949 395,771
Prepaid pension costs....................................... 101,352 2,250
Intangible assets, net...................................... -- 17,620
Other assets................................................ 25,898 16,734
---------- ----------
Total assets...................................... $1,593,918 $1,348,502
========== ==========
LIABILITIES, DEFERRED INCOME AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 167,598 $ 123,573
Accrued expenses.......................................... 60,730 67,520
Accrued income taxes...................................... 20,993 3,363
Lines of credit and notes payable......................... 4,264 59,323
Current installments of long-term debt and capital lease
obligations............................................ 5,001 89,133
---------- ----------
Total current liabilities......................... 258,586 342,912
Deferred income taxes....................................... 45,712 28,866
Long-term debt and capital lease obligations, excluding
current installments...................................... 398,712 210,449
Deferred compensation and other noncurrent liabilities...... 102,749 50,508
---------- ----------
Total liabilities................................. 805,759 632,735
---------- ----------
Deferred income............................................. 224 11,982
---------- ----------
Stockholders' equity:
Preferred stock........................................... -- --
Common stock, 56.7 million shares issued and
outstanding at January 30, 1999........................ 567 70,629
Paid-in capital........................................... 586,641 470
Retained earnings......................................... 200,203 618,834
Net unrealized gains on investments....................... 524 13,852
---------- ----------
Total stockholders' equity........................ 787,935 703,785
---------- ----------
Total liabilities, deferred income and
stockholders' equity............................ $1,593,918 $1,348,502
========== ==========
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 26
BELK, INC. AND PREDECESSOR COMPANIES
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME TOTAL
-------- -------- --------- ------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at February 3, 1996............ $ 88,949 $ 470 $ 640,236 $ 19,051 $ 748,706
Comprehensive income:
Net income........................... -- -- 101,370 -- 101,370
Unrealized gains on investments, net
of income taxes of $469........... -- -- -- 733 733
Equity in net unrealized gains on
investments held by unconsolidated
entity............................ -- -- -- 2,352 2,352
---------
Total comprehensive income... 104,455
---------
Cash dividends......................... -- -- (11,847) -- (11,847)
Repurchase of stock.................... (18,064) -- (151,234) -- (169,298)
-------- -------- --------- -------- ---------
Balance at February 1, 1997............ 70,885 470 578,525 22,136 672,016
Comprehensive income:
Net income........................... -- -- 54,400 -- 54,400
Unrealized losses on investments, net
of income taxes of $7,937......... -- -- -- (11,421) (11,421)
Equity in net unrealized gains on
investments held by unconsolidated
entity............................ -- -- -- 3,137 3,137
---------
Total comprehensive income... 46,116
---------
Cash dividends......................... -- -- (8,936) -- (8,936)
Repurchase of stock.................... (256) -- (5,155) -- (5,411)
-------- -------- --------- -------- ---------
Balance at January 31, 1998............ 70,629 470 618,834 13,852 703,785
Comprehensive income:
Net income........................... -- -- 56,970 -- 56,970
Unrealized losses on investments, net
of income taxes of $538........... -- -- -- (897) (897)
---------
Total comprehensive income... 56,073
---------
Predecessor Companies:
Cash dividends....................... -- -- (8,854) -- (8,854)
Repurchase of stock.................. (50) -- (3,450) -- (3,500)
Reorganization of Belk Companies....... (70,012) 586,171 (463,297) (12,431) 40,431
-------- -------- --------- -------- ---------
Balance at January 30, 1999............ $ 567 $586,641 $ 200,203 $ 524 $ 787,935
======== ======== ========= ======== =========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 27
BELK, INC. AND PREDECESSOR COMPANIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 56,970 $ 54,400 $ 101,370
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred income taxes..................................... 5,087 (4,326) 175
Deferred income........................................... 288 81 759
Depreciation and amortization............................. 57,141 54,081 51,021
Impairment of long-lived assets........................... -- 6,260 3,177
(Gain) loss on disposal of discontinued operations, net... -- 3,999 (41,466)
(Gain) loss on sale of property and equipment............. (2,152) 1,058 (21,328)
(Gain) loss on sale of investments........................ 1,555 (461) (1,882)
Equity in earnings of unconsolidated entities, net of
income taxes............................................ (188) (16,653) (4,046)
(Increase) decrease in:
Accounts receivable, net................................ 14,810 (17,595) (32,729)
Merchandise inventory................................... (34,987) (5,754) 17,462
Prepaid income taxes.................................... (1,756) (2,544) (606)
Prepaid expenses and other assets....................... (16,356) 18,732 6,706
Increase (decrease) in:
Accounts payable and accrued expenses................... 31,786 553 (8,070)
Accrued income taxes.................................... 18,696 (2,317) 2,357
Deferred compensation and other liabilities............. (4,510) 2,387 (5,607)
--------- --------- ---------
Net cash provided by operating activities................... 126,384 91,901 67,293
--------- --------- ---------
Cash flows from investing activities:
Distributions received from real estate partnership....... -- -- 3,375
Purchases of investments.................................. (10,149) (4,403) (16,338)
Proceeds from sales of investments........................ 23,021 5,673 16,583
Purchases of property and equipment....................... (136,518) (77,295) (62,408)
Proceeds from sales of property and equipment............. 28,673 2,996 27,275
Cash acquired from Belk-Simpson Reorganization............ 11,861 -- --
Acquisition of businesses, net of cash acquired........... -- -- (36,145)
--------- --------- ---------
Net cash used by investing activities....................... (83,112) (73,029) (67,658)
--------- --------- ---------
Cash flows from financing activities:
Payments to dissenting stockholders....................... (50,553) -- --
Proceeds from notes payable............................... 271,678 24,541 158,018
Payments on notes payable................................. (69,095) (122,796) (91,023)
Proceeds from issuance of long-term debt.................. 125,000 175,351 220,157
Principal payments on long-term debt and capital lease
obligations............................................. (292,134) (91,779) (160,168)
Net proceeds from (payments on) lines of credit........... (13,764) (29,694) 36,233
Dividends paid............................................ (8,854) (8,936) (11,847)
Repurchase of common stock................................ (3,500) (5,411) (169,298)
--------- --------- ---------
Net cash used by financing activities....................... (41,222) (58,724) (17,928)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 2,050 (39,852) (18,293)
Cash and cash equivalents at beginning of year.............. 16,263 56,115 74,408
--------- --------- ---------
Cash and cash equivalents at end of year........... $ 18,313 $ 16,263 $ 56,115
========= ========= =========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 34,226 $ 40,489 $ 31,129
Income taxes paid......................................... 41,607 38,965 33,062
Supplemental schedule of noncash investing and financing
activities:
Decrease in assets and liabilities due to sale of rental
operations.............................................. -- -- 167,318
Purchase of net assets of retail company through
assumption of notes..................................... -- -- 51,923
Increase in property and equipment through assumption of
capital leases.......................................... 25,587 -- --
Increase in property and equipment through assumption of
debt.................................................... 32,000 -- --
Increase in assets and liabilities due to
Reorganization.......................................... 40,431 -- --
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 28
BELK, INC. AND PREDECESSOR COMPANIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Belk, Inc. and its subsidiaries (the "Company") operate retail department
stores in the southeastern United States. The Company's outlet store subsidiary
is presented as a discontinued operation.
On April 15 and 16, 1998, the shareholders of the 112 companies previously
comprising the Belk Companies (the "Predecessor Companies") approved the
reorganization (the "Reorganization") of the Predecessor Companies into a single
operating entity, the Company, pursuant to a Plan and Agreement of
Reorganization, dated November 25, 1997, as amended, among the Company, Belk
Acquisition Co. and the Predecessor Companies (the "Reorganization Agreement").
The accompanying consolidated balance sheet as of January 30, 1999 reflects the
adjustments to merge the companies pursuant to the Reorganization. The
statements of income, stockholders' equity and cash flows for the fiscal year
ended January 30, 1999 include three months of pre-Reorganization historical
combined results of the Predecessor Companies and nine months of
post-Reorganization consolidated results of the Company. The combined financial
statements as of January 31, 1998, and for the fiscal years ended January 31,
1998 and February 1, 1997, have been prepared for purposes of depicting the
combined financial position and results of operations of the Predecessor
Companies on a historical cost basis.
On May 2, 1998, a majority of the shareholders of one of the Belk
Companies, Belk-Simpson Company, Greenville, South Carolina ("Belk-Simpson"),
redeemed their shares in Belk-Simpson (the "Belk-Simpson Reorganization," see
note 4). Prior to the Belk-Simpson Reorganization, the 37% investment in
Belk-Simpson was accounted for under the equity method of accounting. Subsequent
to the Belk-Simpson Reorganization, Belk-Simpson is included in the consolidated
financial statements as a wholly-owned subsidiary.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
All significant intercompany transactions and balances have been eliminated
in consolidation and combination.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to each January 31.
Fiscal years 1999, 1998 and 1997 ended on January 30, 1999, January 31, 1998 and
February 1, 1997, respectively, and included 52 weeks.
REVENUES
Revenues include sales from retail operations and leased departments, net
of returns. Customer returns are recognized as incurred.
COST OF GOODS SOLD
Cost of goods sold includes occupancy and buying expenses. Occupancy
expenses include rent, utilities and real estate taxes. Buying expenses include
payroll and travel expenses associated with the buying function.
26
<PAGE> 29
BELK, INC. AND PREDECESSOR COMPANIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
FINANCE CHARGES
Selling, general and administrative expenses in the statements of income
are reduced by finance charge revenue arising from customer accounts receivable.
Finance charge revenues were $41,328, $43,788, and $37,562 in fiscal years 1999,
1998, and 1997, respectively.
PRE-OPENING COSTS
Store pre-opening costs are expensed as incurred.
ADVERTISING
Advertising costs, net of co-op recoveries from suppliers, are expensed as
incurred and amounted to $60,707, $61,326, and $54,977 in fiscal years 1999,
1998 and 1997, respectively.
IMPAIRMENT CHARGE
The Company evaluates its investment in long-lived assets on an individual
store basis and determines fair value based upon an assessment of historical and
projected operating results. As a result of this analysis, the Company recorded
pre-tax impairment charges of $6,260 and $3,177 for fiscal years 1998 and 1997,
respectively, to reduce the carrying value of these assets to their estimated
fair value.
CASH EQUIVALENTS
Cash equivalents include liquid investments with an original maturity of 90
days or less.
MERCHANDISE INVENTORY
Merchandise inventory is stated at the lower of average cost or market as
determined by the retail inventory method.
INVESTMENTS
The Company accounts for investments in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Securities classified as
available-for-sale are valued at fair value, while securities that the Company
has the ability and positive intent to hold to maturity are valued at amortized
cost. The Company includes unrealized holding gains and losses for
available-for-sale securities in other comprehensive income. Realized gains and
losses are recognized on a specific identification basis and included in income.
PROPERTY AND EQUIPMENT, NET
Property and equipment owned by the Company is stated at cost less
accumulated depreciation. Property and equipment leased by the Company under
capital leases is stated at an amount equal to the present value of the minimum
lease payments less accumulated amortization. Depreciation and amortization are
provided utilizing straight-line and various accelerated methods over the
shorter of estimated asset lives or related lease terms.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement bases
and the respective tax bases of the assets and liabilities and operating loss
and tax credit
27
<PAGE> 30
BELK, INC. AND PREDECESSOR COMPANIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
INTANGIBLE ASSETS, NET
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally 15 years. Leasehold intangibles, which
represent the excess of fair value over the carrying value of leaseholds, are
amortized on a straight-line basis over the remaining terms of the lease
agreements. The carrying value of intangible assets is periodically reviewed by
the Company's management to assess the recoverability of the assets. Accumulated
amortization was $4,017 at January 31, 1998. During fiscal year 1999 all
remaining goodwill and leasehold intangibles were eliminated in recording the
Reorganization.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments (interest rate swap
agreements) to manage the interest rate risk associated with its borrowings. The
counterparties to these instruments are major financial institutions. These
agreements are used to reduce the potential impact of increases in interest
rates on variable rate long-term debt. The differential to be paid or received
is accrued as interest rates change and is recognized as an adjustment to
interest expense. Other than the amounts allocated to interest rate swaps in
recording the Reorganization, the fair value of the swap agreements is not
recognized in the financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective February 1, 1998, the Company adopted SFAS No. 128, "Earnings Per
Share". SFAS No. 128 has not been applied to the combined financial statements
of the Predecessor Companies but was applicable to the Company subsequent to the
Reorganization on May 2, 1998. For the purpose of calculating net income per
share for the fiscal year ended January 30, 1999, the calculation assumes that
the Belk, Inc. shares of common stock issued in connection with the
Reorganization have been outstanding since February 1, 1998.
Effective February 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", and SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits". SFAS No. 130 requires the
Company to report the change in its net assets from nonowner sources.
Accumulated other comprehensive income consists of unrealized gains and losses
on investments. Comprehensive income is disclosed in the statements of
Stockholders' Equity. SFAS No. 131 establishes revised standards for the
reporting of information about operating segments. SFAS No. 131 did not impact
the Company as it operates as one segment. SFAS No. 132 standardizes the
disclosure requirements for pension and other postretirement benefit plans. SFAS
No. 132 did not impact the Company's accounting for these plans, but did affect
the disclosures in Note 14.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' financial
statements to conform with the classification used in the financial statements
for the fiscal year ended January 30, 1999.
28
<PAGE> 31
BELK, INC. AND PREDECESSOR COMPANIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(3) PRO FORMA CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
As discussed in note 1 above, on April 15 and 16, 1998, the shareholders of
the Predecessor Companies approved the Reorganization. The following unaudited
pro forma condensed statements of operations are based upon the combined
statements of operations of the Predecessor Companies, adjusted to give effect
to the Reorganization and the acquisition of Belk-Simpson (see note 4) as if it
had occurred at the beginning of each period presented.
The Reorganization and the acquisition of Belk-Simpson are reflected in the
following unaudited pro forma condensed statements of operations as purchase
business combinations in accordance with the provisions of Accounting Principles
Board Opinion Number 16, and the Securities and Exchange Commission's Staff
Accounting Bulletin Number 97. Belk Enterprises, Inc. was the acquiring
corporation in the Reorganization because its shareholders received a larger
portion of the voting rights in the Company than any other Predecessor Company.
The excess of fair value of the Predecessor Companies over their historical cost
was allocated as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Prepaid pension costs....................................... $101,235
Property and equipment, net................................. 31,260
Deferred income tax liability, net.......................... (15,558)
Postretirement liabilities.................................. (17,429)
Other....................................................... (8,524)
--------
Fair value in excess of historical cost..................... 90,984
Dissented stock liability................................... (50,553)
--------
Net increase to stockholders' equity.............. $ 40,431
========
</TABLE>
Pro forma basic earnings per share are computed based on the 56,682,252
outstanding common shares of the Company issued in connection with the
Reorganization.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------
JANUARY 30, 1999 JANUARY 31, 1998
----------------------- -----------------------
REPORTED PRO FORMA REPORTED PRO FORMA
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues................................ $2,091,060 $2,107,363 $1,974,102 $2,042,266
Income from continuing operations....... 57,974 55,905 59,672 50,525
Net income.............................. 56,970 54,901 54,400 45,253
Basic net income per share.............. 1.01 .97 n/a .80
</TABLE>
(4) ACQUISITIONS
In accordance with the Belk-Simpson Reorganization, Belk-Simpson sold
substantially all of its investment assets and used the proceeds to purchase
common stock of Belk-Simpson. Of the 99,008 shares of common stock of
Belk-Simpson that were outstanding at the time of the offer, 63,077 shares were
tendered and purchased by Belk-Simpson for an aggregate purchase price of
approximately $68 million. The acquisition was accounted for using the purchase
method of accounting.
On November 1, 1996, the Company acquired substantially all of the
outstanding shares of the common stock of Leggett of Virginia, Inc. ("Leggett").
Leggett operated retail department stores generally in the southeastern United
States. The acquisition was accounted for using the purchase method of
accounting and, accordingly, Leggett's operating results subsequent to the date
of acquisition have been included in the Company's financial statements.
29
<PAGE> 32
BELK, INC. AND PREDECESSOR COMPANIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The aggregate purchase price was approximately $92 million, which includes
acquisition expenses. The aggregate purchase price, which was financed through
available cash resources, proceeds from a credit facility and notes held by
previous Leggett shareholders, has been allocated to the assets and liabilities
of Leggett based upon their respective fair market values. The excess of
purchase price over net assets acquired of approximately $12.5 million was being
amortized over 15 years on a straight-line basis. During 1999 the remaining
excess of purchase price over net assets acquired was eliminated in recording
the Reorganization.
(5) DISCONTINUED OPERATIONS
In September 1997, the managers and the advisory board of TAGS Stores, LLC,
("TAGS"), the Company's discount outlet store subsidiary, adopted a formal plan
to liquidate its operations during the 1997 Christmas retailing season.
Accordingly, the results of operations of TAGS are presented as discontinued
operations. During the year ended January 31, 1998, the Company provided for
losses on liquidation of the discontinued operations of $4.0 million, net of
income tax benefit of $2.4 million. TAGS, which was formed in February 1996,
recorded revenues of $25.9 and $18.5 million for fiscal years 1998 and 1997,
respectively.
In November 1996, JV Properties ("JV"), a retail mall joint venture,
distributed its interest in a retail mall, along with debt, to BAC, Inc.
("BAC"), a wholly-owned subsidiary of the Company, in redemption of BAC's
partnership interest in JV. Subsequently, the Company sold the stock of BAC to
an unrelated third party and recognized a gain on the disposal of $41,466 net of
income tax expense of $29,897. The accompanying financial statements present the
results of operations of JV as discontinued operations. JV recorded revenues of
$11,897 for the year ended February 1, 1997.
(6) ACCOUNTS RECEIVABLE, NET
Customer receivables arise primarily under open-end revolving credit
accounts used to finance purchases of merchandise from the Company. These
accounts have various billing and payment structures, including varying minimum
payment levels and finance charge rates. Installments of deferred payment
accounts receivable maturing after one year are included in current assets in
accordance with industry practice.
The Company provides an allowance for doubtful accounts which is determined
based on a number of factors, including the risk characteristics of the
portfolio, historical charge-off patterns and management judgment.
Accounts receivable, net consists of:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Customer receivables........................................ $343,125 $349,641
Other....................................................... 17,370 12,274
Less allowance for doubtful accounts........................ (9,352) (8,406)
-------- --------
Accounts receivable, net.......................... $351,143 $353,509
======== ========
</TABLE>
30
<PAGE> 33
BELK, INC. AND PREDECESSOR COMPANIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Changes in the allowance for doubtful accounts are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year.......................... $ 8,406 $ 6,813 $ 4,883
Charged to expense.................................. 12,237 13,181 10,829
Acquired............................................ 313 -- 801
Net uncollectible balances written off.............. (11,604) (11,588) (9,700)
-------- -------- -------
Balance, end of year...................... $ 9,352 $ 8,406 $ 6,813
======== ======== =======
</TABLE>
(7) INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Company's 25% ownership in Carolina Place Associates Limited
Partnership ("CPA") is recorded on the equity method. Equity in gain on sale of
investments of unconsolidated entities for the year ended February 1, 1997
includes $3,072, net of income tax expense of $1,973, for the Company's portion
of the gain recognized by CPA for the sale of its investment in a retail mall
joint venture.
Prior to the Belk-Simpson Reorganization (see note 1), the Company's 37%
investment in Belk-Simpson was recorded on the equity method. Equity in earnings
of Belk-Simpson in fiscal years 1999, 1998 and 1997 were $188, $762 and $974,
respectively. Equity in gain on sale of investments of unconsolidated entities
for the year ended January 31, 1998 includes $15,891, net of income tax expense
of $9,580, for the Company's portion of the gain recognized by Belk-Simpson in
the liquidation of its investment portfolio.
(8) INVESTMENT SECURITIES
Held-to-maturity securities consist of federal, state and local debt
securities. Details of investments in held-to-maturity securities are as
follows:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Amortized cost.............................................. $11,432 $10,480
Gross unrealized gains...................................... 778 626
------- -------
Fair value........................................ $12,210 $11,106
======= =======
</TABLE>
At January 30, 1999, scheduled maturities of held-to-maturity securities
are as follows:
<TABLE>
<CAPTION>
AMORTIZED
FAIR VALUE COST
---------- ---------
<S> <C> <C>
One to five years........................................... $ 5,020 $ 4,787
Six to ten years............................................ 4,485 4,124
After ten years............................................. 2,705 2,521
------- ---------
$12,210 $ 11,432
======= =========
</TABLE>
31
<PAGE> 34
BELK, INC. AND PREDECESSOR COMPANIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Details of investments in available-for-sale securities are as follows:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Cost........................................................ $11,857 $ 4,660
Gross unrealized gains...................................... 1,833 22,141
Gross unrealized losses..................................... (958) (58)
------- -------
Fair value of securities.......................... $12,732 $26,743
======= =======
</TABLE>
Gross realized gains on sales of available-for-sale securities included in
income in fiscal years 1999, 1998 and 1997 were $277, $546 and $1,966
respectively, and gross realized losses included in income in fiscal years 1999,
1998 and 1997 were $1,832, $85 and $84, respectively.
(9) PROPERTY AND EQUIPMENT, NET
Details of property and equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED JANUARY 30, JANUARY 31,
LIVES 1999 1998
--------- ----------- -----------
<S> <C> <C> <C>
Land................................................. n/a $ 29,752 $ 20,337
Buildings............................................ 30-50 559,530 423,962
Furniture, fixtures and equipment.................... 5-7 489,248 432,425
Construction in progress............................. n/a 10,181 8,282
---------- ---------
1,088,711 885,006
Less accumulated depreciation and amortization....... (527,762) (489,235)
---------- ---------
Property and equipment, net................ $ 560,949 $ 395,771
========== =========
</TABLE>
(10) ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Salaries, wages and employee benefits....................... $24,712 $33,141
Interest.................................................... 7,679 4,773
Rent........................................................ 5,596 4,505
Taxes, other than income.................................... 5,180 3,721
Other....................................................... 17,563 21,380
------- -------
$60,730 $67,520
======= =======
</TABLE>
32
<PAGE> 35
BELK, INC. AND PREDECESSOR COMPANIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(11) BORROWINGS
Long-term debt, principally due to banks, and capital lease obligations
consist of the following:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Bond facility............................................... $125,000 $ --
Accounts receivable securitization.......................... 243,863 --
Capital lease agreements through February 2018.............. 34,170 11,556
Mortgage notes payable...................................... -- 39,898
Unsecured notes payable..................................... 680 248,128
-------- --------
403,713 299,582
Less current installments................................... (5,001) (89,133)
-------- --------
Long-term debt and capital lease obligations, excluding
current installments...................................... $398,712 $210,449
======== ========
</TABLE>
The annual maturities of long-term debt and capital lease obligations over
the next five years as of January 30, 1999 are $5,001, $249,096, $5,501, $5,856
and $2,986, respectively.
The Company's loan agreements place restrictions on mergers,
consolidations, acquisitions, sales of assets, indebtedness, transactions with
affiliates, leases, liens, dividend payments and investments. They also contain
leverage ratio, tangible net worth and fixed charge coverage ratio requirements.
The Company is in compliance with all debt covenants. The bond facility matures
in July 2008 and bears interest at a variable rate based on the market for the
bonds that has historically approximated one-month LIBOR plus 50 basis points.
The accounts receivable securitization bears interest at a rate that
approximates LIBOR plus 35 basis points, is secured by the Company's customer
accounts receivable and limits borrowings to approximately 80% of the Company's
customer accounts receivable. The accounts receivable securitization expires on
April 27, 2000 and, accordingly, the balance as of January 30, 1999 has been
included in annual maturities of long-term debt for fiscal year 2001. However,
the agreement may be renewed by mutual consent of the parties and it is the
Company's intent to utilize the accounts receivable securitization as long-term
financing. At January 30, 1999 LIBOR was 4.9%.
The Company has entered into interest rate swap agreements with various
financial institutions to manage the exposure to changes in interest rates on
its variable rate indebtedness. The amount of indebtedness covered by the
interest rate swaps is $350 million for fiscal year 1999, $325 million for
fiscal year 2000, $300 million for fiscal years 2001 through 2008 and $250
million for fiscal year 2009.
At January 30, 1999, the Company has an unsecured line of credit agreement
totaling $150,000 with a bank at a variable interest rate based on LIBOR plus 60
basis points. The agreement expires May 31, 1999 and may be renewed upon mutual
agreement between the parties. The amounts outstanding under line of credit
agreements at January 30, 1999 and January 31, 1998 were $4,264 and $18,026,
respectively. The weighted average interest rates on short term borrowings at
January 30, 1999 and January 31, 1998 were 5.6% and 6.2%, respectively.
The Company prepaid substantially all of its unsecured notes and all of its
mortgage notes outstanding during fiscal year 1999 due to the availability of
lower interest rate financing. The Company incurred a loan prepayment penalty of
$1,004, net of income taxes of $670, on a mortgage prepayment that is reported
as an extraordinary loss.
33
<PAGE> 36
BELK, INC. AND PREDECESSOR COMPANIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(12) LEASES
The Company leases certain of its stores, warehouse facilities and
equipment. The majority of these leases will expire over the next 10 years. The
leases usually contain renewal options and provide for payment by the lessee of
real estate taxes and other expenses and, in certain instances, increased
rentals based on percentages of sales.
Future minimum lease payments under noncancelable leases as of January 30,
1999 were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL OPERATING
- ----------- -------- ---------
<S> <C> <C>
2000........................................................ $ 6,885 $ 30,983
2001........................................................ 6,800 26,987
2002........................................................ 6,740 24,229
2003........................................................ 6,730 22,884
2004........................................................ 3,620 21,148
After 2004.................................................. 14,170 95,558
-------- --------
Total............................................. 44,945 $221,789
========
Less imputed interest....................................... (10,775)
--------
Present value of minimum lease payments..................... 34,170
Less current portion........................................ (4,935)
--------
$ 29,235
========
</TABLE>
Rental expense for all operating leases consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Buildings:
Minimum rentals..................................... $33,750 $32,941 $29,982
Contingent rentals.................................. 5,059 5,037 4,562
Equipment............................................. 9,316 10,385 10,484
------- ------- -------
Total rental expense........................ $48,125 $48,363 $45,028
======= ======= =======
</TABLE>
Contingent rentals are determined on the basis of a percentage of sales in
excess of stipulated minimums for certain store facilities.
Assets under capital lease and accumulated amortization was $43,931 and
$11,417, respectively, at January 30, 1999.
34
<PAGE> 37
BELK, INC. AND PREDECESSOR COMPANIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(13) INCOME TAXES
Federal and state income tax expense (benefit) from continuing operations
was as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal............................................. $24,654 $28,212 $31,427
State............................................... 4,910 6,014 7,200
------- ------- -------
29,564 34,226 38,627
------- ------- -------
Deferred:
Federal............................................. 3,644 (3,280) 91
State............................................... 1,443 (1,046) 84
------- ------- -------
5,087 (4,326) 175
------- ------- -------
Income taxes.......................................... $34,651 $29,900 $38,802
======= ======= =======
</TABLE>
A reconciliation between income taxes from continuing operations computed
using the effective income tax rate and the federal statutory income tax rate of
35% is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income tax at the statutory federal rate.............. $32,353 $25,522 $34,739
State income taxes, net of federal income tax
benefit............................................. 4,130 3,229 4,735
Other................................................. (1,832) 1,149 (672)
------- ------- -------
Income taxes.......................................... $34,651 $29,900 $38,802
======= ======= =======
</TABLE>
35
<PAGE> 38
BELK, INC. AND PREDECESSOR COMPANIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Deferred taxes based upon differences between the financial statement and
tax bases of assets and liabilities and available tax carryforwards consist of:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Benefit plan costs........................................ $25,243 $15,512
Inventory capitalization.................................. 5,579 4,512
Allowance for doubtful accounts........................... 3,564 3,183
Tax carryovers............................................ 2,580 10,362
Accrued vacation.......................................... 2,363 1,898
Other..................................................... 2,061 8,544
------- -------
Gross deferred tax assets................................... 41,390 44,011
Less valuation allowance.................................... (930) (2,705)
------- -------
Net deferred tax assets..................................... 40,460 41,306
Deferred tax liabilities:
Prepaid pension costs..................................... 38,625 846
Property and equipment.................................... 30,400 17,161
Inventory................................................. 7,469 3,799
Investment securities..................................... 3,771 8,102
Provision for gain on disposal of discontinued
operations............................................. -- 29,897
Other..................................................... 1,529 2,929
------- -------
Gross deferred tax liabilities.............................. 81,794 62,734
------- -------
Net deferred tax liabilities...................... $41,334 $21,428
======= =======
</TABLE>
The valuation allowance decreased by $1,775 and $783 for the years ended
January 30, 1999 and January 31, 1998, respectively. In assessing the
realization of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
temporary differences becoming deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment.
As of January 30, 1999, the Company has net operating loss carryforwards
for federal and state income tax purposes of $4,159 and $16,986, respectively,
which are available to offset future taxable income, if any. These carryforwards
expire at various intervals through 2013. In addition, the Company has
alternative minimum tax net operating loss carryforwards of $11,417 which are
available to reduce future alternative minimum taxable income at various
intervals through 2013.
(14) PENSION AND POSTRETIREMENT BENEFITS
The Company has a defined benefit pension plan covering substantially all
of its employees. The benefits are based on years of service and the employee's
compensation during the calendar years 1994, 1995 and 1996, or the first three
years of employment, if initially employed after 1994. The cost of pension
benefits has been determined by the projected unit credit actuarial method in
accordance with SFAS No. 87 "Employers' Accounting for Pensions." The assets
held by the plan consist of 58% equities, 39% bonds and 3% other investments. No
additional funding of the plan is anticipated in the foreseeable future.
36
<PAGE> 39
BELK, INC. AND PREDECESSOR COMPANIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The Company also has a defined benefit health care plan that provides
postretirement medical and life insurance benefits to certain retired full-time
employees. The Company accounts for postretirement benefits by recognizing the
cost of these benefits over an employee's estimated term of service with the
Company.
The change in benefit obligation, change in plan assets, funded status,
amounts recognized and actuarial assumptions are as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------- -------------------------
JANUARY 30, JANUARY 31, JANUARY 30, JANUARY 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year... $209,469 $183,083 $ 32,332 $ 27,742
Service cost.............................. 13,068 10,688 464 454
Interest cost............................. 15,536 14,924 2,472 2,287
Amendments................................ -- 5,205 881 --
Actuarial loss............................ 4,600 9,528 2,717 4,178
Benefits paid............................. (16,207) (13,959) (2,819) (2,329)
-------- -------- -------- --------
Benefit obligation at end of year......... 226,466 209,469 36,047 32,332
-------- -------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of
year................................... 332,775 289,483 -- --
Actual return on plan assets.............. 40,030 57,251 -- --
Benefits paid............................. (16,207) (13,959) -- --
-------- -------- -------- --------
Fair value of plan assets at end of
year................................... 356,598 332,775 -- --
-------- -------- -------- --------
Funded status............................... 130,132 123,306 (36,047) (32,332)
Unrecognized net transition obligation...... (1,046) (5,699) 3,664 14,022
Unrecognized prior service costs............ 1,266 4,797 -- --
Unrecognized net gains...................... (29,000) (120,154) 5,639 10,667
-------- -------- -------- --------
Net amount recognized............. $101,352 $ 2,250 $(26,744) $ (7,643)
======== ======== ======== ========
</TABLE>
The components of net periodic benefit cost are as follows:
<TABLE>
<CAPTION>
PENSION PLAN POSTRETIREMENT PLAN
--------------------------------------- ---------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1, JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Service cost......................... $13,068 $10,688 $10,657 $ 464 $ 454 $ 455
Interest cost........................ 15,536 14,924 13,202 2,472 2,287 2,044
Return on assets..................... (25,048) (20,064) (19,146) -- -- --
Amortization of unrecognized items:
Net transition (asset)
obligation....................... (1,022) (1,965) (1,965) 486 934 935
Prior service cost................. 144 277 (70) 241 395 363
Net gains.......................... (545) (1,511) (963) -- -- --
------- ------- ------- ------ ------ ------
Net periodic benefit cost... $ 2,133 $ 2,349 $ 1,715 $3,663 $4,070 $3,797
======= ======= ======= ====== ====== ======
</TABLE>
Weighted average assumptions were:
<TABLE>
<CAPTION>
PENSION PLAN POSTRETIREMENT PLAN
--------------------------------------- ---------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1, JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Discount rates....................... 6.75% 7.25% 7.75% 6.75% 7.25% 7.75%
Rates of compensation increase....... 4.00 4.00 4.00 N/A N/A N/A
Return on plan assets................ 8.50 8.50 8.50 N/A N/A N/A
</TABLE>
37
<PAGE> 40
BELK, INC. AND PREDECESSOR COMPANIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
For measurement purposes, an 8.0% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed for
fiscal year 1999; the rate was assumed to decrease gradually to 5.5% by fiscal
year 2003 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
January 30, 1999 by $2,393 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended
January 30, 1999 by $296. Decreasing the assumed health care cost trend rates by
one percentage point in each year would decrease the accumulated postretirement
benefit obligation as of January 30, 1999 by $1,955 and the aggregate of the
service and interest cost components of net periodic postretirement benefit cost
for the year ended January 30, 1999 by $235.
(15) OTHER EMPLOYEE BENEFITS
The Belk Employees' Health Care Plan provides medical and dental benefits
to substantially all full-time employees. This Plan is "self-funded" for medical
and dental benefits through a 501(c)(9) Trust. The Group Life Insurance Plan and
The Belk Employees Short Term Disability Insurance Plan provide insurance to
substantially all full-time employees and are fully insured through contracts
issued by insurance companies. Contributions by the Company under these plans
amounted to approximately $17,350, $11,584, and $12,311 in fiscal years 1999,
1998 and 1997, respectively.
The Belk 401(K) Savings Plan, a contributory, defined contribution
multi-employer plan, provides benefits for substantially all employees. Prior to
January 1, 1998, the contributions to the plan generally represented 10% of
profits, as defined. Beginning on January 1, 1998, the contributions to the
401(K) Savings Plan are comprised of a matching contribution, generally 50% of
the employees' contribution up to 6% of eligible compensation, and a basic
contribution, generally 2% of eligible compensation, regardless of the
employees' contributions. The cost of the plan was approximately $7,961, $16,292
and $14,003 in fiscal years 1999, 1998 and 1997, respectively.
The Supplemental Executive Retirement Plan ("SERP") is a non-qualified
defined benefit retirement plan that provides retirement and death benefits to
certain qualified executives of the Company. Total SERP costs charged to
operations were approximately $1,431, $1,336 and $1,002 in fiscal years 1999,
1998 and 1997, respectively. The effective discount rate used in determining the
net periodic SERP cost is 6.75%, 7.25% and 7.75% for fiscal years 1999, 1998 and
1997, respectively. Actuarial gains and losses are amortized over the average
remaining service lives of the participants.
Certain eligible employees participate in a non-qualified Deferred
Compensation Plan ("DCP"). Participants in the plan have elected to defer a
portion of their regular compensation subject to certain limitations prescribed
by the DCP. The Company is required to pay interest on the employees' deferred
compensation at various rates between 8% and 15%. Total interest expense related
to this plan and charged to operations was approximately $4,007, $3,028 and
$2,768 in fiscal years 1999, 1998 and 1997, respectively.
38
<PAGE> 41
BELK, INC. AND PREDECESSOR COMPANIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying values approximate fair values for financial instruments that are
short-term in nature, such as cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses, notes payable and lines of credit. The fair
value of other financial instruments are as follows:
<TABLE>
<CAPTION>
JANUARY 30, 1999 JANUARY 31, 1998
------------------- -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Long-term debt (excluding capitalized
leases)..................................... $369,543 $369,543 $288,026 $290,574
Interest rate swap agreements................. (3,844) (16,785) -- (4,605)
Investment securities......................... 24,164 24,942 37,223 37,849
</TABLE>
The fair value of the Company's fixed rate long-term debt is estimated
based on the current rates offered to the Company for debt of the same remaining
maturities. The carrying value of the Company's variable rate long-term debt is
reasonable estimates of fair value.
The fair value of interest rate swap agreements is the estimated amount
that the Company would pay to terminate the swap agreement, taking into account
current credit worthiness of the swap counterparties.
(17) STOCKHOLDERS' EQUITY
Authorized capital stock of Belk, Inc. includes 200 million shares of Class
A common stock, 200 million shares of Class B common stock and 20 million shares
of preferred stock, all with par value of $.01 per share. At January 30, 1999,
there were 56,658,134 shares of Class A common stock outstanding, 24,118 shares
of Class B common stock outstanding, and no shares of preferred stock
outstanding. The Class A shares were issued in exchange for the shares of
existing shareholders of the Predecessor Companies in connection with the
Reorganization described in Note 1. The Class B shares were issued in exchange
for Class A shares as described below.
Class A shares are convertible into Class B shares on a 1 for 1 basis, in
whole or in part, at any time at the option of the holder. Class A and Class B
shares are identical in all respects, with the exception that Class A
stockholders are entitled to 10 votes per share and Class B stockholders are
entitled to one vote per share. There are restrictions on transfers of Class A
shares to any person other than a Class A permitted holder. Each Class A share
transferred to a non Class A permitted holder automatically converts into one
share of Class B.
(18) RELATED PARTY TRANSACTIONS
On January 25, 1999, the Company completed the settlement of dissent
proceedings with respect to the capital stock of various Belk Companies involved
in the Reorganization with Mrs. Sarah Belk Gambrell, a director of the Company
and Mrs. Sarah Gambrell Knight, daughter of Sarah Belk Gambrell, for aggregate
consideration of $35,000 and $15,000, respectively.
On August 1, 1997, the Company guaranteed a $5,000 bank loan made to
Brothers Investment Company. This loan bears interest at the prime rate as
established by the Federal Reserve Bank, less 0.5% per annum, payable monthly,
and is due on July 31, 1999. At January 30, 1999 and January 31, 1998, this loan
had an outstanding balance of $5,000. John M. Belk, the current Chairman of the
Board of the Company, owns 50% of Brothers Investment Company and is a director
of Brothers Investment Company. The estate of Thomas M. Belk, of which John M.
Belk is a co-executor, owns the remaining 50% of Brothers Investment Company.
39
<PAGE> 42
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
The information required by this Item with respect to Directors and
Executive Officers of the Registrant is included in the sections entitled
"Election of Directors," "Management of the Company" and "Executive
Compensation -- Executive Officers" of the Proxy Statement for the Annual
Meeting of Stockholders to be held on May 26, 1999, and is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the section entitled
"Executive Compensation" of the Proxy Statement for the Annual Meeting of
Stockholders to be held on May 26, 1999, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the sections entitled
"Management Common Stock Ownership" and "Principal Stockholders" of the Proxy
Statement for the Annual Meeting of Stockholders to be held on May 26, 1999, and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the section entitled
"Executive Compensation -- Certain Transactions" of the Proxy Statement for the
Annual Meeting of Stockholders to be held on May 26, 1999, and is incorporated
herein by reference.
40
<PAGE> 43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)
1. Financial Statements (included in Item 8 of this Form 10-K)
Independent Auditors' Report
Balance Sheets -- As of January 30, 1999 and January 31, 1998
Statements of Income -- Years ended January 30, 1999, January 31, 1998
and February 1, 1997
Statements of Stockholders' Equity -- Years ended January 30, 1999,
January 31, 1998 and February 1, 1997
Statements of Cash Flow -- Years ended January 30, 1999, January 31,
1998 and February 1, 1997
Notes to Financial Statements
2. Financial Statement Schedules
None
3. Exhibits
The following list of exhibits includes both exhibits submitted with this
Form 10-K as filed with the Commission and those incorporated by reference to
other filings:
<TABLE>
<C> <C> <S>
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-4 (File No.
333-42935))
3.2 -- Amended and Restated Bylaws of the Registrant (incorporated
by reference to Exhibit 3.3 to the Registrant's Registration
Statement on Form S-4 (File No. 333-42935))
4.1 -- Specimen Class A Stock Certificate (incorporated by
reference to Exhibit 4.0 to the Registrant's Registration
Statement on Form S-4 (File No. 333-42935))
4.2 -- Specimen Class B Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-4 (File No. 333-42935))
10.1 -- Note Purchase and Security Agreement between Enterprise
Funding Corporation, as Company, and Belk, Inc. as Debtor,
and The Belk Center, Inc. as Servicer, and NationsBank,
N.A., as Agent, and Bank Investor, dated as of June 12,
1998.
10.2 -- Receivables Purchase Agreement among Belk-Simpson,
Greenville, South Carolina, as Seller, and Belk, Inc., as
Purchaser, and The Belk Center, Inc., as Servicer, dated as
of June 12, 1998.
10.3 -- Amendment No. 1 to Note Purchase and Security Agreement,
dated as of January 30, 1999, by and among Belk, Inc., as
Debtor, The Belk Center, Inc., as Servicer, Enterprise
Funding Corporation, as Company, and NationsBank, N.A., as
Agent.
10.4 -- Receivables Purchase Agreement among Belk Stores of Virginia
LLC, as Seller, and Belk, Inc., as Purchaser, and The Belk
Center, Inc., as Servicer dated as of January 30, 1999.
10.5 -- Amendment No. 2 to Note Purchase Agreement among Belk, Inc.,
as Debtor, The Belk Center, Inc., as Servicer, Enterprise
Funding Corporation, as Company, and NationsBank, N.A., as
Agent, dated as of April 28, 1999.
10.6 -- Letter of Credit and Reimbursement Agreement by and between
Belk, Inc. and First Union National Bank, dated as of July
1, 1998.
10.7 -- Credit Agreement, dated as of September 11, 1998, by and
between Belk, Inc., as Borrower, and Wachovia Bank, N.A., as
Bank.
</TABLE>
41
<PAGE> 44
<TABLE>
<C> <C> <S>
21.1 -- Subsidiaries
27.1 -- Financial Data Schedules
</TABLE>
(b) REPORTS ON FORM 8-K.
There were no reports filed on Form 8-K during the fiscal quarter ended
January 30, 1999.
42
<PAGE> 45
SIGNATURES
Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 30th day of
April 1999.
BELK, INC.
(Registrant)
By: /s/ JOHN M. BELK
----------------------------------
John M. Belk
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated on April 30, 1999.
/s/ JOHN M. BELK
------------------------------------------------------
John M. Belk
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
/s/ THOMAS M. BELK, JR.
------------------------------------------------------
Thomas M. Belk, Jr.
President and Director
/s/ H. W. MCKAY BELK
------------------------------------------------------
H. W. McKay Belk
President and Director
/s/ JOHN R. BELK
------------------------------------------------------
John R. Belk
President and Director
/s/ SARAH BELK GAMBRELL
------------------------------------------------------
Sarah Belk Gambrell
Director
/s/ J. KIRK GLENN, JR.
------------------------------------------------------
J. Kirk Glenn, Jr.
Director
/s/ KARL G. HUDSON, JR.
------------------------------------------------------
Karl G. Hudson, Jr.
Director
------------------------------------------------------
John A. Kuhne
Director
/s/ B. FRANK MATTHEWS, II
------------------------------------------------------
B. Frank Matthews, II
Director
/s/ JAMES M. BERRY
------------------------------------------------------
James M. Berry
Executive Vice President, Finance
(Principal Financial Officer)
/s/ BILL R. WALTON
------------------------------------------------------
Bill R. Walton
Senior Vice President and Treasurer
(Principal Accounting Officer)
43
<PAGE> 46
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
The registrant intends to furnish an annual report to its stockholders
covering the registrant's last fiscal year and a proxy statement and form of
proxy to its stockholders in connection with the registrant's annual meeting of
stockholders to be held on May 26, 1999. The registrant will furnish copies of
such material to the Commission when such material is sent to the registrant's
stockholders.
44
<PAGE> 1
EXHIBIT 10.1
================================================================================
NOTE PURCHASE AND SECURITY AGREEMENT
between
ENTERPRISE FUNDING CORPORATION,
as Company
and
BELK, INC.
as Debtor
and
THE BELK CENTER, INC.
as Servicer
and
NATIONSBANK, N.A.
as Agent and Bank Investor
Dated as of June 12, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS........................................................1
Section 1.1 Certain Defined Terms...............................................................1
Section 1.2 Other Terms........................................................................27
Section 1.3 Computation of Time Periods........................................................27
ARTICLE II
GRANT OF SECURITY INTEREST;
ADVANCES; SETTLEMENTS..................................................28
Section 2.1 Facility...........................................................................28
Section 2.2 Advances; the Note; Eligible
Receivables........................................................................28
Section 2.3 Fundings...........................................................................32
Section 2.4 Carrying Costs, Fees and Other Costs
and Expenses.......................................................................36
Section 2.5 Allocations of Collections;
Non-Liquidation Settlement Procedures..............................................36
Section 2.6 Liquidation Settlement Procedures .................................................40
Section 2.7 Fees...............................................................................41
Section 2.8 Protection of Security Interest....................................................41
Section 2.9 Deemed Collections; Application
of Payments........................................................................44
Section 2.10 Payments and Computations, Etc.....................................................45
Section 2.11 Reports............................................................................45
Section 2.12 Collection Account.................................................................46
Section 2.13 Sharing of Payments, Etc...........................................................46
Section 2.14 Right of Setoff....................................................................47
ARTICLE III
REPRESENTATIONS AND WARRANTIES.............................................48
Section 3.1 Representations and Warranties of the
Debtor.............................................................................48
Section 3.2 Representations and Warranties of the
Servicer...........................................................................53
Section 3.3 Reaffirmation of Representations and
Warranties by the Debtor and Servicer..............................................55
ARTICLE IV
CONDITIONS PRECEDENT...................................................57
Section 4.1 Conditions to Closing..............................................................57
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE V
COVENANTS........................................................61
Section 5.1 Affirmative Covenants of Debtor....................................................61
Section 5.2 Negative Covenants of the Debtor...................................................65
Section 5.3 Covenants of the Servicer..........................................................68
Section 5.4 Financial Covenants of Debtor......................................................71
ARTICLE VI
ADMINISTRATION AND COLLECTIONS..............................................72
Section 6.1 Appointment of Servicer............................................................72
Section 6.2 Duties of Servicer.................................................................72
Section 6.3 Rights After Designation of
New Servicer.......................................................................75
Section 6.4 Servicer Default...................................................................75
Section 6.5 Responsibilities of the Debtor and the
Designated Sellers.................................................................77
ARTICLE VII
TERMINATION EVENTS...................................................78
Section 7.1 Termination Events.................................................................78
Section 7.2 Termination........................................................................80
Section 7.3 Proceeds...........................................................................81
ARTICLE VIII
INDEMNIFICATION; EXPENSES; RELATED MATTERS......................................82
Section 8.1 Indemnities by the Debtor..........................................................82
Section 8.2 Indemnity for Taxes, Reserves and
Expenses...........................................................................85
Section 8.3 Taxes..............................................................................88
Section 8.4 Other Costs, Expenses and Related
Matters............................................................................89
ARTICLE IX
THE AGENT; BANK COMMITMENT................................................91
Section 9.1 Authorization and Action...........................................................91
Section 9.2 Agent's Reliance, Etc..............................................................92
Section 9.3 Termination Events.................................................................92
Section 9.4 Rights as Bank Investor............................................................93
Section 9.5 Indemnification of the Agent.......................................................93
Section 9.6 Non-Reliance.......................................................................94
Section 9.7 Resignation of Agent...............................................................94
Section 9.8 Payments by the Agent..............................................................95
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 9.9 Bank Commitment; Assignment to Bank
Investors..........................................................................95
ARTICLE X
MISCELLANEOUS.....................................................103
Section 10.1 Term of Agreement.................................................................103
Section 10.2 Waivers; Amendments...............................................................103
Section 10.3 Notices...........................................................................104
Section 10.4 Governing Law; Submission to
Jurisdiction; Integration.........................................................107
Section 10.5 Severability; Counterparts........................................................107
Section 10.6 Successors and Assigns............................................................108
Section 10.7 Confidentiality Agreement - Company,
Agent, Administrative Agent, Collateral
Agent, Liquidity Providers and Bank
Investors.........................................................................108
Section 10.8 Confidentiality Agreement.........................................................109
Section 10.9 No Bankruptcy Petition Against the
Company...........................................................................109
Section 10.10 No Recourse Against Stockholders,
Officers or Directors.............................................................109
</TABLE>
iii
<PAGE> 5
EXHIBITS
<TABLE>
<S> <C>
EXHIBIT A Forms of Account Agreement
EXHIBIT B Credit Guidelines and Collection Guidelines
EXHIBIT C List of Servicer Account Banks
EXHIBIT D Form of Servicer Account Agreement
EXHIBIT E Form of Servicer Report
EXHIBIT F Form of Additional Advance Certificate
EXHIBIT G Form of Assignment and Assumption Agreement
EXHIBIT H List of Actions and Suits
EXHIBIT I Location of Records
EXHIBIT J List of Subsidiaries, Divisions and
Tradenames
EXHIBIT K Form of Debtor's and Servicer's Counsel's
Opinion
EXHIBIT L Forms of Secretary's Certificate
EXHIBIT M Form of Note
EXHIBIT N List of Post Office Boxes
EXHIBIT O Form of Post Office Box Agreement
EXHIBIT P Financial Convenant Definitions
</TABLE>
iv
<PAGE> 6
NOTE PURCHASE AND SECURITY AGREEMENT
Note Purchase and Security Agreement (this "Agreement"), dated as of
June 12, 1998, by and among BELK, INC., a Delaware corporation, as debtor (in
such capacity, the "Debtor"), THE BELK CENTER, INC., a North Carolina
corporation, as servicer (the "Servicer" or "Belk Center"), ENTERPRISE FUNDING
CORPORATION, a Delaware corporation (the "Company") and NATIONSBANK, N.A., a
national banking association ("NationsBank"), as agent for the Company and the
Bank Investors (in such capacity, the "Agent") and as a Bank Investor.
PRELIMINARY STATEMENTS
WHEREAS, the Debtor has issued the Note to the Company and will be
obligated to the holder of such Note to pay the principal of and interest on
such Note in accordance with the terms thereof;
WHEREAS, the Debtor is granting a security interest in the Affected
Assets to the Agent, for the benefit of the Secured Parties, to secure the
payment and performance by the Debtor of its obligations under the Note;
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Account" means each credit account established pursuant to an Account
Agreement with an Obligor as of the Cut-Off Date and on any day thereafter.
"Account Agreement" means the agreements and Federal Truth in Lending
Statement for Accounts, in substantially the form attached as Exhibit A to this
<PAGE> 7
Agreement, as such agreements or statement may be amended, modified or otherwise
changed from time to time.
"Accrued Interest Component" means, for any Collection Period, that
portion of the Interest Component of all Related Commercial Paper outstanding at
any time during such Collection Period which has accrued from the first day
through the last day of such Collection Period whether or not such Related
Commercial Paper matures during such Collection Period, based on the actual
number of days in such Collection Period that such Related Commercial Paper was
outstanding.
"Additional Advance Certificate" means a certificate of the Servicer
in substantially the form of Exhibit P hereto, appropriately completed.
"Adjusted LIBOR Rate" means, with respect to any period during which
the return to any Bank Investor or the Liquidity Provider is to be calculated by
reference to the London interbank offered rate, a rate which is 0.80% (2.80%
upon the occurrence and during the continuance of a Termination Event other
than a Termination Event described in Section 7.1(o) or 7.1(p)) in excess of a
rate per annum equal to the sum (rounded upwards, if necessary, to the next
higher 1/100 of 1%) of (A) the rate obtained by dividing (i) the applicable
LIBOR Rate by (ii) a percentage equal to 100% minus the reserve percentage used
for determining the maximum reserve requirement as specified in Regulation D
(including, without limitation, any marginal, emergency, supplemental, special
or other reserves) that is applicable to the Agent during such period in respect
of eurocurrency or eurodollar funding, lending or liabilities (or, if more than
one percentage shall be so applicable, the daily average of such percentage for
those days in such period during which any such percentage shall be applicable)
plus (B) the then daily net annual assessment rate (rounded upwards, if
necessary, to the nearest 1/100 of 1%) as estimated by the Agent for determining
the current annual assessment payable by the Agent to the Federal Deposit
Insurance Corporation in respect of eurocurrency or eurodollar funding, lending
or liabilities.
"Administrative Agent" means NationsBank, N.A., as administrative
agent.
2
<PAGE> 8
"Administrative Fee" means the fee payable by the Debtor to the Company
pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee
Letter.
"Advance" means a funding which is made pursuant to Section 2.2(a)
hereof.
"Advance Amount" means with respect to any Advance, the amount paid to
the Debtor by the Company or the Bank Investors.
"Advance Date" means, with respect to each Advance, the Business Day on
which such Advance is made.
"Adverse Claim" means a lien, security interest, charge or
encumbrance, or other right or claim in, of or on any Person's assets or
properties in favor of any other Person (including any UCC financing statement
or any similar instrument filed against such Person's assets or properties).
"Affected Assets" means, collectively, the Receivables and the Related
Security, Collections and Proceeds relating thereto.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the power to
direct or cause the direction of the management or policies of the controlled
Person, whether through ownership of voting stock, by contract or otherwise.
"Agent" means NationsBank, N.A., in its capacity as agent for the
Company and the Bank Investors, and any successor thereto appointed pursuant to
Article IX.
"Aggregate Interest Component" means aggregate sum of the Interest
Components of all issued and out standing Related Commercial Paper.
"Agreement" has the meaning specified in the preamble hereto.
3
<PAGE> 9
"Aggregate Unpaids" means, at any time, an amount equal to the sum of
(i) the aggregate accrued and unpaid Carrying Costs at such time, (ii) yield on
Related Commercial Paper, interest related to any outstanding LIBOR-based
funding period arising from advances by any Liquidity Provider or Bank Investor,
Facility Fees, Program Fees, and Administrative Fees which may accrue after such
time, (iii) the Net Investment at such time, and (iv) all other amounts owed
(whether due or accrued) hereunder by the Debtor to the Company, the Agent or
any Bank Investor at such time.
"Arrangement Fee" means the fee payable by the Debtor to the
Administrative Agent pursuant to Section 2.7 hereof, the terms of which are set
forth in the Fee Letter.
"Assignment Amount" with respect to a Bank Investor means at any time
an amount equal to the lesser of (i) such Bank Investor's Pro Rata Share of the
Net Investment at such time and (ii) such Bank Investor's unused Commitment.
"Assignment and Assumption Agreement" means an Assignment and
Assumption Agreement substantially in the form of Exhibit G attached hereto.
"Bank Investors" means NationsBank, N.A. and each other financial
institution that becomes a Bank Investor pursuant to an Assignment and
Assumption Agreement in accordance with the Agreement and the respective
successors and permitted assigns of any of the foregoing.
"Base Rate" means, a rate per annum equal to the greater of (i) the
prime rate of interest announced by the Liquidity Provider (or if more than one
Liquidity Provider, then by NationsBank) from time to time, changing when and as
said prime rate changes (such rate not necessarily being the lowest or best rate
charged by the Liquidity Provider (or if more than one Liquidity Provider, by
NationsBank)) and (ii) the sum of (a) 1.50% and (b) the rate 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, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business
4
<PAGE> 10
Day) by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average of the quotations for
such day for such transactions received by the Liquidity Provider (or, if more
than one Liquidity Provider, then by NationsBank) from three Federal funds
brokers of recognized standing selected by it.
"Belk Center" means The Belk Center, Inc.
"Belk Simpson" means Belk-Simpson Company, Greenville, South Carolina.
"Benefit Plan" means any employee benefit plan as defined in Section
3(3) of ERISA in respect of which the Debtor, any Designated Seller or any ERISA
Affiliate of the Debtor or a Designated Seller is, or at any time during the
immediately preceding six years was, an "employer" as defined in Section 3(5) of
ERISA.
"Business Day" means any day excluding Saturday, Sunday and any day on
which banks in New York, New York or Charlotte, North Carolina are authorized or
required by law to close, and, when used with respect to the determination of
any LIBOR Rate or any notice with respect thereto, any such day which is also a
day for trading by and between banks in United States dollar deposits in the
London interbank market.
"Carrying Costs" means for a Collection Period the sum of (i) the sum
of the dollar amount of the Company's obligations for such Collection Period
determined on an accrual basis in accordance with GAAP consistently applied (a)
to pay (or pass through) interest with respect to Purchased Interests pursuant
to the provisions of the Liquidity Provider Agreement (such interest to be
calculated based on the Adjusted LIBOR Rate) outstanding at any time during such
Collection Period accrued from the first day through the last day of such
Collection Period whether or not such interest is payable during such Collection
Period and to pay interest with respect to amounts disbursed by a Credit Support
Provider pursuant to the Credit Support Agreement outstanding at any time
during such Collection Period accrued from the first day through the last day of
such Collection Period whether or not such interest is payable during such
Collection Period, (b) to pay the Accrued
5
<PAGE> 11
Interest Component of Related Commercial Paper with respect to any Collection
Period (and, for purposes of this clause (b), Related Commercial Paper shall
include Commercial Paper issued to fund the Net Investment even if such
Commercial Paper is issued in an amount in excess of the Net Investment), (c)
to pay the Dealer Fee with respect to Related Commercial Paper issued during
such Collection Period, (d) to pay any past due interest not paid in clauses (a)
and (b) with respect to prior Collection Periods, and (e) to pay the costs of
the Company with respect to the operation of Sections 8.1, 8.2, 8.3 and 8.4,
(ii) the Program Fee, the Administrative Fee and the Facility Fee accrued from
the first day through the last day of such Collection Period whether or not such
amount is payable during such Collection Period, and all interest amounts due
the Bank Investors in accordance with Section 2.3(c), (d) and (e) and (iii) to
pay the Servicing Fee due to any successor Servicer.
"Closing Date" means June 12, 1998.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means all of the Debtor's right, title and interest in and
to the Receivables, the Related Security, all Collections and all proceeds
thereof, whether constituting an account, chattel paper, instrument, investment
property or general intangible.
"Collateral Agent" means NationsBank, N.A. in its capacity as
collateral agent under the Security Agreement, dated as of September 5, 1991, as
amended, between Enterprise and NationsBank, N.A., as consented and agreed to by
the Liquidity Provider and the letter of credit bank (as defined therein).
"Collection Account" means the account, established by the Agent, for
the benefit of the Company and the Bank Investors, pursuant to Section 2.12.
"Collection Period" means each monthly period ending on the 28th day of
a calendar month; provided, that the first Collection Period shall begin on the
CutOff Date and shall end on the 28th day of the calendar following the month
containing the Cut-Off Date.
6
<PAGE> 12
"Collections" means, with respect to any Receivable, all cash
collections and other cash proceeds of such Receivable, including, without
limitation, all Recoveries and Finance Charges, if any, and cash proceeds of
Related Security with respect to such Receivable. For the purposes hereof,
"cash" shall include payments received with respect to the Receivables in the
form of checks.
"Commercial Paper" means the promissory notes of the Company issued by
the Company in the commercial paper market.
"Commitment" means, (i) with respect to each Bank Investor party
hereto, the commitment of such Bank Investor to make advances to the Debtor or
to acquire interests in the Net Investment from the Company in accordance
herewith in an amount not to exceed the dollar amount set forth opposite such
Bank Investor's signature on the signature page hereto under the heading
"Commitment", minus the dollar amount of any Commitment or portion thereof
assigned pursuant to an Assignment and Assumption Agreement plus the dollar
amount of any in crease to such Bank Investor's Commitment consented to by such
Bank Investor prior to the time of determination and (ii) with respect to any
direct or indirect assignee of a Bank Investor party hereto taking pursuant to
an Assignment and Assumption Agreement, the commitment of such assignee to make
advances to the Debtor or to acquire interests in the Net Investment from the
Company not to exceed the amount set forth in such Assignment and Assumption
Agreement plus the dollar amount of any increase to such assignee's Commitment
consented to by such as signee prior to the time of determination minus the
dollar amount of any Commitment or portion thereof as signed pursuant to an
Assignment and Assumption Agreement prior to such time of determination.
"Commitment Termination Date" means June 11, 1999, or such later date
to which the Commitment Termination Date may be extended by Debtor, the Agent
and the Bank Investors not later than 30 days prior to the then current
Commitment Termination Date.
"Company" means Enterprise Funding Corporation, and its successors and
permitted assigns.
7
<PAGE> 13
"Company Termination Date" means the second Business Day after the
delivery by the Company to the Debtor of written notice that the Company elects
to commence the amortization of its interest in the Net Investment pursuant to
Section 2.6 or otherwise liquidate the Net Investment.
"Credit Guidelines" means Belk Center's credit and collection policy or
policies and practices, relating to Accounts and Receivables existing on the
Cut-Off Date and referred to in Exhibit B attached hereto, as modified and as
supplemented from time to time in compliance with Section 5.2(c).
"Credit Support Agreement" means the agreement between the Company and
the Credit Support Provider evidencing the obligation of the Credit Support
Provider to provide credit support to the Company in connection with the
issuance by the Company of Commercial Paper.
"Credit Support Provider" means the Person or Persons who provides
credit support to the Company in connection with the issuance by the Company of
Commercial Paper.
"Cut-Off Date" means May 30, 1998.
"Cycle Date" means the 1st, 4th, 7th, 10th, 13th, 16th, 19th, 22nd,
25th and 28th calendar day of each calendar month.
"Date of Processing" means, with respect to any transaction giving rise
to a Receivable, the date on which such transaction is first recorded on the
Servicer's computer master file of Accounts (without regard to the effective
date of such recordation).
"Dealer Fee" shall have the meaning assigned in the Fee Letter.
"Debtor" has the meaning specified in the preamble hereto.
"Debtor Account" means the demand deposit account of the Debtor
maintained at NationsBank, N.A. for the purpose of receiving deposits of
Collections.
8
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"Debtor's Percentage" means at any time 1 minus the Noteholder's
Percentage.
"Deemed Collections" means any Collections on any Receivable deemed to
have been received pursuant to Section 2.9(a) or (b) hereof.
"Default Ratio" means, with respect to any Collection Period, the ratio
(expressed as a percentage) computed (on the following Determination Date) as of
the last day of each Collection Period by dividing (i) the product of (x) 12 and
(y) the aggregate amount of Receivables which became Defaulted Receivables
during such Collection Period by (ii) the aggregate amount of all Receivables
(other than Defaulted Receivables) as of the last day of the prior Collection
Period.
"Default Ratio Multiplier" means, at any time, the highest three-month
rolling arithmetic average Default Ratio for the twelve most recent Collection
Periods. The three-month rolling arithmetic average Default Ratio shall be
computed on each Determination Date by dividing the sum of the Default Ratios
for the three immediately preceding Collection Periods by three.
"Defaulted Receivable" means a Receivable in an Account with respect to
which, in accordance with the Credit Guidelines or Belk Center's customary and
usual servicing procedures, the Servicer has charged off such Receivable as
uncollectible; a Receivable shall become a Defaulted Receivable on the day on
which it is recorded as charged off as uncollectible on the Servicer's computer
master file of consumer credit card revolving accounts.
"Delinquency Ratio" means, the ratio (expressed as a percentage)
computed as of the last day of each Collection Period by dividing (i) the
aggregate amount of all Delinquent Receivables as of such date by (ii) the
aggregate amount of all Receivables (other than Defaulted Receivables) as of
such date.
"Delinquent Receivable" means a Receivable: (i) as to which any
payment, or part thereof, remains unpaid for more than 30 days from the original
due date for such Receivable and (ii) which is not a Defaulted Receivable.
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"Designated Seller" means Belk Simpson.
"Determination Date" means with respect to any Collection Period, the
tenth day of the succeeding calendar month or, if such tenth day is not a
Business Day, the Business Day next succeeding such tenth day.
"Dilution Ratio" means, for each Collection Period, the ratio
(expressed as a percentage) computed (on the following Determination Date) as of
the last day of each Collection Period by dividing (i) the aggregate amount by
which Receivables (other than the finance charge component of any such
Receivable) are reduced or cancelled as a result of any defective, rejected or
returned merchandise or services and all credits, re bates, discounts, disputes,
warranty claims, repossessed or returned goods, chargebacks, allowances, or any
other downward adjustments to the balance of such Receivable without receiving
Collections therefor and prior to such Receivable becoming a Defaulted
Receivable (whether effected through the granting of credits against the
applicable Receivables or by the issuance of a check or other payment in respect
of (and as payment for) such reduction) by the Debtor, a Designated Seller or
the Servicer, provided to Obligors in respect of Receivables during such month
by (ii) the aggregate Outstanding Principal Balance of all Receivables as of the
last day of the preceding Collection Period.
"Dilution Ratio Multiplier" means (i) at any time during a Collection
Period ending in November, December, or January, the highest Dilution Ratio for
the immediately preceding Collection Periods ending in November, December or
January, and (ii) at any other time, the highest Dilution Ratio during the
immediately preceding twelve Collection Periods (excluding for purposes of this
determination, the Collection Periods ending in November, December or January).
"Discount Percentage" means the percentage designated by the Debtor
pursuant to Section 2.5(e).
"Discount Receivables" shall have the meaning specified in Section
2.5(e).
"Discount Receivable Collections" means, for any day, the product of
(a) the Discount Percentage and
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(b) Collections, other than those of the type described in clauses (i) and (ii)
of the definition of "Finance Charge Collections," on such day.
"Early Collection Fee" means, for any funding period during which the
portion of the Net Investment that was allocated to such funding period is
reduced for any reason whatsoever, the excess, if any, of (i) the additional
interest that would have accrued during such funding period if such reductions
had not occurred, minus (ii) the income, if any, received by the recipient of
such reductions from investing the proceeds of such reductions.
"Eligible Account" means, as of the Cut-Off Date (or, with respect to
Accounts arising after the CutOff Date, as of the date of creation), each
Account in existence and owned by the Debtor or a Designated Seller:
(a) which is payable in United States Dollars;
(b) the credit card or cards related thereto have not
been reported lost or stolen or designated fraudulent;
(c) which is not an Account as to which any of the
Receivables existing thereunder are Defaulted Receivables;
(d) the Receivables in which have not been charged-off
(unless such Account is subsequently reinstated);
(e) which is serviced by the Servicer and has been
created and is maintained by the Debtor or a Designated Seller in the ordinary
course of its business in accordance with the Credit Guidelines; and
(f) with respect to which the Debtor or a Designated
Seller has, and, with respect to which to the amounts payable thereunder, the
Debtor has, good title thereto, free and clear of all Adverse Claims.
"Eligible Investments" means any of the following (a) negotiable
instruments or securities represented by instruments in bearer or registered or
in
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book-entry form which evidence (i) obligations fully guaranteed by the United
States of America; (ii) time deposits in, or bankers acceptances issued by, any
depositary institution or trust company incorporated under the laws of the
United States of America or any state thereof and subject to supervision and
examination by Federal or state banking or depositary institution authorities;
provided, however, that at the time of investment or contractual commitment to
invest therein, the certificates of deposit or short-term deposits, if any, or
long-term unsecured debt obligations (other than such obligation whose rating is
based on collateral or on the credit of a Person other than such institution or
trust company) of such depositary institution or trust company shall have a
credit rating from Moody's and S&P of at least "P-1" and "A-1", respectively, in
the case of the certificates of deposit or short-term deposits, or a rating not
lower than one of the two highest investment categories granted by Moody's and
by S&P; (iii) certificates of deposit having, at the time of investment or
contractual commitment to invest therein, a rating from Moody's and S&P of at
least "P-1" and "A-1", respectively; or (iv) investments in money market funds
rated in the highest investment category or otherwise approved in writing by the
applicable rating agencies; (b) demand deposits in any depositary institution
or trust company referred to in (a)(ii) above; (c) commercial paper (having
original or remaining maturities of no more than 30 days) having, at the time of
investment or contractual commitment to invest therein, a credit rating from
Moody's and S&P of at least "P-1" and "A-1", respectively; (d) Eurodollar time
deposits having a credit rating from Moody's and S&P of at least "P-1" and
"A-1", respectively; and (e) repurchase agreements involving any of the Eligible
Investments described in clauses (a)(i), (a)(iii) and (d) hereof so long as the
other party to the repurchase agreement has at the time of investment therein, a
rating from Moody's and S&P of at least "P-1" and "A-1", respectively.
"Eligible Receivable" means, at any time, any Receivable:
(a) with respect to which, the related Account is an
Eligible Account;
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(b) which has been originated by the Debtor or a Merged
Entity in the ordinary course of its business, (or has been originated by a
Designated Seller in the ordinary course of its business and sold to the Debtor
pursuant to (and in accordance with) the Receivables Purchase Agreement), and to
which the Debtor has good title thereto, free and clear of all Adverse Claims;
(c) which (together with the Collections and Related
Security related thereto) has been the subject of the grant of a first priority
perfected security interest therein (and in the Collections and Related Security
related thereto) to the Agent, on behalf of the Company and the Bank Investors,
effective until the termination of this Agreement;
(d) which arises pursuant to an Account with respect to
which the Debtor, any Designated Seller or any Affiliate of the Debtor has
performed all material obligations required to be performed by it thereunder,
including without limitation shipment of the merchandise and/or the performance
of the services purchased thereunder, at the time an interest in such
Receivable is initially pledged to the Agent, on behalf of the Company and the
Bank Investors;
(e) the Obligor of which has been directed to make all
payments to a Post Office Box with respect to which there shall be a Post Office
Box Agreement in effect or at retail store locations owned by the Debtor or any
Designated Seller;
(f) a purchase of which with the proceeds of Commercial
Paper would constitute a "current transaction" within the meaning of Section
3(a)(3) of the Securities Act of 1933, as amended;
(g) which is an "account" or a "general intangible" or
"chattel paper" within the meaning of Article 9 of the UCC of all applicable
jurisdictions;
(h) which arises under an Account that, together with
such Receivable, is in full force and effect and constitutes the legal, valid
and binding obligation of the related Obligor enforceable against such Obligor
in accordance with its terms and is not
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subject to any litigation, right of rescission, dispute, offset, counterclaim or
other defense (it being under stood that a potential reduction because of
returned merchandise would not in itself cause such Receivables to not be
considered an "Eligible Receivable");
(i) which was created in compliance, in all material
respects, with all laws, rules or regulations applicable thereto (including,
without limitation, laws, rules and regulations relating to truth in lending,
fair credit billing, fair credit reporting, equal credit opportunity, fair debt
collection practices and privacy) and pursuant to an Account Agreement which
complies, in all material respects, with all such laws, rules and regulations;
(j) which (A) satisfies all applicable requirements of
the Credit Guidelines, (B) has not been waived or modified except in accordance
with the Credit Guidelines or the credit guidelines of the Debtor, a Merged
Entity or a Designated Seller or an Affiliate thereof, as applicable, (C) is
assignable without the consent of, or notice to, the Obligor thereunder and (D)
is not, at the time of the initial creation of interest hereunder, a Defaulted
Receivable;
(k) is serviced in all respects by the Servicer;
(l) with respect to which all material consents,
licenses, approvals or authorizations of, or registrations or declarations with,
any Governmental Authority required to be obtained, effected or given by the
Debtor, a Merged Entity or a Designated Seller, as applicable, in connection
with the creation of such Receivable or the execution, delivery, creation and
performance by the Debtor, a Merged Entity or a Designated Seller, as
applicable, of the Account Agreement pursuant to which such Receivable was
created, have been duly obtained, effected or given and are in full force and
effect; and
(m) the assignment of which under the Receivables
Purchase Agreement by the applicable Designated Seller to the Debtor, and the
grant of a security interest therein under this Agreement does not violate,
conflict or contravene any applicable laws,
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rules, regulations, orders or writs or any contractual or other restriction,
limitation or encumbrance.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate" means, with respect to any Person, (i) any
corporation which is a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Code (as in effect from time to
time, the "Code")) as such Person; (ii) a trade or business (whether or not
incorporated) under common control (within the meaning of Section 414(c) of the
Code) with such Person; or (iii) a member of the same affiliated service group
(within the meaning of Section 414(n) of the Code) as such Person, any
corporation described in clause (i) above or any trade or business described in
clause (ii) above.
"Event of Bankruptcy" means, with respect to any Person, (i) that such
Person (a) shall generally not pay its debts as such debts become due or (b)
shall admit in writing its inability to pay its debts generally or (c) shall
make a general assignment for the benefit of creditors; (ii) any proceeding
shall be instituted by or against such Person seeking to adjudicate it as
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee or other similar official for it or any substantial part of
its property or (iii) if such Person is a corporation, such Person or any
Subsidiary shall take any corporate action to authorize any of the actions set
forth in the preceding clauses (i) or (ii).
"Excluded Taxes" shall have the meaning specified in Section 8.3
hereof.
"Facility Fee" means the fee payable by the Debtor to the Agent for
distribution to the Bank Investors pursuant to Section 2.7(a) hereof, the terms
of which are set forth in the Fee Letter.
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<PAGE> 21
"Facility Limit" means $300,000,000; provided that such amount may not
at any time exceed the aggregate Commitments at any time in effect; provided,
further, that from and after the Termination Date the Facility Limit shall at
all times equal the Net Investment plus the Aggregate Interest Component.
"Fee Letter" means, collectively, the letter agreement or agreements
dated the date hereof (i) between the Debtor and the Company and (ii) between
the Debtor and the Agent on behalf of the Bank Investors, in each case with
respect to the fees to be paid by the Debtor hereunder, as amended, modified or
supplemented from time to time.
"Finance Charge Collections" means (i) that portion of the Collections
with respect to the Receivables which are estimated by the Servicer to be
designated as billed Finance Charges, (ii) any Recoveries (net of liquidation
expenses, if any) in respect of Defaulted Receivables and Related Security with
respect thereto and (iii) all Discount Receivable Collections.
"Finance Charges" means, with respect to an Account, any periodic
finance charges, and, to the extent rights with respect thereto are held by the
Debtor, late fees, returned check or NSF charges or similar charges owing by an
Obligor pursuant to such Account.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
accounting profession, which are in effect as of the date of this Agreement.
"Governmental Authority" means the United States of America, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranty" means, with respect to any Person any agreement by which
such Person assumes, guarantees, endorses, contingently agrees to purchase or
provide
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funds for the payment of, or otherwise becomes liable upon, the obligation of
any other Person, or agrees to maintain the net worth or working capital or
other financial condition of any other Person or otherwise assures any other
creditor of such other Person against loss, including, without limitation, any
comfort letter, operating agreement or take-or-pay contract and shall include,
without limitation, the contingent liability of such Person in connection with
any application for a letter of credit.
"Indebtedness" means, with respect to any Person, without duplication,
such Person's (i) obligations for borrowed money evidenced by a promissory note,
bond or similar written obligation, including, without limitation, conditional
sales or similar title retention agreements, (ii) obligations representing the
deferred purchase price of property, (iii) obligations, whether or not assumed,
secured by liens or payable out of the proceeds or production from property now
or hereafter owned or acquired by such Person, (iv) obligations which are
evidenced by notes, acceptances, or other instruments, and all liabilities of
such Person by way of endorsements (other than for collection or deposit in the
ordinary course of business), (v) Capitalized Lease obligations, and (vi)
obligations for which such Person is obligated pursuant to a Guaranty; provided
that the term "Indebtedness" shall not include any accounts pay able arising in
the ordinary course of such Person's business on terms customary in the trade.
"Indemnified Amounts" has the meaning specified in Section 8.1 hereof.
"Indemnified Parties" has the meaning specified in Section 8.1 hereof.
"Interest Component" means, (i) with respect to any Commercial Paper
issued on an interest-bearing basis, the interest payable on such Commercial
Paper at its maturity and (ii) with respect to any Commercial Paper issued on a
discount basis, the portion of the face amount of such Commercial Paper
representing the discount incurred in respect thereof (including any dealer
commissions to the extent included as part of such discount).
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"Law" means any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of
any Official Body.
"LIBOR Rate" means, with respect to any one-month funding period, the
rate per annum (rounded up wards, if necessary, to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in U.S. dollars at approximately 11:00 a.m. (London
time) two London Business Days prior to the first day of such funding period for
a term of one month. If for any reason such rate is not available, the term
"LIBOR Rate" shall mean, for any funding period, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen
LIBOR Page as the London inter bank offered rate for deposits in dollars at
approximately 11:00 a.m. (London time) two London Business Days prior to the
first day of such funding period for a term of one month; provided, however, if
more than one rate is specified on the Reuters Screen LIBO Page, the applicable
rate shall be the arithmetic mean of all such rates.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever for the purpose of security, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the Uniform Commercial
Code (other than any such financing statement filed for informational purposes
only) or comparable law of any jurisdiction to evidence any of the foregoing.
"Liquidity Provider" means the Person or Persons who will provide
liquidity support to the Company in connection with the issuance by the Company
of Commercial Paper.
"Liquidity Provider Agreement" means the agreement between the Company
and the Liquidity Provider evidencing the obligation of the Liquidity Provider
to
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provide liquidity support to the Company in connection with the issuance by the
Company of Commercial Paper.
"Majority Investors" means, at any time, the Agent and those Bank
Investors which hold Commitments aggregating in excess of 51% of the Facility
Limit (less the Commitment of any Bank Investor who is to be disregarded
pursuant to Section 10.2(b)) as of such date.
"Material Adverse Effect" means any event or condition which would have
a material adverse effect on (i) the collectibility of the Receivables, (ii) the
condition (financial or otherwise), businesses or proper ties of the Debtor or
any Designated Seller, (iii) the ability of the Debtor or any Designated Seller
to perform its respective obligations under the Transaction Documents to which
it is a party and (iv) the interests of the Agent, the Company or the Bank
Investors under the Transaction Documents, or any event or condition which would
directly or immediately result in or cause the bankruptcy or insolvency of any
Designated Seller.
"Merged Entity" means any Person merged into the Debtor between May 2,
1998 and the Closing Date.
"Minimum Debtor's Percentage" means at any time the greater of (i) 2.5
times the sum of the Default Ratio Multiplier plus the Dilution Ratio Multiplier
and (ii) 15%, subject to a minimum equivalent to, when expressed as the product
of the Minimum Debtor's Percentage and the Net Receivables Balance, 3% of the
Facility Limit.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA which is or was at any time during the current year or the
immediately preceding five years contributed to by the Debtor, any Designated
Seller or any ERISA Affiliate of the Debtor or any Designated Seller on behalf
of its employees.
"NationsBank" has the meaning specified in the preamble hereto.
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"Net Asset Test" means, in connection with any assignment by the
Company to the Bank Investors of an interest in the Net Investment pursuant to
Section 9.7 hereof, that on the day immediately prior to the day on which such
assignment is to take effect, the Net Receivables Balance shall be greater than
or equal to the Net Investment.
"Net Investment" means the sum of the initial Advance Amount plus,
without duplication, the sum of the cash amounts paid to the Debtor for each
Advance less the aggregate amount of Collections received and applied by the
Agent to reduce such Net Investment pursuant to Section 2.5, 2.6 or 2.9 hereof;
provided that the Net Investment shall be restored and reinstated in the amount
of any Collections so received and applied if at any time the distribution of
such Collections is rescinded or must otherwise be returned for any reason; and
provided further that the Net Investment may be increased by the amount
described in Section 9.7(d) as described therein.
"Net Portfolio Yield" means, with respect to any Collection Period, the
annualized percentage equivalent of a fraction the numerator of which is the
estimated daily average Noteholder's Percentage of Finance Charge Collections
over such a period less the Carrying Costs for such Collection Period less the
estimated daily average Noteholder's Percentage of the aggregate out standing
balance of all Receivables which became Defaulted Receivables during such
Collection Period less the Servicing Fee with respect to such Collection Period
(to the extent not duplicative of Carrying Costs) and the denominator of which
is the daily average aggregate Net Investment during such Collection Period.
"Net Receivables Balance" at any time means the aggregate Outstanding
Principal Balance of all Eligible Receivables, excluding the aggregate balance
of any Discount Receivables at such time, minus the amount by which (i) the
aggregate Outstanding Principal Balance of Receivables with respect to which the
related obligor has not provided, as its most recent billing address, an address
located in the United States or its territories or possessions, or which is a
United States military address exceeds (ii) 1.00% of the aggregate Outstanding
Principal Balance of Receivables.
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"Note" shall have the meaning specified in Section 2.2(a).
"Noteholder's Percentage" means the percentage computed in accordance
with Section 2.2(e) as follows:
NI/NRB
Where:
NI = the Net Investment at the time of such computation.
NRB = the Net Receivables Balance at the time of such computation.
Notwithstanding the foregoing computation, (i) the Noteholder's
Percentage shall not exceed 100%, and (ii) the Noteholder's Percentage with
respect to Principal Collections at any time on and after the Termination Date
shall be the percentage equivalent of a fraction the numerator of which is the
Net Investment as of the Termination Date and the denominator of which is the
greater of (x) the Net Receivables Balance on the first Remittance Date
following the Termination Date or (y) the Net Receivables Balance on the
Remittance Date of the Collection Period in which the Termination Date occurs.
"Obligor" means any Person obligated to make payments under an Account,
including any guarantor there under.
"Official Body" means any government or political subdivision or any
agency, authority, bureau, central bank, commission, department or
instrumentality of any such government or political subdivision, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
"Other Transferor" means any Person that has entered into a note
purchase agreement or a receivables purchase agreement or transfer and
administration agreement with the Company.
"Outstanding Principal Balance" means, with respect to any Receivable
at any time, the then
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outstanding principal amount thereof excluding any accrued and outstanding
Finance Charges related thereto and giving effect to the amount of any credit
balances and other adjustments existing with respect to such Receivable on such
day. The outstanding principal amount of any Defaulted Receivables shall be
considered to be zero for the purposes of any determination hereunder of the
aggregate Outstanding Principal Balance of the Receivables or the aggregate
Outstanding Principal Balance of Eligible Receivables.
"Payment Rate" means, for any Collection Period, the percentage
equivalent of a fraction, the numerator of which is equal to the amount of all
cash and check Principal Collections received during such Collection Period and
the denominator of which is equal to the aggregate Outstanding Principal Balance
of all Receivables (excluding Discount Receivables) as of the last day of the
prior Collection Period.
"Person" means any corporation, limited liability company, natural
person, firm, joint venture, partnership, trust, unincorporated organization,
enterprise, government or any department or agency of any government.
"Post Office Box" means any box at a United States Post Office with
respect to which a Post Office Box Agreement is in effect.
"Post Office Box Agreement" means an agreement between the Servicer and
an official of the United States Postal Service in substantially the form of
Exhibit O hereto.
"Potential Termination Event" means an event which with the passage of
time or the giving of notice, or both, would constitute a Termination Event.
"Principal Collections" means with respect to any Collection Period,
all Collections received during such period other than Finance Charge
Collections.
"Pro Rata Share" means, for a Bank Investor, the Commitment of such
Bank Investor divided by the sum of the Commitments of all Bank Investors.
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"Proceeds" means "proceeds" as defined in Section 9-306(1) of the UCC.
"Program Fee" means the fee payable by the Debtor to the Company
pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee
Letter.
"Purchased Interest" means the security interest in the Receivables
acquired by a Liquidity Provider through purchase pursuant to the terms of the
Liquidity Provider Agreement.
"Receivable" means the indebtedness owed to (i) a Designated Seller by
any Obligor (without giving effect to any purchase under the Receivables
Purchase Agreement by the Debtor at any time) under an Account (including such
indebtedness sold by such Designated Seller to the Debtor pursuant to the
Receivables Purchase Agreement), and (ii) the Debtor by an Obligor under an
Account, in each case whether constituting an account, chattel paper,
instrument, investment property or general intangible, arising in connection
with the sale or lease of merchandise or the rendering of services, and includes
the right to payment of any Finance Charges and other obligations of such
Obligor with respect thereto. A Receivable shall be deemed to have been created
or the amount thereof increased as of the end of the day on the Date of
Processing of such Receivable or such increase to the amount thereof.
"Receivables Purchase Agreement" means the Receivables Purchase
Agreement, dated as of June 12, 1998, by and between Belk, Inc., as purchaser,
Belk Simpson, as seller, and The Belk Center, Inc., as servicer.
"Records" means all Account Agreements and other documents, books,
records and other information (including, without limitation, computer programs,
tapes, discs, punch cards, data processing software and related property and
rights) maintained with respect to Receivables and the related Obligors.
"Recoveries" means all amounts received or collected by the Servicer
with respect to Defaulted Receivables.
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"Related Commercial Paper" means Commercial Paper issued by the Company
the proceeds of which were used to acquire, or refinance the acquisition of, an
interest in the Net Investment with respect to the Debtor.
"Related Security" means with respect to any Receivable, all of the
Debtor's rights, title and interest in, to and under:
(1) all of the Debtor's interest, if any, in the
merchandise (including returned or repossessed merchandise), if any, the
sale of which gave rise to such Receivable;
(2) all other security interests or liens and
property subject thereto from time to time, if any, purporting to secure
payment of such Receivable, whether pursuant to the Account related to such
Receivable or otherwise, together with all financing statements signed by
an Obligor describing any collateral securing such Receivable;
(3) all guarantees, indemnities, warranties,
insurance (and proceeds and premium refunds thereof) or other agreements or
arrangements of any kind from time to time supporting or securing payment
of such Receivable whether pursuant to the Account related to such
Receivable or otherwise;
(4) all Records related to such Receivable;
(5) all rights and remedies of the Debtor under
the Receivables Purchase Agreement together with all financing statements
filed by the Debtor in connection therewith;
(6) all rights and remedies of the Debtor under
the Servicing Agreement; and
(7) all Proceeds of any of the foregoing.
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"Remittance Advance" shall have the meaning specified in Section
2.5(d).
"Remittance Date" means the fifteenth day of each month beginning June
15, 1998, or, if such day is not a Business Day, the Business Day next
succeeding such fifteenth day.
"Requirements of Law" for any Person means the certificate of
incorporation or articles of association and by-laws or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation, or
determination of an arbitrator or Governmental Authority, in each case
applicable to or binding upon such Person or to which such Person is subject,
whether Federal, state or local (including, without limitation, usury laws, the
Federal Truth in Lending Act and Regulation Z and Regulation B of the Board of
Governors of the Federal Reserve System).
"Section 8.2 Costs" has the meaning specified in Section 8.2(d) hereof.
"Servicer" means at any time the Person then authorized pursuant to
Section 6.1 to service, administer and collect Receivables.
"Servicer Account" means an account maintained by the Servicer at a
Servicer Account Bank for the purpose of depositing Collections from
Receivables.
"Servicer Account Agreement" means an agreement between the Agent and a
Servicer Account Bank in substantially the form of Exhibit D hereto.
"Servicer Account Bank" means each of the banks set forth in Exhibit C
hereto and such banks as may be added thereto or deleted therefrom pursuant to
Section 2.8 hereof.
"Servicer Default" has the meaning specified in Section 6.4 hereof.
"Servicer Report" means a report, in substantially the form attached
hereto as Exhibit E or in such other form as is mutually agreed to by the
Servicer,
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the Debtor and the Agent, furnished by the Servicer pursuant to Section 2.11
hereof.
"Servicing Agreement" means the Membership Agreement, dated as of June
10, 1998, by and among Belk Center, the Debtor, and various other members party
thereto.
"Servicing Fee" means the fees payable by the Company or the Bank
Investors to the Servicer in an amount equal to 2.0% per annum (calculated on
the basis of actual days elapsed divided by a year consisting of 360 days) on
the average daily amount of the Net Investment. Such fee shall accrue from the
date of the initial Advance to the date on which the Noteholder's Percentage is
reduced to zero. Such fee shall be payable only from Collections pursuant to,
and subject to the priority of payments set forth in, Section 2.5 hereof.
"Standard & Poor's" or "S&P" means Standard & Poor's Ratings Services,
a division of McGraw-Hill Companies, Inc.
"Subsidiary" of a Person means any Person more than 50% of the
outstanding voting interests of which shall at any time be owned or controlled,
directly or indirectly, by such Person or by one or more Subsidiaries of such
Person or any similar business organization which is so owned or controlled.
"Taxes" shall have the meaning specified in Section 8.3 hereof.
"Telerate Page 3750" means the British Bankers Association Libor Rates
(determined at 11:00 a.m. London time) that are published by Dow Jones Telerate,
Inc.
"Termination Date" means the earliest of (i) the Business Day
designated by the Debtor to the Company as the Termination Date at any time
following 60 days' written notice to the Agent, (ii) the date of termination of
the commitment of the Liquidity Provider under the Liquidity Provider Agreement,
(iii) the date of termination of the commitment of the Credit Support Provider
under the Credit Support Agreement, (iv) the day upon which a Termination Date
is declared or automatically occurs pursuant to Section 7.2(a) hereof,
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(v) two Business Days prior to the Commitment Termination Date, or on (vi) the
day on which a Company Termination Date shall occur unless the interest in the
Net Investment shall have been assigned (or is concurrently so assigned) to the
Bank Investors pursuant to Section 9.9 hereof.
"Termination Event" means an event described in Section 7.1 hereof.
"Transaction Costs" has the meaning specified in Section 8.4(a) hereof.
"Transaction Documents" means, collectively, this Agreement, the
Receivables Purchase Agreement, any Servicer Account Agreement, any Post Office
Box Agreement, the Fee Letter, the Note and all of the other instruments,
documents and other agreements executed and delivered by the Debtor or the
Designated Sellers in connection with any of the foregoing, in each case, as the
same may be amended, restated, supplemented or other wise modified from time to
time.
"UCC" means, with respect to any state, the Uniform Commercial Code as
from time to time in effect in such state.
"U.S." or "United States" means the United States of America.
Section 1.2 Other Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. All terms used in Article 9
of the UCC in the State of New York, and not specifically defined herein, are
used herein as defined in such Article 9.
Section 1.3 Computation of Time Periods. Unless otherwise stated in
this Agreement, in the computation of a period of time from a specified date to
a later specified date, the word "from" means "from and including", the words
"to" and "until" each means "to but excluding", and the word "within" means
"from and excluding a specified date and to and including a later specified
date".
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ARTICLE II
GRANT OF SECURITY INTEREST; ADVANCES; SETTLEMENTS
Section 2.1 Facility. In order to secure the Debtor's obligations to
the Company and the Bank Investors pursuant to this Agreement and the other
Transaction Documents, the Debtor hereby grants to the Agent, on behalf of the
Company and the Bank Investors, a first priority security interest in and
continuing Lien on all of the Debtor's right, title and interest in, to and
under all Receivables existing on the Cut-Off Date and thereafter, together with
Related Security, Collections and Proceeds with respect thereto, now or
hereafter existing, (all of the foregoing, collectively, the "Affected Assets").
By accepting such grant hereunder, neither the Company, any Bank Investor nor
the Agent assumes or shall have any obligations or liability under any of the
Accounts, all of which shall remain the obligations and liabilities of the
Debtor and the Designated Sellers.
Section 2.2 Advances; the Note; Eligible Receivables (a) Advances.
Upon the terms and subject to the conditions herein set forth, at any time and
from time to time prior to the occurrence of the Termination Date the Company
may, at its option, or the Bank Investors, shall, if so requested by the Debtor,
make an advance (any such advance, an "Advance"); provided that after giving
effect to the issuance of Related Commercial Paper to fund the amount of any
Advance (an "Advance Amount") and the payment to the Debtor of such Advance
Amount the sum of the Net Investment plus the Interest Component of all
outstanding Related Commercial Paper would not exceed the Facility Limit; and,
provided further, that, after giving effect to such Advance, the Debtor's
Percentage shall not be less than the Minimum Debtor's Percentage (the
calculation thereof to be set forth in the Additional Advance Certificate
delivered in connection with such Advance) and provided further how ever, that,
subject to Section 3.3, the representations and warranties set forth in Sections
3.1 and 3.2 shall be true and correct both immediately before and immediately
after giving effect to any such Advance and the payment to the Debtor of the
Advance Amount related thereto and an Additional Advance Certificate
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shall have been delivered with respect to such Advance as required by Section
3.3 hereof.
The Debtor shall, by notice to the Agent given by telephone (and
promptly followed by telecopy confirmation), request an Advance at least three
(3) Business Days prior to the proposed date of any Advance. Each such notice
shall specify (w) whether such request is made to the Company or the Bank
Investors (it being understood and agreed that the Debtor shall not request
funding from the Bank Investors unless the Company shall have not accepted an
Advance and that once the Bank Investors acquire any interest in the Net
Investment hereunder, the Bank Investors shall be required to accept the
assignment of all interest in the Net Investment held by the Company in
accordance with Section 9.9 and there after the Company shall no longer make any
additional Advances hereunder), (x) the desired Advance Amount (which shall be
at least $1,000,000 or integral multiples of $100,000 in excess thereof) or, to
the extent that the then available unused portion of the Facility Limit is less
than such amount, such lesser amount equal to such available portion of the
Facility Limit), and (y) the desired date of such Advance. In the event that
proceeds from the issuance of Related Commercial Paper exceed the Advance Amount
paid to the Debtor, the Debtor may elect to receive such excess proceeds and
increase the Net Investment, subject to the terms and conditions applicable to
Advances as set forth in this Agreement. The Agent will promptly notify the
Company or each of the Bank Investors, as the case may be, of the Agent's
receipt of any request for an Advance to be made to such Person. To the extent
that any such Advance is requested of the Company, the Company shall accept or
reject such offer by notice given to the Debtor and the Agent by telephone or
telecopy by no later than 5:00 p.m. (New York time) on the Business Day
following its receipt of any such request. Each Additional Advance Certificate
shall be irrevocable and binding on the Debtor and the Debtor shall indemnify
the Company and each Bank Investor against any loss or expense incurred by the
Company or any Bank Investor, either directly or indirectly (including, in the
case of the Company, through the Liquidity Provider Agreement) as a result of
any failure by the Debtor to accept any such Advance on the date indicated in
the applicable Additional Advance Certificate, including, without limitation,
any actual
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loss or expense incurred by the Company or any Bank Investor, either directly or
indirectly (including, in the case of the Company, pursuant to the Liquidity
Provider Agreement) by reason of the liquidation or reemployment of funds
acquired by the Company (or the Liquidity Provider) or any Bank Investor
(including, without limitation, funds obtained by issuing commercial paper or
promissory notes or obtaining deposits as loans from third parties) for the
Company or any Bank Investor to fund such Advance.
On or prior to the Closing Date, the Debtor shall issue a single note
to the Agent, on behalf of the Company and the Bank Investors (the "Note"),
which shall (1) be dated the Closing Date; (2) be in the stated principal amount
equal to the Facility Limit (as reflected from time to time on the grid attached
thereto); (3) bear interest as provided therein; (4) be payable to the order of
the Agent for the account of the Company or the Bank Investors and mature on the
date which is twelve (12) months after the Termination Date; and (5) be
substantially in the form of Exhibit F to this Agreement, with blanks
appropriately completed in conformity here with. The Agent shall indicate the
amount of the initial Advance together with the date thereof on the grid
attached to the Note. The Agent shall indicate the amount of each subsequent
Advance together with the date thereof as well as any increase in the Net
Investment on the grid attached to the Note.
Although the Note shall be dated the Closing Date, interest in respect
thereof shall be payable only for the periods during which amounts are
outstanding thereunder. In addition, although the stated principal amount of the
Note shall be equal to the Facility Limit, the Note shall be enforceable with
respect to the Debtor's obligation to pay the principal thereof only to the
extent of the unpaid principal amount of the Advances outstanding thereunder at
the time such enforcement shall be sought.
By no later than 11:00 a.m. (New York time) on any Advance Date, the
Company or each Bank Investor, as the case may be, shall remit its share (which,
in the case of an Advance by the Bank Investors, shall be equal to such Bank
Investor's Pro Rata Share) of the aggregate Advance Amount for such Advance to
the account of the
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Agent specified therefor from time to time by the Agent by notice to such
Persons. The obligation of each Bank Investor to remit its Pro Rata Share of any
such Advance Amount shall be several from that of each other Bank Investor, and
the failure of any Bank Investor to so make such amount available to the Agent
shall not relieve any other Bank Investor of its obligation hereunder. Following
each Advance and the Agent's receipt of funds from the Company or the Bank
Investors as aforesaid, the Agent shall use its reasonable efforts to remit the
Advance Amount to the Debtor's account at the location indicated in Section 10.3
hereof, in immediately available funds, by 1:30 p.m. (New York time) on the
Advance Date. Unless the Agent shall have received notice from the Company or
any Bank Investor, as applicable, that such Person will not make its share of
any Advance Amount relating to any Advance available on the applicable Advance
Date there for, the Agent may (but shall have no obligation to) make the
Company's or any such Bank Investor's share of any such Advance Amount available
to the Debtor in anticipation of the receipt by the Agent of such amount from
the Company or such Bank Investor. To the extent the Company or any such Bank
Investor fails to remit any such amount to the Agent after any such advance by
the Agent on such Advance Date, the Company or such Bank Investor, on the one
hand, and the Debtor, on the other hand, shall be required to pay such amount,
together with interest thereon at a per annum rate equal to the Federal funds
rate (as determined in accordance with clause (ii) of the definition of "Base
Rate"), in the case of the Company or any such Bank Investor, or the Base Rate,
in the case of the Debtor, to the Agent upon its demand therefor (provided that
the Company shall have no obligation to pay such interest amounts except to the
extent that it shall have sufficient funds to pay the face amount of its
Commercial Paper in full). The Agent shall immediately notify the Debtor if the
Agent has made such an advance on behalf of the Company or any Bank Investor and
the Debtor shall repay such advance at any time without penalty or any Early
Collection Fee. Until such amount shall be repaid, such amount shall be deemed
to be Net Investment paid by the Agent and the Agent shall be deemed to have an
interest in the Net Investment hereunder. Upon the payment of such amount to the
Agent (x) by the Debtor, the amount of the aggregate Net Investment shall be
reduced by such amount or (y) by the Company or such Bank
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Investor, such payment shall constitute such Person's payment of its share of
the applicable Advance Amount for such Advance.
(b) Noteholder's Percentage. The Noteholder's Percentage
shall be initially computed as of the opening of business of the Servicer on the
date of the Cut-Off Date. Thereafter until the Termination Date the Noteholder's
Percentage shall be automatically and promptly recomputed as of the close of
business of each Cycle Date (other than a Cycle Date after the Termination
Date). The Noteholder's Percentage shall remain constant from the time as of
which any such computation or recomputation is made until the time as of which
the next such recomputation, if any, shall be made.
Section 2.3 Fundings.
(a) Prior to the Termination Date; Net Investment Funded
by Company. At all times hereafter, but prior to the Termination Date and not
with respect to any portion of the Net Investment held by the Bank Investors (or
any of them), the Debtor may, subject to the Company's approval and the
limitations described below, request that the Net Investment be allocated among
one or more funding periods, so that the aggregate amounts so allocated at all
times shall equal the Net Investment held by the Company. The Debtor shall give
the Company irrevocable notice by telephone of the new requested funding
period(s) at least three (3) Business Days prior to the expiration of any then
existing funding period; provided, however, that the Company may select, in its
sole discretion, any such new funding period if (i) the Debtor fails to provide
such notice on a timely basis or (ii) the Company determines, in its sole
discretion, that the funding period requested by the Debtor is unavailable or
for any reason commercially undesirable. The Company confirms that it is its
intention to fund all or substantially all of the Net Investment held by it by
issuing Related Commercial Paper; provided that the Company may determine, from
time to time, in its sole discretion, that funding such Net Investment by means
of Related Commercial Paper is not possible or is not desirable for any reason.
If the Liquidity Provider acquires from the Company a Purchased Interest with
respect to the Receivables pursuant to the terms of the Liquidity Provider
Agreement, NationsBank,
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on behalf of the Liquidity Provider, may exercise the right of selection granted
to the Company hereby. The initial funding period applicable to any such
Purchased Interest shall be a period of not greater than three (3) Business Days
and shall accrue Carrying Costs on the basis of the Base Rate. Thereafter,
provided that the Termination Date shall not have occurred, Carrying Costs shall
accrue on the basis of either the Base Rate or the Adjusted LIBOR Rate, as
determined by the Debtor. The Debtor shall give the Agent irrevocable notice by
telephone of the new requested funding period at least three (3) Business Days
prior to the expiration of any then existing funding period. In the case of any
funding period outstanding upon the Termination Date, such funding period shall
end on such date.
(b) After the Termination Date; Net Investment Funded by
Company. At all times on and after the Termination Date (provided that no
Termination Event (other than an event described in either Section 7.1(o) or
7.1(p)) shall have occurred), with respect to any portion of the Net Investment
which shall not have been transferred to the Bank Investors (or any of them),
the Debtor shall select all funding periods and rates applicable thereto. The
Debtor shall give the Agent irrevocable notice by telephone of the new requested
funding period at least three (3) Business Days prior to the expiration of any
then existing funding period. After the occurrence of a Termination Event (other
than an event described in either Section 7.1(o) or 7.1(p)), the Agent shall
select all funding periods and rates applicable to the Net Investment.
(c) Prior to the Termination Date; Net Investment Funded
by Bank Investor. At all times with respect to any portion of the Net Investment
transferred to the Bank Investors (or any of them) pursuant to Section 9.7, but
prior to the Termination Date, the initial funding period applicable to such
portion of the Net Investment allocable thereto shall be a period of not greater
than three (3) Business Days and shall accrue Carrying Costs on the basis of the
Base Rate. Thereafter, with respect to such portion, and with respect to any
other portion of the Net Investment held by the Bank Investors (or any of them),
provided that the Termination Date shall not have occurred, Carrying Costs shall
accrue with respect thereto at either the Base Rate
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or the Adjusted LIBOR Rate, at the Debtor's option. The Debtor shall give the
Agent irrevocable notice by telephone of the new requested funding period at
least three (3) Business Days prior to the expiration of any then existing
funding period. In the case of any funding period outstanding upon the
occurrence of the Termination Date, such funding period shall end on the date of
such occurrence.
(d) After the Termination Date; Net Investment Funded by
Bank Investor. At all times on and after the Termination Date (provided that no
Termination Event (other than an event described in either Section 7.1(o) or
7.1(p)) shall have occurred), with respect to any portion of the Net Investment
which shall have been owned or transferred to the Bank Investors (or any of
them), the Debtor shall select all funding periods applicable thereto. After the
occurrence of a Termination Event (other than an event described in either
Section 7.1(o) or 7.1(p)), the Agent shall select all funding periods and rates
applicable to the Net Investment.
(e) Eurodollar Rate Protection; Illegality. (i) If the
Agent is unable to obtain on a timely basis the information necessary to
determine the LIBOR Rate for any proposed funding period, then
(A) the Agent shall forthwith notify the Company or Bank
Investors, as applicable and the Debtor that the Adjusted LIBOR Rate cannot
be deter mined for such funding period, and
(B) while such circumstances exist, neither the Company, the Bank
Investors or the Agent shall allocate the Net Investment related to any
Advances made during such period or reallocate the Net In vestment
allocated to any then existing funding period ending during such period, to
a funding period which accrues Carrying Costs on the basis of the Adjusted
LIBOR Rate.
(ii) If, with respect to any outstanding funding period which
accrues Carrying Costs on the basis of the Adjusted LIBOR Rate, the Company or
any of the Bank Investors funding any portion of the Net Investment allocated
thereto notifies the Agent that it is unable to
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obtain matching deposits in the London interbank market to fund its purchase or
maintenance of such Net Investment or that the Adjusted LIBOR Rate applicable to
such Net Investment will not adequately reflect the cost to the Person of
funding or maintaining such Net Investment for such funding period then the
Agent shall forthwith so notify the Debtor, whereupon neither the Agent nor the
Company or the Bank Investors, as applicable, shall, while such circumstances
exist, allocate any Net Investment related to any Advances made during such
period or reallocate the Net Investment allocated to any funding period ending
during such period, to a funding period which accrues Carrying Costs on the
basis of the Adjusted LIBOR Rate.
(iii) Notwithstanding any other provision of this Agreement, if the
Company or any of the Bank Investors, as applicable, shall notify the Agent that
such Person has determined (or has been notified by any Liquidity Provider) that
the introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful (either for the Company, such Bank Investor, or
such Liquidity Provider, as applicable), or any central bank or other
governmental authority asserts that it is unlawful, for the Company, such Bank
Investor or such Liquidity Provider, as applicable, to fund the Net Investment
or any portion thereof at the Adjusted LIBOR Rate, then (x) as of the effective
date of such notice from such Person to the Agent, the obligation or ability of
the Company or such Bank Investor, as applicable, to fund its purchase or
maintenance of Net Investments at the Adjusted LIBOR Rate shall be suspended
until such Person notifies the Agent that the circumstances causing such
suspension no longer exist and (y) the Net Investment allocated to each funding
period which accrues Carrying Costs on the basis of the Adjusted LIBOR Rate in
which such Person owns an interest shall either (1) if such Person may lawfully
continue to maintain such Net Investment at the Adjusted LIBOR Rate until the
last day of the applicable funding period, be reallocated on the last day of
such funding period to another funding period in respect of which the Net
Investment allocated thereto accrues Carrying Costs on a basis other than the
Adjusted LIBOR Rate or (2) if such Person shall determine that it may not
lawfully continue to maintain such Net Investment at the Adjusted LIBOR Rate
until the end of the applicable funding
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period, such Person's share of the Net In vestment allocated to such funding
period shall be deemed to accrue Carrying Costs on the basis of the Base Rate
from the effective date of such notice until the end of such funding period.
Section 2.4 Carrying Costs, Fees and Other Costs and Expenses. The
Debtor shall pay, as and when due in accordance with this Agreement, all fees
hereunder, including any Early Collection Fee, Carrying Costs, all amounts
payable pursuant to Article VIII hereof, if any, and the Servicing Fees. On each
Remittance Date, the Debtor shall pay to the Agent, on behalf of the Company or
the Bank Investors, as applicable, an amount equal to the accrued and unpaid
Carrying Costs for the related Collection Period. The Debtor shall pay to the
Agent, on behalf of the Company, on each day on which Related Commercial Paper
is issued by the Company, the Dealer Fee with respect to such Related Commercial
Paper. Nothing in this Agreement shall limit in any way the obligations of the
Debtor to pay the amounts set forth in this Section 2.4.
Section 2.5 Allocations of Collections; Non-Liquidation Settlement
Procedures. (a) Within six (6) days of each Cycle Date, the Servicer shall
allocate all Collections received on or prior to such Cycle Date and after the
preceding Cycle Date as Finance Charge Collections or Principal Collections and
shall deposit such Collections into the Debtor Account or the Collection
Account, as applicable. Principal Collections shall be applied by the Servicer
as described in subsection (b) below. On each Remittance Date, the product of
(A) the estimated daily average of the Noteholder's Percentage over the
preceding Collection Period (as determined as of each Cycle Date occurring
during such Collection Period) and (B) the aggregate Finance Charge Collections
for such preceding Collection Period (other than Collections comprised of late
fees, NSF or returned check charges or similar fees and charges which shall be
retained by the Servicer as provided in Section 6.2(e)), which product shall be
net of any Remittance Advances made by the Servicer for costs accrued with
respect to such Collection Period (but not less than zero), shall be withdrawn
by the Servicer from the Debtor Account or Collection Account, as applicable,
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and applied, without duplication, by the Servicer as follows:
(i) first, to the payment to the Agent of any
accrued and unpaid Carrying Costs for such Collection Period;
(ii) second, to the retention by the Servicer of
any Servicing Fee due and owing; and
(iii) third, to the extent any Finance Charge
Collections remain after application in accordance with clauses (i) and
(ii) above, (A) if prior to the Termination Date such excess amounts shall
be paid to the Debtor and (B) if on or after the Termination Date such
excess amounts shall be paid to the Agent in reduction of the Net
Investment.
On each Remittance Date, subject to Section 2.5(c), there shall be
remitted to the Debtor the product of (A) the estimated daily average of the
Debtor's Percentage over the preceding Collection Period (as deter mined as of
each Cycle Date occurring during such Collection Period) and (B) the aggregate
Finance Charge Collections for the preceding Collection Period, which product
shall be net of any Remittance Advances made by the Servicer for costs accrued
with respect to such Collection Period in excess of the amount netted against
the estimated daily average of the Noteholder's Percentage of Finance Charge
Collections in the first paragraph of Section 2.5(a) (but not less than zero).
(b) Within six (6) days after each Cycle Date prior to
the Termination Date, (i) the Servicer shall allocate to the Company and/or the
Bank Investors the Noteholder's Percentage of Principal Collections received on
or prior to such Cycle Date and after the preceding Cycle Date and the Servicer
shall, at the Debtor's option, (A) deposit or retain such amount (net of any
Remittance Advances made by the Servicer for costs accrued with respect to the
preceding Collection Period in excess of the amount of Remittance Advances
netted against the Noteholder's Percentage of Finance Charge Collections for
such Collection Period, the Debtor's Percentage of Finance Charge Collections
for such
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Collection Period and the portion of Principal Collections not allocated to the
Net Investment) in the Debtor Account or the Collection Account, as applicable,
and pay such amount to the Debtor on the related Remittance Date, or (B) retain
or deposit such amount (net of any Remittance Advances made by the Servicer for
costs accrued with respect to the preceding Collection Period in excess of the
amount of Remittance Advances netted against the Noteholder's Percentage of
Finance Charge Collections for such Collection Period, the Debtor's Percentage
of Finance Charge Collections for such Collection Period and the portion of
Principal Collections not allocated to the Net Investment) in the Debtor Account
or the Collection Account, as applicable, and on the related Remittance Date pay
such amount to the Agent in reduction of the Net Investment and (ii) the
Servicer shall retain or deposit the portion of such Principal Collections not
allocated to the Net Investment (net of any Remittance Advances made by the
Servicer for costs accrued with respect to the preceding Collection Period in
excess of the amount of Remittance Advances netted against the Noteholder's
Percentage of Finance Charge Collections for such Collection Period and the
Debtor's Percentage of Finance Charge Collections for such Collection Period) in
the Debtor Account or the Collection Account, as applicable and on the related
Remittance Date pay to the Debtor any such amounts remaining after any
reallocations pursuant to Section 2.5(c) below.
Within six (6) days after each Cycle Date on or subsequent to the
Termination Date, (i) the Servicer shall allocate to the Company or the Bank
Investors, as applicable, the Noteholder's Percentage of all Principal
Collections received on or prior to such Cycle Date and after the preceding
Cycle Date and on the related Remittance Date pay such amount (net of any
Remittance Advances made by the Servicer for costs accrued with respect to the
preceding Collection Period in excess of the amount of Remittance Advances
netted against the Noteholder's Percentage of Finance Charge Collections for
such Collection Period, the Debtor's Percentage of Finance Charge Collections
for such Collection Period and the portion of Principal Collections not
allocated to the Net Investment) to the Agent in reduction of the Net
Investment, and (ii) the portion of such Principal Collections not allocated to
the Net Investment (net of
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any Remittance Advances made by the Servicer for costs accrued with respect to
the preceding Collection Period in excess of the amount of Remittance Advances
netted against the Noteholder's Percentage of Finance Charge Collections for
such Collection Period and the Debtor's Percentage of Finance Charge
Collections for such Collection Period) shall be retained by the Servicer in
the Debtor Account or the Collection Account, as applicable and, to the extent
of such amounts remaining after any reallocations pursuant to Section 2.5(c)
below, on the related Remittance Date shall be distributed to the Agent in
reduction of the Net Investment; provided, however, that if no Termination
Event (other than an event described in either Section 7.1(o) or 7.1(p)) shall
have occurred, the funds referred to in clause (ii) above shall be paid to the
Debtor.
(c) If on any Remittance Date, after giving effect to
clauses (i) and (ii) of Section 2.5(a), an insufficiency exists with respect to
the Noteholder's Percentage of Finance Charge Collections, then, in such event,
on such Remittance Date the amount of Finance Charge Collections distributable
or allocable to the Debtor, and to the extent any such insufficiency continues
to remain, the amount of Principal Collections not allocable to the Net
Investment, shall be reduced by the amount of such insufficiency, and such
amount(s) shall be applied as Finance Charge Collections allocable to the Net
Investment and shall be applied and distributed in accordance with the
priorities set forth in clauses (i) and (ii) of Section 2.5(a).
(d) In the event that, on any date, the Company does not
have sufficient funds to pay the Interest Component of matured or maturing
Related Commercial Paper or any Dealer Fee due and payable on such day, the
Servicer, acting upon written notice from the Administrative Agent, shall make a
withdrawal from the Debtor Account or the Collection Account, as applicable, in
an amount equal to such costs and any Dealer Fee due and payable on such day (a
"Remittance Advance") and pay to the Agent, for the account of the Company, the
amount of such advance.
(e) The Debtor shall have the option to designate a fixed
percentage (the "Discount Percentage") of all Receivables other than Finance
Charges and
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Receivables in Defaulted Accounts to be treated as finance charge receivables
("Discount Receivables") in accordance with the provisions of this Section
2.5(e), which percentage shall remain fixed and in effect until such time as the
Debtor has provided a subsequent designation, upon 20 days prior written notice,
to the Agent. The initial Discount Percentage shall be 0%. The Debtor shall have
the option to increase, decrease or eliminate the Discount Percentage, provided,
that (i) no such designation shall become effective if it would reasonably be
expected to cause a Termination Event to occur, (ii) no such designation shall
become effective upon or after a Termination Event without the Agent's prior
written approval, and (iii) if, at the date of designation, the projected Net
Portfolio Yield for any Monthly Period during the six months following such
date, after giving effect to such designation, is less than 3%, no such
designation shall become effective without the Agent's prior written consent.
Section 2.6 Liquidation Settlement Procedures. If, on the Termination
Date the Debtor's Percentage is less than the Minimum Debtor's Percentage, then
the Debtor shall immediately pay to the Agent, for the benefit of the Company or
the Bank Investors, as applicable, from previously received Principal
Collections, an amount equal to the amount that, when applied in reduction of
the Net Investment, will result in a Debtor's Percentage equal to or greater
than the Minimum Debtor's Percentage. Such amount shall be applied by the Agent
to the reduction of the Net Investment. On each Remittance Date occurring on and
following the Termination Date, Principal Collections shall be applied in
accordance with Section 2.5(b).
Following the date on which the Net Investment shall be reduced to zero
and all other Aggregate Unpaids have been paid in full, (i) the Servicer shall
recompute the Noteholder's Percentage as zero, (ii) the Agent, on behalf of the
Company and the Bank Investors, shall be considered to have released all of the
Company's and the Bank Investors' right, title and interest in and to the
Affected Assets, (iii) the Servicer shall pay to the Debtor any remaining
Collections set aside and held by the Servicer and (iv) the Agent, on behalf of
the Company and the Bank Investors, shall execute and deliver to the Debtor, at
the Debtor's expense, such documents or
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instruments as are necessary to terminate the Company's and the Bank Investors'
respective interests in the Affected Assets. Any such documents shall be
prepared by or on behalf of the Debtor.
Section 2.7 Fees. Notwithstanding any limitation on recourse contained
in this Agreement, the Debtor shall pay the following non-refundable fees:
(a) On each Remittance Date, to the Company solely for
its own account, the Program Fee and the Administrative Fee, and to the Agent
for distribution to the Bank Investors, the Facility Fee.
(b) On the date of execution hereof, to the
Administrative Agent solely for its own account, the Arrangement Fee.
Section 2.8 Protection of Security Interest. (a) The Debtor agrees
that it will, and will cause each Designated Seller to, from time to time, at
its expense, promptly execute and deliver all instruments and documents and take
all actions as may be necessary or as the Agent may reasonably request in order
to perfect or protect the Agent's security interest in the Affected Assets or to
enable the Agent, the Company or the Bank Investors to exercise or enforce any
of their respective rights hereunder. Without limiting the foregoing, the Debtor
will, and will cause each Designated Seller to, upon the request of the Agent,
the Company or any of the Bank Investors, in order to accurately reflect this
grant of a security interest, execute and file such financing or continuation
statements or amendments thereto or assignments thereof (as permitted pursuant
to Section 9.7 hereof) as may be requested by the Agent, the Company or any of
the Bank Investors. The Debtor shall, and will cause each Designated Seller to,
upon request of the Agent, the Company or any of the Bank Investors, obtain such
additional search reports as the Agent, the Company or any of the Bank Investors
shall reasonably request. To the fullest extent permitted by applicable law, the
Agent shall be permitted to sign and file continuation statements and amendments
thereto and assignments thereof without the Debtor's or any Designated Seller's
signature; provided, however, that the Agent shall not file without the Debtor's
signature or consent any amendment to a financing statement (which absent the
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provisions of this Agreement would otherwise require the Debtor's signature)
which increases the scope of the property subject to such financing statement
beyond the Receivables and the Related Security, the Collections and Proceeds
with respect thereto; provided further, however, that the Agent shall not file
any continuation, amendment or assignment of a financing statement, which absent
the provisions of this Agreement would otherwise require the Debtor's signature,
unless the Agent shall have requested the Debtor to take such action pursuant to
this Section 2.8(a) and the Debtor shall have failed to do so with in a
reasonable period of time after such request. Carbon, photographic or other
reproduction of this Agreement or any financing statement shall be sufficient as
a financing statement.
The Debtor agrees that it will, at its expense, on or prior to the
Closing Date indicate clearly and unambiguously in its master data processing
records and on any storage containers containing Records that the Receivables
created in connection with the Accounts have been pledged to the Agent, for the
benefit of the Company and the Bank Investors, pursuant to this Agreement by
affixing thereon the following legend: "THE RECEIVABLES IN THESE FILES HAVE BEEN
PLEDGED TO NATIONSBANK, N.A., AS AGENT, FOR THE BENEFIT OF ENTERPRISE FUNDING
CORPORATION AND THOSE CERTAIN BANK INVESTORS PURSUANT TO THE NOTE PURCHASE AND
SECURITY AGREEMENT DATED AS OF JUNE 12, 1998, AS AMENDED FROM TIME TO TIME,
AMONG BELK, INC., THE BELK CENTER, INC., NATIONSBANK, N.A., ENTERPRISE FUNDING
CORPORATION AND THE OTHER SIGNATORIES NAMED THEREIN." The Debtor further agrees
to deliver or to cause the Servicer to deliver to the Agent a computer file or
microfiche list containing a true and complete list of all such Receivables,
identified by account number and by Receivable balance as of the Cut-Off Date.
The Debtor agrees to deliver or to cause the Servicer to deliver to the Agent
within five (5) Business Days of the request therefor by the Agent a computer
file or microfiche list showing a true and complete balance of all Receivables,
including all Receivables created on or after the Cut-Off Date, in existence as
of the last day of the prior Collection Period, identified by account number and
by Receivable balance as of such day. The Servicer agrees, on behalf of the
Debtor, at its own expense, by the end of each Collection Period to indicate
clearly and unambiguously in its master data processing records and
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any storage containers containing Records that the Receivables have been pledged
to the Agent, for the benefit of the Company and the Bank Investors, pursuant to
this Agreement.
The Debtor shall not, and shall not permit any Designated Seller to,
change its respective name, identity or corporate structure (within the meaning
of Section 9-402(7) of the UCC as in effect in the States of New York, South
Carolina and North Carolina) nor relocate its respective chief executive office
or any office where Records are kept unless it shall have: (i) given the Agent
at least fifteen (15) days prior notice thereof and (ii) prepared at Debtor's
expense and delivered to the Agent all financing statements, instruments and
other documents necessary to preserve and protect the Agent's security interest
in the Affected Assets or reasonably requested by the Agent in connection with
such change or relocation. Any filings under the UCC or otherwise that are
occasioned by such change in name or location shall be made at the expense of
the Debtor.
(b) The Servicer shall direct all Obligors to cause all
Collections to be mailed directly to a Post Office Box or remitted to retail
store locations owned by the Debtor or a Designated Seller. Each Post Office Box
shall be under the exclusive dominion and control of the Agent which is hereby
granted to the Agent by the Servicer. The Servicer shall be permitted to collect
Collections from any Post Office Box for so long as neither a Servicer Default
nor any other Termination Event has occurred hereunder. The Servicer shall not
terminate a Post Office Box or add any new Post Office Box unless the Agent
shall have received thirty (30) days' prior written notice of such termination
or addition and the Agent shall have received a Post Office Box Agreement with
respect to each new Post Office Box, executed by the Servicer and the
appropriate United States Postal Service official.
(c) Unless the Servicer is denied access to such Post Office Box
pursuant to the respective Post Office Box Agreement or otherwise through no
fault of the Servicer, the Servicer shall deposit all Collections received at a
Post Office Box in a Servicer Account promptly, but in any event within two (2)
Business Days of receipt. In the event any Servicer Account shall be
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proposed to be closed, the Servicer shall remove all Collections held in such
Servicer Account to another Servicer Account. Each Servicer Account shall be
under the exclusive ownership and control of the Agent which is hereby granted
to the Agent by the Servicer. The Servicer shall be permitted to give
instructions to any Servicer Account Bank for so long as neither a Servicer
Default nor any other Termination Event has occurred hereunder. The Servicer
shall not terminate any bank as a Servicer Account Bank or add any bank as a
Servicer Account Bank unless the Agent shall have received fifteen (15) days'
prior written notice of such termination or addition and the Agent shall have
received a Servicer Account Agreement executed by each new Servicer Account Bank
or an existing Servicer Account Bank with respect to each new Servicer Account,
as applicable.
(d) Unless the Servicer is denied access, either pursuant to the
respective Post Office Box Agreement or otherwise through no fault of the
Servicer, to the Post Office Box where such Collections are held, the Servicer
shall deposit all Collections into the Debtor Account or, if required by this
Agreement, into the Collection Account within ten (10) days of the initial
receipt of such Collections by the Servicer.
Section 2.9 Deemed Collections; Application of Payments. (a) If on any
day the Outstanding Principal Balance of a Receivable is either (x) reduced as a
result of any defective, rejected or returned merchandise or services, any
discount, credit, rebate, dispute, warranty claim, repossessed or returned
goods, chargeback, allowance or any billing adjustment, or (y) reduced or
canceled as a result of a setoff or offset in respect of any claim by any Person
(whether such claim arises out of the same or a related transaction or an
unrelated transaction) or (z) any other downward adjustments to the balance of
such Receivable without receiving Collections therefor and prior to such
Receivable becoming a Defaulted Receivable, the amount of such cancellation,
reduction or adjustment shall thereafter be deducted from the aggregate
Outstanding Principal Balance of the Receivables and the Net Receivables
Balance. If such reduction would result in a Debtor's Percentage less than the
Minimum Debtor's Percentage, the Debtor shall pay (or direct the Servicer to pay
from Collections otherwise distributable to the Debtor) to the Agent an amount
equal
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to the amount that, when applied in reduction of the Net Investment, will result
in a Debtor's Percentage equal to or greater than the Minimum Debtor's
Percentage. Such amount shall be applied by the Agent to the reduction of the
Net Investment.
(b) If on any day the Servicer or the Debtor has actual
knowledge that any of the representations or warranties in Section 3.1(l) was or
has become untrue with respect to a Receivable (whether on or after the date of
any transfer of an interest therein to the Agent, the Company or the Bank
Investors as contemplated hereunder), such Receivable shall thereafter not be
included in any calculation of the Net Receivables Balance. If such reduction
would result in a Debtor's Percentage less than the Minimum Debtor's Percentage,
the Debtor shall pay (or direct the Servicer to pay from Collections otherwise
distributable to the Debtor) to the Agent an amount equal to the amount that,
when applied in reduction of the Net Investment, will result in a Debtor's
Percentage equal to or greater than the Minimum Debtor's Percentage. Such amount
shall be applied by the Agent to the reduction of the Net Investment.
Section 2.10 Payments and Computations, Etc. All amounts to be paid or
deposited by the Debtor or the Servicer hereunder shall be paid or deposited in
accordance with the terms hereof no later than 11:00 a.m. (New York City time)
on the day when due in immediately avail able funds; if such amounts are payable
to the Company or any Bank Investor they shall be paid or deposited in the
account indicated in Section 10.3 hereof, until otherwise notified by the Agent.
The Debtor shall, to the extent permitted by law, pay to the Agent, for the
benefit of the Company and the Bank Investors upon demand, interest on all
amounts not paid or deposited when due hereunder at a rate equal to the Adjusted
LIBOR Rate that would apply during the continuance of a Termination Event. All
computations of interest and all per annum fees hereunder shall be made on the
basis of a year of 360 days for the actual number of days (including the first
but excluding the last day) elapsed. Any computations by the Agent of amounts
payable by the Debtor hereunder shall be binding upon the Debtor absent manifest
error.
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Section 2.11 Reports. On each Determination Date, the Servicer shall
prepare and forward to the Agent and the Administrative Agent (i) a Servicer
Report as of the end of the last day of the immediately preceding Collection
Period, and (ii) such other information as the Agent or the Administrative Agent
may reasonably request.
Section 2.12 Collection Account. There shall be established on the day
of the initial Advance hereunder and maintained, for the benefit of the Company
and the Bank Investors, with the Agent, a segregated account (the "Collection
Account"), bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Company and the Bank Investors. Upon the
occurrence and during the continuance of (i) a Servicer Default or (ii) a
Termination Event (other than one arising under Section 7.1(o) or (p)), the
Servicer shall remit as promptly as possible and in any event prior to the close
of business on the tenth day following receipt to the Collection Account all
Collections received with respect to any Receivables; prior to the occurrence of
any such event the Servicer to the extent it holds such funds, shall be
permitted to retain and invest (at the Servicer's risk) Collections pending the
application thereof pursuant to Section 2.5 hereof. Funds on deposit in the
Collection Account (other than investment earnings) shall be invested by the
Agent in Eligible Investments that will mature so that such funds will be
available prior to the Remittance Date following such investment. On each
Remittance Date, all interest and earnings (net of losses and investment
expenses) on funds on deposit in the Collection Account shall be retained in the
Collection Account and be available to make any distributions required to be
made pursuant to Section 2.5(a). On the date following the Termination Date on
which the Net Investment and all other Aggregate Unpaids have been paid in full,
any funds remaining on deposit in the Collection Account shall be released and
paid to the Debtor.
Section 2.13 Sharing of Payments, Etc. If the Company or any Bank
Investor (for purposes of this Section only, being a "Recipient") shall obtain
any payment (whether voluntary, involuntary, through the exercise of any right
of setoff, or otherwise) on account of any interest in the Net Investment it may
have (other than pursuant to Section 2.7, or Article VIII and other
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than as a result of the differences in the timing of the applications of
Collections pursuant to Section 2.5 or 2.6) in excess of its ratable share of
payments on account of Net Investment held by the Company and/or the Bank
Investors entitled thereto, such Recipient shall forthwith purchase from the
Company and/or the Bank Investors entitled to a share of such amount
participations in the Net Investment held by such Persons as shall be necessary
to cause such Recipient to share the excess payment ratably with each such other
Person entitled thereto; provided, however, that if all or any portion of such
excess payment is thereafter recovered from such Recipient, such purchase from
each such other Person shall be rescinded and each such other Person shall repay
to the Recipient the purchase price paid by such Recipient for such
participation to the extent of such recovery, together with an amount equal to
such other Person's ratable share (according to the proportion of (a) the amount
of such other Person's required payment to (b) the total amount so recovered
from the Recipient) of any interest or other amount paid or payable by the
Recipient in respect of the total amount so recovered.
Section 2.14 Right of Setoff. Without in any way limiting the
provisions of Section 2.13, each of the Company and the Bank Investors is hereby
authorized (in addition to any other rights it may have) at any time after the
occurrence of the Termination Date or during the continuance of a Potential
Termination Event to set-off, appropriate and apply (without presentment,
demand, protest or other notice which are hereby expressly waived) any deposits
and any other indebtedness held or owing by the Company or such Bank Investor
to, or for the account of, the Debtor against the amount of the Aggregate
Unpaids owing by the Debtor to such Person (even if contingent or unmatured).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of the Debtor. The Debtor
represents and warrants to the Agent, the Company and the Bank Investors that:
(a) Corporate Existence and Power. The Debtor is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all corporate power and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business in each jurisdiction in which its business is now
conducted. The Debtor is duly qualified to do business in, and is in good
standing in, every other jurisdiction in which the nature of its business
requires it to be so qualified, except where the failure to be so qualified or
in good standing would not have a Material Adverse Effect.
(b) Corporate and Governmental Authorization;
Contravention. The execution, delivery and performance by the Debtor of this
Agreement, the Receivables Purchase Agreement, the Fee Letter, the Note and the
other Transaction Documents to which the Debtor is a party are within the
Debtor's corporate powers, have been duly authorized by all necessary corporate
action, require no action by or in respect of, or filing with, any Official Body
or official thereof (except as contemplated by Section 2.8 hereof), and do not
contravene, or constitute a default under, any provision of applicable law, rule
or regulation or of the Certificate of Incorporation or Bylaws of the Debtor or
of any agreement, judgment, injunction, order, writ, decree or other instrument
binding upon the Debtor or result in the creation or imposition of any Adverse
Claim on the assets of the Debtor or any of its Subsidiaries (except as
contemplated by Section 2.8 hereof or any other provision of this Agreement or
any other Transaction Document).
(c) Binding Effect. Each of this Agreement, the
Receivables Purchase Agreement, the Fee Letter, the Note and the other
Transaction Documents to which the Debtor is a party constitutes the legal,
valid
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and binding obligation of the Debtor, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, moratorium or other
similar laws affecting the rights of creditors generally.
(d) Perfection. The Debtor shall be the owner of all of
the Receivables, free and clear of all Adverse Claims (except as permitted by
this Agreement or the other Transaction Documents). All financing statements and
other documents required to be recorded or filed in order to perfect and protect
the Agent's security interest in the Affected Assets against all creditors of
and purchasers from the Debtor and the applicable Designated Seller have been,
or will, within ten (10) days of the date hereof be, duly filed in each filing
office necessary for such purpose and all filing fees and taxes, if any, payable
in connection with such filings have been, or will, within ten (10) days of the
date hereof be, paid in full.
(e) Accuracy of Information. All information heretofore
furnished by the Debtor (including without limitation, the Servicer Reports, any
reports delivered pursuant to Section 2.11 hereof and the financial statements
delivered pursuant to Section 5.1) to the Company, any Bank Investors, the Agent
or the Administrative Agent for purposes of or in connection with this Agreement
or any transaction contemplated hereby is, and all such information hereafter
furnished by the Debtor to the Company, any Bank Investors, the Agent or the
Administrative Agent will be, true and accurate in every material respect, on
the date such information is stated or certified.
(f) Tax Status. The Debtor has filed all tax returns
(federal, state and local) required to be filed and has paid or made adequate
provision for the payment of all taxes, assessments and other governmental
charges.
(g) Action, Suits.
(x) Except as set forth in Exhibit H hereof (as such exhibit may
be amended from time to time), there are no actions, suits or proceedings
pending, or to the knowledge of the Debtor threatened, against or affecting the
Debtor or its properties, in or before any court,
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arbitrator or other body, (i) asserting the invalidity of any Transaction
Document, (ii) seeking to prevent the consummation of any of the transactions
contemplated by any Transaction Document, (iii) seeking any determination or
ruling that, in the judgment of the Debtor, would materially and adversely
affect the performance of its obligations under any Transaction Document to
which it is a party or materially and adversely affect the collectibility of the
Receivables as a whole, or (iv) seeking any determination or ruling that would
materially and adversely affect the validity or enforceability of any
Transaction Document.
(y) Except as set forth in Exhibit H hereof (as such exhibit may
be amended from time to time), there are no actions, suits or proceedings
pending, or to the knowledge of the Debtor threatened, against or affecting any
Designated Seller or any Designated Seller's respective properties, in or before
any court, arbitrator or other body, (i) asserting the invalidity of any
Transaction Document, (ii) seeking to prevent the consummation of any of the
transactions contemplated by any Transaction Document, (iii) seeking any
determination or ruling that, in the judgment of the Debtor, would materially
and adversely affect the performance of each of their obligations under any
Transaction Document to which each is a party or materially and adversely affect
the collectibility of the Receivables as a whole, or (iv) seeking any
determination or ruling that would materially and adversely affect the validity
or enforceability of any Transaction Document.
(z) Except as set forth in Exhibit H hereof (as such exhibit may
be amended from time to time), there are no outstanding judgments in any court
against the Debtor or, any Designated Seller (for which any such party is solely
responsible or is responsible jointly with other Persons) in excess of
$1,000,000 individually.
(h) Use of Proceeds. No proceeds of any Advance will be
used by the Debtor to acquire any security in any transaction which is subject
to Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
(i) Place of Business. The principal place of business
and chief executive office of the
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Debtor are located at the address of the Debtor indicated in Section 10.3 hereof
and the offices where the Debtor keeps all its Records, are located at the
address(es) described on Exhibit I or such other locations notified to the Agent
in accordance with Section 2.8 hereof in jurisdictions where all action required
by Section 2.8 hereof has been taken and completed.
(j) Good Title. Upon the filing of the appropriate
financing statements as required by this Agreement, the Agent on behalf of the
Company and the Bank Investors shall have or acquire a first priority perfected
security interest in the Receivables existing on the date of the Cut-Off Date
and thereafter and in the Related Security and Collections with respect thereto
free and clear of any Adverse Claim.
(k) Tradenames, Etc. As of the date hereof: (i) the
Debtor has only the subsidiaries and divisions listed on Exhibit J hereto; and
(ii) the Debtor has, within the last five (5) years, operated only under the
tradenames identified in Exhibit J hereto, and, within the last five (5) years,
has not changed its name, merged with or into or consolidated with any other
corporation or been the subject of any proceeding under Title 11, United States
Code (Bankruptcy), except as disclosed in Exhibit J hereto.
(l) Nature of Receivables. Each Receivable (x)
represented by the Debtor or the Servicer to be an Eligible Receivable
(including in any Servicer Report or other report delivered pursuant to Section
2.11 hereof) or (y) included in the calculation of the Net Receivables Balance,
in fact satisfies at such time the definition of "Eligible Receivable" set forth
herein and is an "eligible asset" as defined in Rule 3a-7 under the Investment
Company Act, of 1940, as amended.
(m) Coverage Requirement; Amount of Receivables. The
Debtor's Percentage is not less than the Minimum Debtor's Percentage. As of the
Cut-Off Date, the aggregate Outstanding Principal Balance of the Receivables in
existence was $318,269,025.64 the aggregate balance of Finance Charges was
$13,524,570.57 and the Net Receivable Balance was $318,269,025.64.
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(n) Credit Guidelines. Since November 21, 1997, there
have been no material changes in the Credit Guidelines other than as permitted
hereunder. Since such date, no material adverse change has occurred in the
overall rate of collection of the Receivables.
(o) Ratios. the Default Ratio and the Delinquency Ratio
have not exceeded 8% and 7.5%, respectively, for the 3 months prior to the
Cut-Off Date.
(p) No Termination Event. No event has occurred and is
continuing and no condition exists which constitutes a Termination Event or a
Potential Termination Event.
(q) Not an Investment Company. The Debtor is not, and is
not controlled by, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or is exempt from all provisions of such Act.
(r) ERISA. Each of the Debtor and its ERISA Affiliates
is in compliance in all material respects with ERISA and no lien exists in favor
of the Pension Benefit Guaranty Corporation on any of the Receivables.
(s) Servicer Accounts. The names and addresses of all
the Servicer Account Banks, together with the account numbers of the Servicer
Accounts at such Servicer Account Banks, are specified in Exhibit C hereto (or
at such other Servicer Account Banks and/or with such other Servicer Accounts as
have been notified to the Agent and for which Servicer Account Agreements have
been executed in accordance with Section 2.8(c) hereof and delivered to the
Agent). Only Collections are deposited into the Servicer Accounts.
(t) Bulk Sales. No transactions contemplated hereby or
by the Receivables Purchase Agreement requires compliance with any bulk sales
act or similar law.
(u) Transfers Under Receivables Purchase Agreement. Each
Receivable which has been transferred to the Debtor by a Designated Seller has
been purchased by the Debtor from such Designated Seller pursuant to, and
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in accordance with, the terms of the Receivables Purchase Agreement.
(v) Post Office Boxes. The numbers and addresses of all the Post
Office Boxes are specified in Exhibit N hereto (or at such other Post Office
Boxes as have been notified to the Agent and for which Post Office Box
Agreements have been executed in accordance with Section 2.8(b) hereof and
delivered to the Agent). All Obligors have been directed to make payment to a
Post Office Box or to retail store locations owned by the Debtor or a Designated
Seller.
Section 3.2 Representations and Warranties of the Servicer. The
Servicer represents and warrants to the Agent, the Company and the Bank
Investors that:
(a) Corporate Existence and Power. The Servicer is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all corporate power and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business in each jurisdiction in which its business is now
conducted. The Servicer is duly qualified to do business in, and is in good
standing in, every other jurisdiction in which the nature of its business
requires it to be so qualified, except where the failure to be so qualified or
in good standing would not have a Material Adverse Effect.
(b) Corporate and Governmental Authorization;
Contravention. The execution, delivery and performance by the Servicer of this
Agreement are within the Servicer's corporate powers, have been duly authorized
by all necessary corporate action, require no action by or in respect of, or
filing with, any governmental body, agency or official (except as contemplated
by Section 2.8), and do not contravene, or constitute a default under, any
provision of applicable law or regulation or of the charter or Bylaws of the
Servicer or of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Servicer or result in the creation or imposition of
any lien on assets of the Servicer or any of its Subsidiaries (except as
contemplated by Section 2.8 or any other
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provision of this Agreement or any other Transaction Document).
(c) Binding Effect. This Agreement constitutes the
legal, valid and binding obligation of the Servicer enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws affecting the rights of creditors generally.
(d) Accuracy of Information. All information heretofore
furnished by the Servicer in writing to the Debtor, the Company, any Bank
Investor, the Agent or the Administrative Agent for purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all such
information hereafter furnished by the Servicer to the Debtor, the Company, any
Bank Investor, the Agent or the Administrative Agent will be, true and accurate
in every material respect, on the date such information is stated or certified.
(e) Tax Status. The Servicer has filed all tax returns
(federal, state and local) required to be filed and has paid or made adequate
provision for the payment of all taxes, assessments and other governmental
charges.
(f) Action, Suits.
(x) Except as set forth in Exhibit H hereof (as such exhibit may
be amended from time to time), there are no actions, suits or proceedings
pending, or to the knowledge of the Servicer threatened, against or affecting
the Debtor, the Servicer or their respective proper ties, in or before any
court, arbitrator or other body, (i) asserting the invalidity of any Transaction
Document, (ii) seeking to prevent the consummation of any of the transactions
contemplated by any Transaction Document, (iii) seeking any determination or
ruling that, in the judgment of the Servicer, would materially and adversely
affect the performance of the Servicer's obligations under any Transaction
Document to which it is a party or materially and adversely affect the
collectibility of the Receivables as a whole, or (iv) seeking any determination
or ruling that would materially
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and adversely affect the validity or enforceability of any Transaction Document.
(y) Except as set forth in Exhibit H hereof (as such exhibit may
be amended from time to time), there are no outstanding judgments in any court
against the Servicer (for which either the Servicer is solely responsible or the
Servicer is responsible jointly with other Persons) in excess of $1,000,000
individually.
(g) Collections and Servicing. Since August 22, 1997,
there has been no material adverse change in the ability of the Servicer to
service and collect the Receivables and no material adverse change has occurred
in the overall rate of collections of Receivables.
(h) Not an Investment Company. The Servicer is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or is exempt from all provisions of such Act.
(i) ERISA. The Servicer is in compliance in all material
respects with ERISA.
(j) Servicer Accounts. The names and addresses of all
the Servicer Account Banks, together with the account numbers of the Servicer
Accounts at such Servicer Account Banks, are specified in Exhibit C (or at such
other Servicer Account Banks and/or with such other Servicer Accounts as have
been notified to the Debtor and the Agent and for which Servicer Account
Agreements have been executed in accordance with Section 2.8(c) hereof and
delivered to the Agent). Only Collections are deposited into the Servicer
Accounts.
(k) Post Office Boxes. The names and addresses of all
the Post Office Boxes are specified in Exhibit N (or at such other Post Office
Boxes as have been notified to the Debtor and the Agent and for which Post
Office Box Agreements have been executed in accordance with Section 2.8(b)
hereof and delivered to the Agent). All Obligors have been directed to make
payment to a Post Office Box or to retail store locations owned by the Debtor of
a Designated Seller.
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Section 3.3 Reaffirmation of Representations and Warranties by the
Debtor and Servicer. On each day that an Advance is made hereunder, the Debtor,
by accepting the proceeds of such Advance, and the Servicer, shall be deemed to
have certified that all of their respective representations and warranties
described in Sections 3.1 and 3.2 hereof are correct on and as of such day as
though made on and as of such day, provided that the representations set forth
in Section 3.1(g)(y) and 3.2(f)(x) hereof shall be deemed made only on and as of
the Closing Date and on each January 1, April 1, July 1 and October 1 of each
calendar year (whether or not any such date is a Advance Date). Each Advance
shall be subject to the further condition precedent that prior to the date of
such Advance, the Servicer shall have delivered to the Agent and the
Administrative Agent, in the form and substance satisfactory to the Agent and
the Administrative Agent, a completed Additional Advance Certificate as of a
Cycle Date that is not earlier than the fifth Business Day prior to the date of
such Advance, together with such additional information as may be reasonably
requested by the Administrative Agent or the Agent; and the Debtor shall be
deemed to have represented and warranted that such conditions precedent have
been satisfied.
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ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1 Conditions to Closing. On or prior to the date of
execution hereof, the Debtor shall deliver to the Agent the following documents,
instruments and fees all of which shall be in a form and substance acceptable to
the Agent:
(a) A copy of the resolutions of the Board of Directors
of the Debtor, certified by its Secretary or Assistant Secretary, approving the
execution, delivery and performance by the Debtor of this Agreement, the
Receivables Purchase Agreement and the other Transaction Documents to be
delivered by the Debtor hereunder or thereunder.
(b) A copy of the resolutions of the Board of Directors
of each Designated Seller and the Servicer certified by its Secretary or
Assistant Secretary approving the execution, delivery and performance by such
Person of this Agreement, the Receivables Purchase Agreement and the other
Transactions Documents to be delivered by such Person hereunder or thereunder.
(c) The Articles or Certificate of Incorporation of the
Debtor certified by the Secretary of State or other similar official of the
Debtor's jurisdiction of incorporation dated a date reasonably prior to the
Closing Date.
(d) The Articles or Certificate of Incorporation of each
Designated Seller and the Servicer certified by the Secretary of State or other
similar official of such Person's jurisdiction of incorporation dated a date
reasonably prior to the Closing Date.
(e) A Good Standing Certificate for the Debtor issued by
the Secretary of State or a similar official of the Debtor's jurisdiction of
incorporation and certificates of qualification as a foreign corporation issued
by the Secretaries of State or other similar officials of each jurisdiction
where such qualification is material to the transactions contemplated by this
Agreement and the other Transaction
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Documents, in each case, dated a date reasonably prior to the Closing Date.
(f) A Good Standing Certificate for each Designated
Seller and the Servicer issued by the Secretary of State or a similar official
of the Servicer's jurisdiction of incorporation and certificates of
qualification as a foreign corporation issued by the Secretaries of State or
other similar officials of each jurisdiction when such qualification is
material to the transactions contemplated by this Agreement and the other
Transaction Documents, in each case, dated a date reasonably prior to the
Closing Date.
(g) A Certificate of the Secretary or Assistant Secretary
of the Debtor, each Designated Seller and the Servicer substantially in the form
of Exhibit L attached hereto.
(h) Copies of proper financing statements (Form UCC-1),
dated a date reasonably near to the date of the initial Advance naming the
Debtor as the debtor in favor of the Agent, for the benefit of the Company and
the Bank Investors, as secured party or other similar instruments or documents
as may be necessary or in the reasonable opinion of the Agent desirable under
the UCC of all appropriate jurisdictions or any comparable law to perfect the
Agent's first priority perfected security interest in all Receivables and the
Related Security and Collections relating thereto.
(i) Copies of proper financing statements (Form UCC-1),
dated a date reasonably near to the date of the initial Advance naming each
Designated Seller as the debtor in favor of the Debtor as secured party and the
Agent, for the benefit of the Company and the Bank Investors, as assignee of the
secured party or other similar instruments or documents as may be necessary or
in the reasonable opinion of the Agent desirable under the UCC of all
appropriate jurisdictions or any comparable law to perfect the Debtor's
ownership interest in all Receivables.
(j) Copies of proper financing statements (Form UCC-3),
if any, necessary to terminate all security interests and other rights of any
person in Receivables
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granted by the Debtor, any Designated Seller, Belk Funding LLC or any Merged
Entity.
(k) Certified copies of request for information or copies
(Form UCC-11) (or a similar search report certified by parties acceptable to the
Agent) dated a date reasonably near the date of the initial Advance listing all
effective financing statements which name the Debtor, any Designated Seller or
any Merged Entity, except with respect to any Merged Entity that has not owned,
originated, or had an interest in any account receivable since January 1, 1998
(under their respective present names and any names they have had since January
1, 1998) as debtor and which are filed in jurisdictions in which the filings
were made pursuant to items (h) or (i) above together with copies of such
financing statements (none of which shall cover any Receivables or Contracts).
(l) Executed copies of the Servicer Account Agreements
relating to each of the Servicer Account Banks and the Servicer Accounts.
(m) Opinions of Smith Helms Mulliss & Moore, L.L.P.,
special counsel to the Debtor, the Designated Sellers and the Servicer and
Luther T. Moore, Senior Vice President and Assistant General Counsel of Belk
Stores Services, Inc., as counsel to the Debtor and the Servicer, together
covering the matters set forth in Exhibit K hereto, in form and substance
satisfactory to the Agent and Agent's counsel.
(o) An opinion or opinions of King & Spalding, special
counsel to the Debtor, or of Luther T. Moore, Senior Vice President and
Assistant General Counsel of Belk Stores Services, Inc., to the effect that the
merger of the Merged Entities into Belk, Inc. has become effective under the
laws of the State of Delaware and that as a result of such merger Belk, Inc. has
the same right, title and interest in and to all property, including accounts
receivable, of the Merged Entities as the Merged Entities had in such property
before being merged into Belk, Inc.
(p) A computer tape setting forth as of the Cut-Off Date
all Receivables and the Outstanding
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Principal Balances thereon and such other information as the Agent may
reasonably request.
(q) An executed copy of this Agreement, the Receivables
Purchase Agreement, the Fee Letter and each of the other Transaction Documents
to be executed by the Servicer, the Designated Sellers or the Debtor.
(r) The Note, duly executed by the Debtor.
(s) The Arrangement Fee in accordance with
Section 2.7(b).
(t) A Servicer Report for May 30, 1998.
(u) An executed copy of the Post Office Box Agreements.
(v) Such other documents, instruments, certificates and
opinions as the Agent or the Administrative Agent, shall reasonably request.
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ARTICLE V
COVENANTS
Section 5.1 Affirmative Covenants of Debtor. At all times from the
date hereof to the later to occur of (i) the Termination Date or (ii) the date
on which the Net Investment and all other Aggregate Unpaids have been paid in
full, in cash, unless the Agent shall otherwise consent in writing:
(a) Financial Reporting. The Debtor will and will cause
each Designated Seller and each of the Designated Sellers' Subsidiaries to,
maintain, for itself and each of its respective Subsidiaries, a system of
accounting established and administered substantially in accordance with GAAP,
and furnish to the Agent:
(i) Annual Reporting. (A) Within 150 days after
the close of the Debtor's and Belk Center's fiscal years, (be ginning with
the fiscal year ending in 1998) company prepared financial statements, (x)
prepared substantially in accordance with GAAP for the Debtor and (y)
prepared on a consolidated basis, substantially as currently prepared, for
Belk Center and its Subsidiaries, in each case, including balance sheets as
of the end of such period, related statements of operations, shareholder's
equity and cash flows, or (B) within ten (10) days of the delivery of the
Debtor's Form 10-K Annual Report to the Securities and Exchange Commission,
a copy of such report, in either case certified by an officer of the Debtor
as accurate accompanied by a certificate of the Chief Financial Officer of
the Debtor stating that the Debtor is in compliance with Section 5.4 of
this Agreement and stating that no Termination Event or Potential
Termination Event exists, or if any Termination Event or Potential
Termination Event exists, stating the nature and status thereof; provided,
that if such annual report does not include the financial statements of
Belk Center, the Debtor
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shall furnish to the Agent the information specified in Section
5.1(a)(i)(A)(y).
(ii) Quarterly Reporting. (A) Within forty-five
(45) days after the close of the first three quarterly periods of the
Debtor's fiscal year, consolidated unaudited balance sheets of the Debtor
and its Subsidiaries as at the close of each such period and consolidated
related statements of operations, shareholder's equity and cash flows for
the period from the beginning of such fiscal year to the end of such
quarter, or (B) within ten (10) days of the delivery of the Debtor's Form
10-Q Quarterly Report to the Securities and Exchange Commission, a copy of
such report, in either case certified by the Debtor's chief financial
officer.
(iii) Notice of Termination Events or Potential
Termination Events. As soon as possible and in any event within two (2)
Business Days after the Debtor has actual knowledge of the occurrence of
each Termination Event or each Potential Termination Event, a statement of
the Chief Financial Officer of the Debtor setting forth details of such
Termination Event or Potential Termination Event, and within five (5)
Business Days after such notice, an additional notice detailing the action
which the Debtor proposes to take with respect thereto.
(iv) Change in Credit Guidelines and Debt
Ratings. Within ten (10) days after the date any material change in or
amendment to the Credit Guidelines is made, a copy of the Credit Guidelines
then in effect indicating such change or amendment. Within five (5)
Business Days after the date of any change in the Debtor's or any
Designated Seller's public or private debt ratings from Moody's, S&P, Fitch
IBCA, Inc. or Duff & Phelps Credit Rating Co., if any, a written
certification of the Debtor's or any Designated Seller's public and private
debt ratings after giving effect to any such change.
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(v) Credit Guidelines. Promptly upon the request
of the Agent, a complete copy of the Credit Guidelines then in effect.
(vi) ERISA. Promptly after the filing or
receiving thereof, copies of all reports and notices with respect to any
Report able Event (as defined in Article IV of ERISA) which the Debtor, any
Designated Seller or any ERISA Affiliate of the Debtor or any Designated
Seller files under ERISA with the Internal Revenue Service, the Pension
Benefit Guaranty Corporation or the U.S. Department of Labor or which the
Debtor, any Designated Seller or any ERISA Affiliate of the Debtor receives
from the Internal Revenue Service, the Pension Benefit Guaranty Corporation
or the U.S. Department of Labor.
(vii) Other Information. Such other information
(including non-financial information) as the Agent or the Administrative
Agent may from time to time reasonably request with respect to the Debtor,
any Designated Seller or any Subsidiary of either of them.
(b) Conduct of Business. The Debtor will carry on and
conduct its business in substantially the same manner and in substantially the
same fields of enterprise as it is presently conducted and do all things
necessary to remain duly incorporated or organized, validly existing and in good
standing as a domestic corporation in its jurisdiction of incorporation and
maintain all requisite authority to conduct its business in each jurisdiction in
which its business is conducted.
(c) Compliance with Laws. The Debtor will comply with
all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or
awards to which it or its respective properties may be subject except where the
failure to comply would not have a Material Adverse Effect.
(d) Furnishing of Information and Inspection of Records.
The Debtor will, and will cause
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each Designated Seller to, furnish to the Agent from time to time such
information with respect to the Receivables as the Agent may reasonably request.
The Debtor will, at any time and from time to time during regular business hours
permit the Agent, or its agents or representatives, (i) to examine and make
copies of and take abstracts from all Records and (ii) to visit the offices and
properties of the Debtor or such Designated Seller for the purpose of examining
such Records, and to discuss matters relating to Receivables or the Debtor's or
such Designated Seller's performance hereunder and under the other Transaction
Documents to which the Debtor or such Designated Seller is a party with any of
the officers, directors, employees or independent public accountants of the
Debtor or such Designated Seller, as applicable, having knowledge of such
matters.
(e) Keeping of Records and Books of Account. The Debtor
will maintain and implement administrative and operating procedures (including,
without limitation, an ability to recreate records evidencing Receivables in the
event of the destruction of the originals thereof), and keep and maintain, all
documents, books, records and other information reasonably necessary or
advisable for the collection of all Receivables (including, without limitation,
records adequate to permit the identification as of each Cycle Date of each new
Receivable and all Collections of and adjustments to each existing Receivable).
The Debtor will give the Agent notice of any material change in the
administrative and operating procedures of the Debtor referred to in the
previous sentence.
(f) Performance and Compliance with Accounts. The Debtor,
at its expense, will, or will cause a Designated Seller to, timely and fully
perform and comply with all material provisions, covenants and other promises
required to be observed by the Debtor or the Designated Sellers under the
Accounts related to the Receivables.
(g) Credit Guidelines. The Debtor will comply in all
material respects with the Credit Guide lines in regard to each Receivable and
the related Account.
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(h) Collections. The Debtor shall direct all Obligors to
cause all Collections to be mailed directly to a Post Office Box or delivered to
retail store locations owned by the Debtor or a Designated Seller.
(i) Collections Received. The Debtor shall hold in
trust, and remit, immediately, but in any event not later than three (3)
Business Days of its receipt thereof, to the Servicer all Collections received
from time to time by the Debtor.
(j) Inventory Financings. The Debtor shall, and will
cause each Designated Seller to, specifically exclude from the property subject
to any Adverse Claim granted on inventory any and all accounts receivable
generated by sales of such inventory and the proceeds thereof, and shall provide
evidence, in each case satisfactory to the Agent, that any and all accounts
receivable generated by sales of such inventory and the proceeds thereof shall
have been excluded from any such Adverse Claims.
Section 5.2 Negative Covenants of the Debtor. During the term of this
Agreement, unless the Agent shall otherwise consent in writing:
(a) No Sales, Liens, Etc. Except as otherwise provided
herein, the Debtor will not sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create or suffer to exist any Adverse Claim upon (or
the filing of any financing statement) or with respect to (x) any of the
Affected Assets, (y) any goods, the sale of which may give rise to a Receivable
or any Receivable or related Account, or (z) any account which concentrates in a
Servicer Account Bank to which any Collections of any Receivables are sent
(other than such Servicer Account Bank's rights of set-off with respect to fees,
expenses and NSF charges related to such account), or assign any right to
receive income in respect thereof. Except as otherwise provided herein, the
Debtor will not sell, assign (by operation of law or otherwise) or otherwise
dispose of or create any Adverse Claim upon (or the filing of any financing
statement) or with respect to any account which contains proceeds of
Receivables, or assign any right to receive income in respect thereof.
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(b) No Extension or Amendment of Receivables. Except as
otherwise permitted in this Section 5.2, 5.3 and in Section 6.2 hereof, the
Debtor will not extend, amend or otherwise modify the terms of any Receivable,
or amend, modify or waive any term or condition of any Account related thereto.
The Debtor shall not take any action to permit the reduction of the amount due
under any Receivable as a result of any discount, credit, rebate, dispute,
repossessed or returned goods, chargeback allowance or billing adjustment except
with the prior written consent of the Agent or except in accordance with the
Credit Guidelines or the credit guidelines of the Debtor or a Designated Seller.
(c) Performance of Account Agreements. The Debtor shall
not fail to comply with and perform its obligations under the applicable Account
Agreements relating to the Accounts and the Credit Guidelines except insofar as
any such failure to comply or perform would not materially and adversely affect
the rights of the Company, the Agent, or any Bank Investor in the Receivables or
the collectibility of the Receivables. The Debtor shall not change the terms and
provisions of the Account Agreements or the Credit Guidelines in any respect
(including, without limitation, the calculation of the amount, and the timing,
of uncollectible Receivables) except to the extent (a) such change is made
applicable to the comparable segment of the consumer revolving credit accounts
owned and serviced by the Debtor or a Designated Seller that have
characteristics the same as, or substantially similar to, the Accounts that are
the subject of such change or (b) if it does not own such a comparable segment,
it will not make any such change with the intent to materially benefit itself
over the Company, the Agent, or any Bank Investor, and such change does not
materially and adversely affect the rights of the Company, the Agent or any Bank
Investor in the Receivables or the collectibility of the Receivables. References
to the Receivables in this paragraph shall be deemed to refer to the Receivables
in the aggregate.
(d) No Change in Business or Credit Guidelines. The
Debtor will not make any change in the character of its business or in the
Credit Guidelines, which change would, in either case, impair the
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collectibility of any Receivable or otherwise result in a Material Adverse
Effect.
(e) No Mergers, Etc. The Debtor will not (i) consolidate
or merge with or into any other Person or (ii) sell, lease or transfer all or
substantially all of its assets to any other Person; provided, however, that the
Debtor may merge with another person if (w) such Person is a Subsidiary of the
Debtor, (x) the Debtor is the corporation surviving such merger, and (y)
immediately after and giving effect to such merger, no Termination Event or
Potential Termination Event shall have occurred and be continuing.
(f) Change in Payment Directions to Obligors. The Debtor
will not make any change in its directions to Obligors regarding payments to be
made to a Post Office Box, unless (i) such directions are to deposit such
payments to another Post Office Box or to retail store locations owned by the
Debtor or any Designated Seller, and (ii) the Agent shall have received written
notice of such change at least thirty (30) days prior thereto and the Agent
shall have received a Post Office Box Agreement with respect to the new Post
Office Box.
(g) Deposits to Servicer Accounts. The Debtor will not
deposit or otherwise credit, or cause or permit to be so deposited or credited,
to any Servicer Account cash or cash proceeds other than Collections of
Receivables.
(h) Change of Name, Etc. The Debtor will not change its
name, identity or structure or the location of its chief executive office,
unless at least 10 days prior to the effective date of any such change the
Debtor delivers to the Agent (i) such documents, instruments or agreements,
executed by the Debtor or a Designated Seller, as applicable, as are necessary
to reflect such change and to continue the perfection of the Agent's security
interests in the Affected Assets, and (ii) new or revised Servicer Account
Agreements executed by the Servicer Account Banks and new revised Post Office
Box Agreements with respect to the Post Office Boxes which reflect such change
and enable the Agent to continue to exercise its rights contained in Section 2.8
hereof.
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(i) Amendment to Receivables Purchase Agreements. The
Debtor will not amend, waive, modify, or supplement any Receivables Purchase
Agreement, except with the prior written consent of the Agent and the
Administrative Agent; nor shall the Debtor take, or permit any Designated Seller
to take, any other action under any Receivables Purchase Agreement that shall
have a material adverse affect on the Agent, the Company or any Bank Investor or
which violates the terms of this Agreement.
(j) ERISA Matters. The Debtor will not, and will not
permit any Designated Seller to, (i) engage or permit any of its respective
ERISA Affiliates to engage in any prohibited transaction (as defined in Section
4975 of the Code and Section 406 of ERISA) for which an exemption is not
available or has not previously been obtained from the U.S. Department of Labor;
(ii) permit to exist any accumulated funding deficiency (as defined in Section
302(a) of ERISA and Section 412(a) of the Code) or funding deficiency with
respect to any Benefit Plan other than a Multiemployer Plan; (iii) fail to make
any payments to any Multiemployer Plan that the Debtor, any Designated Seller or
any ERISA Affiliate of the Debtor or such Designated Seller is required to make
under the agreement relating to such Multiemployer Plan or any law pertaining
thereto; (iv) terminate any Benefit Plan so as to result in any liability; or
(v) permit to exist any occurrence of any reportable event described in Title IV
of ERISA which represents a material risk of a liability to the Debtor, such
Designated Seller or any ERISA Affiliate of the Debtor or such Designated Seller
under ERISA or the Code.
Section 5.3 Covenants of the Servicer. At all times from the date
hereof to the later to occur of (i) the Termination Date or (ii) the date on
which the Net Investment and all other Aggregate Unpaids have been paid in full,
in cash, the Servicer covenants that, unless the Agent shall otherwise consent
in writing:
(a) Compliance with Requirements of Law. The Servicer
shall duly satisfy its obligations in all material respects on its part to be
fulfilled under or in connection with each Receivable and the related Account,
will maintain in effect all material qualifications
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required under Requirements of Law in order to service properly each Receivable
and the related Account and will comply in all material respects with all other
Requirements of Law in connection with servicing each Receivable and the related
Account the failure to comply with which would have a material adverse effect on
the Company.
(b) No Rescission or Cancellation. The Servicer shall
not permit any rescission or cancellation of a Receivable except as ordered by a
court of competent jurisdiction or other Governmental Authority or in the
ordinary course of its business and in accordance with the Credit Guidelines.
(c) Protection of Company's Rights. Except as otherwise
permitted by Sections 5.2 and 6.2 hereof and this Section 5.3, the Servicer
shall take no action, nor omit to take any action, which would impair the rights
of the Company in any Receivable or the related Account.
(d) All Consents Required. All approvals,
authorizations, consents, orders or other actions of any Person or of any
governmental body or official required in connection with the execution and
delivery by the Servicer of this Agreement, the performance by the Servicer of
the transactions contemplated by this Agreement and the fulfillment by the
Servicer of the terms hereof, have been obtained.
(e) Custodian. The Servicer will, at its own cost and
expense, (i) maintain the books and records with respect to the Accounts and the
Receivables and copies of all documents relating to each Account as custodian
for the Company and (ii) clearly and unambiguously mark such books and records
that indicate the Receivables have been pledged to the Company and
simultaneously assigned to the Agent, for benefit of the Company and the Bank
Investors, pursuant to this Agreement.
(f) No Extension or Amendment of Receivables. Except as
otherwise permitted in Sections 5.2, 6.2 and this Section 5.3, the Servicer will
not extend, amend or otherwise modify the terms of any Receivable, or amend,
modify or waive any term or
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condition of any Account related thereto except as ordered by a court of
competent jurisdiction or other Governmental Authority or in the ordinary course
of its business and in accordance with the Credit Guidelines.
(g) No Change in Business. The Servicer will not make
any change in the character of its business which would impair the
collectibility of the Receivables taken as a whole or otherwise result in a
Material Adverse Effect. The Servicer shall not reduce the amount due under any
Receivable as a result of any discount, credit, rebate, dispute, repossessed or
returned goods, chargeback allowance or billing adjustment except in accordance
with the Credit Guidelines.
(h) No Mergers, Etc. The Servicer will not (i)
consolidate or merge with or into any other Person, or (ii) sell, lease or
transfer all or substantially all of its assets to any other Person; provided
that the Servicer may consolidate with or merge into Belk Store Services, Inc.,
the Debtor or a Subsidiary of the Debtor.
(i) Change in Payment Directions to Obligors. The
Servicer will not make any change in the directions to Obligors regarding
payments to be made to a Post Office Box or to retail store locations owned by
the Debtor or any Designated Seller unless (i) such directions are to deposit
such payments to another Post Office Box or to retail store locations owned by
the Debtor or any Designated Seller, and (ii) the Agent shall have received
written notice of such change at least thirty (30) days prior thereto and the
Agent shall have received a Post Office Box Agreement with respect to the new
Post Office Box.
(j) Deposits to Servicer Account, Debtor Account and
Collection Account. The Servicer will not deposit or otherwise credit, or cause
or permit to be so deposited or credited, to any Servicer Account cash or cash
proceeds other than Collections of Receivables. The Servicer shall require the
Debtor and each Designated Seller to remit to the Servicer all Collections
received by the Debtor or such Designated Seller promptly, but in any event
within three (3) Business Days or, alternatively, the Servicer may in the
ordinary course of its servicing activities as of each Cycle Date net any such
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amounts due from the Debtor or a Designated Seller against amounts due from the
Servicer to the Debtor or such Designated Seller, and any such amounts so netted
shall be included as Collections on any reports or certificates delivered
hereunder by the Servicer. Any Collections received by the Servicer from the
Debtor or a Designated Seller shall be deposited promptly, but in any event
within two (2) Business Days of receipt, in a Servicer Account. The Servicer
shall deposit all Collections into the Debtor Account or, if required by the
this Agreement, into the Collection Account, within ten (10) days of the initial
receipt of such Collections by the Servicer, the Debtor or any Designated
Seller.
Section 5.4 Financial Covenants of Debtor.
(a) The Debtor shall not permit the Fixed Charge Coverage
Ratio for the consecutive three-quarter period of the Debtor ending on January
30, 1999, or for any consecutive four-quarter period of the Debtor ending on a
date after January 30, 1999, to be less than 1.5 to 1.0.
(b) The Debtor shall not permit, the Leverage Ratio for
the consecutive three-quarter period of the Debtor ending on January 30, 1999,
or for any consecutive four-quarter period of the Debtor ending on a date after
January 30, 1999, to be equal to or greater than 3.00 to 1.00.
(c) Capitalized terms used herein and not otherwise
defined are used is defined in Exhibit P hereto.
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ARTICLE VI
ADMINISTRATION AND COLLECTIONS
Section 6.1 Appointment of Servicer. The servicing, administering and
collection of the Receivables shall be conducted by such Person so designated
from time to time in accordance with this Section 6.1 (the "Servicer"). Until
the Company gives notice to Belk Center of the designation of a new Servicer,
Belk Center is hereby designated as, and hereby agrees to perform the duties and
obligations of, the Servicer pursuant to the terms hereof. The Servicer may not
delegate any of its rights, duties or obligations hereunder, or designate a
substitute Servicer, without the prior written consent of the Agent, and
provided that the Servicer shall continue to remain solely liable for the
performance of the duties as Servicer hereunder notwithstanding any such
delegation hereunder. The Agent may, and upon the direction of the Majority
Investors the Agent shall, after the occurrence of a Servicer Default or any
other Termination Event (other than an event described in either Section 7.1(o)
or 7.1(p)) designate as Servicer any Person (including itself) to succeed Belk
Center or any successor Servicer, on the condition in each case that any such
Person so designated shall agree to perform the duties and obligations of the
Servicer pursuant to the terms hereof. The Agent may notify any Obligor of its
interest in the Receivables.
Section 6.2 Duties of Servicer.
(a) The Servicer shall take or cause to be taken all such
action as may be necessary or advisable to collect each Receivable from time to
time, all in accordance with applicable laws, rules and regulations, with
reasonable care and diligence, and in accordance with the Credit Guidelines.
Each of the Debtor, the Designated Sellers, the Company, the Agent and the Bank
Investors hereby appoints as its agent the Servicer, from time to time
designated pursuant to Section 6.1 hereof, to enforce its respective rights and
interests in and under the Affected Assets. To the extent permitted by
applicable law, the Debtor and each Designated Seller (to the extent not then
acting as Servicer hereunder) hereby grants to any Servicer appointed hereunder
an irrevocable power of attorney to take any and all steps in the
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Debtor's and/or the applicable Designated Seller's name and on behalf of the
Debtor or the applicable Designated Seller necessary or desirable, in the
reasonable determination of the Servicer, to collect all amounts due under any
and all Receivables, including, without limitation, endorsing the Debtor's
and/or the applicable Designated Seller's name on checks and other instruments
representing Collections and enforcing such Receivables and the related
Accounts. The Servicer shall set aside for the account of the Debtor and the
Company their respective allocable shares of the Collections of Receivables in
accordance with Sections 2.5 and 2.6 hereof. The Servicer shall segregate and
deposit to the Agent's account the Company's allocable share of Collections of
Receivables when required pursuant to Article II hereof. The Debtor shall
deliver to the Servicer and the Servicer shall hold in trust for the Debtor, the
Company, the Agent and the Bank Investors, in accordance with their respective
interests, all Records which evidence or relate to Receivables or Related
Security. Notwithstanding anything to the contrary contained herein, upon and
during the continuance of a Servicer Default or Termination Event, the Agent
shall have the absolute and unlimited right to direct the Servicer (whether the
Servicer is Belk Center or any other Person) to commence or settle any legal
action to enforce collection of any Receivable or to foreclose upon or repossess
any Related Security. The Servicer shall not make the Agent, the Company or any
of the Bank Investors a party to any litigation without the prior written
consent of such Person.
(b) The Servicer shall, as soon as practicable following
receipt thereof, turn over to the Debtor any collections of any indebtedness of
any Person which is not on account of a Receivable. If the Servicer is not the
Debtor or an Affiliate of the Debtor, the Servicer, by giving three Business
Days' prior written notice to the Agent, may revise the percentage used to
calculate the Servicing Fee so long as the revised percentage will not result
in a Servicing Fee that exceeds 110% of the reasonable and appropriate
out-of-pocket costs and expenses of such Servicer incurred in connection with
the performance of its obligations hereunder as documented to the reasonable
satisfaction of the Agent, provided, however, that at any time after the
Noteholder's Percentage equals or exceeds 100%, any
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compensation to the Servicer in excess of the Servicing Fee initially provided
for herein shall be an obligation of the Debtor and shall not be payable, in
whole or in part, from Collections allocated to the Company or the Bank
Investors, as applicable. The Servicer, if other than the Debtor or an Affiliate
of the Debtor, shall as soon as practicable upon demand, deliver to the Debtor
all Records in its possession which evidence or relate to indebtedness of an
Obligor which is not a Receivable.
(c) On or before 120 days after the end of each fiscal
year of the Servicer, beginning with the fiscal year ending January 30, 1999,
the Servicer shall cause a firm of independent public accountants (who may also
render other services to the Servicer, the Debtor, the Designated Sellers or any
Affiliates of any of the foregoing) or another qualified party designated by the
Agent to furnish a report to the Agent to the effect that they have compared the
information contained in the Servicer Reports delivered during such fiscal year
then ended with the information contained in the Accounts and the Servicer's
records and computer systems for such period, and that, on the basis of such
examination and comparison, such firm is of the opinion that the information
contained in the Servicer Reports reconciles with the information contained in
the Accounts and the Servicer's records and computer system and that the
servicing of the Receivables has been conducted in compliance with this
Agreement.
(d) Notwithstanding anything to the contrary contained in
this Article VI, the Servicer, if not the Debtor or any Affiliate of the Debtor,
shall have no obligation to collect, enforce or take any other action described
in this Article VI with respect to any indebtedness that does not relate to the
Affected Assets other than to deliver to the Debtor the collections and
documents with respect to any such indebtedness as described in Section 6.2(b)
hereof.
(e) In consideration of acting as Servicer hereunder, the
Servicer shall be entitled to retain from Collections received by it on any day
all late fees, NSF or returned check charges and all other similar charges and
fees received by it. To the extent that they constitute part of Collections, the
Servicer shall account for such amounts received and retained by
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it in respect of a Collection Period on each related Servicer Report delivered
by it hereunder.
Section 6.3 Rights After Designation of New Servicer. At any time
following the designation of a new Servicer (other than the Debtor or any
Affiliate of the Debtor) pursuant to Section 6.1 hereof:
(i) The Debtor shall, at the Agent's request,
(A) assemble all of the Re cords, and shall make the same available to the
Agent or its designee at a place selected by the Agent or its designee, and
(B) segregate all cash, checks and other instruments (in each case known to
the Debtor to represent payment on Receivables and not other indebtedness)
received by it from time to time to the extent constituting Collections of
Receivables in a manner acceptable to the Agent and shall, promptly upon
receipt, remit all such cash (including proceeds of collected checks
representing payments in respect of Receivables if such checks represented
payments on Receivables and other indebtedness), checks and instruments (in
each case known to the Debtor to represent payment on Receivables and not
other indebtedness), duly endorsed or with duly executed instruments of
transfer, to the Agent or its designee.
(ii) The Debtor and each Designated Seller hereby
authorize the Agent to take any and all steps in the Debtor's or such
Designated Seller's name and on behalf of the Debtor and such Designated
Seller necessary or desirable, in the determination of the Agent, to
collect all amounts due under any and all Receivables, including, without
limitation, endorsing the Debtor's or such Designated Seller's name on
checks and other instruments representing Collections and enforcing such
Receivables and the related Accounts.
Section 6.4 Servicer Default. The occurrence of any one or more of the
following events shall constitute a Servicer Default:
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(a) the Servicer or, to the extent that the Debtor or any
Affiliate of the Debtor is then acting as Servicer, the Debtor or such
Affiliate, as applicable, shall fail (i) to observe or perform any term,
covenant or agreement hereunder (other than as referred to in clauses (ii) or
(iii) of this Section 6.4(a)) or under any of the other Transaction Documents to
which such Person is a party or by which such Person is bound, and such failure
shall remain unremedied for fifteen (15) days from the date the Debtor, the
Servicer or any Affiliate of either had actual knowledge of such failure or
(ii) to make any payment or deposit required to be made by it hereunder when
due, provided, however, that if such failure is not the result of factors under
the Servicer's control, then such failure should have continued unremedied for
one (1) Business Day, or (iii) to observe or perform any term, covenant or
agreement under Sections 5.3(b), 5.3(f) or 5.4(g); or
(b) any representation, warranty, certification or
statement made by the Servicer or the Debtor or any Affiliate of the Debtor (in
the event that the Debtor or such Affiliate is then acting as the Servicer) in
this Agreement or in any of the other Transaction Documents or in any
certificate or report delivered by it pursuant to any of the foregoing shall
prove to have been incorrect in any material respect when made or deemed made;
or
(c) failure of the Servicer or any of its Subsidiaries to
pay when due any amounts due under any agreement under which any Indebtedness
greater than $1,000,000 is governed; or the default by the Servicer or any of
its Subsidiaries in the performance of any term, provision or condition
contained in any agreement under which any Indebtedness greater than $1,000,000
was created or is governed, if such default permits the creditor to accelerate
such Indebtedness; or any Indebtedness of the Servicer or any of its
Subsidiaries greater than $1,000,000 shall be declared to be due and payable or
required to be prepaid (other than by a regularly scheduled payment) prior to
the scheduled date of maturity thereof; or
(d) any Event of Bankruptcy shall occur with respect to
the Servicer or any of its Subsidiaries; or
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(e) there shall have occurred any material adverse change
in the operations of the Servicer since the end of the last fiscal year ending
prior to the date of its appointment as Servicer hereunder or any other event
shall have occurred which, in the commercially reasonable judgment of the
Agent, materially and adversely affects the Servicer's ability to either collect
the Receivables or to perform under this Agreement.
Section 6.5 Responsibilities of the Debtor and the Designated Sellers.
Anything herein to the contrary notwithstanding, the Debtor shall, and/or shall
cause each Designated Seller to, (i) perform all of the Debtor's or such
Designated Seller's obligations under the Accounts related to the Receivables to
the same extent as if interests in such Receivables had not been sold pursuant
to the Receivables Purchase Agreement and had not been pledged hereunder and the
exercise by the Agent, the Company and the Bank Investors of their rights
hereunder and under the Receivables Purchase Agreement shall not relieve the
Debtor or any Designated Seller from such obligations and (ii) pay when due any
taxes, including without limitation, any sales taxes payable in connection with
the Receivables and their creation and satisfaction. Neither the Agent, the
Company nor any of the Bank Investors shall have any obligation or liability
with respect to any Receivable or related Accounts, nor shall it be obligated to
perform any of the obligations of the Debtor or any Designated Seller
thereunder.
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ARTICLE VII
TERMINATION EVENTS
Section 7.1 Termination Events. The occurrence of any one or
more of the following events shall constitute a Termination Event:
(a) the Debtor, any Designated Seller or the
Servicer shall fail to make any payment or deposit to be made by it hereunder or
under the Receivables Purchase Agreement when due hereunder or thereunder,
provided, however, that if such failure is not the result of the factors within
the Debtor's, a Designated Seller's or the Servicer's, as applicable, control,
such failure shall have continued unremedied for one (1) Business Day, provided
further, that in the case of any fees payable pursuant to Section 2.7 hereof,
such fee shall not be paid within one (1) Business Day of the date when due; or
(b) any representation, warranty, certification or
statement made by the Debtor in this Agreement, any other Transaction Document
to which it is a party or in any other document delivered pursuant hereto or
thereto shall prove to have been incorrect in any material respect when made or
deemed made, provided, however, that in the case of any breach of the
representation set forth in Section 3.1(l) hereof which does not have a material
adverse effect on the Agent's security interest in the Affected Assets taken as
a whole, such breach shall not constitute a Termination Event if the Debtor
shall have made any payment required as a result thereof pursuant to Section
2.9(b) hereof; or
(c) the Debtor, or the Servicer shall default in the
performance of any covenant or undertaking (other than those covered by clause
(a) above) (i) to be performed or observed under Sections 5.1(a)(iii),
5.1(a)(iv), 5.1(c), 5.1(f), 5.1(g), 5.2(a)(x), 5.2(c), 5.2(d) or 5.2(e) or (ii)
to be performed or observed under any other provision hereof and such default in
the case of this clause (ii) shall continue for twenty (20) days after the
earlier of the date the Agent gave notice of such default to the Debtor or the
Servicer, as applicable, and the date on which the Debtor or the Servicer had
knowledge of such default; or
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(d) any material adverse change in the operations of
the Servicer or any other event which materially affects the Servicer's ability
to either collect the Receivables or perform its obligations under this
Agreement; or
(e) any Event of Bankruptcy shall occur with respect
to the Debtor, any Designated Seller or the Servicer; or
(f) the Agent, on behalf of the Company and/or the
Bank Investors, shall, for any reason, fail or cease to have a valid and
perfected first priority security interest in the Affected Assets free and
clear of any Adverse Claims; or
(g) a Servicer Default shall have occurred; or
(h) the Receivables Purchase Agreement shall have
terminated without the prior written consent of the Agent (not to be
unreasonably withheld); or
(i) subject to Sections 5.2(e) and 5.3(h), the
Debtor, any Designated Seller or the Servicer shall enter into any transaction
or merger whereby it is not the surviving entity, provided that any Designated
Seller may merge with another Designated Seller; or
(j) (i) the Debtor's Percentage is less than the
Minimum Debtor's Percentage as of the last day of any two consecutive
Collection Periods, (ii) the Noteholder's Percentage equals or exceeds 100% at
any time; or (iii) the Net Investment plus the aggregate Interest Component of
all outstanding Related Commercial Paper shall exceed the Facility Limit for
more than two (2) consecutive Business Days after the Debtor had knowledge of
such occurrence; or
(k) the Payment Rate averaged for any three
consecutive Collection Periods is less than 16.00%; or
(l) the Net Portfolio Yield averaged for any three
consecutive Collection Periods is less than 1.00%; or
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(m) the Delinquency Ratio averaged for any three
consecutive Collection Periods is greater than 7.50%; or
(n) the Default Ratio averaged for any three
consecutive Collection periods is greater than 8.00%; or
(o) the Liquidity Provider or the Credit
Support Provider shall have given notice that an event of default has occurred
and is continuing under any of its respective agreements with the Company; or
(p) the Commercial Paper issued by the
Company shall not be rated at least "A2" by Standard & Poor's and at least "P2"
by Moody's.
Section 7.2 Termination. (a) If a Termination Event shall
have occurred and be continuing, the Agent may, or at the direction of the
Majority Investors shall, by notice to the Debtor and the Servicer declare the
Termination Date to have occurred; provided, however, that in the case of any
event described in Section 7.1(e), 7.1(f), 7.1(j)(ii) or 7.1(j)(iii) above, the
Termination Date shall be deemed to have occurred automatically upon the
occurrence of such event. Upon any such declaration or automatic occurrence, the
Agent may, and shall at the direction of the Majority Investors, declare all the
Note and all amounts due under this Agreement to then be due and payable.
(b) At all times after the declaration or
automatic occurrence of the Termination Date pursuant to Section 7.2(a) other
than as a result of the occurrence of a Termination Event described in 7.1(o) or
7.1(p), the Carrying Costs may (at the option of the Agent) thereafter be
calculated on the basis of the Adjusted LIBOR Rate giving effect to a margin of
2.80% (as described in the definition of Adjusted LIBOR Rate) for all existing
and future funding periods.
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(c) If the Note is declared due and payable in
accordance with this Section, the Agent may, and shall at the direction of the
Majority Investors, do any one or more of the following:
(i) take all necessary action to foreclose upon the
Collateral;
(ii) retain in satisfaction of any amounts owing
from the Debtor all amounts otherwise payable to the Debtor pursuant
to this Agreement to the extent necessary to pay in full all amounts
(including principal and interest) due and payable under the Note and
this Agreement;
(iii) pursue any available
remedy by proceeding at law or in equity including complete or partial
foreclosure of the Lien upon the Collateral and sale of the Collateral
or any portion thereof or rights or interest therein as may appear
necessary or desirable (i) to collect amounts owed pursuant to the Note
and any other payments then due and thereafter to become due under the
Note or this Agreement or (ii) to enforce the performance and
observance of any obligation, covenant, agreement or provision
contained in this Agreement to be observed or performed by the Debtor;
or
(iv) exercise all other rights and remedies of a
secured party provided under the UCC of the applicable jurisdiction and
other applicable laws, all of which rights shall be cumulative.
Section 7.3 Proceeds. The proceeds from the sale, disposition
or liquidation of the Collateral pursuant to Section 7.2 above shall be applied
to cover all reasonable expenses of the Agent in connection with the Collateral
(including reasonable attorneys' fees and expenses) and then to the satisfaction
of all obligations of the Debtor under the Note or this Agreement, and any
remaining proceeds shall be remitted to the Debtor.
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ARTICLE VIII
INDEMNIFICATION; EXPENSES; RELATED MATTERS
Section 8.1 Indemnities by the Debtor. With out limiting any
other rights which the Agent, the Company or the Bank Investors may have
hereunder or under applicable law, the Debtor hereby agrees to indemnify the
Company, the Bank Investors, the Agent, the Administrative Agent, the
Collateral Agent, the Liquidity Provider and the Credit Support Provider and any
successors and permitted assigns and their respective officers, directors and
employees (collectively, "Indemnified Parties") from and against any and all
damages, losses, claims, liabilities, costs and expenses, including, without
limitation, reasonable attorneys' fees (which such attorneys may be employees
of the Liquidity Provider, the Credit Support Provider, the Agent, the
Administrative Agent or the Collateral Agent, as applicable) and disbursements
(all of the foregoing being collectively referred to as "Indemnified Amounts")
awarded against or incurred by any of them in any action or proceeding between
the Debtor, any Designated Seller or the Servicer and any of the Indemnified
Parties or between any of the Indemnified Parties and any third party arising
out of or as a result of this Agreement, the other Transaction Documents, the
maintenance, either directly or indirectly, by the Agent, the Company or any
Bank Investor of the Net Investment the security interest in the Affected Assets
or any of the other transactions contemplated hereby or thereby, or otherwise
arising out of or as a result of this Agreement, the other Transaction
Documents, the maintenance, either directly or indirectly, by the Agent, the
Company or any Bank Investor of the Net Investment the security interest in the
Affected Assets or any of the other transactions contemplated hereby or thereby
excluding, however, (i) Indemnified Amounts to the extent resulting from gross
negligence or willful misconduct on the part of an Indemnified Party or (ii)
recourse (except as otherwise specifically provided in this Agreement) for
uncollectible Receivables. Without limiting the generality of the foregoing,
subject to the qualifications contained in clauses (i) and (ii) above, the
Debtor shall indemnify each Indemnified Party for Indemnified Amounts relating
to or resulting from:
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(i) any representation or warranty made by the
Debtor or any Designated Seller or the Servicer or any officers of the
Debtor or any Designated Seller or the Servicer under or in connection
with this Agreement, the Receivables Purchase Agreement, any of the
other Transaction Documents, any Servicer Re port or any other
information or report delivered by the Debtor, which shall have been
false or incorrect in any material respect when made or deemed made;
(ii) the failure by the Debtor or the Servicer to
comply with any applicable law, rule or regulation with respect to any
Receivable or the related Account, or the nonconformity of any
Receivable or the related Account with any such applicable law, rule or
regulation;
(iii) the failure to create or maintain a valid and
perfected first priority security interest in favor of the Agent, for
the benefit of the Company and/or the Bank Investors, in the Debtor's
interest in the Affected Assets, free and clear of any Adverse Claim;
(iv) any dispute, claim, offset or defense (other
than discharge in bankruptcy) of the Obligor to the payment of any
Receivable (including, without limitation, a defense based on such
Receivable or the related Account not being the legal, valid and
binding obligation of such Obligor enforceable against it in accordance
with its terms), or any other claim resulting from the sale of
merchandise or services related to such Receivable or the furnishing
or failure to furnish such merchandise or services;
(v) any failure of the Servicer to perform its
duties or obligations in accordance with the provisions hereof; or
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(vi) any products liability claim or personal
injury or property damage suit or other similar or related claim or
action of whatever sort arising out of or in connection with
merchandise or services which are the subject of any Receivable;
(vii) the failure by the Debtor or any Designated
Seller or the Servicer to comply with any term, provision or covenant
contained in this Agreement or any of the other Transaction Documents
to which it is a party or to perform any of its respective duties under
the Accounts;
(viii) the Debtor's Percent age is less than the
Minimum Debtor's Percent age at any time;
(ix) the failure of the Debtor or any Designated
Seller to pay when due any taxes, including without limitation, sales,
excise or personal property taxes payable in connection with any of the
Receivables;
(x) any repayment by any Indemnified Party of any
amount previously distributed in reduction of Net Investment which such
Indemnified Party believes in good faith is required to be made;
(xi) the commingling by the Debtor or any
Designated Seller or the Servicer of Collections of Receivables at any
time with other funds;
(xii) any investigation, litigation or proceeding
related to this Agreement, any of the other Transaction Documents, the
use of proceeds of Advances by the Debtor or any Designated Seller, the
holding of Net Investment, or any Receivable, Related Security or
Account;
(xiii) the failure of any Servicer Account Bank to
remit any amounts held in the Servicer Accounts pursuant to the
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instructions of the Servicer, the Debtor, any Designated Seller or the
Agent (to the extent such Person is entitled to give such instructions
in accordance with the terms hereof and of any applicable Servicer
Account Agreement) whether by reason of the exercise of set-off rights
or otherwise;
(xiv) any inability to obtain any judgment in or
utilize the court or other adjudication system of, any state in which
an Obligor may be located as a result of the failure of the Debtor or
any Designated Seller to qualify to do business or file any notice of
business activity report or any similar report;
(xv) any action taken by the Debtor, any
Designated Seller or the Servicer in the enforcement or collection of
any Receivable;
provided, however, that if the Company enters into agreements for the purchase
of interests in receivables from one or more Other Transferors, the Company
shall allocate such Indemnified Amounts which are in connection with the
Liquidity Provider Agreement, the Credit Support Agreement or the credit
support furnished by the Credit Support Provider to the Debtor and each Other
Transferor; and provided, further, that if such Indemnified Amounts are
attributable to the Debtor, any Designated Seller or the Servicer and not
attributable to any Other Transferor, the Debtor shall be solely liable for
such Indemnified Amounts or if such Indemnified Amounts are attributable to
Other Transferors and not attributable to the Debtor, any Designated Seller or
the Servicer, such Other Transferors shall be solely liable for such Indemnified
Amounts.
Section 8.2 Indemnity for Taxes, Reserves and Expenses. (a) If
after the date hereof, the adoption of any Law or bank regulatory guideline or
any amendment or change in the interpretation of any existing or future Law or
bank regulatory guideline by any Official Body charged with the administration,
interpretation or application thereof, or the compliance with any directive
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of any Official Body (in the case of any bank regulatory guideline, whether or
not having the force of Law):
(i) shall subject any Indemnified Party to any tax,
duty or other charge (other than Excluded Taxes) with respect to this
Agreement, the other Transaction Documents, the maintenance of the Net
Investment, or payments of amounts due hereunder, or shall change the
basis of taxation of payments to any Indemnified Party of amounts
payable in respect of this Agreement, the other Transaction Documents,
or the maintenance of the Net Investment, or payments of amounts due
hereunder or its obligation to advance funds hereunder, under the
Liquidity Provider Agreement or the credit support furnished by the
Credit Support Provider or otherwise in respect of this Agreement, the
other Transaction Documents, or the maintenance of the Net Investment
(except for changes in the rate of general corporate, franchise, net
income or other income tax or gross receipts tax);
(ii) shall impose, modify or deem applicable any
reserve, special deposit or similar requirement (including, without
limitation, any such requirement imposed by the Board of Governors of
the Federal Reserve System) against assets of, deposits with or for the
account of, or credit extended by, any Indemnified Party or shall
impose on any Indemnified Party or on the United States market for
certificates of deposit or the London interbank market any other
condition affecting this Agreement, the other Transaction Documents,
the maintenance of the Net Investment or payments of amounts due
hereunder or its obligation to advance funds hereunder under the
Liquidity Provider Agreement or the credit support provided by the
Credit Support Provider or other wise in respect of this Agreement, the
other Transaction Documents, or the maintenance or financing of the Net
Investment; or
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(iii) imposes upon any Indemnified Party any other
expense (including, without limitation, reasonable attorneys' fees and
expenses, and expenses of litigation or preparation therefor in
contesting any of the foregoing) with respect to this Agreement, the
other Transaction Documents, the maintenance of the Net Investment or
payments of amounts due hereunder or its obligation to advance funds
hereunder under the Liquidity Provider Agreement or the credit support
furnished by the Credit Support Provider or otherwise in respect of
this Agreement, the other Transaction Documents, or the maintenance of
the Net Investment,
and the result of any of the foregoing is to increase the cost to such
Indemnified Party with respect to this Agreement, the other Transaction
Documents, the maintenance of the Net Investment, the obligations hereunder,
the funding of any advances hereunder, the Liquidity Provider Agreement or the
Credit Support Agreement, by an amount deemed by such Indemnified Party to be
material, then (to the extent such increased cost is not otherwise reflected in
an increase in interest rates or other Carrying Costs), within ten (10) days
after demand by such Indemnified Party through the Agent, the Debtor shall pay
to the Agent, for the benefit of such Indemnified Party, or such additional
amount or amounts as will compensate such Indemnified Party for such increased
cost.
(b) If any Indemnified Party shall have determined that after
the date hereof, the adoption of any applicable Law or bank regulatory guideline
regarding capital adequacy, or any change therein, or any change in the
interpretation thereof by any Official Body, or any directive regarding capital
adequacy (in the case of any bank regulatory guideline, whether or not having
the force of law) of any such Official Body, has or would have the effect of
reducing the rate of return on capital of such Indemnified Party (or its parent)
as a consequence of such Indemnified Party's obligations hereunder or with
respect hereto to a level below that which such Indemnified Party (or its
parent) could have achieved but for such adoption, change, request or directive
(taking into consideration its policies with
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respect to capital adequacy) by an amount deemed by such Indemnified Party to be
material, then from time to time (to the extent such reduction is not otherwise
reflected in an increase in interest rates or other Carrying Costs), within ten
(10) days after demand by such Indemnified Party through the Agent, the Debtor
shall pay to the Agent, for the benefit of such Indemnified Party, such
additional amount or amounts as will compensate such Indemnified Party (or its
parent) for such reduction.
(c) The Agent will promptly notify the
Debtor of any event of which it has knowledge, occurring after the date hereof,
which will entitle an Indemnified Party to compensation pursuant to this Section
8.2. A notice by the Agent or the applicable Indemnified Party claiming
compensation under this Section and setting forth the additional amount or
amounts to be paid to it hereunder (and a detailed explanation and calculation
of such amount or amounts) shall be conclusive in the absence of manifest
error. In determining such amount, the Agent or any applicable Indemnified Party
may use any reasonable averaging and attributing methods.
(d) Anything in this Section 8.2 to the
contrary notwithstanding, if the Company enters into agreements for the
acquisition of interests in receivables from one or more Other Transferors, the
Company shall allocate the liability for any amounts under this Section 8.2
which are in connection with the Liquidity Provider Agreement, the Credit
Support Agreement or the credit support provided by the Credit Support Provider
("Section 8.2 Costs") to the Debtor and each Other Transferor; provided,
however, that if such Section 8.2 Costs are attributable to the Debtor, any
Designated Seller or the Servicer and not attributable to any Other Transferor,
the Debtor shall be solely liable for such Section 8.2 Costs or if such Section
8.2 Costs are attributable to Other Transferors and not attributable to the
Debtor, any Designated Seller or the Servicer, such Other Transferors shall be
solely liable for such Section 8.2 Costs.
Section 8.3 Taxes. All payments made hereunder by the Debtor
(the "payor") to the Company, any Bank Investor or the Agent (each, a
"recipient") shall be made free and clear of and without deduction for any
present or future income, excise, stamp or franchise
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taxes and any other taxes, fees, duties, withholdings or other charges of any
nature whatsoever imposed by any taxing authority on any recipient (or any
assignee of such parties) (such items other than Excluded Taxes being called
"Taxes"), but excluding franchise taxes and taxes imposed on or measured by the
recipient's net income or gross receipts ("Excluded Taxes"). In the event that
any withholding or deduction from any payment made by the payor hereunder is
required in respect of any Taxes, then such payor shall:
(a) pay directly to the relevant authority the full
amount required to be so withheld or deducted;
(b) promptly forward to the Agent an official
receipt or other documentation satisfactory to the Agent evidencing such payment
to such authority; and
(c) pay to the recipient such additional amount or
amounts as is necessary to ensure that the net amount actually received by the
recipient will equal the full amount such recipient would have received had no
such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against any
recipient with respect to any payment received by such recipient hereunder, the
recipient may pay such Taxes and the payor will promptly pay such additional
amounts (including any penalties, interest or expenses) as shall be necessary in
order that the net amount received by the recipient after the payment of such
Taxes (including any Taxes on such additional amount) shall equal the amount
such recipient would have received had such Taxes not been asserted.
If the payor fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to the recipient the required
receipts or other required documentary evidence, the payor shall indemnify the
recipient for any incremental Taxes, interest, or penalties that may become
payable by any recipient as a result of any such failure.
Section 8.4 Other Costs, Expenses and Related Matters. (a) The
Debtor agrees, upon receipt of a written invoice, to pay or cause to be paid,
and to save
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the Company, the Bank Investors and the Agent harmless against liability for
the payment of, all reasonable out-of-pocket expenses (including, without
limitation, reasonable attorneys', accountants' and other third parties' fees
and expenses, any filing fees and expenses incurred by officers or employees of
the Company, the Bank Investors and/or the Agent) or intangible, documentary or
recording taxes incurred by or on behalf of the Company, any Bank Investor and
the Agent (i) in connection with the negotiation, execution, delivery and
preparation of this Agreement, the other Transaction Documents and any documents
or instruments delivered pursuant hereto and thereto and the transactions
contemplated hereby or thereby (including, without limitation, the perfection or
protection of the security interest in the Affected Assets) (in the case of this
clause (i), such attorneys' fees and expenses incurred by or on behalf of the
Agent, the Company or the Bank Investors shall be limited to those of Skadden,
Arps, Slate, Meagher & Flom LLP) and (ii) from time to time (a) relating to any
amendments, waivers or consents under this Agreement and the other Transaction
Documents, (b) arising in connection with the Company's, any Bank Investor's,
the Agent's or the Collateral Agent's enforcement or preservation of rights
(including, without limitation, the perfection and protection of the security
interest in the Affected Assets under this Agreement), or (c) arising in
connection with any audit, dispute, disagreement, litigation or preparation for
litigation involving this Agreement or any of the other Transaction Documents,
except to the extent resulting from the gross negligence or willful misconduct
of the Company, such Bank Investor or the Agent (all of such amounts,
collectively, "Transaction Costs").
(b) The Debtor shall pay the Agent, for
the account of the Company and the Bank Investors, as applicable, on demand any
Early Collection Fee due on account of the receipt by the Company or any Bank
Investor of any amounts applied in reduction of the Net Investment on any day
other than a Remittance Date or the last day of any applicable funding period
(in the case of any LIBOR-based funding).
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ARTICLE IX
THE AGENT; BANK COMMITMENT
Section 9.1 Authorization and Action. The Company and each
Bank Investor hereby irrevocably appoints and authorizes the Agent to act as
its agent under this Agreement and the other Transaction Documents with such
powers and discretion as are specifically delegated to the Agent by the terms of
this Agreement and the other Transaction Documents, together with such other
powers as are reasonably incidental thereto. The Agent (which term as used in
this sentence and in Section 9.5 and the first sentence of Section 9.6 hereof
shall include its affiliates and its own and its affiliates' officers,
directors, employees, and agents): (a) shall not have any duties or
responsibilities except those expressly set forth in this Agreement and shall
not be a trustee or fiduciary for the Company or any Bank Investor; (b) shall
not be responsible to the Company or any Bank Investor for any recital,
statement, representation, or warranty (whether written or oral) made in or in
connection with any Transaction Document or any certificate or other document
referred to or provided for in, or received by any of them under, any
Transaction Document, or for the value, validity, effectiveness, genuineness,
enforceability, or sufficiency of any Transaction Document, or any other
document referred to or provided for therein or for any failure by any of the
Debtor, the Designated Sellers or the Servicer or any other Person to perform
any of its obligations thereunder; (c) shall not be responsible for or have any
duty to ascertain, inquire into, or verify the performance or observance of any
covenants or agreements by either the Debtor, the Designated Sellers or the
Servicer or the satisfaction of any condition or to inspect the property
(including the books and records) of any of the Debtor, the Designated Sellers
or the Servicer or any of their Subsidiaries or affiliates; (d) shall not be
required to initiate or conduct any litigation or collection proceedings under
any Transaction Document; and (e) shall not be responsible for any action taken
or omitted to be taken by it under or in connection with any Transaction
Document, except for its own gross negligence or willful misconduct. The Agent
may employ agents and attorneys-in-fact and shall not be responsible for the
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negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care.
Section 9.2 Agent's Reliance, Etc. The Agent shall be entitled
to rely upon any certification, notice, instrument, writing, or other
communication (including, without limitation, any thereof by telephone or
telecopy) believed by it to be genuine and correct and to have been signed, sent
or made by or on behalf of the proper Person or Persons, and upon advice and
statements of legal counsel (including counsel for any of the Debtor, the
Designated Sellers or the Servicer), independent accountants, and other experts
selected by the Agent. As to any matters not expressly provided for by this
Agreement, the Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions
of the Majority Investors, and such instructions shall be binding on the Company
and all of the Bank Investors; provided, however, that the Agent shall not be
required to take any action that exposes the Agent to personal liability or that
is contrary to any Transaction Document or applicable law or unless it shall
first be indemnified to its satisfaction by the Bank Investors against any and
all liability and expense which may be incurred by it by reason of taking any
such action.
Section 9.3 Termination Events. The Agent shall not be deemed
to have knowledge or notice of the occurrence of a Potential Termination Event
or a Termination Event unless the Agent has received written notice from a Bank
Investor or the Company specifying such Potential Termination Event or
Termination Event and stating that such notice is a "Notice of Termination
Event". In the event that the Agent receives such a notice of the occurrence of
a Potential Termination Event or Termination Event, the Agent shall give prompt
notice thereof to the Bank Investors. The Agent shall (subject to Section 9.2
hereof) take such action with respect to such Potential Termination Event or
Termination Event as shall reasonably be directed by the Majority Investors,
provided that, unless and until the Agent shall have received such directions,
the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Potential Termination Event or
Termination
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Event as it shall deem advisable in the best interest of the Company and the
Bank Investors.
Section 9.4 Rights as Bank Investor. With respect to its
Commitment, NationsBank (and any successor acting as Agent) in its capacity as a
Bank Investor hereunder shall have the same rights and powers hereunder as any
other Bank Investor and may exercise the same as though it were not acting as
the Agent, and the term "Bank Investor" or "Bank Investors" shall, unless the
context otherwise indicates, include the Agent in its individual capacity.
NationsBank (and any successor acting as Agent) and its affiliates may (without
having to account therefor to the Company or any Bank Investor) accept deposits
from, lend money to, make investments in, provide services to, and generally
engage in any kind of lending, trust, or other business with any of the Debtor,
the Designated Sellers and the Servicer or any of their Subsidiaries or
affiliates as if it were not acting as Agent, and NationsBank (and any successor
acting as Agent) and its affiliates may accept fees and other consideration from
any of the Debtor, the Designated Sellers and the Servicer or any of their
Subsidiaries or affiliates for services in connection with this Agreement or
otherwise without having to account for the same to the Company or any Bank
Investor.
Section 9.5 Indemnification of the Agent. The Bank Investors
agree to indemnify the Agent (to the extent not reimbursed by the Debtor),
ratably in accordance with their Pro Rata Shares, from and against any and all
liabilities, obligations, losses, damages, penal ties, actions, judgments,
suits, costs, expenses (including attorneys' fees), or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against the Agent (including by the Company or any Bank Investor) in any way
relating to or arising out of this Agreement or any other Transaction Document
or the transactions contemplated thereby or any action taken or omitted by the
Agent under this Agreement or any other Transaction Document, provided that no
Bank Investors shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the Person indemnified.
Without limitation of the foregoing, the Bank Investors agree to reimburse the
Agent, ratably in accordance with their Pro Rata Shares, promptly upon demand
for any out-of-pocket
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expenses (including attorneys' fees) incurred by the Agent in connection with
the administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement and the other Transaction
Documents, to the extent that such expenses are incurred in the interests of or
otherwise in respect of the Bank Investors hereunder and/or thereunder and to
the extent that the Agent is not reimbursed for such expenses by the Debtor. The
agreements contained in this Section shall survive payment in full of the Net
Investment and all other amounts payable under this Agreement.
Section 9.6 Non-Reliance. The Company and each Bank Investor
agrees that it has, independently and without reliance on the Agent or the
Company or any Bank Investor, and based on such documents and information as it
has deemed appropriate, made its own credit analysis of the Debtor, the
Designated Sellers and the Servicer and their Subsidiaries and decision to enter
into this Agreement and that it will, independently and without reliance upon
the Agent, the Company or any Bank Investor, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under the Transaction
Documents. Except for notices, reports, and other documents and information
expressly required to be furnished to the Company and the Bank Investors by the
Agent hereunder, the Agent shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the affairs,
financial condition, or business of any of the Debtor, the Designated Sellers or
the Servicer or any of their Subsidiaries or affiliates that may come into the
possession of the Agent or any of its affiliates.
Section 9.7 Resignation of Agent. The Agent may resign at any
time by giving notice thereof to the Company, the Bank Investors and the Debtor.
Upon any such resignation, the Majority Investors shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed by
the Majority Investors and shall have accepted such appointment within thirty
(30) days after the retiring Agent's giving of notice of resignation, then the
retiring Agent may, on behalf of the Company and the Bank Investors, appoint a
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successor Agent which shall be a commercial bank organized under the laws of the
United States of America having combined capital and surplus of at least
$100,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor, such successor shall thereupon succeed to and become vested with all
the rights, powers, discretion, privileges, and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article IX shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting
as Agent.
Section 9.8 Payments by the Agent. Unless specifically
allocated to a Bank Investor pursuant to the terms of this Agreement, all
amounts received by the Agent on behalf of the Bank Investors shall be paid by
the Agent to the Bank Investors (at their respective accounts specified in their
respective Assignment and Assumption Agreements) in accordance with their
respective related pro rata interests in the Net Investment on the Business Day
received by the Agent, unless such amounts are received after 12:00 noon on such
Business Day, in which case the Agent shall use its reasonable efforts to pay
such amounts to the Bank Investors on such Business Day, but, in any event,
shall pay such amounts to the Bank Investors in accordance with their respective
related pro rata interests in the Net Investment not later than the following
Business Day.
Section 9.9 Bank Commitment; Assignment to Bank Investors.
(a) Bank Commitment. At any time on or prior to the
Commitment Termination Date, in the event that the Company does not effect an
Advance as requested under Section 2.2(a), then at any time, the Debtor shall
have the right to require the Company to assign its interest in the Net
Investment in whole to the Bank Investors pursuant to this Section 9.9. In
addition, at any time on or prior to the Commitment Termination Date (i) upon
the occurrence of a Termination Event that results in the Termination Date or
(ii) the Company elects to give notice to the Debtor of a Company Termination
Date, the Debtor hereby requests and directs
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that the Company assign its interest in the Net Investment in whole to the Bank
Investors pursuant to this Section 9.9 and the Debtor hereby agrees to pay the
amounts described in Section 9.9(d) below. Provided that the Net Asset Test is
satisfied, upon any such election by the Company or any such request by the
Debtor, the Company shall make such assignment and the Bank Investors shall
accept such assignment and shall assume all of the Company's obligations
hereunder. In connection with any assignment from the Company to the Bank
Investors pursuant to this Section 9.9, each Bank Investor shall, on the date
of such assignment, pay to the Company an amount equal to its Assignment Amount.
Upon any assignment by the Company to the Bank Investors contemplated hereunder,
the Company shall cease to make any additional Advances hereunder.
(b) Assignment. No Bank Investor may
assign all or a portion of its interests in the Net Investment, the Receivables,
and Collections, Related Security and Proceeds with respect thereto and its
rights and obligations hereunder to any Person unless approved in writing by the
Debtor, the Administrative Agent, on behalf of the Company, and the Agent. In
the case of an assignment by the Company to the Bank Investors or by a Bank
Investor to another Person, the assignor shall deliver to the assignee(s) an
Assignment and Assumption Agreement in substantially the form of Exhibit G
attached hereto, duly executed, assigning to the assignee a pro rata interest in
the Net Investment, the Receivables, and Collections, Related Security and
Proceeds with respect thereto and the assignor's rights and obligations
hereunder and the assignor shall promptly execute and deliver all further
instruments and documents, and take all further action, that the assignee may
reasonably request, in order to protect, or more fully evidence the assignee's
right, title and interest in and to such interest and to enable the Agent, on
behalf of such assignee, to exercise or enforce any rights hereunder and under
the
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other Transaction Documents to which such assignor is or, immediately prior to
such assignment, was a party. Upon any such assignment, (i) the assignee shall
have all of the rights and obligations of the assignor hereunder and under the
other Transaction Documents to which such assignor is or, immediately prior to
such assignment, was a party with respect to such interest for all purposes of
this Agreement and under the other Transaction Documents to which such assignor
is or, immediately prior to such assignment, was a party (it being understood
that the Bank Investors, as assignees, shall (x) be obligated to fund Advances
under Section 2.2(a) in accordance with the terms thereof, notwithstanding that
the Company was not so obligated and (y) not have the right to elect the
commencement of the amortization of the Net Investment pursuant to the
definition of "Company Termination Date", notwithstanding that the Company had
such right) and (ii) the assignor shall relinquish its rights with respect to
such interest for all purposes of this Agreement and under the other Transaction
Documents to which such assignor is or, immediately prior to such assignment,
was a party. No such assignment shall be effective unless a fully executed copy
of the related Assignment and Assumption Agreement shall be delivered to the
Agent and the Debtor. NationsBank, as the initial Bank Investor, agrees that it
shall not assign or syndicate any portion of its Commitment unless requested to
do so by the Debtor. If NationsBank is requested by the Debtor to assign or
syndicate any portion of its Commitment, all costs and expenses of the Agent and
NationsBank incurred in connection with such assignment or syndication shall be
borne by the Debtor; otherwise all costs and expenses of the Agent and
NationsBank incurred in connection with an assignment or syndication of any
portion of NationsBank's Commitment hereunder shall be borne by NationsBank. No
Bank Investor shall assign any portion of its Commitment hereunder without also
simultaneously assigning an equal portion of its interest in the Liquidity
Provider Agreement.
(c) Effects of Assignment. By executing
and delivering an Assignment and Assumption Agreement, the assignor and assignee
thereunder confirm to and agree with each other and the other parties hereto as
follows: (i) other than as provided in such Assignment and Assumption
Agreement, the assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement, the other Transaction Documents or
any other instrument or document furnished pursuant hereto or thereto or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
or this Agreement, the other Transaction Documents or any such
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other instrument or document; (ii) the assignor makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Debtor, any Designated Seller or the Servicer or the performance or
observance by the Debtor, any Designated Seller or the Servicer of any of their
respective obligations under this Agreement, the other Transaction Documents
or any other instrument or document furnished pursuant hereto; (iii) such
assignee confirms that it has received a copy of this Agreement, the Receivables
Purchase Agreement and such other instruments, documents and information as it
has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Assumption Agreement and to purchase such interest;
(iv) such assignee will, independently and without reliance upon the Agent, or
any of its Affiliates, or the assignor and based on such agreements, documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement and the
other Transaction Documents; (v) such assignee appoints and authorizes the Agent
to take such action as agent on its behalf and to exercise such powers under
this Agreement, the other Transaction Documents and any other instrument or
document furnished pursuant hereto or thereto as are delegated to the Agent by
the terms hereof or thereof, together with such powers as are reasonably
incidental thereto and to enforce its respective rights and interests in and
under this Agreement, the other Transaction Documents, the Receivables, the
Accounts and the Related Security; (vi) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of this Agreement and the other Transaction Documents are required to be
performed by it as the assignee of the assignor; and (vii) such assignee agrees
that it will not institute against the Company any proceeding of the type
referred to in Section 10.9 prior to the date which is one year and one day
after the payment in full of all Commercial Paper issued by the Company.
(d) Debtor's Obligation to Pay Certain Amounts;
Additional Assignment Amount. The Debtor shall pay to the Agent, for the account
of the Company, in connection with any assignment by the Company to the Bank
Investors pursuant to this Section 9.9, an aggregate amount equal to all
Carrying Costs to accrue through the
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end of each outstanding funding period plus all other Aggregate Unpaids (other
than the Net Investment). To the extent that such Carrying Costs relate to
interest or discount on Commercial Paper issued to fund the Net Investment, if
the Debtor fails to make payment of such amounts at or prior to the time of
assignment by the Company to the Bank Investors, such amount shall be paid by
the Bank Investors (in accordance with their respective Pro Rata Shares) to the
Company as additional consideration for the interests assigned to the Bank
Investors and the amount of the "Net Investment" hereunder held by the Bank
Investors shall be increased by an amount equal to the additional amount so paid
by the Bank Investors.
(e) Administration of Agreement After Assignment.
After any assignment by the Company to the Bank Investors pursuant to this
Section 9.9 (and the payment of all amounts owing to the Company in connection
therewith), all rights of the Administrative Agent and the Collateral Agent set
forth herein shall be deemed to be afforded to the Agent on behalf of the Bank
Investors instead of either such party.
(f) Payments. After any assignment by the Company
to the Bank Investors pursuant to this Section 9.9, all payments to be made
hereunder by the Debtor or the Servicer to the Bank Investors shall be made to
the Agent's account as such account shall have been notified to the Debtor and
the Servicer.
(g) Downgrade of Bank Investor. If at any time
prior to any assignment by the Company to the Bank Investors as contemplated
pursuant to this Section 9.9, the short term debt rating of any Bank Investor
shall be "A-2" or "P-2" from Standard & Poor's or Moody's, respectively, with
negative credit implications, such Bank Investor, upon request of the Agent,
shall, within 30 days of such request, assign its rights and obligations
hereunder to another financial institution (which institution's short term debt
shall be rated at least "A-2" and "P-2" from Standard & Poor's and Moody's,
respectively, and which shall not be so rated with negative credit
implications). If the short term debt rating of a Bank Investor shall be "A-3"
or "P-3", or lower, from Standard & Poor's or Moody's, respectively (or such
rating shall have been withdrawn by Standard &
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Poor's or Moody's), such Bank Investor, upon request of the Agent, shall, within
five (5) Business Days of such request, assign its rights and obligations
hereunder to another financial institution (which institution's short term debt
shall be rated at least "A-2" and "P-2" from Standard & Poor's and Moody's,
respectively, and which shall not be so rated with negative credit
implications). In either such case, if any such Bank Investor shall not have
assigned its rights and obligations under this Agreement within the applicable
time period described above, the Company shall have the right to require such
Bank Investor to accept the assignment of such Bank Investor's Pro Rata Share of
the Net Investment; such assignment shall occur in accordance with the
applicable provisions of this Section 9.9. Such Bank Investor shall be obligated
to pay to the Company, in connection with such assignment, in addition to the
Pro Rata Share of the Net Investment, an amount equal to the interest component
of the outstanding Commercial Paper issued to fund the portion of the Net
Investment being assigned to such Bank Investor, as reasonably determined by the
Agent. Not withstanding anything contained herein to the contrary, upon any such
assignment to a downgraded Bank Investor as contemplated pursuant to the
immediately preceding sentence, the aggregate available amount of the Facility
Limit, solely as it relates to new Advances by the Company, shall be reduced by
the amount of unused Commitment of such downgraded Bank Investor; it being
understood and agreed, that nothing in this sentence or the two preceding
sentences shall affect or diminish in any way any such downgraded Bank
Investor's Commitment to the Debtor or such downgraded Bank Investor's other
obligations and liabilities hereunder and under the other Transaction Documents.
(h) Replacement of Bank Investor. (i)
In the event:
(v) a Bank Investor (other than NationsBank) fails to
make its share of any Advance available on the
applicable Advance Date therefor,
(w) a Bank Investor (other than NationsBank) notifies
the Agent pursuant to Section 2.3(e)(ii) hereof that
it is unable to obtain matching deposits in the
London
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interbank market to fund an Advance or that the
Adjusted LIBOR Rate applicable to such Advance will
not adequately reflect its costs,
(x) a Bank Investor (other than NationsBank) shall be
subject to the circumstances described in Section
2.3(e)(iii) hereof,
(y) a Bank Investor (other than NationsBank) shall make a
claim for compensation pursuant to Section 8.2
hereof, or
(z) a Bank Investor (other than NationsBank) shall not
agree pursuant to Section 10.2 to any amendment or
waiver requested by the Debtor,
the Debtor shall have the right, in any such case, not withstanding any
provision to the contrary herein, to replace such Bank Investor with another
financial institution reasonably acceptable to the Company (unless it shall have
previously assigned in full its interest in the Net Investment to the Bank
Investors), and the Agent (and which shall have a rating of at least "A-1" and
"P-1" as to its short term debt), by giving three Business Days' prior written
notice to the Agent and such Bank Investor.
(ii) In the event of a request by the Debtor to replace a Bank
Investor under Section 9.9(h)(i), such Bank Investor agrees:
(x) to assign all of its rights and delegates all of its
obligations hereunder to a financial institution
selected by the Borrower and reasonably acceptable to
the Company (unless it shall have previously assigned
in full its interest in the Net Investment to the
Bank Investors), and the Agent (and which shall have
a rating of at least "A-1" and "P-1" as to its short
term debt), upon payment to such Bank Investor of the
amount of such Bank Investor's outstanding advances
in respect of the Net Investment, together with any
accrued and unpaid interest thereon, all accrued and
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unpaid commitment fee owing to such Bank Investor and
all other amounts owing to such Bank Investor
hereunder, and
(y) to execute and deliver an Assignment and Assumption
Agreement and such documentation as is necessary to
assign to such replacement financial institution such
Bank Investor's rights and obligations under the
Liquidity Support Agreement and such other documents
evidencing such assignment as shall be necessary or
reason ably requested by the Debtor or the Agent.
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ARTICLE X
MISCELLANEOUS
Section 10.1 Term of Agreement. This Agreement shall
terminate on the date following the Termination Date upon which the Net
Investment and all other Aggregate Unpaids have been paid in full, in each case,
in cash; provided, however, that (i) the indemnification and payment provisions
of Article VIII, and (ii) the agreement set forth in Section 10.9 hereof, shall
be continuing and shall survive any termination of this Agreement.
Section 10.2 Waivers; Amendments. (a) No failure or delay
on the part of the Agent, the Company, the Administrative Agent or any Bank
Investor in exercising any power, right or remedy under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or remedy preclude any other further exercise thereof or the
exercise of any other power, right or remedy. The rights and remedies herein
provided shall be cumulative and nonexclusive of any rights or remedies
provided by law.
(b) Any provision of this Agreement or any other Transaction
Document may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed by the Debtor, the Servicer, the Company and the
Majority Investors (and, if Article IX or the rights or duties of the Agent are
affected thereby, by the Agent); provided that no such amendment or waiver
shall, unless signed by each Bank Investor directly affected thereby, (i)
increase the Commitment of a Bank Investor, (ii) reduce the Net Investment or
rate of interest to accrue thereon or any fees or other amounts payable
hereunder, (iii) postpone any date fixed for the payment of any scheduled
distribution in respect of the Net Investment or interest with respect thereto
or any fees or other amounts payable hereunder or for termination of any
Commitment, (iv) change the percentage of the Commitments or the number of Bank
Investors, which shall be required for the Bank Investors or any of them to take
any action under this Section or any other provision of this Agreement, (v)
release all or substantially all of
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the property with respect to which a security interest therein has been granted
hereunder to the Agent, for the benefit of the Company and the Bank Investors,
the Bank Investors or (vi) extend or permit the extension of the Commitment
Termination Date. In the event the Agent requests the Company's or a Bank
Investor's consent pursuant to the foregoing provisions and the Agent does not
receive a consent (either positive or negative) from the Company or such Bank
Investor within 10 Business Days of the Company's or Bank Investor's receipt of
such request, then the Company or such Bank Investor (and its percentage
interest hereunder) shall be disregarded in determining whether the Agent shall
have obtained sufficient consent hereunder.
(c) The Agent and the Company acknowledge that the Debtor may
request a future amendment to this Agreement which would allow for the addition
of either another debtor or another Designated Seller.
Section 10.3 Notices. Except as provided below, all
communications and notices provided for here under shall be in writing
(including telecopy or electronic facsimile transmission or similar writing)
and shall be given to the other party at its address or telecopy number set
forth below or at such other address or telecopy number as such party may
hereafter specify for the purposes of notice to such party. Each such notice or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section 10.3
and confirmation is received, (ii) if given by mail three (3) Business Days
following such posting, postage prepaid, U.S. certified or registered, (iii) if
given by overnight courier, one (1) Business Day after deposit thereof with a
national overnight courier service, or (iv) if given by any other means, when
received at the address specified in this Section 10.3. However, anything in
this Section to the contrary notwithstanding, the Debtor hereby authorizes the
Company to effect Advances and funding period selections based on telephonic
notices made by any Person which the Company in good faith believes to be acting
on behalf of the Debtor. The Debtor agrees to deliver promptly to the Company a
written confirmation of each telephonic notice signed by an authorized
representative of Debtor. However, the absence of such confirmation shall not
affect the validity of such
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notice. If the written confirmation differs in any material respect from the
action taken by the Company, the records of the Company shall govern absent
manifest error.
If to the Company:
Enterprise Funding Corporation
c/o Merrill Lynch Money Market, Inc.
World Financial Center
South Tower, 8th Floor
225 Liberty Street
New York, New York 10080
Telephone: (212) 236-7200
Telecopy: (212) 236-7584
(with a copy to the Administrative Agent)
Payment Information:
Bankers Trust Company as depository for
Enterprise Funding Corporation
ABA 021-001-033
Account Number: 00362917
Ref: Enterprise Funding/Belk
Attn: Neil Wechsler
If to the Debtor:
Belk, Inc.
2801 West Tyvola Road
Charlotte, North Carolina 28217
Telephone: (704) 357-1064, ext: 4273
Telecopy: (704) 357-0711
Attn: Terry Scott
Payment Information:
Wachovia Bank, N.A.
ABA 053-100-494
For the Account of: Belk, Inc.
Account Number: 1869-007808
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If to Belk Center
The Belk Center, Inc.
2801 West Tyvola Road
Charlotte, North Carolina 28217
Telephone: (704) 357-1064, extension 7000
Telecopy: (704) 357-1861
Attn: Oakley Orser
If to the Collateral Agent:
NationsBank, N.A.
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
Attn: Michelle M. Heath-- NC1-007-10-07
Structured Finance
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
If to the Agent:
NationsBank, N.A.
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
Attn: Michelle M. Heath-- NC1-007-10-07
Structured Finance
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
Payment Information:
NationsBank, N.A.
ABA 053-000-196
For the Account of: Global Investment Bank
Operations
Account No. 1093601650000
Attn.: Camille Zerbinos
If to the Administrative Agent:
NationsBank, N.A.
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
Attn: Michelle M. Heath -- NC1-007-10-07
Structured Finance
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
106
<PAGE> 112
If to the Bank Investors, at their respective addresses set
forth on the signature pages hereto or of the Assignment and Assumption
Agreement pursuant to which it became a party hereto.
Section 10.4 Governing Law; Submission to Jurisdiction;
Integration.
(a) THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE DEBTOR
HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA AND OF ANY NORTH CAROLINA STATE
COURT SITTING IN MECKLENBURG COUNTY, NORTH CAROLINA FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. The Debtor hereby irrevocably waives, to the fullest extent
it may effectively do so, 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. Nothing in this Section 10.4 shall affect the right of the
Company to bring any action or proceeding against the Debtor or its property in
the courts of other jurisdictions.
(b) This Agreement contains the final and
complete integration of all prior expressions by the parties hereto with respect
to the subject matter hereof and shall constitute the entire Agreement among the
parties hereto with respect to the subject matter hereof superseding all prior
oral or written understandings.
(c) The Debtor and each Designated Seller
hereby appoints Luther T. Moore as the authorized agent upon whom process may be
served in any action arising out of or based upon this Agreement, the other
Transaction Documents to which such person is a party or the transactions
contemplated hereby or thereby that may be instituted in the United States
District Court for the Western District of North Carolina and of any North
Carolina State court sitting in Mecklenburg County, North
107
<PAGE> 113
Carolina by the Company, the Agent, any Bank Investor, the Collateral Agent or
any assignee of any of them.
Section 10.5 Severability; Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
Section 10.6 Successors and Assigns. This Agreement shall be
binding on the parties hereto and their respective successors and assigns;
provided, how ever, that neither the Debtor nor any Designated Seller may assign
any of its rights or delegate any of its duties hereunder or under any of the
other Transaction Documents to which it is a party without the prior writ ten
consent of the Agent. No provision of this Agreement shall in any manner
restrict the ability of the Company to assign, participate, grant security
interests in, or otherwise transfer any portion of its interest in the Note or
its rights and/or obligations hereunder to a Bank Investor in accordance with
the terms hereof, a Liquidity Provider, a Credit Support Provider or the
Collateral Agent. No Bank Investor may assign, participate, grant a security
interest in or otherwise transfer any of its rights and/or obligations hereunder
or any portion of its interest in the Note without the prior written consent of
the Debtor, such consent not to be unreasonably withheld.
(a) Each of the Debtor and each
Designated Seller hereby agrees and consents to the assignment by the Company
from time to time of all or any part of its rights under, interest in and title
to this Agreement and in the Note to any Liquidity Provider. In addition, each
of the Debtor and each Designated Seller hereby consents to and acknowledges the
assignment by the
108
<PAGE> 114
Company of all of its rights under, interest in and title to this Agreement and
the Note to the Collateral Agent.
Section 10.7 Confidentiality Agreement Company, Agent,
Administrative Agent, Collateral Agent, Liquidity Providers and Bank Investors.
Each of the Company, the Agent, the Administrative Agent, the Collateral Agent,
each Liquidity Provider and each Bank Investor hereby agrees that it will not
disclose the contents of this Agreement or any other proprietary or confidential
information of the Debtor, any Subsidiary of the Debtor, any Designated Seller
or the Servicer, to any other Person except (i) NationsBank (and any affiliate
thereof), any Credit Support Provider, any potential Bank Investor or potential
Liquidity Support Provider or Credit Support Provider, or such disclosing
party's auditors and attorneys, employees or financial advisors and any
nationally recognized rating agency; provided such entities, auditors,
attorneys, employees, financial advisors or rating agencies are informed of the
highly confidential nature of such information and agree not to disclose it to
any other Person, or (ii) as otherwise required by applicable law or order of a
court of competent jurisdiction or other Governmental Authority.
Section 10.8 Confidentiality Agreement. Each of the Debtor
and each Designated Seller hereby agrees that it will not disclose the contents
of this Agreement or any other proprietary or confidential information of the
Company, the Agent, the Administrative Agent, the Collateral Agent, any Credit
Support Provider, any Liquidity Provider or any Bank Investor to any other
Person except (i) its auditors and attorneys, employees or financial advisors
(other than any commercial bank) and any nationally recognized rating agency,
provided such auditors, attorneys, employees, financial advisors or rating
agencies are informed of the highly confidential nature of such information and
agree not to disclose it to any other Person or (ii) as otherwise required by
applicable law, order of a court of competent jurisdiction or other Governmental
Authority.
Section 10.9 No Bankruptcy Petition Against the Company. Each
of the Debtor, the Agent, each Designated Seller and each Bank Investor hereby
covenants and agrees that, prior to the date which is one year and one day after
the payment in full of all outstanding
109
<PAGE> 115
Commercial Paper or other indebtedness of the Company, it will not institute
against, or join any other Person in instituting against, the Company any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
or other similar proceeding under the laws of the United States or any state of
the United States.
Section 10.10 No Recourse Against Stockholders, Officers or
Directors. Notwithstanding anything to the contrary contained in this Agreement,
the obligations of the Company under this Agreement and all other Transaction
Documents are solely the corporate obligations of the Company and shall be
payable solely from the assets of the Company in excess of funds necessary to
pay matured and maturing Commercial Paper. No recourse under any obligation,
covenant or agreement of the Company contained in this Agreement shall be had
against Merrill Lynch Money Markets Inc. (or any affiliate thereof), or any
stockholder, officer or director of the Company, as such, by the enforcement of
any assessment or by any legal or equitable proceeding, by virtue of any statute
or otherwise; it being expressly agreed and understood that this Agreement is
solely a corporate obligation of the Company, and that no personal liability
whatsoever shall attach to or be incurred by Merrill Lynch Money Markets Inc.
(or any affiliate thereof), or the stock holders, officers or directors of the
Company, as such, or any of them, under or by reason of any of the obligations,
covenants or agreements of the Company contained in this Agreement, or implied
therefrom, and that any and all personal liability for breaches by the Company
of any of such obligations, covenants or agreements, either at common law or at
equity, or by statute or constitution, of Merrill Lynch Money Markets Inc. (or
any affiliate thereof) and every such stockholder, officer or director of the
Company is hereby expressly waived as a condition of and consideration for the
execution of this Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
110
<PAGE> 116
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Note Purchase and Security Agreement as of the date first written
above.
ENTERPRISE FUNDING CORPORATION,
as Company
By:
---------------------------------------
Name:
Title:
BELK, INC.,
as Debtor
By:
---------------------------------------
Name:
Title:
THE BELK CENTER, INC.,
as Servicer
By:
---------------------------------------
Name:
Title:
Commitment NATIONSBANK, N.A., as Agent
$300,000,000 and a Bank Investor
By:
---------------------------------------
Name:
Title:
<PAGE> 117
Exhibit A
Forms of Account Agreement
A-1
<PAGE> 118
Exhibit B
Credit Guidelines and Collection Guidelines
Provided separately to the Agent
B-1
<PAGE> 119
Exhibit C
Servicer Account Banks
NationsBank, N.A.
901 Main Street
Dallas, Texas 75202
C-1
<PAGE> 120
Exhibit D
Form of Servicer Account Agreement
[Name and Address
of Servicer Account Bank]
Re: [SERVICER]
Servicer Account
No[s]. ___________
Ladies and Gentlemen:
[SERVICER] ("SERVICER") hereby notifies you that in connection
with certain transactions involving accounts receivable originated under credit
accounts of the Debtor or a Designated Seller, it has transferred exclusive
ownership and dominion of its account no[s]. __________ maintained with you
(collectively the "Accounts") to NationsBank, N.A., as agent (the "Agent"), and
that SERVICER will transfer exclusive control of the Accounts to the Agent
effective upon delivery to you of the Notice of Effectiveness (as hereinafter
defined).
In furtherance of the foregoing, SERVICER and the Agent hereby
instruct you, beginning on the date of your receipt of the Notice of
Effectiveness: (i) to collect the monies, checks, instruments and other items of
payment mailed to the Accounts; (ii) to deposit into the Accounts all such
monies, checks, instruments and other items of payment or all funds collected
with respect thereto (unless otherwise instructed by the Agent); and (iii) to
transfer all funds deposited and collected in the Accounts pursuant to
instructions given to you by the Agent from time to time.
You are hereby further instructed: (i) unless and until the
Agent notifies you to the contrary at any time after your receipt of the Notice
of Effectiveness, to make such transfers from the Accounts at such times and in
such manner as SERVICER, in its capacity as servicer for the Agent, shall from
time to time instruct to the extent such instructions are not inconsistent with
the instructions set forth herein, and (ii) to permit SERVICER (in its capacity
as servicer for the Agent) and
D-1
<PAGE> 121
the Agent to obtain upon request any information relating to the Accounts,
including, without limitation, any information regarding the balance or activity
of the Accounts.
SERVICER also hereby notifies you that, beginning on the date
of your receipt of the Notice of Effectiveness and notwithstanding anything
herein or elsewhere to the contrary, the Agent, and not SERVICER, shall be
irrevocably entitled to exercise any and all rights in respect of or in
connection with the Accounts, including, without limitation, the right to
specify when payments are to be made out of or in connection with the Accounts.
The Agent has a continuing interest in all of the checks and their proceeds and
all monies and earnings, if any, thereon in the Accounts, and you shall be the
Agent's agent for the purpose of holding and collecting such property. The
monies, checks, instruments and other items of payment mailed to, and funds
deposited to, the Accounts will not be subject to deduction, set-off, banker's
lien, or any other right in favor of any person other than the Agent (except
that you may set off (i) all amounts due to you in respect of your customary
fees and expenses for the routine maintenance and operation of the Accounts, and
(ii) the face amount of any checks which have been credited to the Accounts but
are subsequently returned unpaid because of uncollected or insufficient funds).
This Agreement may not be terminated at any time by SERVICER
or you without the prior written consent of the Agent. Neither this Agreement
nor any provision hereof may be changed, amended, modified or waived orally but
only by an instrument in writing signed by the Agent and SERVICER.
You shall not assign or transfer your rights or obligations
hereunder (other than to the Agent) without the prior written consent of the
Agent and SERVICER. Subject to the preceding sentence, this Agreement shall be
binding upon each of the parties hereto and their respective successors and
assigns, and shall inure to the benefit of, and be enforceable by, the Agent,
each of the parties hereto and their respective successors and assigns.
D-2
<PAGE> 122
You hereby represent that the person signing this Agreement on
your behalf is duly authorized by you to so sign.
You agree to give the Agent and SERVICER prompt notice if the
Accounts become subject to any writ, garnishment, judgment, warrant of
attachment, execution or similar process.
Any notice, demand or other communication required or
permitted to be given hereunder shall be in writing and may be personally served
or sent by facsimile or by courier service or by United States mail and shall be
deemed to have been delivered when delivered in person or by courier service or
by facsimile or three (3) Business Days after deposit in the United States mail
(registered or certified, with postage prepaid and properly addressed). For the
purposes hereof, (i) the addresses of the parties hereto shall be as set forth
below each party's name below, or, as to each party, at such other address as
may be designated by such party in a written notice to the other party and the
Agent and (ii) the address of the Agent shall be NationsBank, N.A., NationsBank
Corporate Center, 10th Floor, Charlotte, North Carolina 28255, Attention:
Michelle M. Heath, Investment Banking, or at such other address as may be
designated by the Agent in a written notice to each of the parties hereto.
Please agree to the terms of, and acknowledge receipt of, this
notice by signing in the space provided below.
The transfer of control of the Accounts, referred to in the
first paragraph of this letter, shall become effective upon delivery to you of a
notice (the "Notice of Effectiveness") in substantially the form attached hereto
as Annex "1".
D-3
<PAGE> 123
Very truly yours,
[SERVICER]
By:
--------------------------------
Title:
-----------------------------
Attention:
-------------------------
Facsimile No.:
---------------------
ACKNOWLEDGED AND AGREED:
[NAME OF SERVICER ACCOUNT BANK]
By:
----------------------------
Title:
-------------------------
Date:
--------------------------
[Address]
Attention:
---------------------
Facsimile No.:
-----------------
D-4
<PAGE> 124
ANNEX 1
TO SERVICER ACCOUNT AGREEMENT
[FORM OF NOTICE OF EFFECTIVENESS]
DATED: ______________, 199_
TO: [Name of Servicer Account Bank]
[Address]
ATTN: ______________________
Re: Servicer Account No[s]._______
Ladies and Gentlemen:
We hereby give you notice that the transfer of control of the
above-referenced Servicer Account[s], as described in our letter agreement with
you dated __________ __, 199_ is effective as of the date hereof. You are hereby
instructed to comply immediately with the instructions set forth in that letter.
Very truly yours,
[SERVICER]
By:
--------------------------------
Title:
-----------------------------
ACKNOWLEDGED AND AGREED:
[NAME OF SERVICER BANK]
By:
----------------------------
Title:
-------------------------
Date:
--------------------------
[Address]
Attention:
---------------------
Facsimile No.:
-----------------
D-5
<PAGE> 125
Exhibit E
Form of Servicer Report
E-1
<PAGE> 126
Exhibit F
Form of Additional Advance Certificate
F-1
<PAGE> 127
Exhibit G
Form of Assignment and Assumption Agreement
Reference is made to the Note Purchase and Security Agreement
dated as of June 12, 1998, as it may be amended or modified from time to time
(as so modified and amended, the "Agreement") among Belk, Inc., as Debtor (in
such capacity, the "Debtor"), The Belk Center, Inc., as servicer (in such
capacity, the "Servicer"), Enterprise Funding Corporation (the "Company"),
NationsBank, N.A., as agent, and certain financial institutions from time to
time a party thereto as Bank Investors. Terms defined in the Agreement are used
herein with the same meaning.
___________________ (the "Assignor") and __________________
(the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee,
without recourse and without representation and warranty, and the Assignee
hereby purchases and assumes from the Assignor, an interest in and to all of the
Assignor's rights and obligations under the Agreement and the other Transaction
Documents. Such interest expressed as a percentage of all rights and obligations
of the Bank Investors being equal to the percentage equivalent of a fraction the
numerator of which is $________ and the denominator of which is the Facility
Limit. After giving effect to such sale and assignment, the Assignee's
Commitment will be as set forth on the signature page hereto.
2. [In consideration of the payment of $___________, being
___% of the existing Net Investment, and of $___________, being ___% of the
aggregate unpaid accrued Carrying Costs payable to the Assignor, receipt of
which payment is hereby acknowledged, the Assignor hereby assigns to the Agent
for the account of the Assignee, and the Assignee hereby purchases from the
Assignor, a ___% interest in and to all of the Assignor's right, title and
interest in and to the Net Investment purchased by the undersigned on
_______________, 19__
G-1
<PAGE> 128
under the Agreement.] [include if an existing Net Investment is being assigned.]
3. The Assignor (i) represents and warrants that it is the
legal and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Agreement, any other Transaction Document or any other instrument or document
furnished pursuant thereto or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Agreement or the Receivables, any other
Transaction Document or any other instrument or document furnished pursuant
thereto; and (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any of the Debtor, the
Servicer or any Designated Seller or the performance or observance by any of the
Debtor or the Servicer or any Designated Seller of any of its obligations under
the Agreement, any other Transaction Document, or any instrument or document
furnished pursuant thereto.
4. The Assignee (i) confirms that it has received a copy of
the Agreement, the Receivables Purchase Agreement, the Note and the Fee Letter,
together with copies of the financial statements referred to in Section 5.1 of
the Agreement, to the extent delivered through the date of this Agreement, and
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into this Assignment; (ii) agrees that
it will, independently and without reliance upon the Agent, any of its
Affiliates, the Assignor or any other Investor and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Agreement and any
other Transaction Document; (iii) appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers and discretion under
the Agreement and the other Transaction Documents as are delegated to the Agent
by the terms thereof, together with such powers and discretion as are reasonably
incidental thereto; (iv) agrees that it will perform in accordance with their
terms all of the
G-2
<PAGE> 129
obligations which by the terms of the Agreement are required to be per formed by
it as a Bank Investor; and (vi) specifies as its address for notices and its
account for payments the office and account set forth beneath its name on the
signature pages hereof[; and (vii) attaches the forms prescribed by the Internal
Revenue Service of the United States of America certifying as to the Assignee's
status for purposes of determining exemption from United States withholding
taxes with respect to all payments to be made to the Assignee under the
Agreement or such other documents as are necessary to indicate that all such
payments are subject to such rates at a rate reduced by an applicable tax
treaty].(1)
5. The effective date for this Assignment shall be the later
of (i) the date on which the Agent receives this Assignment executed by the
parties hereto and receives the consent of the Debtor and the Administrative
Agent, on behalf of the Company, and (ii) the date of this Assignment (the
"Effective Date"). Following the execution of this Assignment and Assumption
Agreement and the consent of the Debtor and the Administrative Agent, on behalf
of the Company, this Assignment and Assumption Agreement will be delivered to
the Agent for acceptance and, with respect to the Assignment and Assumption
Agreement, recording by the Agent.
6. Upon such acceptance and recording, as of the Effective
Date, (i) the Assignee shall be a party to the Agreement and, to the extent
provided in this Assignment, have the rights and obligations of a Bank Investor
thereunder and (ii) the Assignor shall, to the extent provided in this
Assignment, relinquish its rights and be released from its obligations under the
Agreement.
7. Upon such acceptance and recording, from and after the
Effective Date, the Agent shall make all payments under the Agreement in
respect of the interest assigned hereby (including, without limitation, all
payments in respect of such interest in Net Investment, Discount and fees) to
the Assignee. The Assignor and Assignee shall make all appropriate adjustments
in
--------
(1) If the Assignee is organized under the laws of a jurisdiction outside
the United States.
G-3
<PAGE> 130
payments under the Agreement for periods prior to the Effective Date
directly between themselves.
8. This Assignment shall be governed by, and construed in
accordance with, the laws of the State of New York.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
G-4
<PAGE> 131
9. This Assignment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of the signature page to this Assignment by telecopier shall be
effective as delivery of a manually executed counterpart of this Assignment.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Assumption Agreement to be executed by their respective officers
thereunto duly authorized as of the __ day of ______, 199_.
[ASSIGNOR]
By:
----------------------------------
Name:
Title:
[ASSIGNEE]
By:
----------------------------------
Name:
Title:
Address for notices and Account for payments:
For Credit Matters: For Administrative Matters:
[NAME] [NAME]
- --------------------------- ---------------------------
- --------------------------- ---------------------------
Attn: ___________ Attn.: ___________
Telephone: (___) ___-____ Telephone: (___) ___-____
Telefax: (___) ___-____ Telefax: (___) ___-____
Account for Payments:
NAME
- ---------------------------
ABA Number: ___-___-___
G-5
<PAGE> 132
Account Number: ___________
Attn: ______________
Re: ________________
Consented to this __ day
of ________, 199_
NATIONSBANK, N.A., as
Administrative Agent
By:
---------------------------
Name:
Title:
BELK, INC.
By:
----------------------------
Name:
Title:
Accepted this ___ day
of ________, 199_
NATIONSBANK, N.A.
as Agent
By:
----------------------------
Name:
Title:
G-6
<PAGE> 133
Exhibit H
List of Actions and Suits
NONE
H-1
<PAGE> 134
Exhibit I
Location of Chief Executive Office and Records
Location of Chief Executive Office:
2801 W. Tyvola Road
Charlotte, North Carolina 28217
Location of Records:
2801 W. Tyvola Road
Charlotte, North Carolina 28217
or
Pierce Leahy Archives
6100 Harris Technology Boulevard
Charlotte, North Carolina 28269
I-1
<PAGE> 135
Exhibit J
List of Subsidiaries, Divisions and Tradenames
J-1
<PAGE> 136
Exhibit K
[Form of Debtor's, Designated Sellers' and Servicer's
Counsel Opinion]
[Letterhead of Counsel]
_________ __, 1998
Enterprise Funding Corporation
c/o Merrill Lynch Money Markets Inc.
Merrill Lynch World Headquarters
World Financial Center--South Tower
225 Liberty Street--8th Floor
New York, New York 10080
NationsBank, N.A., as Agent
100 North Tryon Street
Charlotte, North Carolina 28255
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 4.1(o) of
the Note Purchase and Security Agreement dated as of June 12, 1998 (the
"Agreement") among BELK, INC., a _______ Delaware corporation (the "Debtor"),
The Belk Center, Inc., a North Carolina corporation, as servicer (the
"Servicer"), Enterprise Funding Corporation, a Delaware corporation (the
"Company"), NationsBank, N.A., a national banking association ("NationsBank") as
Agent and as a Bank Investor, and certain financial institutions from time to
time a party thereto as Bank Investors. Terms defined in the Agreement and not
otherwise defined herein are used in this opinion with the meanings so defined.
We have acted as counsel to the Designated Sellers, the
Servicer and the Debtor in connection with the preparation of the Agreement, the
Receivables Purchase Agreement, the other Transaction Documents and the
transactions contemplated thereby.
We have examined, on the date hereof, the Agreement and all
Exhibits thereto, each of the Receivables Purchase Agreement and all Exhibits
thereto and the Note delivered under the Agreement, certificates
K-1
<PAGE> 137
of public officials and of officers of the Debtor and the Designated Sellers and
certified copies of the Designated Sellers' and the Debtor's certificates of
incorporation, by-laws, resolutions of the respective Boards of Directors
authorizing the Designated Sellers' and the Debtor's participation in the
transactions contemplated by the Agreement and the Receivables Purchase
Agreement (copies of each of the above having been delivered to you), copies of
the financing statements on Form UCC-1 filed in the filing offices listed on
Schedule I hereto executed by each Designated Seller, as debtor, in favor of the
Debtor, as secured party, and showing thereon the Agent, on behalf of the Bank
Investors and the Company, as the assignee of the secured party, substantially
in the form attached hereto as Exhibit A (the "Designated Sellers' Financing
Statements") and copies of the financing statements on Form UCC-1 filed in the
filing offices listed on Schedule II hereto executed by Debtor, as debtor, in
favor of the Agent, on behalf of the Bank Investors and the Company, as secured
party, substantially in the form attached hereto as Exhibit B (the "Debtor
Financing Statements"). We have also examined the closing documents delivered
pursuant to the Agreement and the Receivables Purchase Agreement and copies of
all such documents and records, and have made such investigations of law, as we
have deemed necessary and relevant as a basis for our opinion. With respect to
the accuracy of material factual matters which were not independently
established, we have relied on certificates and statements of officers of the
Designated Sellers, the Servicer and the Debtor.
On the basis of the foregoing, we are of the opinion that:
11. The Debtor is a [corporation] duly incorporated, validly
existing and in good standing under the laws of [ ], has the corporate power and
authority to own its properties and to carry on its business as now being
conducted, and had at all relevant times, and now has, all necessary power,
authority, and legal right to acquire and own the Receivables, and is duly
qualified and in good standing as a foreign corporation and is authorized to do
business in each jurisdiction in which the character of its properties or the
nature of its business requires such qualification or authorization, Except for
qualifications and
K-2
<PAGE> 138
authorizations the lack of which, singly or in the aggregate, has not had and
will not have a materially adverse affect upon the business properties of the
Debtor or its ability to perform its obligations under the Transaction
Documents.
12. Each of the Designated Sellers is a corporation duly
incorporated, validly existing and in good standing under the laws of its
governing jurisdiction, has the corporate power and authority to own its proper
ties and to carry on its business as now being conducted, and had at all
relevant times, and now has, all necessary power, authority, and legal right to
acquire and own the Receivables, and is duly qualified and in good standing as a
foreign corporation and is authorized to do business in each jurisdiction in
which the character of its properties or the nature of its business requires
such qualification or authorization, except for qualifications and
authorizations the lack of which, singly or in the aggregate, has not had and
will not have a materially adverse affect upon the business properties of the
Debtor or its ability to perform its obligations under the Transaction
Documents.
13. The Debtor has the power, corporate and other, and has
taken all necessary corporate action to execute, deliver and perform the
Agreement and the other Transaction Documents, each in accordance with its
respective terms, and to consummate the transactions contemplated thereby. The
Transaction Documents to which the Debtor is a party have been duly executed and
delivered by the Debtor and when duly executed and delivered will constitute
the legal, valid and binding obligations of the Debtor enforceable against the
Debtor in accordance with their terms, Except as enforcement thereof may be
limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
14. Each of the Designated Sellers has the power, corporate
and other, and has taken all necessary corporate action to execute, deliver and
perform the Receivables Purchase Agreement to which it is a party and each other
Transaction Document to which it is a party, each in accordance with its
respective terms, and to consummate the transactions contemplated thereby. Each
K-3
<PAGE> 139
Transaction Document to which a Designated Seller is a party has been duly
executed and delivered by such Designated Seller and when duly executed and
delivered will constitute the legal, valid and binding obligation of such
Designated Seller enforceable against such Designated Seller in accordance with
their terms, Except as enforcement thereof may be limited by bankruptcy,
insolvency and other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles.
15. The execution, delivery and performance in accordance with
their terms by the Debtor of the Agreement and the other Transaction Documents
and the consummation of the transactions contemplated thereby, do not and will
not (i) require (a) any governmental approval or (b) any consent or approval of
any stockholder of the Debtor that has not been obtained, (ii) violate or
conflict with, result in a breach of, or constitute a default under (a) the
certificate of incorporation or the by-laws of the Debtor, (b) any other
agreement to which the Debtor is a party or by which the Debtor or any of its
properties may be bound, or (c) any applicable law, or any order, rule, or
regulation applicable to the Debtor of any court or of any federal or state
regulatory body, administrative agency, or other governmental instrumentality
having jurisdiction over the Debtor or any of its properties, or (iii) result in
or require the creation or imposition of any Lien upon any of the as sets,
property or revenue of the Debtor other than as contemplated by the Agreement.
16. The execution, delivery and performance in accordance with
their terms by each Designated Seller of the Receivables Purchase Agreement and
the other Transaction Documents to which it is a party and the consummation of
the transactions contemplated thereby do not and will not (i) require (a) any
governmental approval or (b) any consent or approval of any stockholder of such
Designated Seller that has not been obtained, (ii) violate or conflict with,
result in a breach of, or constitute a default under (a) the certificate of
incorporation or the by-laws of such Designated Seller, (b) any other agreement
to which such Designated Seller is a party or by which such Designated Seller or
any of its properties may be bound, or (c) any applicable law, or any order,
rule, or regulation
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<PAGE> 140
applicable to such Designated Seller of any court or of any federal or state
regulatory body, administrative agency, or other governmental instrumentality
having jurisdiction over such Designated Seller or any of its properties, or
(iii) result in or require the creation or imposition of any Lien upon any of
the assets, property or revenue of such Designated Seller other than as
contemplated by the Receivables Purchase Agreement.
17. Except as set forth in the schedule attached hereto,
there are not, in any court or before any arbitrator of any kind or before or by
any governmental or non-governmental body, any actions, suits, proceedings or
investigations, pending or to the best of our knowledge after due inquiry,
threatened (i) against the Debtor or the business or any property of the Debtor
Except actions, suits or proceedings that, if adversely deter mined, would not,
singly or in the aggregate, have a Material Adverse Effect or (ii) relating to
the Agreement or any other Transaction Document.
18. Except as set forth in the schedule attached hereto,
there are not, in any court or before any arbitrator of any kind or before or by
any governmental or non-governmental body, any actions, suits, proceedings or
investigations, pending, or to the best of our knowledge after due inquiry,
threatened (i) against the Designated Sellers or the business or any property
of the Designated Sellers Except actions, suits or proceedings that, if
adversely determined, would not, singly or in the aggregate, have a Material
Adverse Effect or (ii) relating to the Receivables Purchase Agreement, or any
other Transaction Document.
19. The Receivables constitute ["accounts"] ["general
intangibles"] ["chattel paper"] as [that] [such] term[s][is][are] defined in the
Uniform Commercial Code as in effect in [XYZ].
20. Each Receivables Purchase Agreement creates a valid
"security interest" (as that term is defined in Section 1-201(37) of the Uniform
Commercial Code (including the conflict of laws rules thereof) as in effect in
each applicable jurisdiction (the "UCC"), including New York (the "New York
UCC") and _______ (the "XYZ UCC"), under Article 9 of the New York UCC
K-5
<PAGE> 141
("Security Interest") in favor of the Debtor in the Receivables conveyed thereby
and in the proceeds thereof (Except that the Security Interest will attach to
any Receivable created after the date hereof only when the applicable Designated
Seller possesses rights in such Receivable). The internal laws of [XYZ] govern
the perfection by the filing of financing statements of the Debtor's Security
Interest in the Receivables and the proceeds thereof. The Designated Sellers'
Financing Statements have been filed in the filing office(s) located in XYZ
listed on Schedule I hereto, which [is] [are] the only office(s) in which
filings are required under the [XYZ] UCC to perfect the Debtor's Security
Interest in the Receivables and the proceeds thereof, and accordingly the
Debtor's Security Interest will, on the date of the initial transfer under each
of the Receivables Purchase Agreements, be perfected under Article 9 of the
[XYZ] UCC in each Receivable conveyed thereby and in the proceeds thereof. All
filing fees and all taxes required to be paid as a condition to or upon the
filing of the Designated Sellers' Financing Statements in XYZ have been paid in
full. As of the date hereof, there were no (i) UCC financing statements naming a
Designated Seller as debtor, seller or assignor and covering any Receivables or
any interest therein or (ii) notices of the filing of any federal tax lien
(filed pursuant to Section 6323 of the Internal Revenue Code) or lien of the
Pension Benefit Guaranty Corporation (filed pursuant to Section 4068 of the
Employment Retirement Insurance Act) covering any Receivable or any interest
therein. The filing of the Designated Sellers' Financing Statements in the
filing offices listed on Schedule I will create a first priority Security
Interest in each Receivable. Such perfection and priority will continue,
provided that appropriate continuation statements are timely filed where and
when required under the UCC.
21. The Agreement creates a valid "security interest" (as that
term is defined in Section 1-201(37) of the Uniform Commercial Code (including
the conflict of laws rules thereof) as in effect in each applicable jurisdiction
(the "UCC"), including New York (the "New York UCC") and _______ (the "XYZ
UCC"), under Article 9 of the New York UCC ("Security Interest") in favor of the
Company in each Receivable (Except that the Security Interest will attach only
when the Debtor possesses rights in such Receivable). The internal laws of [XYZ]
K-6
<PAGE> 142
govern the perfection by the filing of financing statements of the Company's
Security Interest in the Receivables and the proceeds thereof. The Debtor
Financing Statement(s) have been filed in the filing office(s) located in [XYZ]
listed on Schedule II hereto, which [is] [are] the only office(s) in which
filings are required under the [XYZ] UCC to perfect the Company's Security
Interest in the Receivables and the proceeds thereof, and accordingly the
Company's Security Interest in each Receivable and the proceeds thereof will, on
the date of the initial transfer under the Agreement, be perfected under Article
9 of the XYZ UCC. All filing fees and all taxes required to be paid as a
condition to or upon the filing of the Debtor Financing Statement(s) in [XYZ]
have been paid in full. As of the date hereof, there were no (i) UCC financing
statements naming the Debtor as debtor, seller or assignor and covering any
Receivables or any interest therein or (ii) notices of the filing of any federal
tax lien (filed pursuant to Section 6323 of the Internal Revenue Code) or lien
of the Pension Benefit Guaranty Corporation (filed pursuant to Section 4068 of
the Employment Retirement Insurance Act) covering any Receivable or any interest
therein. The filing of the Debtor Financing Statement(s) in the filing offices
listed on Schedule II will create a first priority Security Interest in each
Receivable. Such perfection and priority will continue, provided that
appropriate continuation statements are timely filed where and when required
under the UCC.
In giving the opinions in paragraphs 10 and 11, we have
assumed that (1) the Designated Sellers' and the Debtor's chief executive
offices will continue to be located in [XYZ], and (2) the Designated Sellers and
the Debtor have kept and will continue to keep all of their respective records
concerning Receivables located only in [XYZ]. The conclusions expressed in
paragraphs 10 and 11 are subject to the accuracy of the personnel in the filing
offices referred to above with regard to the filing, indexing and recording of
financing statements and notices of Liens, and to the correctness of reports to
us by ____________, who performed the searches of such records and who made the
filings on behalf of the Designated Sellers and the Debtor in XYZ.
In giving the opinions set forth in paragraphs 10 and 11, we
have assumed that all filings as
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<PAGE> 143
appropriate in the event of a change in the name, identity or corporate
structure of the debtor (or seller or assignor) named in any financing
statements and all continuation statements necessary under the UCC to maintain
the perfection of the Debtor's Security Interest and the Company's Security
Interest in the Receivables and the proceeds thereof will be duly and timely
filed. In giving such opinions, we also do not express any opinion as to (a)
transactions excluded from Article 9 of the UCC by virtue of Section 9-104 of
the UCC, (b) any security interest in proceeds Except to the extent that the
validity and perfection of any interest in proceeds (as such term is defined
under the UCC) thereof that is covered by the Designated Sellers' Financing
Statements or the Debtor Financing Statements or any duly filed financing
statement referred to above may be permitted by Section 9-306 of the UCC, and
(c) any security interest that is terminated or released.
The foregoing opinions and conclusions were given only in
respect of the laws of XYZ, the Uniform Commercial Code as in effect on the date
hereof in the State of New York and, to the extent specifically referred to
herein, the Federal laws of the United States of America.
This opinion has been delivered at your request for the
purposes contemplated by the Agreement. Without our prior written consent, this
opinion is not to be utilized or quoted for any other purpose and no one other
than you is entitled to rely thereon; provided, that any Bank Investor,
Liquidity Provider, any Credit Support Provider and any placement agent or
dealer of the Company's commercial paper may rely on this opinion as of it were
addressed to them.
Very truly yours,
K-8
<PAGE> 144
Exhibit L
[FORM OF [ASSISTANT] SECRETARY'S CERTIFICATE]
I, __________________, the undersigned ___________ of (the
"Company"), a ________, DO HEREBY CERTIFY that:
1. Attached hereto as Annex A is a true and complete copy of
the [Operating Agreement] [Certificate of Incorporation] of the Company as in
effect on the date hereof.
2. Attached hereto as Annex B is a true and complete copy of
the By-laws of the Company as in effect on the date hereof.
3. Attached hereto as Annex C is a true and complete copy of
the resolutions duly adopted by the [Manager] [Board of Directors] of the
Company [adopted by consent] as of _________________, 199_, authorizing the
execution, delivery and performance of each of the documents mentioned therein,
which resolutions have not been revoked, modified, amended or rescinded and are
still in full force and effect.
4. The below-named persons have been duly qualified as and at
all times since ________________, 199_, to and including the date hereof have
been officers or representatives of the Company holding the respective offices
or positions below set opposite their names and are authorized to execute on
behalf of the Company the below-mentioned Note Purchase and Security Agreement
and all other Transaction Documents (as defined in such Note Purchase and
Security Agreement) to which the Company is a party:
Name Office
[OFFICE]
[OFFICE]
5. The representations and warranties of the Company contained
in Section [3.1][3.2] of the Note Purchase and Security Agreement dated as of
June 12, 1998 among the Company, Belk, Inc., Belk Center, Inc., Enterprise
Funding Corporation, NationsBank, N.A. and
L-1
<PAGE> 145
certain financial institutions named therein are true and correct as if made on
the date hereof.
WITNESS my hand and seal of the Company as of this ____ day
of, 1998.
-------------------------
[Assistant] Secretary
L-2
<PAGE> 146
Exhibit M
Form of Note
June 12, 1998
$300,000,000
Reference is hereby made to that certain Note Pur chase and Security
Agreement dated as of June 12, 1998 (as amended, supplemented or otherwise
modified in accordance with the terms thereof and in effect from time to time,
the "Note Purchase and Security Agreement") by and between Belk, Inc., a
Delaware corporation (the "Issuer"), The Belk Center, Inc., Enterprise Funding
Corporation, a Delaware corporation (the "Company") and NationsBank, N.A., a
national banking association (the "Agent" or the "Bank Investor," as
applicable). All capitalized terms used but not defined herein shall have the
meanings assigned thereto in the Note Purchase and Security Agreement, as
applicable.
FOR VALUE RECEIVED, the Debtor hereby promises to pay to the order of
the Agent, for the account of the Company or the Bank Investor at the principal
office of the Agent at NationsBank Corporate Center, 100 N. Tryon Street,
Charlotte, North Carolina 28255 a principal sum equal to THREE HUNDRED MILLION
DOLLARS ($300,000,000), in lawful money of the United States of America and in
immediately available funds.
The date and amount of each Advance extended by the Company or the Bank
Investor, as the case may be, to the Debtor under the Note Purchase and Security
Agreement, and each payment of principal thereof, shall be recorded by the
Agent, for the account of the Company, or the Bank Investor, as appropriate, on
its books and, prior to any transfer of this Note (or, at the discretion of the
Company, and/or the Bank Investor, as appropriate, at any other time), endorsed
by the Agent, on behalf of the Company and the Bank Investor on the schedule
attached hereto or any continuation thereof. Although the stated principal
amount of this Note is as stated above, this Note shall be enforceable only with
respect to the Debtor's obligation to pay the principal hereof only to
M-1
<PAGE> 147
the extent of the unpaid principal amount of the Advances outstanding under the
Note Purchase and Security Agreement at the time such enforcement shall be
sought.
Interest on the outstanding principal amount of this Note shall accrue
at the rate or rates necessary for the payment to the holder hereof, on the
dates provided for in the Note Purchase and Security Agreement, of Carrying
Costs payable to the holder hereof on such date or dates; in all events interest
hereunder in an amount equal to the Interest Component of all Related Commercial
Paper maturing on any day shall be due and payable on such day. Interest due and
payable hereunder shall be payable in accordance with the priorities set forth
in Section 2.5(a) of the Note Purchase and Security Agreement.
Principal will be due and payable (i) on each Remittance Date, and
such amounts shall be payable in accordance with the priorities set forth in
Section 2.5(b) of the Note Purchase and Security Agreement, and (ii) at such
other times as may be required pursuant to the Note Purchase and Security
Agreement. On any day, an amount determined to be due and payable pursuant to
Section 2.9(a) of the Note Purchase and Security Agreement shall be due and
payable hereunder.
The entire outstanding principal amount of this Note and accrued
interest thereon will be due and payable on the date which is twelve (12) months
after the Termination Date.
The Debtor's obligation to make payments hereunder shall be a limited
recourse obligation of the Debtor, payable solely from the Collateral.
Subject to Section 8.4 of the Note Purchase and Security Agreement, the
Debtor shall pay all reasonable out-of-pocket costs of collection of any amount
due hereunder when incurred, including without limitation, reasonable attorney's
fees and expenses, and including all reasonable out-of-pocket costs and expenses
actually incurred in connection with the pursuit by the holder of any of its
rights or remedies referred to herein or in the Note Purchase and Security
Agreement or the protection of or realization upon collateral, and all such
costs shall be payable in accordance with the Note Purchase and Security
Agreement.
M-2
<PAGE> 148
The Debtor waives presentment, notice of dishonor, protest and other
notice or formality with respect to this Note.
M-3
<PAGE> 149
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
BELK, INC.
By:
-----------------------
Name:
Title:
M-4
<PAGE> 150
Exhibit N
List of Post Office Boxes
Post Office Box No. 1098
Charlotte, North Carolina 28201-1099
Location: 2901 South Interstate 85 Service Road
Charlotte, North Carolina 28228-9975
Post Office Box No. 1099
Charlotte, North Carolina 28201-1099
Location: 2901 South Interstate 85 Service Road
Charlotte, North Carolina 28228-9975
N-1
<PAGE> 151
Exhibit O
Form of Post Office Box Agreement
______________________, 19__
NationsBank, N.A.
100 North Tryon Street
Charlotte, North Carolina 28255
Attention: Michelle Heath
The Belk Center, Inc.
Gentlemen:
We have assigned, transferred and conveyed to you all right,
title and interest in and to and exclusive dominion and control of all items of
mail addressed to Post Office Box[es] No[s]. ___ maintained with the United
States Postal Service which Post Office Box[es] [have][has] been assigned by the
United States Postal Service to the undersigned, The Belk Center, Inc. (the
"Company"). We will transfer exclusive control of the Post Office Box[es] to you
upon delivery by you to the United States Postal Service of the Notice of
Effectiveness (as hereinafter defined), a copy of which shall be forwarded by
you to us.
The Company further certifies that on and after the date
beginning on the day of the delivery of the Notice of Effectiveness, you, and
not we, shall have all rights with respect to the Post Office Box[es] as if such
Post Office Box[es] had been originally assigned by the United States Postal
Service exclusively to you, and at any time on or after such date, you may take
any action with respect to the Post Office Box[es] and all items of mail
addressed thereto as though you were the original and exclusive assignee or
otherwise directing delivery of all items of mail addressed to the Post Office
Box[es].
We hereby expressly acknowledge and agree that our assignment
to you hereunder is entire, absolute and exclusive and that we, after the
delivery of the Notice of Effectiveness, shall have no right whatsoever to
receive, remove or otherwise direct delivery of any items of mail addressed to
the Post Office Box[es].
O-1
<PAGE> 152
At all times during the effectiveness of this Agreement, we
shall pay all rent, fees or other expenses relating to the the Post Office
Box[es]; provided, that you may, if you so choose, pay such amounts on behalf of
us. We shall notify you immediately upon receipt of any knowledge regarding the
termination or potential termination of the Post Office Box[es].
The transfer of control of the Post Office Box[es], referred
to in the first paragraph of this letter, shall become effective upon delivery
by you to the United States Postal Service of a notice (the "Notice of
Effectiveness") in substantially the form attached hereto as Annex "1".
Very truly yours,
THE BELK CENTER INC.
By:
-----------------------
Title:
Acknowledged by:
NationsBank, N.A.
By:
----------------------------
Title:
O-2
<PAGE> 153
ANNEX 1
TO POST OFFICE BOX AGREEMENT
[FORM OF NOTICE OF EFFECTIVENESS]
DATED: ______________, 199_
TO: [Address of Post Office Location]
Attention: Postmaster
Re: Post Office Box No[s]._______
Ladies and Gentlemen:
We hereby give you notice that the transfer of control of the
above-referenced Post Office Box[es], as described in the letter agreement
between us and The Belk Center, Inc. (a copy of which is attached hereto)dated
June 12, 1998, is effective as of the date hereof. You are hereby requested to
honor the terms set forth in that letter.
In furtherance of the foregoing, we hereby notify you that the
following persons are authorized to exercise all rights granted to NationsBank,
N.A. by the above-referenced letter:
Michelle Heath
Stan Meihaus
Brian Krum
Elliot Lemon
Chris Parrish
Robert Wood
O-3
<PAGE> 154
Very truly yours,
NATIONSBANK, N.A.
By:
----------------------------------------
Title:
-------------------------------------
ACKNOWLEDGED AND AGREED:
THE BELK CENTER, INC.
By:
-------------------------
Title:
----------------------
Date:
-----------------------
O-4
<PAGE> 155
'
Exhibit P
Financial Covenant Definitions
"Capital Lease" means any lease of Property by a Person as
lessee which, in accordance with GAAP, is or should be accounted for as a
capital lease on the balance sheet of that Person.
"Consolidated EBITDA" means, for any period, the sum of (a)
Consolidated Net Income for such period, plus (b) an amount which, in the
determination of Consolidated Net Income for such period, has been deducted for
(i) Interest Expense, (ii) total federal, state, local and foreign income,
value-added and similar taxes and (iii) depreciation and amortization expense,
all deter mined in accordance with GAAP.
"Consolidated Net Income" means, for any period, net income
(excluding extraordinary items) of the Consolidated Parties determined on a
consolidated basis in accordance with GAAP.
"Consolidated Parties" means, collectively, the Debtor and its
Subsidiaries.
"Fixed Charge Coverage Ratio" means, as of the end of each
fiscal quarter of the Consolidated Parties, commencing January 30, 1999, for the
consecutive four-quarter period ending on such date (or in the case of January
30, 1999, the consecutive three-quarter period ending on such date), the ratio
of (a) the sum of (i) Consolidated EBITDA plus (ii) Rental Expense to (b) the
sum of (i) Interest Expense plus (ii) Scheduled Funded Debt Payments plus (iii)
Rental Expense.
"Funded Debt" means, with respect to any Person at any date,
without duplication, (a) all indebtedness of such Person for borrowed money; (b)
all obligations of such Person for the deferred purchase price of Property or
services (other than current trade payables incurred in the ordinary course of
such Person's business); (c) all obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments; (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to Property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement
P-1
<PAGE> 156
in the event of default are limited to repossession or sale of such Property);
(d) all Capital Lease obligations of such Person; (f) all obligations of such
Person, contingent or otherwise, as an account party under acceptances, standby
letters of credit or similar extensions of credit; (g) all debt of another
Person of the type referred to in clauses (a)-(f) above secured by (or for which
the holder of such debt has an existing right, contingent or otherwise, to be
secured by) any lien on, or payable out of the proceeds of production from,
Property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed; (h) all Guaranty Obligations of such Person
with respect to debt of the type referred to in clauses (a)-(f) above of another
Person; and (i) debt of the type referred to in clauses (a)-(f) above of any
partnership or unincorporated joint venture in which such Person is a general
partner or a joint venturer, all as determined on a consolidated basis in
accordance with GAAP.
"Guaranty Obligations" means, with respect to any Person, without
duplication, any obligation of such Person (other than endorsements in the
ordinary course of business of negotiable instruments for deposit or collection)
guaranteeing or intended to guarantee any indebtedness of any other Person (the
"obligor") in any manner, whether directly or indirectly, and including without
limitation any obligation, whether or not contingent, (a) to purchase any such
indebtedness or any Property constituting direct or indirect security therefor,
(b) to advance or provide funds or other support for the payment or purchase of
any such indebtedness or to maintain working capital, equity capital or to
otherwise maintain the net worth or solvency of the obligor, (c) to lease or
purchase Property, securities or services primarily for the purpose of assuring
the holder of such indebtedness of the ability of the obligor to make payment of
such obligation or (d) to otherwise assure or hold harmless the holder of such
indebtedness against loss in respect thereof. The amount of any Guaranty
Obligation hereunder shall be deemed to be an amount equal to the outstanding
principal amount (or the maximum principal amount, if larger) of the
indebtedness in respect of which such Guaranty Obligation is made.
"Interest Expense" means, for any period, aggregate interest
expense (including (a) the
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<PAGE> 157
amortization of debt discount and premium, (b) the interest component under
Capital Leases, (c) those charges owed and allocated (including, without
limitation, the implied interest component) to third parties with respect to
accounts receivable securitizations transacted in the ordinary course of
business and (d) the implied interest component under synthetic leases,
off-balance sheet loans or similar off-balance sheet financing products) of the
Consolidated Parties, determined on a consolidated basis in accordance with
GAAP.
"Leverage Ratio" means, for the consecutive three-quarter
period of the Debtor ending on January 30, 1999, or for any consecutive
four-quarter period of the Debtor ending on a date after January 30, 1999, the
ratio of (a) Funded Debt of the Consolidated Parties on the last day of such
period to (b) Consolidated EBITDA for such period.
"Operating Lease" means any lease of Property by a Person
which, in accordance with GAAP, would not be accounted for as a Capital Lease.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Rental Expense" means, for any period, aggregate rental
expenses of the Consolidated Parties under Operating Leases with respect to
leases of real or personal (or mixed) property, determined on a consolidated
basis in accordance with GAAP.
"Scheduled Funded Debt Payments" means, with respect to the
Consolidated Parties as of the end of each fiscal quarter, commencing January
30, 1999, the sum of all scheduled payments of principal on Funded Debt for the
consecutive four-quarter period ending on such date (or, in the case of January
30, 1999, the consecutive three-quarter period ending on such date)(including
the principal component of payments due on Capital Leases during the applicable
period), determined on a consolidated basis in accordance with GAAP.
P-3
<PAGE> 1
EXHIBIT 10.2
================================================================================
RECEIVABLES PURCHASE AGREEMENT
among
BELK-SIMPSON COMPANY, GREENVILLE, SOUTH CAROLINA,
as Seller
and
BELK, INC.,
as Purchaser
and
THE BELK CENTER, INC.
as Servicer
Dated as of June 12, 1998
================================================================================
<PAGE> 2
RECEIVABLES PURCHASE AGREEMENT
This RECEIVABLES PURCHASE AGREEMENT, dated as of June 12, 1998 (as
amended, supplemented or otherwise modified and in effect from time to time,
this "Agreement"), among BELK-SIMPSON COMPANY, GREENVILLE, SOUTH CAROLINA, a
South Carolina corporation, as seller (in such capacity, the "Seller"), BELK,
INC., a Delaware corporation, as purchaser (in such capacity, the "Purchaser"),
THE BELK CENTER, INC., a North Carolina corporation, as servicer (the "Servicer"
or "Belk Center").
W I T N E S S E T H :
WHEREAS, the Purchaser desires to purchase from time to time certain
accounts receivable existing on the Closing Date and acquired or generated
thereafter in the normal course of the Seller's business pursuant to certain
revolving consumer credit card accounts;
WHEREAS, the Seller desires to sell and assign from time to time such
accounts receivable to the Purchaser upon the terms and conditions hereinafter
set forth;
WHEREAS, the Servicer has agreed to service the accounts receivable
sold to the Purchaser by the Seller hereunder;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed by and among
the Purchaser, the Seller and the Servicer as follows:
2
<PAGE> 3
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. All capitalized terms used herein shall have
the meanings specified herein or, if not so specified, the meaning specified in,
or incorporated by reference into, the Note Purchase Agreement, and shall
include in the singular number the plural and in the plural number the singular:
"Agent" shall mean NationsBank, N.A., as agent on behalf of Enterprise
and the Bank Investors pursuant to the Note Purchase Agreement, and any
successor thereto appointed pursuant to Article IX thereof.
"Bank Investors" shall have the meaning specified in the Note Pledge
Agreement.
"Closing Date" shall mean June 12, 1998.
"Eligible Receivable" shall have the meaning specified in the Note
Purchase Agreement.
"Enterprise" shall mean Enterprise Funding Corporation, a Delaware
corporation, and its successors and assigns.
"Event of Bankruptcy" shall have the meaning specified in the Note
Purchase Agreement.
"Note Purchase Agreement" shall mean the Note Purchase and Security
Agreement, dated as of June 12, 1998, by and among the Purchaser, Belk Center,
as Servicer, Enterprise Funding Corporation and NationsBank, N.A., as Agent and
Bank Investor, as such agreement may be amended, modified or supplemented from
time to time.
"Outstanding Principal Balance" shall have the meaning specified in the
Note Purchase Agreement.
"Purchase Date" shall have the meaning assigned in Section 3.2(b)
hereof.
"Purchase Rate" shall mean 100%.
"Purchase Period" shall mean, with respect to Receivables sold by the
Seller to the Purchaser after the Closing Date, the Collection Period reported
upon in the most recent Servicer Report.
"Purchase Price" shall have the meaning set forth in Section 3.1
hereof.
"Purchaser" shall mean Belk, Inc., a Delaware corporation, and its
successors and assigns hereunder.
3
<PAGE> 4
"Receivable" shall mean, for purposes of this Agreement, the
indebtedness owed to the Seller by any Obligor under an Account (whether such
Account is in existence as of the Cut-Off Date or thereafter created), whether
constituting an account, chattel paper, instrument, investment property or
general intangible, arising in connection with the sale or lease of merchandise
or the rendering of services, and which in all cases shall include the right to
payment of any Finance Charges and other obligations of such Obligor with
respect thereto.
"Related Security" means with respect to any Receivable, all of the
Seller's rights, title and interest in, to and under:
(i) all of the Seller's interest, if any, in the merchandise
(including returned or repossessed merchandise), if any, the sale of
which gave rise to such Receivable;
(ii) all other security interests or liens and property
subject thereto from time to time, if any, purporting to secure payment
of such Receivable, whether pursuant to the Account related to such
Receivable or otherwise, together with all financing statements signed
by an Obligor describing any collateral securing such Receivable;
(iii) all guarantees, indemnities, warranties, insurance (and
proceeds and premium refunds thereof) or other agreements or
arrangements of any kind from time to time supporting or securing
payment of such Receivable whether pursuant to the Account related to
such Receivable or otherwise;
(iv) all Records related to such Receivable; and
(v) all Proceeds of any of the foregoing.
"Relevant UCC" shall mean the Uniform Commercial Code as in effect in
the State of New York; provided, however, that if by reason of mandatory
provisions of law, the perfection or non-perfection of a security interest in
any property conveyed hereunder is governed by the Uniform Commercial Code as in
effect in a jurisdiction other than the State of New York, "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such perfection or non-perfection.
"Secured Obligations" shall have the meaning set forth in Section
2.1(d) hereof.
"Termination Date" shall have the meaning specified in Section 4.1.
SECTION 1.2. Other Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles. All terms used in Article 9 of the Relevant UCC, and not
specifically defined herein, are used herein as defined in such Article 9.
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SECTION 1.3. Computation of Time Periods. Unless otherwise stated in
this Agreement, in the computation of a period of time from a specified date to
a later specified date, the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding."
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES
SECTION 2.1. Sale. (a) Upon the terms and subject to the conditions set
forth herein, the Seller hereby sells, assigns, transfers and conveys to the
Purchaser, and the Purchaser hereby purchases from the Seller, on the terms and
subject to the conditions specifically set forth herein, all of the Seller's
right, title and interest, whether now owned or hereafter acquired, in, to and
under the Receivables outstanding on the Cut-Off Date and thereafter owned by
the Seller, through any Termination Date applicable to the Seller (but not
thereafter), together with all Related Security and Collections with respect
thereto and all proceeds of the foregoing. The foregoing sale, assignment,
transfer and conveyance does not constitute an assumption by the Purchaser of
any obligations of the Seller or any other Person to Obligors or to any other
Person in connection with the Receivables or under any Related Security, Account
Agreement or other agreement and instrument relating to the Receivables. With
respect to Receivables sold by the Seller on the Closing Date, such Receivables
shall be deemed to be all the Receivables of the Seller that exist as of the
close of business on the Cut-Off Date. With respect to Receivables sold by the
Seller after the Closing Date, such Receivables shall be deemed to be all the
Receivables created or acquired by the Seller after the close of business on the
Cut-Off Date.
(b) In connection with the foregoing sale, the Seller agrees
to deliver to the Purchaser on or prior to the Closing Date, a
financing statement or statements with respect to the Receivables and
the other property described in Section 2.1(a) sold by the Seller
hereunder meeting the requirements of applicable state law in such
manner and in such jurisdictions as are necessary to perfect and
protect the interests of the Purchaser created hereby under the
Relevant UCC against all creditors of and purchasers from the Seller.
Any expenses of the filing of such financing statements shall be borne
solely by the Seller.
(c) The Seller agrees that from time to time, at its expense,
it will promptly execute and deliver all instruments and documents and
take all actions as may be necessary or as the Purchaser may reasonably
request in order to perfect or protect the interest of the Purchaser in
the Receivables purchased hereunder or to enable the Purchaser to
exercise or enforce any of its rights hereunder. Without limiting the
foregoing, the Seller will, in order to accurately reflect this
purchase and sale transaction, execute and file such financing or
continuation statements or amendments thereto or assignments thereof
(as permitted pursuant hereto) as may be requested by the Purchaser,
and upon the request of the Purchaser, mark its master data processing
records and other documents with a legend describing the purchase by
the Purchaser of the Receivables and the subsequent grant of a security
interest therein to the Agent pursuant to the Note Pledge Agreement and
stating "THE RECEIVABLES IN THESE FILES HAVE BEEN ACQUIRED BY AND
5
<PAGE> 6
CONVEYED TO BELK, INC., AND SUCH RECEIVABLES HAVE BEEN PLEDGED BY BELK,
INC. TO NATIONSBANK, N.A., AS AGENT FOR THE BENEFIT OF ENTERPRISE
FUNDING CORPORATION AND THOSE CERTAIN BANK INVESTORS PURSUANT TO THE
NOTE PURCHASE AND SECURITY AGREEMENT, DATED AS OF JUNE 12, 1998, AS
AMENDED FROM TIME TO TIME, AMONG BELK, INC., NATIONSBANK, N.A.,
ENTERPRISE FUNDING CORPORATION AND THE OTHER SIGNATORIES NAMED
THEREIN." The Seller shall, upon request of the Purchaser, obtain such
additional search reports as the Purchaser shall request. To the
fullest extent permitted by applicable law, the Purchaser shall be
permitted to sign and file continuation statements and amendments
thereto and assignments thereof without the Seller's signature. Carbon,
photographic or other reproduction of this Agreement or any financing
statement shall be sufficient as a financing statement.
(d) It is the express intent of the Seller and the Purchaser
that the conveyance of the Receivables by the Seller to the Purchaser
pursuant to this Agreement be construed as a sale of such Receivables
by the Seller to the Purchaser. Further, it is not the intention of the
Seller or the Purchaser that such conveyance be deemed a grant of a
security interest in the Receivables by the Seller to the Purchaser to
secure a debt or other obligation of the Seller. However, in the event,
that, notwithstanding the express intent of the parties, the
Receivables are construed to constitute property of the Seller, then
(i) this Agreement also shall be deemed to be, and hereby is, a
security agreement within the meaning of the Relevant UCC; and (ii) the
conveyance by the Seller provided for in this Agreement shall be deemed
to be, and the Seller hereby grants to the Purchaser, a security
interest in, to and under all of the Seller's right, title and interest
in, to and under the Receivables outstanding on the Closing Date and
thereafter owned by the Seller, together with all Related Security and
Collections with respect thereto and all proceeds of the foregoing, to
secure the rights of the Purchaser set forth in this Agreement or as
may be determined in connection therewith by applicable law
(collectively, the "Secured Obligations"). The Seller and the Purchaser
shall, to the extent consistent with this Agreement, take such actions
as may be necessary to ensure that, if this Agreement were deemed to
create a security interest in the Receivables, such security interest
would be deemed to be a perfected security interest in favor of the
Purchaser under applicable law and will be maintained as such
throughout the term of this Agreement.
SECTION 2.2. Servicing of Receivables. The servicing, administering and
collection of the Receivables shall be conducted by Belk Center, which hereby
agrees to perform, take or cause to be taken all such action as may be necessary
or advisable to collect each Receivable from time to time, all in accordance
with applicable laws, rules and regulations and with the care and diligence
which Belk Center employs in servicing similar receivables, in accordance with
the Credit Guidelines. The Purchaser hereby appoints Belk Center as its agent to
enforce the Purchaser's rights and interests in, to and under the Receivables,
the Related Security and the Collections with respect thereto. Belk Center shall
hold in trust for the Purchaser, in accordance with its interests, all Records
which evidence or relate to the Receivables or Related Security, Collections and
proceeds with respect thereto. Notwithstanding anything to the contrary
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<PAGE> 7
contained herein, from and after the occurrence of a Termination Event (other
than a Termination Event described in Section 7.1(o) or 7.1(p) of the Note
Purchase Agreement) or a Servicer Default (each as defined in the Note Purchase
Agreement), the Agent or Enterprise shall have the absolute and unlimited right
to terminate Belk Center's servicing activities described in this Section 2.2.
In consideration of the foregoing, the Purchaser agrees to pay Belk Center a
servicing fee of 2.00% per annum on the aggregate Outstanding Principal Balance
of Receivables sold, payable monthly, as well as an amount equal to all late
fees, returned check or NSF charges and similar charges received from Obligors
with respect to Receivables, for its performance of the duties and obligations
described in this Section 2.2; provided that any such monthly payment shall be
reduced by any amounts payable in such month by Enterprise or the Bank Investors
to Belk Center, in its capacity as Servicer pursuant to the Note Purchase
Agreement.
ARTICLE III
CONSIDERATION AND PAYMENT; RECEIVABLES
SECTION 3.1. Purchase Price. (a) The Purchase Price for the Receivables
and related property conveyed on any date to the Purchaser by the Seller under
this Agreement shall be a dollar amount equal to the product of the aggregate
Outstanding Principal Balance of such Receivables.
SECTION 3.2. Payment of Purchase Price. The Purchase Price for the
Receivables sold on any date shall be paid by payment of cash in immediately
available funds to the Seller.
ARTICLE IV
TERM AND TERMINATION
SECTION 4.1. Term. This Agreement shall commence as of the date of
execution and delivery hereof and shall continue in full force and effect until
the date following the earlier of (i) the date designated by the Purchaser or
the Seller as the termination date at any time following sixty (60) day's
written notice to the other (with a copy thereof to the Agent), (ii) the close
of business on the third Business Day following a conveyance of Receivables by
the Seller to the Purchaser for which the Purchaser does not pay the Purchase
Price in accordance with the provisions hereof, (iii) upon the occurrence of an
Event of Bankruptcy with respect to the Seller, (iv) the date on which either
the Purchaser or the Seller defaults on its obligations hereunder, which default
continues unremedied for more than thirty (30) days after written notice, or (v)
upon the occurrence of an Event of Bankruptcy with respect to the Purchaser (any
such date described above, being a "Termination Date"); provided, however, that
the termination of this Agreement pursuant to this Section 4.1 shall not
discharge any Person from any obligations incurred prior to such termination,
including, without limitation, any obligations to make any payments with respect
to the interest of the Purchaser in any Receivable sold prior to such
termination.
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<PAGE> 8
SECTION 4.2. Effect of Termination. Following the termination of this
Agreement pursuant to Section 4.1, the Seller shall not sell, and the Purchaser
shall not purchase, any Receivables from any the Seller. No termination or
rejection or failure to assume the executory obligations of this Agreement in
any Event of Bankruptcy with respect to the Seller or the Purchaser shall be
deemed to impair or affect the obligations pertaining to any executed sale or
executed obligations. Without limiting the foregoing, prior to termination, the
failure of the Seller to deliver computer records of Receivables or any reports
regarding the Receivables shall not render such transfer or obligation
executory, nor shall the continued duties of the parties pursuant to Section 5.1
of this Agreement render an executed sale executory.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.1. Amendment. This Agreement and the rights and obligations
of the parties hereunder may not be changed orally, but only by an instrument in
writing signed by the Purchaser and the Seller and consented to in writing by
the Agent. Any reconveyance executed in accordance with the provisions hereof
shall not be considered an amendment to this Agreement.
SECTION 5.2. GOVERNING LAW; Submission to Jurisdiction.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) The parties hereto hereby submit to the nonexclusive
jurisdiction of the United States District Court for the Western
District of North Carolina and of any North Carolina state court
sitting in Mecklenburg County for purposes of all legal proceedings
arising out of or relating to this Agreement or the transactions
contemplated hereby. Each party hereto hereby irrevocably waives, to
the fullest extent it may effectively do so, 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. Nothing in
this Section 5.2 shall affect the right of the Purchaser to bring any
other action or proceeding against the Seller or its property in the
courts of other jurisdictions.
SECTION 5.3. Notices. Except as provided below, all communications and
notices provided for hereunder shall be in writing (including telecopy or
electronic facsimile transmission or similar writing) and shall be given to the
other party at its address or telecopy number set forth below or at such other
address or telecopy number as such party may hereafter specify for the purposes
of notice to such party. Each such notice or other communication shall be
effective (i) if given by telecopy, when such telecopy is transmitted to the
telecopy number specified in this Section 5.3 and confirmation is received,
(ii) if given by mail three Business Days following such posting, postage
prepaid, U.S. certified or registered, (iii) if given by overnight courier, one
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Business Day after deposit thereof with a national overnight courier service, or
(iv) if given by any other means, when received at the address specified in this
Section 5.3.
If to the Purchaser:
Belk, Inc.
2801 West Tyvola Road
Charlotte, North Carolina 28217
Telephone: (704) 357-1064, ext: 4273
Telecopy: (704) 357-0711
Attn: Terry L. Scott
with a copy to:
NationsBank, N.A.
NationsBank Corporate Center
100 North Tryon Street
NC1-007-10-07
Charlotte, NC 28255
Attention: Michelle M. Heath, Structured Finance
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
If to the Seller:
Belk-Simpson, Company,
Greenville, South Carolina
c/o Belk Stores Services, Inc.
2801 West Tyvola Road
Charlotte, North Carolina 28217
Telephone: (704) 357-1064, ext: 4273
Telecopy: (704) 357-0711
Attn: Terry L. Scott
If to the Servicer:
The Belk Center, Inc.
2801 West Tyvola Road
Charlotte, North Carolina 28217
Telephone: (704) 357-1064, extension 7000
Telecopy: (704) 357-1861
Attn: Oakley Orser
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party.
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SECTION 5.4. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be held invalid, then such covenants, agreements, provisions,
or terms shall be deemed severable from the remaining covenants, agreements,
provisions, or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement.
SECTION 5.5. Assignment. This Agreement may not be assigned by the
parties hereto, except that the Purchaser may assign its rights hereunder
pursuant to the Note Purchase Agreement to the Agent, for the benefit of
Enterprise and the Bank Investors, and that Enterprise may assign any or all of
its rights to any Liquidity Provider and may grant a security interest in its
rights hereunder to the Collateral Agent. The Purchaser hereby notifies the
Seller that (and the Seller hereby acknowledges that), pursuant to the Note
Purchase Agreement, the Purchaser has assigned its rights hereunder to the
Agent, for the benefit of Enterprise and the Bank Investors.
SECTION 5.6. Further Assurances. The Purchaser and the Seller agree to
do and perform, from time to time, any and all acts and to execute any and all
further instruments required, or reasonably requested by the other party, more
fully to effect the purposes of this Agreement, including, without limitation,
the execution of any financing statements or continuation statements or
equivalent documents relating to the Receivables for filing under the provisions
of the Relevant UCC or other laws of any applicable jurisdiction.
SECTION 5.7. No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of the Purchaser, the Seller or the Agent,
any right, remedy, power or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exhaustive of any
rights, remedies, powers and privilege provided by law.
SECTION 5.8. Counterparts. This Agreement may be executed in two or
more counterparts including telecopy transmission thereof (and by different
parties on separate counterparts) , each of which shall be an original, but all
of which together shall constitute one and the same instrument.
SECTION 5.9. Binding Effect. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns. The Agent, on behalf of Enterprise and the Bank Investors, is
an intended third-party beneficiary of the Seller's obligations hereunder.
SECTION 5.10. Merger and Integration. Except as specifically stated
otherwise herein, this Agreement sets forth the entire understanding of the
parties relating to the subject matter hereof, and all prior understandings,
written or oral, are superseded by this Agreement. This Agreement may not be
modified, amended, waived or supplemented except as provided herein.
SECTION 5.11. Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation of
any provision hereof.
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IN WITNESS WHEREOF, the Purchaser, the Seller and the Servicer each
have caused this Receivables Purchase Agreement to be duly executed by their
respective officers as of the day and year first above written.
BELK-SIMPSON COMPANY,
GREENVILLE, SOUTH CAROLINA.,
as the Seller
By: /s/ John M. Belk
-----------------------------------
Name: John M. Belk
Title: Chairman
BELK, INC., as Purchaser
By: /s/ John M. Belk
-----------------------------------
Name: John M. Belk
Title: Chairman
THE BELK CENTER, INC.,
as Servicer
By: /s/ James M. Berry
-----------------------------------
Name: James M. Berry
Title: Vice President
11
<PAGE> 1
EXHIBIT 10.3
AMENDMENT NO. 1 TO
NOTE PURCHASE AND SECURITY AGREEMENT
THIS AMENDMENT AGREEMENT is made and entered into as of the 30th day of
January, 1999 (the "Effective Date"), by and among BELK, INC., a Delaware
corporation (the "Debtor"); THE BELK CENTER, INC., a North Carolina corporation,
as servicer (the "Servicer"); ENTERPRISE FUNDING CORPORATION, a Delaware
corporation (the "Company"); and NATIONSBANK, N.A., a national banking
association ("NationsBank"), as agent for the Company and the Bank Investors (in
such capacity, the "Agent") and as a Bank Investor.
W I T N E S S E T H:
WHEREAS, the Debtor, the Servicer, the Company, and NationsBank, as
Agent and as a Bank Investor have entered into the Note Purchase and Security
Agreement dated as of June 12, 1998 (as amended, the "Note Purchase Agreement");
and
WHEREAS, Belk Stores of Virginia LLC, a North Carolina limited
liability company ("Belk Stores of Virginia"), is a Subsidiary of Belk and will
generate Receivables; and
WHEREAS, on the date hereof, Belk Stores of Virginia is executing a
Receivables Purchase Agreement; and
WHEREAS, the parties wish to amend the Note Purchase Agreement in the
manner herein set forth effective as of the date hereof;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and in consideration of the execution by Belk Stores of Virginia of a
Receivables Purchase Agreement, the parties do hereby agree as follows:
1. Definitions. Unless the context otherwise requires, all terms used
herein without definition shall have the definition provided therefor in the
Note Purchase Agreement.
2. Amendments to Note Purchase Agreement. The Note Purchase Agreement
is hereby amended, effective as of the Effective Date, as follows:
(a) The following definition of "Belk Virginia" is added to
Section 1.1 of the Note Purchase Agreement in the proper alphabetical
order:
"'Belk Virginia' means Belk Stores of Virginia LLC.
(b) The definition of "Designated Seller" in Section 1.1 of
the Note Purchase Agreement is hereby deleted and replaced by the
following definition of "Designated Sellers":
<PAGE> 2
"'Designated Sellers' means, collectively, Belk
Simpson and Belk Virginia."
(c) The definition of "Receivables Purchase Agreement" in
Section 1.1 of the Note Purchase Agreement is hereby amended in its
entirety so that as amended it reads as follows:
"Receivables Purchase Agreement" means, collectively,
(a) the Receivables Purchase Agreement, dated as of June 12,
1998, by and between Belk, Inc., as purchaser, Belk Simpson,
as seller, and The Belk Center, Inc., as servicer; and (b) the
Receivables Purchase Agreement, dated as of January 30, 1999,
by and between Belk, Inc., as purchaser, Belk Virginia, as
seller, and The Belk Center, Inc., as servicer.
3. Entire Agreement. This Amendment Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter. No promise, conditions, representation
or warranty, express or implied, not herein set forth shall bind any party
hereto, and no one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledges that, except
as in this Amendment Agreement otherwise expressly stated, no representations,
warranties or commitments, express or implied, have been made by any other party
to the other. None of the terms or conditions of this Amendment Agreement may be
changed, modified, waived or canceled orally or otherwise, except by writing in
accordance with the terms of the Note Purchase Agreement, specifying such
change, modification, waiver or cancellation of such terms or conditions, or of
any proceeding or succeeding breach thereof.
4. Full Force and Effect of Transaction Documents. Except as hereby
specifically amended, modified or supplemented, the Note Purchase Agreement and
all of the other Transaction Documents are hereby confirmed and ratified in all
respects and shall remain in full force and effect according to their respective
terms.
5. Counterparts. This Amendment Agreement may be executed in one or
more counterparts each of which shall be an original but all of which together
shall constitute one and the same instrument.
[Remainder of page intentionally left blank]
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<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
BELK, INC.
By: /s/ John M. Belk
------------------------------------
Name: John M. Belk
Title: Chairman
THE BELK CENTER, INC.,
as Servicer
By: /s/ James M. Berry
------------------------------------
Name: James M. Berry
Title: Vice President
ENTERPRISE FUNDING COMPANY
By: /s/ Kevin P. Burns
------------------------------------
Name: Kevin P. Burns
Title: Chairman
NATIONSBANK, N.A.,
as a Bank Investor
By: /s/ Elliott T. Lemon
------------------------------------
Name: Elliott T. Lemon
Title: Vice President
NATIONSBANK, N.A.,
as Agent
By: /s/ Elliott T. Lemon
------------------------------------
Name: Elliott T. Lemon
Title: Vice President
SIGNATURE PAGE 1
<PAGE> 1
EXHIBIT 10.4
================================================================================
RECEIVABLES PURCHASE AGREEMENT
among
BELK STORES OF VIRGINIA LLC,
as Seller
and
BELK, INC.,
as Purchaser
and
THE BELK CENTER, INC.
as Servicer
Dated as of January 30, 1999
================================================================================
<PAGE> 2
RECEIVABLES PURCHASE AGREEMENT
This RECEIVABLES PURCHASE AGREEMENT, dated as of January 30, 1999 (as
amended, supplemented or otherwise modified and in effect from time to time,
this "Agreement"), among BELK STORES OF VIRGINIA LLC, a North Carolina limited
liability company, as seller (in such capacity, the "Seller"), BELK, INC., a
Delaware corporation, as purchaser (in such capacity, the "Purchaser"), THE BELK
CENTER, INC., a North Carolina corporation, as servicer (the "Servicer" or "Belk
Center").
W I T N E S S E T H :
WHEREAS, the Purchaser desires to purchase from time to time certain
accounts receivable existing on the Closing Date and acquired or generated
thereafter in the normal course of the Seller's business pursuant to certain
revolving consumer credit card accounts;
WHEREAS, the Seller desires to sell and assign from time to time such
accounts receivable to the Purchaser upon the terms and conditions hereinafter
set forth;
WHEREAS, the Servicer has agreed to service the accounts receivable
sold to the Purchaser by the Seller hereunder;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed by and among
the Purchaser, the Seller and the Servicer as follows:
2
<PAGE> 3
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. All capitalized terms used herein shall have
the meanings specified herein or, if not so specified, the meaning specified in,
or incorporated by reference into, the Note Purchase Agreement, and shall
include in the singular number the plural and in the plural number the singular:
"Agent" shall mean NationsBank, N.A., as agent on behalf of Enterprise
and the Bank Investors pursuant to the Note Purchase Agreement, and any
successor thereto appointed pursuant to Article IX thereof.
"Bank Investors" shall have the meaning specified in the Note Pledge
Agreement.
"Closing Date" shall mean January 30, 1999.
"Eligible Receivable" shall have the meaning specified in the Note
Purchase Agreement.
"Enterprise" shall mean Enterprise Funding Corporation, a Delaware
corporation, and its successors and assigns.
"Event of Bankruptcy" shall have the meaning specified in the Note
Purchase Agreement.
"Note Purchase Agreement" shall mean the Note Purchase and Security
Agreement, dated as of June 12, 1998, by and among the Purchaser, Belk Center,
as Servicer, Enterprise Funding Corporation and NationsBank, N.A., as Agent and
Bank Investor, as such agreement has been amended by the Amendment No. 1 to Note
Purchase and Security Agreement dated as of the date hereof, and as such
agreement may be further amended, modified or supplemented from time to time.
"Outstanding Principal Balance" shall have the meaning specified in the
Note Purchase Agreement.
"Purchase Date" shall have the meaning assigned in Section 3.2(b)
hereof.
"Purchase Rate" shall mean 100%.
"Purchase Period" shall mean, with respect to Receivables sold by the
Seller to the Purchaser after the Closing Date, the Collection Period reported
upon in the most recent Servicer Report.
"Purchase Price" shall have the meaning set forth in Section 3.1
hereof.
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<PAGE> 4
"Purchaser" shall mean Belk, Inc., a Delaware corporation, and its
successors and assigns hereunder.
"Receivable" shall mean, for purposes of this Agreement, the
indebtedness owed to the Seller by any Obligor under an Account (whether such
Account is in existence as of the Cut-Off Date or thereafter created), whether
constituting an account, chattel paper, instrument, investment property or
general intangible, arising in connection with the sale or lease of merchandise
or the rendering of services, and which in all cases shall include the right to
payment of any Finance Charges and other obligations of such Obligor with
respect thereto.
"Related Security" means with respect to any Receivable, all of the
Seller's rights, title and interest in, to and under:
(i) all of the Seller's interest, if any, in the merchandise
(including returned or repossessed merchandise), if any, the sale of
which gave rise to such Receivable;
(ii) all other security interests or liens and property
subject thereto from time to time, if any, purporting to secure payment
of such Receivable, whether pursuant to the Account related to such
Receivable or otherwise, together with all financing statements signed
by an Obligor describing any collateral securing such Receivable;
(iii) all guarantees, indemnities, warranties, insurance (and
proceeds and premium refunds thereof) or other agreements or
arrangements of any kind from time to time supporting or securing
payment of such Receivable whether pursuant to the Account related to
such Receivable or otherwise;
(iv) all Records related to such Receivable; and
(v) all Proceeds of any of the foregoing.
"Relevant UCC" shall mean the Uniform Commercial Code as in effect in
the State of New York; provided, however, that if by reason of mandatory
provisions of law, the perfection or non-perfection of a security interest in
any property conveyed hereunder is governed by the Uniform Commercial Code as in
effect in a jurisdiction other than the State of New York, "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such perfection or non-perfection.
"Secured Obligations" shall have the meaning set forth in Section
2.1(d) hereof.
"Termination Date" shall have the meaning specified in Section 4.1.
SECTION 1.2. Other Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles. All terms used in Article
4
<PAGE> 5
9 of the Relevant UCC, and not specifically defined herein, are used herein as
defined in such Article 9.
SECTION 1.3. Computation of Time Periods. Unless otherwise stated in
this Agreement, in the computation of a period of time from a specified date to
a later specified date, the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding."
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES
SECTION 2.1. Sale. (a) Upon the terms and subject to the conditions set
forth herein, the Seller hereby sells, assigns, transfers and conveys to the
Purchaser, and the Purchaser hereby purchases from the Seller, on the terms and
subject to the conditions specifically set forth herein, all of the Seller's
right, title and interest, whether now owned or hereafter acquired, in, to and
under the Receivables outstanding on the Closing Date and thereafter owned by
the Seller, through any Termination Date applicable to the Seller (but not
thereafter), together with all Related Security and Collections with respect
thereto and all proceeds of the foregoing. The foregoing sale, assignment,
transfer and conveyance does not constitute an assumption by the Purchaser of
any obligations of the Seller or any other Person to Obligors or to any other
Person in connection with the Receivables or under any Related Security, Account
Agreement or other agreement and instrument relating to the Receivables. With
respect to Receivables sold by the Seller on the Closing Date, such Receivables
shall be deemed to be all the Receivables of the Seller that exist as of the
close of business on the Closing Date. With respect to Receivables sold by the
Seller after the Closing Date, such Receivables shall be deemed to be all the
Receivables created or acquired by the Seller after the close of business on the
Closing Date.
(b) In connection with the foregoing sale, the Seller agrees
to deliver to the Purchaser on or prior to the Closing Date, a
financing statement or statements with respect to the Receivables and
the other property described in Section 2.1(a) sold by the Seller
hereunder meeting the requirements of applicable state law in such
manner and in such jurisdictions as are necessary to perfect and
protect the interests of the Purchaser created hereby under the
Relevant UCC against all creditors of and purchasers from the Seller.
Any expenses of the filing of such financing statements shall be borne
solely by the Seller.
(c) The Seller agrees that from time to time, at its expense,
it will promptly execute and deliver all instruments and documents and
take all actions as may be necessary or as the Purchaser may reasonably
request in order to perfect or protect the interest of the Purchaser in
the Receivables purchased hereunder or to enable the Purchaser to
exercise or enforce any of its rights hereunder. Without limiting the
foregoing, the Seller will, in order to accurately reflect this
purchase and sale transaction, execute and file such financing or
continuation statements or amendments thereto or assignments thereof
(as permitted pursuant hereto) as may be requested by the Purchaser,
and upon the request of the Purchaser, mark its master data processing
records and other documents with a legend describing the purchase by
the Purchaser of the Receivables and the subsequent grant of a
5
<PAGE> 6
security interest therein to the Agent pursuant to the Note Pledge
Agreement and stating "THE RECEIVABLES IN THESE FILES HAVE BEEN
ACQUIRED BY AND CONVEYED TO BELK, INC., AND SUCH RECEIVABLES HAVE BEEN
PLEDGED BY BELK, INC. TO NATIONSBANK, N.A., AS AGENT FOR THE BENEFIT OF
ENTERPRISE FUNDING CORPORATION AND THOSE CERTAIN BANK INVESTORS
PURSUANT TO THE NOTE PURCHASE AND SECURITY AGREEMENT, DATED AS OF JUNE
12, 1998, AS AMENDED FROM TIME TO TIME, AMONG BELK, INC., NATIONSBANK,
N.A., ENTERPRISE FUNDING CORPORATION AND THE OTHER SIGNATORIES NAMED
THEREIN." The Seller shall, upon request of the Purchaser, obtain such
additional search reports as the Purchaser shall request. To the
fullest extent permitted by applicable law, the Purchaser shall be
permitted to sign and file continuation statements and amendments
thereto and assignments thereof without the Seller's signature. Carbon,
photographic or other reproduction of this Agreement or any financing
statement shall be sufficient as a financing statement.
(d) It is the express intent of the Seller and the Purchaser
that the conveyance of the Receivables by the Seller to the Purchaser
pursuant to this Agreement be construed as a sale of such Receivables
by the Seller to the Purchaser. Further, it is not the intention of the
Seller or the Purchaser that such conveyance be deemed a grant of a
security interest in the Receivables by the Seller to the Purchaser to
secure a debt or other obligation of the Seller. However, in the event,
that, notwithstanding the express intent of the parties, the
Receivables are construed to constitute property of the Seller, then
(i) this Agreement also shall be deemed to be, and hereby is, a
security agreement within the meaning of the Relevant UCC; and (ii) the
conveyance by the Seller provided for in this Agreement shall be deemed
to be, and the Seller hereby grants to the Purchaser, a security
interest in, to and under all of the Seller's right, title and interest
in, to and under the Receivables outstanding on the Closing Date and
thereafter owned by the Seller, together with all Related Security and
Collections with respect thereto and all proceeds of the foregoing, to
secure the rights of the Purchaser set forth in this Agreement or as
may be determined in connection therewith by applicable law
(collectively, the "Secured Obligations"). The Seller and the Purchaser
shall, to the extent consistent with this Agreement, take such actions
as may be necessary to ensure that, if this Agreement were deemed to
create a security interest in the Receivables, such security interest
would be deemed to be a perfected security interest in favor of the
Purchaser under applicable law and will be maintained as such
throughout the term of this Agreement.
SECTION 2.2. Servicing of Receivables. The servicing, administering and
collection of the Receivables shall be conducted by Belk Center, which hereby
agrees to perform, take or cause to be taken all such action as may be necessary
or advisable to collect each Receivable from time to time, all in accordance
with applicable laws, rules and regulations and with the care and diligence
which Belk Center employs in servicing similar receivables, in accordance with
the Credit Guidelines. The Purchaser hereby appoints Belk Center as its agent to
enforce the Purchaser's rights and interests in, to and under the Receivables,
the Related Security and the Collections with respect thereto. Belk Center shall
hold in trust for the Purchaser, in accordance
6
<PAGE> 7
with its interests, all Records which evidence or relate to the Receivables or
Related Security, Collections and proceeds with respect thereto. Notwithstanding
anything to the contrary contained herein, from and after the occurrence of a
Termination Event (other than a Termination Event described in Section 7.1(o) or
7.1(p) of the Note Purchase Agreement) or a Servicer Default (each as defined in
the Note Purchase Agreement), the Agent or Enterprise shall have the absolute
and unlimited right to terminate Belk Center's servicing activities described in
this Section 2.2. In consideration of the foregoing, the Purchaser agrees to pay
Belk Center a servicing fee of 2.00% per annum on the aggregate Outstanding
Principal Balance of Receivables sold, payable monthly, as well as an amount
equal to all late fees, returned check or NSF charges and similar charges
received from Obligors with respect to Receivables, for its performance of the
duties and obligations described in this Section 2.2; provided that any such
monthly payment shall be reduced by any amounts payable in such month by
Enterprise or the Bank Investors to Belk Center, in its capacity as Servicer
pursuant to the Note Purchase Agreement.
ARTICLE III
CONSIDERATION AND PAYMENT; RECEIVABLES
SECTION 3.1. Purchase Price. (a) The Purchase Price for the Receivables
and related property conveyed on any date to the Purchaser by the Seller under
this Agreement shall be a dollar amount equal to the product of the aggregate
Outstanding Principal Balance of such Receivables.
SECTION 3.2. Payment of Purchase Price. The Purchase Price for the
Receivables sold on any date shall be paid by payment of cash in immediately
available funds to the Seller.
ARTICLE IV
TERM AND TERMINATION
SECTION 4.1. Term. This Agreement shall commence as of the date of
execution and delivery hereof and shall continue in full force and effect until
the date following the earlier of (i) the date designated by the Purchaser or
the Seller as the termination date at any time following sixty (60) day's
written notice to the other (with a copy thereof to the Agent), (ii) the close
of business on the third Business Day following a conveyance of Receivables by
the Seller to the Purchaser for which the Purchaser does not pay the Purchase
Price in accordance with the provisions hereof, (iii) upon the occurrence of an
Event of Bankruptcy with respect to the Seller, (iv) the date on which either
the Purchaser or the Seller defaults on its obligations hereunder, which default
continues unremedied for more than thirty (30) days after written notice, or (v)
upon the occurrence of an Event of Bankruptcy with respect to the Purchaser (any
such date described above, being a "Termination Date") ; provided, however, that
the termination of this Agreement pursuant to this Section 4.1 shall not
discharge any Person from any obligations incurred prior to such termination,
including, without limitation, any obligations to make any
7
<PAGE> 8
payments with respect to the interest of the Purchaser in any Receivable sold
prior to such termination.
SECTION 4.2. Effect of Termination. Following the termination of this
Agreement pursuant to Section 4.1, the Seller shall not sell, and the Purchaser
shall not purchase, any Receivables from any the Seller. No termination or
rejection or failure to assume the executory obligations of this Agreement in
any Event of Bankruptcy with respect to the Seller or the Purchaser shall be
deemed to impair or affect the obligations pertaining to any executed sale or
executed obligations. Without limiting the foregoing, prior to termination, the
failure of the Seller to deliver computer records of Receivables or any reports
regarding the Receivables shall not render such transfer or obligation
executory, nor shall the continued duties of the parties pursuant to Section 5.1
of this Agreement render an executed sale executory.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.1. Amendment. This Agreement and the rights and obligations
of the parties hereunder may not be changed orally, but only by an instrument in
writing signed by the Purchaser and the Seller and consented to in writing by
the Agent. Any reconveyance executed in accordance with the provisions hereof
shall not be considered an amendment to this Agreement.
SECTION 5.2. GOVERNING LAW; Submission to Jurisdiction.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) The parties hereto hereby submit to the nonexclusive
jurisdiction of the United States District Court for the Western
District of North Carolina and of any North Carolina state court
sitting in Mecklenburg County for purposes of all legal proceedings
arising out of or relating to this Agreement or the transactions
contemplated hereby. Each party hereto hereby irrevocably waives, to
the fullest extent it may effectively do so, 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. Nothing in
this Section 5.2 shall affect the right of the Purchaser to bring any
other action or proceeding against the Seller or its property in the
courts of other jurisdictions.
SECTION 5.3. Notices. Except as provided below, all communications and
notices provided for hereunder shall be in writing (including telecopy or
electronic facsimile transmission or similar writing) and shall be given to the
other party at its address or telecopy number set forth below or at such other
address or telecopy number as such party may hereafter specify for the purposes
of notice to such party. Each such notice or other communication shall be
effective (i) if
8
<PAGE> 9
given by telecopy, when such telecopy is transmitted to the telecopy number
specified in this Section 5.3 and confirmation is received, (ii) if given by
mail three Business Days following such posting, postage prepaid, U.S. certified
or registered, (iii) if given by overnight courier, one Business Day after
deposit thereof with a national overnight courier service, or (iv) if given by
any other means, when received at the address specified in this Section 5.3.
If to the Purchaser:
Belk, Inc.
2801 West Tyvola Road
Charlotte, North Carolina 28217
Telephone: (704) 357-1064, ext: 4273
Telecopy: (704) 357-0711
Attn: Terry L. Scott
with a copy to:
NationsBank, N.A.
NationsBank Corporate Center
100 North Tryon Street
NC1-007-10-07
Charlotte, NC 28255
Attention: Michelle M. Heath, Structured Finance
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
If to the Seller:
Belk Stores of Virginia LLC
c/o Belk Stores Services, Inc.
2801 West Tyvola Road
Charlotte, North Carolina 28217
Telephone: (704) 357-1064, ext: 4273
Telecopy: (704) 357-0711
Attn: Terry L. Scott
If to the Servicer:
The Belk Center, Inc.
2801 West Tyvola Road
Charlotte, North Carolina 28217
Telephone: (704) 357-1064, extension 7000
Telecopy: (704) 357-1861
Attn: Oakley Orser
9
<PAGE> 10
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party.
SECTION 5.4. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be held invalid, then such covenants, agreements, provisions,
or terms shall be deemed severable from the remaining covenants, agreements,
provisions, or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement.
SECTION 5.5. Assignment. This Agreement may not be assigned by the
parties hereto, except that the Purchaser may assign its rights hereunder
pursuant to the Note Purchase Agreement to the Agent, for the benefit of
Enterprise and the Bank Investors, and that Enterprise may assign any or all of
its rights to any Liquidity Provider and may grant a security interest in its
rights hereunder to the Collateral Agent. The Purchaser hereby notifies the
Seller that (and the Seller hereby acknowledges that), pursuant to the Note
Purchase Agreement, the Purchaser has assigned its rights hereunder to the
Agent, for the benefit of Enterprise and the Bank Investors.
SECTION 5.6. Further Assurances. The Purchaser and the Seller agree to
do and perform, from time to time, any and all acts and to execute any and all
further instruments required, or reasonably requested by the other party, more
fully to effect the purposes of this Agreement, including, without limitation,
the execution of any financing statements or continuation statements or
equivalent documents relating to the Receivables for filing under the provisions
of the Relevant UCC or other laws of any applicable jurisdiction.
SECTION 5.7. No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of the Purchaser, the Seller or the Agent,
any right, remedy, power or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exhaustive of any
rights, remedies, powers and privilege provided by law.
SECTION 5.8. Counterparts. This Agreement may be executed in two or
more counterparts including telecopy transmission thereof (and by different
parties on separate counterparts) , each of which shall be an original, but all
of which together shall constitute one and the same instrument.
SECTION 5.9. Binding Effect. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns. The Agent, on behalf of Enterprise and the Bank Investors, is
an intended third-party beneficiary of the Seller's obligations hereunder.
SECTION 5.10. Merger and Integration. Except as specifically stated
otherwise herein, this Agreement sets forth the entire understanding of the
parties relating to the subject matter
10
<PAGE> 11
hereof, and all prior understandings, written or oral, are superseded by this
Agreement. This Agreement may not be modified, amended, waived or supplemented
except as provided herein.
SECTION 5.11. Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation of
any provision hereof.
11
<PAGE> 12
IN WITNESS WHEREOF, the Purchaser, the Seller and the Servicer each
have caused this Receivables Purchase Agreement to be duly executed by their
respective officers as of the day and year first above written.
BELK STORES OF VIRGINIA LLC,
as the Seller
By: /s/ John M. Belk
-----------------------------------
Name: John M. Belk
Title: Manager
BELK, INC., as Purchaser
By: /s/ John M. Belk
-----------------------------------
Name: John M. Belk
Title: Chairman
THE BELK CENTER, INC.,
as Servicer
By: /s/ James M. Berry
-----------------------------------
Name: James M. Berry
Title: Vice President
SIGNATURE PAGE 1
<PAGE> 1
EXHIBIT 10.5
AMENDMENT NO. 2 TO
NOTE PURCHASE AND SECURITY AGREEMENT
AMENDMENT NO. 2 TO NOTE PURCHASE AND SECURITY AGREEMENT (this "Amendment"),
dated as of April 28, 1999, among BELK, INC., a Delaware corporation (the
"Debtor"), THE BELK CENTER, INC., a North Carolina corporation, as servicer
(the "Servicer"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation (the
"Company") and NATIONSBANK, N.A., a national banking association
("NationsBank"), as agent for the Company and the Bank Investors (in such
capacity, the "Agent"), amending that certain Note Purchase and Security
Agreement, dated as of June 12, 1998, among the Debtor, the Servicer, the
Company, the Agent and NationsBank, as a Bank Investor (the "Agreement").
WHEREAS, on the terms and conditions set forth herein, the parties to the
Agreement wish to amend the Agreement as provided herein.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. Defined Terms. As used in this Amendment capitalized terms
have the same meanings assigned thereto in the Agreement.
SECTION 2. Amendment of Certain Definition. In Section 1.1 of the
Agreement, the definition of "Commitment Termination Date" shall be amended
such that the reference to "June 11, 1999" shall be amended to read "April 27,
2000".
SECTION 3. Representations and Warranties.
(a) The Debtor hereby makes to the Agent, the Company and the Bank
Investors, on and as of the date hereof, all of the representations and
warranties set forth in Section 3.1 of the Agreement, except that to the extent
that any of such representations and warranties expressly relate to an earlier
date, such representations and warranties shall be true and correct as of such
earlier date.
(b) The Servicer hereby makes to the Agent, the Company and the Bank
Investors, on and as of the date hereof, all of the representations and
warranties set forth in Section 3.2 of the Agreement, except that to the extent
that any of such representations and warranties expressly relate to an earlier
date, such representations
<PAGE> 2
and warranties shall be true and correct as of such earlier date.
SECTION 4. Effectiveness. This Amendment shall become effective on
the later of (i) the first day on or after which it is executed by all the
parties hereto, and (ii) April 28, 1999.
SECTION 5. Costs and Expenses. The Debtor shall pay all of the
Company's and the Agent's cost and expenses (including out of pocket expenses
and reasonable attorneys fees and disbursements) incurred by them in
connection with the preparation, execution and delivery of this Amendment.
SECTION 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. Severability; Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the
same instrument. Any provisions of this Amendment which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 8. Captions. The captions in this Amendment are for
convenience of reference only and shall not define or limit any of the terms
or provisions hereof.
SECTION 9. Ratification. Except as expressly affected by the
provisions hereof, the Agreement as amended shall remain in full force and
effect in accordance with its terms and ratified and confirmed by the parties
hereto. On and after the date hereof, each reference in the Agreement to "this
Agreement", "hereunder", "herein" or words of like import shall mean and be a
reference to the Agreement as amended by this Amendment.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written above.
ENTERPRISE FUNDING
CORPORATION, as Company
By: /s/ KEVIN P. BURNS
---------------------------------
Name: Kevin P. Burns
Title: Vice President
BELK, INC., as Debtor
By: /s/ JOHN M. BELK
---------------------------------
Name: John M. Belk
Title: Chairman and CEO
THE BELK CENTER, INC.,
as Servicer
By: /s/ JAMES M. BERRY
---------------------------------
Name: James M. Berry
Title: Vice President
NATIONSBANK, N.A., as Agent
and a Bank Investor
By: /s/ ELLIOTT T. LEMON
---------------------------------
Name: Elliott T. Lemon
Title: Vice President
<PAGE> 1
EXHIBIT 10.6
[EXECUTION COPY]
================================================================================
LETTER OF CREDIT
AND
REIMBURSEMENT AGREEMENT
BY AND BETWEEN
BELK, INC.
AND
FIRST UNION NATIONAL BANK
DATED AS OF JULY 1, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
(This Table of Contents is not a part of the Agreement
but rather is for convenience of reference only.)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS............................................................................................1
1.1 Definitions.....................................................................................1
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE BORROWER........................................................8
2.1 Incorporation...................................................................................8
2.2 Power and Authority.............................................................................8
2.3 Financial Condition.............................................................................8
2.4 Title to Assets.................................................................................9
2.5 Contingent Liabilities..........................................................................9
2.6 Litigation......................................................................................9
2.7 Taxes...........................................................................................9
2.8 Contract or Restriction.........................................................................9
2.9 Trademarks, Franchises and Licenses.............................................................9
2.10 No Default.....................................................................................10
2.11 Governmental Authority.........................................................................10
2.12 No Untrue Statements...........................................................................10
2.13 ERISA Requirements.............................................................................10
2.14 Pollution and Environmental Control; Hazardous Substances......................................10
ARTICLE III REIMBURSEMENT AND OTHER PAYMENTS....................................................................10
3.1 Letter of Credit...............................................................................10
3.2 Reimbursement and Other Payments...............................................................11
3.3 Tender Advances................................................................................11
3.4 Commission and Fees............................................................................12
3.5 Increased Costs Due to Change in Law...........................................................13
3.6 Computation....................................................................................13
3.7 Payment Procedure..............................................................................13
3.8 Business Days..................................................................................13
3.9 Extension of Expiration Date...................................................................13
3.10 Obligations Absolute...........................................................................14
ARTICLE IV [RESERVED]...........................................................................................14
ARTICLE V AFFIRMATIVE COVENANTS.................................................................................14
5.1 Repayment of Obligations.......................................................................14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5.2 Performance Under Reimbursement Agreement......................................................15
5.3 Financial and Business Information about the Borrower..........................................15
5.4 Notice of Certain Events.......................................................................16
5.5 Corporate Existence............................................................................17
5.6 Payment of Indebtedness; Performance of Other Obligations......................................17
5.7 Maintenance of Books and Records; Inspection...................................................17
5.8 Comply with ERISA..............................................................................17
5.9 Maintenance of Properties; Conduct of Business.................................................18
5.10 Insurance......................................................................................18
5.11 Observe all Laws...............................................................................18
5.12 Year 2000......................................................................................18
5.13 Subsidiary Guaranties..........................................................................18
ARTICLE VI NEGATIVE COVENANTS...................................................................................19
6.1 Merger and Dissolution; Sale of Assets.........................................................19
6.2 Acquisitions...................................................................................19
6.3 Indebtedness...................................................................................19
6.4 Liens and Encumbrances.........................................................................20
6.5 Transactions With Related Persons..............................................................20
6.6 Sale and Leaseback.............................................................................20
6.7 New Business...................................................................................20
6.8 Subsidiaries...................................................................................20
6.9 Guaranties.....................................................................................21
6.10 Restrictive Transactions.......................................................................21
6.11 Hazardous Wastes...............................................................................21
6.12 Fiscal Year....................................................................................21
6.13 Amendments.....................................................................................21
6.14 Leverage Ratio.................................................................................21
6.15 Fixed Charge Coverage Ratio....................................................................21
6.16 Net Worth......................................................................................22
ARTICLE VII CONDITIONS TO ISSUANCE OF LETTER OF CREDIT..........................................................22
7.1 Conditions to Issuance.........................................................................22
7.2 Additional Conditions Precedent to Issuance of the Letter of Credit............................23
7.3 Conditions Precedent to Each Tender Advance....................................................23
ARTICLE VIII DEFAULT............................................................................................24
8.1 Events of Default..............................................................................24
8.2 No Remedy Exclusive............................................................................26
ARTICLE IX PLEDGED BONDS........................................................................................26
9.1 The Pledge.....................................................................................26
9.2 Remedies Upon Default..........................................................................27
9.3 Valid Perfected First Lien.....................................................................27
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
9.4 Release of Pledged Bonds.......................................................................28
ARTICLE X MISCELLANEOUS.........................................................................................28
10.1 Indemnification................................................................................28
10.2 Transfer of Letter of Credit...................................................................29
10.3 Reduction of Letter of Credit..................................................................29
10.4 Liability of the Bank..........................................................................29
10.5 Successors and Assigns.........................................................................30
10.6 Notices........................................................................................30
10.7 Amendment......................................................................................30
10.8 Effect of Delay and Waivers....................................................................30
10.9 Counterparts...................................................................................31
10.10 Severability...................................................................................31
10.11 Payment of Expenses............................................................................31
10.12 Set Off........................................................................................31
10.13 Governing Law..................................................................................31
10.14 References.....................................................................................31
10.15 Taxes, Etc.....................................................................................32
10.16 Consent to Jurisdiction........................................................................32
10.17 Indirect Means.................................................................................32
Exhibit A - Irrevocable Letter of Credit........................................................................A-1
Exhibit B - List of Subsidiaries................................................................................B-1
Exhibit C - Form of Borrower's Counsel Opinion..................................................................C-1
Exhibit D - Form of Bond Counsel Reliance Letter................................................................D-1
</TABLE>
iii
<PAGE> 5
THIS LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT, dated as of July 1,
1998 (the "Agreement" or "Reimbursement Agreement"), is by and between BELK,
INC., a Delaware corporation (the "Borrower") and FIRST UNION NATIONAL BANK, a
national banking association organized and existing under the laws of the
United States with its principal offices located in Charlotte, North Carolina
(the "Bank");
W I T N E S S E T H:
WHEREAS, arrangements have been made pursuant to a Trust Indenture
dated as of July 1, 1998, between Borrower and First Union National Bank, as
Trustee (in such capacity, the "Trustee") (as amended, the "Indenture") for the
issuance and sale by the Borrower of its Taxable Variable Rate Demand Revenue
Bonds, Series 1998 in the original aggregate principal amount of up to
$125,000,000 (the "Bonds"); and
WHEREAS, in order to enhance the marketability of the Bonds, the
Borrower has requested that the Bank issue an irrevocable direct-pay letter of
credit in the form attached hereto as Exhibit A (such letter of credit or any
successor or substitute letter of credit issued by the Bank herein individually
and collectively called the "Letter of Credit") in an amount of up to
$126,849,316, of which $125,000,000 will support the principal of the Bonds,
and $1,849,316 will support up to 45 days' interest on the Bonds at an assumed
rate of twelve percent (12%) per annum;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, including the covenants, terms and conditions
hereinafter appearing, and to induce the Bank to issue the Letter of Credit,
the Borrower does hereby covenant and agree with the Bank as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The terms defined in this Article I have, for all
purposes of this Agreement, the meanings specified hereinabove or in this
Article, unless defined elsewhere herein or the context clearly requires
otherwise.
"Affiliate" means, with respect to any Person, any other Person (i)
directly or indirectly controlling (including, but not limited to, all
directors and officers of such Person), controlled by, or under direct or
indirect common control with, such Person or (ii) that directly or indirectly
owns more than 5% of the voting securities of such Person. A Person shall be
deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership or voting
securities, by contract or otherwise.
<PAGE> 6
"Agreement" means this Letter of Credit and Reimbursement Agreement,
as the same may from time to time be amended, modified or supplemented in
accordance with the terms hereof.
"Applicable Law" means all applicable provisions of constitutions,
laws, statutes, ordinances, rules, treaties, regulations, permits, licenses,
approvals, interpretations and orders of all Governmental Authorities and all
orders and decrees of all courts and arbitrators.
"Bankruptcy Code" means 11 U.S.C. ss. 101 et seq., as amended.
"Big Five" means the listing of the largest certified public
accounting firms currently comprised of Arthur Andersen, Ernst & Young, KPMG,
Deloitte and Touche, and PricewaterhouseCoopers, or any similar listing as may
be expanded or reduced in the future.
"Bond Documents" means, collectively, the Indenture, the Bonds, the
Remarketing Agreement, the Placement Agreement, the Private Placement
Memorandum and any other documents relating to the issuance of the Bonds, as
the same may be amended, modified or supplemented from time to time in
accordance with their respective terms.
"Business Day" means any day not a Saturday, Sunday or legal holiday,
on which commercial banks in Charlotte, North Carolina are open for business.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests or equivalents in capital stock
(whether voting or nonvoting, and whether common or preferred) of such
corporation, and (ii) with respect to any Person that is not a corporation, any
and all partnership, membership, limited liability company or other equity
interests of such Person; and in each case, any and all warrants, rights or
options to purchase any of the foregoing.
"Commitment Letter" means that certain commitment letter from the Bank
to the Borrower dated June 25, 1998, and accepted and executed by the Borrower
on or before the date of issuance of the Bonds.
"Comprehensive Income" means comprehensive income of Borrower and
Subsidiaries on a consolidated basis determined in accordance with Generally
Accepted Accounting Principles.
"Consistent Basis" means, in reference to the application of Generally
Accepted Accounting Principles, that the accounting principles observed in the
period referred to are comparable in all material respects to those applied in
the preceding period, except as to any changes consented to by the Bank or
required by Generally Accepted Accounting Principles.
"Consolidated Net Income" means, for any period of computation
thereof, the net income of the Borrower and its Subsidiaries (excluding
extraordinary items) as determined on a
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<PAGE> 7
consolidated basis in accordance with Generally Accepted Accounting Principles
applied on a Consistent Basis.
"Consolidated Tangible Net Worth" means, at any date of determination,
the total stockholders' equity (including Capital Stock, additional paid-in
capital and retained earnings after deducting treasury stock), less any
intangible assets (excluding Lease Intangibles) of the Borrower and its
Subsidiaries and calculated on a consolidated basis in accordance with
Generally Accepted Accounting Principles.
"Contingent Obligation" means, with respect to any Person, any direct
or indirect liability of such Person with respect to any Indebtedness,
liability or other obligation (the "primary obligation") of another Person (the
"primary obligor"), whether or not contingent, (a) to purchase, repurchase or
otherwise acquire such primary obligation or any property constituting direct
or indirect security therefor, (b) to advance or provide funds (i) for the
payment or discharge of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor in respect thereof to make
payment of such primary obligation or (d) otherwise to assure or hold harmless
the owner of any such primary obligation against loss or failure or inability
to perform in respect thereof; provided, however, that, with respect to the
Borrower and its Subsidiaries, the term Contingent Obligation shall not include
endorsements for collection or deposit in the ordinary course of business.
"Conversion Draft" shall have the meaning as provided in the Letter of
Credit.
"Date of Issuance" means the date of issuance of the Letter of Credit.
"EBITDA" means, for any period, the aggregate of (i) Consolidated Net
Income for such period, plus (ii) the sum of the following: (a) interest
expense, (b) federal, state, local and other income taxes, and (c)
depreciation, amortization and non-cash charges incurred solely in compliance
with FASB Statement of Financial Accounting Standards No. 121, all to the
extent taken into account in the calculation of such Consolidated Net Income
for such period and determined on a consolidated basis in accordance with
Generally Accepted Accounting Principles applied on a Consistent Basis.
"Environmental Laws" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations, rules of common law and orders of courts or Governmental
Authorities, relating to the protection of human health or occupational safety
or the environment, now or hereafter in effect and in each case as amended from
time to time, including requirements pertaining to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation, handling,
reporting, licensing, permitting, investigation or remediation of Hazardous
Substances.
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<PAGE> 8
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, including any rules and regulations promulgated thereunder.
"Event of Default" has the meaning specified in Article VIII hereof.
"Expiration Date" means July 23, 2001, the expiration date of the
Letter of Credit, as such date may be extended pursuant to the terms of Section
3.9 hereof.
"Financing Charges" means those charges owed and allocated to third
parties with respect to any on or off balance sheet asset financing transaction
to which Borrower or any Subsidiary of Borrower is a party, such transactions
to include, without limitation, securitizations, sales to commercial paper
conduits, synthetic leases, or other similar financing technique.
"Fixed Charge Coverage Ratio" means, as of the last day of any fiscal
quarter of the Borrower and its Subsidiaries, commencing January 30, 1999, for
the consecutive four-quarter period ending on such date (or in the case of the
fiscal quarter ending on January 30, 1999, the consecutive three-quarter period
ending on such date), the ratio of (i) EBITDA for such period plus, to the
extent deducted in arriving at EBITDA, lease, rental and all other payments
made in respect of or in connection with operating leases, to (ii) Fixed
Charges for such period.
"Fixed Charges" means, for any period, the aggregate (without
duplication) of the following, all determined on a consolidated basis for the
Borrower and its Subsidiaries in accordance with Generally Accepted Accounting
Principles for such period: (a) interest expense for such period, (b) to the
extent deducted in arriving at EBITDA, lease, rental and all other payments
made in respect of or in connection with operating leases, (c) Financing
Charges, and (d) the aggregate (without duplication) of all scheduled payments
of principal on Funded Debt with an original maturity of more than one year
required to have been made by the Borrower and its Subsidiaries during such
period (whether or not such payments are actually made).
"Funded Debt" means all Indebtedness for borrowed money of the
Borrower and its Subsidiaries on a consolidated basis (including, without
limitation, all current maturities and borrowings under short term loans) plus
all indebtedness incurred in connection with or arising from any on or off
balance sheet asset financing transaction to which Borrower or any Subsidiary
of Borrower is a party, such transactions to include, without limitation,
securitizations, sales to commercial paper conduits, synthetic leases, or other
similar financing technique.
"Generally Accepted Accounting Principles" means those principles of
accounting set forth in pronouncements of the Financial Accounting Standards
Board and its predecessors or pronouncements of the American Institute of
Certified Public Accountants or those principles of accounting which have other
substantial authoritative support and are applicable in the circumstances as of
the date of application, as such principles are from time to time supplemented
or amended.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any central bank thereof, any
municipal, local, city or county
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<PAGE> 9
government, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.
"Hazardous Substances" means any substances or materials (i) that are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (ii) that are
defined by any Environmental Law as toxic, explosive, corrosive, ignitable,
infectious, radioactive, mutagenic or otherwise hazardous, (iii) the presence
of which require investigation or response under any Environmental Law, (iv)
that constitute a nuisance, trespass or health or safety hazard to Persons or
neighboring properties, (v) that consist of underground or aboveground storage
tanks, whether empty, filled or partially filled with any substance or (vi)
that contain, without limitation, asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived
substances or wastes, crude oil, nuclear fuel, natural gas or synthetic gas.
"Hedge Agreement" means any interest or foreign currency rate swap,
cap, collar, option, hedge, forward rate or other similar agreement or
arrangement designed to protect against fluctuations in interest rates or
currency exchange rates.
"Indebtedness" means, with respect to any Person (without
duplication), (i) all indebtedness and obligations of such Person for borrowed
money or in respect of loans or advances of any kind, (ii) all obligations of
such Person evidenced by notes, bonds, debentures or similar instruments, (iii)
all reimbursement obligations of such Person with respect to surety bonds,
letters of credit and bankers' acceptances (in each case, whether or not drawn
or matured and in the stated amount thereof), (iv) all obligations of such
Person to pay the deferred purchase price of property or services, (v) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person, (vi) all
obligations of such Person as lessee under leases that are or are required to
be, in accordance with Generally Accepted Accounting Principles, recorded as
capital leases, (vii) all Contingent Obligations of such Person and (viii) all
indebtedness referred to in clauses (i) through (vii) above secured by any Lien
on any property or asset owned or held by such Person regardless of whether the
indebtedness secured thereby shall have been assumed by such Person or is
nonrecourse to the credit of such Person.
"Lease Intangibles" means the amount of lease intangibles appearing on
the balance sheet of the Borrower determined in accordance with Generally
Accepted Accounting Principles.
"Leverage Ratio" means, as of the last day of any fiscal quarter, the
ratio of (i) Funded Debt as of such date to (ii) EBITDA for the period of four
consecutive fiscal quarters then ending.
"LIBOR Market Index Rate" means, for any day, the fluctuating rate per
annum (rounded upward, if necessary, to the next higher 1/100th of 1%) which is
equal to:
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<PAGE> 10
(i) (a) the rate for deposits in Dollars which appears on the
Telerate Page 3750 at approximately 11:00 a.m. (London time) on such
day for a term equal to one month, from time to time, with each change
in such rate to be effective as of the opening of business on the
effective date of the change in such rate; provided, that if the day
for which such rate is to be determined is not a Business Day, the
LIBOR Market Index Rate for such day shall be such rate for the next
preceding Business Day; provided further, that if such rate is not
reported on Telerate Page 3750, such rate shall be the rate determined
by the Bank from another recognized source or interbank quotation,
divided by (b) 1.00 minus the reserve requirement (expressed as a
percentage) with respect to eurocurrency liabilities prescribed for
member banks of the Federal Reserve System by the Board of Governors
of the Federal Reserve System from time to time (if and only to the
extent that the Bank has eurocurrency liabilities subject thereto) and
any other similar reserve requirements imposed against a category of
liabilities which includes eurocurrency deposits or a category of
assets which includes eurocurrency loans.
(ii) If, for any reason, the rate described in clause (i) (a)
is not available, such rate shall be the rate per annum at which, in
the reasonable opinion of the Bank, Dollars in an amount substantially
equal to the amount of the draw under the Letter of Credit are being
offered by leading reference banks for settlement in the London
interbank market at approximately 11:00 a.m. (London time), on the
second Business Day next preceding the applicable date for a term
equal to one month.
"Material Adverse Effect" means, with respect to the Borrower or any
of its Subsidiaries, a material adverse effect on the properties, business,
prospects, operations or condition (financial or otherwise) of any such Person
or the ability of any such Person to perform its obligations under this
Agreement, the Letter of Credit or the Indenture, in each case to which it is a
party.
"Permitted Liens" means any of the following liens securing any
indebtedness of the Borrower and its Subsidiaries on their property, real or
personal, whether now owned or hereafter acquired:
(i) Liens of carriers, warehousemen, mechanics, contractors
and materialmen incurred in the ordinary course of business for sums
not yet due and payable or that are being contested in good faith and
in appropriate proceedings and for which bonds have been posted or
other security acceptable to the Bank provided, such bonds or other
security to be in amounts sufficient to pay off the liens during the
pendency of any controversies relating to them;
(ii) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance or other
forms of governmental insurance or benefits, or liens to secure the
performance of letters of credit, bids, tenders, statutory
obligations, leases and contracts (other than for borrowed funds)
entered into in the ordinary course of business or to secure
obligations on surety or appeal bonds;
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<PAGE> 11
(iii) Liens of suppliers of inventory purchased on credit in
the ordinary course of business;
(iv) Liens for current taxes, assessments or other
governmental charges that are not delinquent or remain payable without
any penalty or that are being contested in good faith and by
appropriate proceedings and if reasonably requested by the Bank, the
Borrower shall establish reserves satisfactory to the Bank with
respect thereto;
(v) Liens securing Indebtedness as permitted by the Bank from
time to time; and
(vi) Liens set forth on Schedule 1.1
"Person" means an individual, partnership, corporation, limited
liability company, trust, unincorporated organization, association, joint
venture or a government or agency or political subdivision or instrumentality
thereof.
"Placement Agreement" shall have the meaning as provided in the
Indenture.
"Pledged Bond Collateral" shall have the meaning as provided in
Section 9.1 hereof.
"Pledged Bonds" shall have the meaning as provided in Section 9.1
hereof.
"Private Placement Memorandum" shall have the meaning as provided in
the Indenture.
"Remarketing Agent" shall have the meaning as provided in Section 1101
of the Indenture.
"Remarketing Agreement" shall have the meaning as provided in the
Indenture.
"State" means the State of North Carolina.
"Subsidiary" means, as to any Person, (i) any corporation more than
50% of whose stock of any class or classes having by the terms thereof ordinary
voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such Person has more than a 50% equity interest at the time. Unless the context
indicates otherwise, all references herein to Subsidiaries are references to
Subsidiaries of the Borrower.
"Tender Advance" has the meaning assigned to that term in Section 3.3
of this Agreement.
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<PAGE> 12
"Tender Agent" shall have the meaning as provided in Section 1102 of
the Indenture.
"Tender Draft" has the meaning assigned to that term in the Letter of
Credit.
"Trustee" means any Person or group of Persons at the time serving as
trustee under the Indenture.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower represents and warrants to the Bank (which
representations and warranties shall survive the delivery of the documents
mentioned herein and the issuance of the Letter of Credit) that:
2.1 Incorporation. Each of the Borrower and its Subsidiaries is a
corporation or limited liability company duly organized, existing and in good
standing under the laws of the state of its incorporation, has the power to own
its properties and to carry on its business as now being conducted, and is duly
qualified as a foreign entity to do business in every jurisdiction in which the
nature of its business makes such qualification necessary except where failure
to qualify would not have a Material Adverse Effect on the Borrower's or
Subsidiaries' business and is in good standing in each such jurisdiction.
2.2 Power and Authority. Each of the Borrower and its Subsidiaries is
duly authorized under all applicable provisions of law to execute, deliver and
perform this Agreement and all corporate action on its part required for the
lawful execution, delivery and performance hereof and thereof has been duly
taken; and this Agreement, upon the due execution and delivery hereof or
thereof, will be the valid and binding obligation of the Borrower enforceable
in accordance with its terms. Neither the execution of this Agreement, nor the
fulfillment of or compliance with the provisions and terms hereof or thereof,
will (A) conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a violation of or default under, the Articles of
Incorporation, Bylaws or any other organizational documents of the Borrower or
any Subsidiary, or any agreement or instrument to which the Borrower or any
Subsidiary is now a party or any applicable law, regulation, judgment, writ,
order or decree to which the Borrower, any Subsidiary or any of their
respective properties are subject to the extent such conflict, violation or
default would have a Material Adverse Effect on the business of the Borrower or
any Subsidiary, taken as a whole or (B) create any lien, charge or encumbrance
upon any of the property or assets of the Borrower or any Subsidiary pursuant
to the terms of any agreement or instrument to which the Borrower or any
Subsidiary is a party or by which it or any of its properties, are bound to the
extent such lien, charge or encumbrance would, taken as a whole, have a
Material Adverse Effect on the business of the Borrower or any Subsidiary.
2.3 Financial Condition. The balance sheets of the Borrower and its
Subsidiaries for the fiscal year ended as of January 31, 1998 and for the
period ending May 2, 1998 and the
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<PAGE> 13
related statements of income and statement of cash flows for the year and
period then ended, copies of which have been furnished to the Bank, are correct
and complete in all material respects and fairly present the financial
condition of Borrower and its Subsidiaries as at the dates of said balance
sheets and the results of their operations for such period. Neither the
Borrower nor any of its Subsidiaries has any material direct or contingent
liabilities as of the date of this Agreement which are not provided for or
reflected in either of the balance sheets dated January 31, 1998 or May 2, 1998
or referred to in notes thereto. All such financial statements have been
prepared in accordance with Generally Accepted Accounting Principles applied on
a Consistent Basis maintained throughout the period involved. There has been no
material adverse change in the business, properties or condition, financial or
otherwise, of the Borrower or any of its Subsidiaries since May 2, 1998.
2.4 Title to Assets. The Borrower and its Subsidiaries have good and
marketable title to their respective properties and assets, including the
properties and assets reflected in the most recent financial statements and
notes thereto described in Section 2.3 hereof, except for such assets as have
been disposed of since the date of said financial statements in the ordinary
course of business, or as are no longer useful in the conduct of business or
where such failure would not have Material Adverse Effect on the business of
the Borrower or any Subsidiary, and all such properties and assets are free and
clear of all liens, mortgages, pledges, encumbrances or charges of any kind
except liens reflected in such financial statements or Permitted Liens.
2.5 Contingent Liabilities. Neither the Borrower nor any Subsidiary
has guaranteed any obligations of others or, to the best of the Borrower's
knowledge, is contingently liable in any manner, direct or indirect, except as
required or permitted by Sections 5.13, 6.8 and 6.9 hereof.
2.6 Litigation. There are no pending or, to the best of the Borrower's
knowledge, threatened actions, suits or proceedings before any court,
arbitrator or governmental or administrative body or agency which may have a
Material Adverse Effect on the properties, business or condition, financial or
otherwise, of the Borrower or any Subsidiary.
2.7 Taxes. Each of the Borrower and its Subsidiaries has filed all tax
returns required to be filed by it and all taxes due with respect thereto have
been paid or adequate provision made therefor.
2.8 Contract or Restriction. Neither the Borrower nor any Subsidiary
is a party to or bound by any contract or agreement or subject to any charter
or other corporate restrictions, or subject to the renegotiation of any
contract, which does or may have a Material Adverse Effect on its business,
properties or condition, financial or otherwise.
2.9 Trademarks, Franchises and Licenses. Each of the Borrower and its
Subsidiaries owns, possesses, or has the right to use all necessary patents,
licenses, franchises, trademarks, trademark rights, trade names, trade name
rights and copyrights to conduct its businesses as now conducted, without known
conflict with any patent, license, franchise, trademark, trade name, or
copyright of any other Persons.
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<PAGE> 14
2.10 No Default. Neither the Borrower nor any Subsidiary is in default
in the performance, observance or fulfillment of any of its material
obligations, covenants or conditions contained in any agreement or instrument
to which it is a party.
2.11 Governmental Authority. The Borrower has received the written
approval of all Governmental Authorities, if any, necessary to carry out the
terms of this Agreement, and no further governmental consents or approvals are
required in the making or performance of this Agreement by the Borrower and its
Subsidiaries.
2.12 No Untrue Statements. Neither this Agreement nor any reports,
schedules, certificates, information, exhibits, agreements or instruments
heretofore or simultaneously with the execution of this Agreement delivered to
the Bank or the Trustee by the Borrower or any Subsidiary in connection with
the negotiation of this Agreement or the issuance and sale of the Bonds
contains any material misrepresentation or untrue statement of any material
fact or omits to state any material fact necessary to make this Agreement or
any such reports, schedules, certificates, information, exhibits, agreements or
instruments not materially misleading.
2.13 ERISA Requirements. Neither the Borrower nor any Subsidiary has
incurred any material accumulated funding deficiency within the meaning of
ERISA, or incurred any material liability to the Pension Benefit Guaranty
Corporation established under ERISA (or any successor thereto under ERISA) in
connection with any employee pension benefit plan established or maintained by
it or by any Person under common control with any of them (within the meaning
of Section 414(c) of the Internal Revenue Code of 1986, as amended, or of
Section 4001(b) of ERISA), or in which employees of any of them are entitled to
participate. No Reportable Event (as defined in ERISA) in connection with any
such plan has occurred or is continuing.
2.14 Pollution and Environmental Control; Hazardous Substances. Each
of the Borrower and its Subsidiaries has obtained all permits, licenses and
other authorizations which are required under, and is in material compliance
with, all Environmental Laws. Neither the Borrower nor any Subsidiary, nor to
the Borrower's knowledge any previous owner of any real property owned or
occupied by the Borrower or any Subsidiary, has disposed of any Hazardous
Substances on any portion of any such real property except in compliance with
Applicable Law.
ARTICLE III
REIMBURSEMENT AND OTHER PAYMENTS
3.1 Letter of Credit. The Bank agrees, on the terms and conditions
hereinafter set forth, to issue and deliver the Letter of Credit in favor of
the Trustee in substantially the form of Exhibit A attached hereto upon
fulfillment of the applicable conditions set forth in Article VII hereof. The
Bank agrees that any and all payments under the Letter of Credit will be made
with the Bank's own funds.
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<PAGE> 15
3.2 Reimbursement and Other Payments. Except as otherwise provided in
Section 3.3 below, the Borrower shall pay to the Bank:
(a) on or before 3:00 P.M. (Charlotte, North Carolina time)
on the date that any amount is drawn under the Letter of Credit, a sum
(together with interest on such sum from the date such amount is drawn
until the same is paid, at the rate per annum provided in clause (b)
of this Section 3.2) equal to such amount so drawn under the Letter of
Credit;
(b) on demand, interest on any and all amounts remaining
unpaid by the Borrower when drawn hereunder from the date such amounts
are drawn until payment thereof in full, at a fluctuating interest
rate per annum equal to the LIBOR Market Index Rate plus 2.60%; and
(c) on demand, all charges, commissions, costs and expenses
set forth in Sections 3.4 and 3.5 hereof.
3.3 Tender Advances.
(a) If the Bank shall make any payment of that portion of the
purchase price corresponding to principal and interest of the Bonds
drawn under the Letter of Credit pursuant to a Tender Draft and the
conditions set forth in Section 7.3 shall have been fulfilled, such
payment shall constitute a tender advance made by the Bank to the
Borrower on the date and in the amount of such payment (a "Tender
Advance"); provided that if the conditions of said Section 7.3 have
not been fulfilled, the amount so drawn pursuant to the Tender Draft
shall be payable in accordance with the terms of Section 3.2(a) above.
Notwithstanding any other provision hereof, the Borrower shall repay
the unpaid amount of each Tender Advance, together with all unpaid
interest thereon, on the earlier to occur of: (i) such date as any
Bonds purchased pursuant to a Tender Draft are resold as provided in
Section 3.3(d) hereof; (ii) on the date one year following the date of
such Tender Advance; or (iii) the Expiration Date. The Borrower may
prepay the outstanding amount of any Tender Advance in whole or in
part, together with accrued interest to the date of such prepayment on
the amount prepaid. The Borrower shall notify the Bank prior to 11:00
A.M. Charlotte, North Carolina time on the date of such prepayment of
the amount to be prepaid, except to the extent the prepayment is being
made from the proceeds of remarketed bonds.
(b) The Borrower shall pay interest on the unpaid amount of
each Tender Advance from the date of such Tender Advance until such
amount is paid in full, payable monthly, in arrears, on the first day
of each month during the term of each Tender Advance and on the date
such amount is paid in full, at a fluctuating interest rate per annum
equal to the LIBOR Market Index Rate plus 0.60%, provided, that the
unpaid amount of any Tender Advance which is not paid when due shall
bear interest at a
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fluctuating interest rate per annum equal to the LIBOR Market Index
Rate plus 2.60%, payable on demand and on the date such amount is paid
in full.
(c) Pursuant to Article IX, the Borrower has agreed that, in
accordance with the terms of the Indenture, Bonds purchased with
proceeds of any Tender Draft shall be delivered by the Tender Agent to
the Bank or its designee to be held by the Bank or its designee in
pledge as collateral securing the Borrower's payment obligations to
the Bank hereunder. Bonds so delivered to the Bank or its designee
shall be registered in the name of the Borrower, as provided for in
Section 9.1.
(d) Prior to or simultaneously with the resale of Pledged
Bonds, the Borrower shall prepay the then outstanding Tender Advances
(in the order in which they were made) by paying to the Bank an amount
equal to the sum of (A) the amounts advanced by the Bank pursuant to
the corresponding Tender Drafts relating to such Bonds, plus (B) the
aggregate amount of accrued and unpaid interest on such Tender
Advances. Such payment shall be applied by the Bank in reimbursement
of such drawings (and as prepayment of Tender Advances resulting from
such drawings in the manner described above), and, upon receipt by the
Bank of a certificate completed and signed by the Trustee in
substantially the form of Annex F to the Letter of Credit, the
Borrower irrevocably authorizes the Bank to rely on such certificate
and to reinstate the Letter of Credit in accordance therewith. Funds
held by the Tender Agent as a result of sales of the Pledged Bonds by
the Remarketing Agent shall be paid to the Bank by the Tender Agent to
be applied to the amounts owing by Borrower to the Bank pursuant to
this paragraph (d). Upon payment to the Bank of the amount of such
Tender Advance to be prepaid, together with accrued interest on such
Tender Advance to the date of such prepayment on the amount to be
prepaid, the principal amount outstanding of Tender Advances shall be
reduced by the amount of such prepayment and interest shall cease to
accrue on the amount prepaid.
3.4 Commission and Fees.
(a) The Borrower shall pay to the Bank a fee or commission
(i) at the rate of 0.375% per annum for each year from the Date of
Issuance to the fifth year anniversary thereof, and (ii) thereafter,
at a rate to be determined by the Bank, but not to exceed 0.60%, on
the amount available to be drawn under the Letter of Credit (computed
on the date that such commission is payable) from and including the
Date of Issuance until the Termination Date, payable (x) as to the
first year of the initial period for which the Letter of Credit is
issued on the Date of Issuance; and (y) thereafter payable annually in
advance on the anniversary of the Date of Issuance, provided, however,
that after the time period in (x) above and in the absence of a then
existing Event of Default, if the Letter of Credit is terminated by
the Borrower after such payment is made but prior to the following
anniversary of the Date of Issuance, the Bank shall refund to the
Borrower the pro rata amount of such payment for the remaining portion
of the current period for which the Letter of Credit is issued.
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(b) The Borrower shall pay to the Bank, upon transfer of the
Letter of Credit in accordance with its terms, a transfer fee of
$1,000.
(c) The Borrower shall pay to the Bank, upon each drawing
under the Letter of Credit in accordance with its terms, a fee of $50
per drawing.
3.5 Increased Costs Due to Change in Law. In the event of any change
in any existing or future law, regulation, ruling or other interpretation
having influence over the Bank (except for changes in the rate of tax on the
overall net income of the Bank) which shall either: (a) impose, modify or make
applicable any reserve, special deposit, capital requirement, assessment or
similar requirement against the Letter of Credit; or (b) impose on the Bank any
other condition regarding the Letter of Credit, and the result of any event
referred to in clause (a) or (b) above shall be to increase the cost (including
a reasonable allocation of resources) or decrease the yield to the Bank of
issuing or maintaining the Letter of Credit (which increase in cost shall be
the result of the Bank's reasonable allocation of the aggregate of such cost
increases or yield decreases resulting from such events), then, upon demand by
the Bank, the Borrower shall immediately pay to the Bank, from time to time as
specified by the Bank, additional amounts which shall be sufficient to
compensate the Bank for such increased cost or decreased yield. A statement of
charges submitted by the Bank shall be conclusive, absent manifest error, as to
the amount owed.
3.6 Computation. All payments of interest, commission and other
charges under this Agreement shall be computed on the per annum basis of a year
of 360 days and calculated for the actual number of days elapsed.
3.7 Payment Procedure. All payments made by the Borrower under this
Agreement shall be made to the Bank in lawful currency of the United States of
America and in immediately available funds at the Bank's office in Charlotte,
North Carolina before 12:00 Noon (Charlotte, North Carolina time) on the date
when due, except for payments made pursuant to Section 3.2(a).
3.8 Business Days. If the date for any payment hereunder falls on a
day which is not a Business Day, then for all purposes of this Agreement the
same shall be deemed to have fallen on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
payments of interest or commission, as the case may be.
3.9 Extension of Expiration Date. The Letter of Credit shall terminate
on the earlier of (i) the date of termination pursuant to the terms of the
Letter of Credit or (ii) the Expiration Date; provided, that prior to any
anniversary of the Date of Issuance, the Bank may, in its sole discretion,
extend the applicable Expiration Date for an additional one year period. If
extended, the Bank shall notify the Borrower and the Trustee in writing at
least one hundred twenty (120) days prior to the anniversary of the Date of
Issuance by U.S. certified mail, return receipt requested or express courier
that such Expiration Date has been extended. The Bank shall be under no
obligation or commitment to extend any applicable Expiration Date and no such
obligation or commitment on the part of the Bank shall be inferred from the
provisions of this Section 3.9. Failure on the part of the Bank to notify the
Borrower and the Trustee as to an
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extension of the applicable Expiration Date shall be deemed to be a refusal to
extend such Expiration Date.
3.10 Obligations Absolute. The obligations of the Borrower under this
Agreement shall be absolute, unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including, without limitation, the following
circumstances:
(a) any lack of validity or enforceability of the Letter of
Credit, the Bonds, any of the other Bond Documents or any other
agreement or instrument related thereto;
(b) any amendment or waiver of or any consent to departure
from the terms of the Letter of Credit, the Bonds, any of the other
Bond Documents or any other agreement or instrument related thereto;
(c) the existence of any claim, setoff, defense or other
right which the Borrower may have at any time against the Trustee, any
beneficiary or any transferee of the Letter of Credit (or any Person
for whom the Trustee, any such beneficiary or any such transferee may
be acting), the Bank or any other Person, whether in connection with
this Agreement, the Letter of Credit, the Bond Documents or any
unrelated transaction;
(d) any statement, draft or other document presented under
the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect, or any statement therein being untrue or
inaccurate in any respect whatsoever; or
(e) the surrender or impairment of any security for the
performance or observance of any of the terms of this Agreement.
ARTICLE IV
[Reserved]
ARTICLE V
AFFIRMATIVE COVENANTS
Until all the obligations of the Borrower hereunder to be performed
and paid shall have been performed and paid in full, and for so long as the
Letter of Credit shall be outstanding, the Borrower covenants and agrees that,
unless the Bank consents otherwise in writing:
5.1 Repayment of Obligations. The Borrower will promptly repay the
payment obligations of the Borrower hereunder when due, according to the terms
of this Agreement.
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5.2 Performance Under Reimbursement Agreement. The Borrower will, and
will cause each of its Subsidiaries to, perform all obligations required to be
performed by each of them under the terms of this Agreement and any other
agreements now or hereafter existing or entered into between the Borrower, its
Subsidiaries and the Bank, subject to any applicable notice and cure provisions
contained therein.
5.3 Financial and Business Information about the Borrower. The
Borrower shall deliver to the Bank:
(a) As soon as practicable and in any event within 45 days
after the close of each fiscal quarter of the Borrower, beginning with
the close of the current fiscal quarter for the Borrower and its
Subsidiaries on a consolidated basis, balance sheets and statements of
income and cash flows for or relating to the quarter then ended, all
prepared in accordance with Generally Accepted Accounting Principles
(subject to normal year-end adjustments), applied on a Consistent
Basis, and certified by the chief financial officer of the Borrower.
The requirements of this paragraph shall be fully satisfied upon the
delivery to the Bank within the time period specified above of the
Borrower's quarterly report on form 10-Q with respect to any fiscal
quarter, provided, that the financial statements and accompanying
notes are fully disclosed within such filing;
(b) As soon as practicable and in any event within 90 days
after the close of each fiscal year of the Borrower, beginning with
the close of the current fiscal year, an audited consolidated balance
sheet of Borrower and its Subsidiaries as of the close of such fiscal
year and audited consolidated statements of income and cash flows for
the fiscal year then ended prepared by a Big Five independent
certified public accounting firm in accordance with Generally Accepted
Accounting Principles, applied on a Consistent Basis, and accompanied
by a report thereon by such certified public accountants and, with
respect to such audited financial statements, containing an opinion
that is not qualified with respect to scope limitations imposed by
Borrower, as to going concern or with respect to accounting principles
followed by Borrower not in accordance with Generally Accepted
Accounting Principles;
(c) Concurrently with the delivery of the financial
statements described in subsection (b) above, a certificate from the
independent certified public accountants stating that in making their
examination of the financial statements of the Borrower and its
Subsidiaries, they obtained no knowledge of the occurrence or
existence of any condition or event which constitutes or would
constitute, upon the giving of notice or lapse of time or both, any
Event of Default, or a statement specifying the nature and period of
existence of any such condition or event disclosed by their
examination;
(d) Concurrently with the delivery of the financial
statements described in subsections (a) and (b) above or at such other
times as the Bank may reasonably request, a certificate from the chief
financial officer of the Borrower certifying to the Bank that to the
best of their knowledge after review of this Agreement and appropriate
inquiry, the
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Borrower has kept, observed, performed and fulfilled each and every
covenant, obligation and agreement binding upon the Borrower contained
in this Agreement, accompanied by a worksheet completed in accordance
with Generally Accepted Accounting Principles detailing the Borrower's
compliance with the financial covenants contained in Sections 6.14,
6.15 and 6.16 hereto in form satisfactory to the Bank, and that no
Event of Default, or any event which with the giving of notice or
lapse of time or both would constitute an Event of Default, has
occurred or specifying any such Event of Default;
(e) Immediately upon issuance, each report to the Securities
and Exchange Commission and each notice, financial report or proxy
statement rendered to its shareholders;
(f) Immediately upon the Borrower's receipt thereof, copies
of any management letter or other written communications from
certified public accountants the effect of which would have a Material
Adverse Effect on the business of the Borrower or any Subsidiary; and
(g) Upon the Bank's request, such other information about the
financial condition, business or operations of the Borrower and its
Subsidiaries as the Bank may from time to time reasonably request.
5.4 Notice of Certain Events. The Borrower shall promptly, after any
officer of the Borrower learns or obtains knowledge of the occurrence thereof,
give written notice to the Bank of:
(a) any litigation or proceedings brought against the
Borrower or any of its Subsidiaries or any attachments, judgments,
liens, levies or orders (other than Permitted Liens) that may be
placed on or assessed against or threatened against the Borrower or
any of its Subsidiaries which are (i) not otherwise covered by
insurance or are contested by the insurer and (ii) in the aggregate
exceed $5,000,000 in uninsured exposure and the Borrower shall set up
such reserves as required by Generally Accepted Accounting Principles.
(b) any written notice of a violation received by the
Borrower or any of its Subsidiaries from any governmental regulatory
body or law enforcement authority which, if such violation were
established, might have a Material Adverse Effect on the business of
the Borrower or any of its Subsidiaries;
(c) any other matter that has resulted in a Material Adverse
Effect on the Borrower or any of its Subsidiaries;
(d) any breach or violation of or noncompliance with any
covenant or condition of this Agreement or any Event of Default
hereunder; and
(e) any change in the name of the Borrower or any Subsidiary.
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5.5 Corporate Existence. Except as provided in Section 6.1, the
Borrower will, and will cause each of its Subsidiaries to, maintain and
preserve its corporate existence and all rights, privileges and franchises now
enjoyed.
5.6 Payment of Indebtedness; Performance of Other Obligations. The
Borrower will, and will cause each of its Subsidiaries to pay, all material
Indebtedness before such Indebtedness shall become past due, all material
taxes, assessments and other governmental charges that may be levied or
assessed upon it when due and all other material obligations in accordance with
customary trade practices, and comply in all material respects with all acts,
rules, regulations and orders of any legislative, administrative or judicial
body or official applicable to any part thereof or to the operation of its
business; provided, however, that the Borrower or any Subsidiary may in good
faith by appropriate proceedings and with due diligence contest any such
Indebtedness, taxes, assessments, governmental charges, acts, rules,
regulations, orders and directions that do not in the Bank's reasonable
judgment materially and adversely affect the Borrower's business and if
requested by the Bank, shall establish reserves reasonably satisfactory to the
Bank. The Borrower will, and will cause each of its Subsidiaries to, observe
and remain in compliance in all material respects with all laws, ordinances,
governmental rules and regulations to which it is subject and obtain all
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of its properties or the conduct of its business, and observe and
perform all covenants and conditions of all material agreements and instruments
to which it is a party, where failure to comply would have a Material Adverse
Effect on the business of the Borrower or any Subsidiary.
5.7 Maintenance of Books and Records; Inspection. The Borrower will,
and will cause each of its Subsidiaries to, (i) maintain adequate books,
accounts and records, and prepare all financial statements required under this
Agreement in accordance with Generally Accepted Accounting Principles (subject,
in the case of unaudited interim statements, to normal year-end adjustments)
and in material compliance with the regulations of any governmental regulatory
body having jurisdiction over it; and (ii) permit employees or agents of the
Bank at any time during normal business hours and upon reasonable notice to
inspect the properties of the Borrower and its Subsidiaries, and to examine or
audit the books of the Borrower and its Subsidiaries, accounts and records and
make copies and memoranda of them, and to discuss the affairs, finances and
accounts of the Borrower with its executive officers, and independent public
accountants (and by this provision the Borrower and its Subsidiaries authorize
said accountants to discuss the finances and affairs of the Borrower and its
Subsidiaries), all at such reasonable times and as often as may be reasonably
requested, but in any event at least twice during each fiscal year of the
Borrower.
5.8 Comply with ERISA. The Borrower will, and will cause each of its
Subsidiaries to, (i) at all times make prompt payment of contributions required
to meet the minimum funding standards set forth in ERISA with respect to any
employee benefit plan, except to the extent that failure to make such payment
would not have a Material Adverse Effect on the business of the Borrower or any
Subsidiary; (ii) not withdraw from participation in, permit the termination or
partial termination of, or permit the occurrence of any other event with
respect to any employee
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benefit plan that could result in liability to the Pension Benefit Guaranty
Corporation, except to the extent that such withdrawal, termination, partial
termination or occurrence would not have a Material Adverse Effect on the
business of the Borrower or any Subsidiary; (iii) notify the Bank as soon as
practicable of any "reportable event" (as defined in Section 4043(b) of ERISA)
and of any additional act or condition arising in connection with any employee
benefit plan which the Borrower or any of its Subsidiaries believe might
constitute grounds for the termination thereof by the Pension Benefit Guaranty
Corporation or for the appointment by the appropriate United States district
court of a trustee to administer such plan; and (iv) furnish to the Bank upon
the Bank's request, such additional information about any employee benefit plan
as may be reasonably requested. Neither the Borrower nor any of its
Subsidiaries will permit the occurrence of any "prohibited transaction" (as
defined in ERISA).
5.9 Maintenance of Properties; Conduct of Business. The Borrower will,
and will cause each of its Subsidiaries to, conduct its business in an orderly,
efficient and customary manner, keep its properties used in the operations of
its business in good working order and condition (normal wear and tear
excepted), and from time to time make all needed repairs to, renewals of or
replacements of its properties (except where failure to make such repairs,
renewals or replacements would not have a Material Adverse Effect on the
business of the Borrower or any of its Subsidiaries or to the extent that any
of such properties is obsolete or is being replaced) so that the efficiency of
such property shall be fully maintained and preserved. The Borrower and its
Subsidiaries shall file or cause to be filed in a timely manner all reports,
applications, estimates and licenses that shall be required by any Governmental
Authority and which, if not timely filed, would have a Material Adverse Effect
on the Borrower or any of its Subsidiaries.
5.10 Insurance. Maintain insurance with financially sound and
reputable insurance companies against such risks and in such amounts as are
customarily maintained by similar businesses as that of the Borrower and its
Subsidiaries.
5.11 Observe all Laws. The Borrower will conform to and duly observe
all laws, regulations and other valid requirements of any regulatory authority
with respect to the conduct of its business, except to the extent that failure
to do so would not have a Material Adverse Effect on the business of the
Borrower or any of its Subsidiaries.
5.12 Year 2000. The Borrower has taken all action deemed reasonably
necessary by Borrower to assure that the Borrower's and its Subsidiaries'
computer based systems are able to operate, and effectively process data
including dates, on and after January 1, 2000. At the request of the Bank, the
Borrower will provide the Bank with assurances acceptable to the Bank of the
Borrower's year 2000 compatibility.
5.13 Subsidiary Guaranties. All Subsidiaries of the Borrower
(excluding any Subsidiary operating as an insurance or banking entity) shall,
within sixty (60) days of the Date of Issuance, execute and deliver to the Bank
a guaranty agreement in form reasonably acceptable to Bank and Borrower,
unconditionally guaranteeing the obligations under this Agreement and the
Letter of Credit and any Subsidiary created or acquired subsequent to the Date
of Issuance (excluding any Subsidiary operating as an insurance or banking
entity) shall, within thirty (30)
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days of the date of creation or acquisition, execute a guaranty agreement
supplement in form reasonably acceptable to the Bank and the Borrower;
provided, that, subject to the requirements of Section 6.8 hereof, failure to
provide such guarantees shall not create or result in an Event of Default, but
shall require the Borrower to deliver to the Bank as soon as practicable and in
any event within 45 days after the close of each fiscal quarter of the
Borrower, beginning with the close of the first fiscal quarter subsequent to
the deadline for delivery of the guaranty agreements or guaranty agreement
supplements required above, consolidating balance sheets and statements of
income and cash flows of the Borrower and its Subsidiaries for or relating to
the quarter then ended, all prepared in accordance with Generally Accepted
Accounting Principles (subject to normal year-end adjustments and the absence
of notes), applied on a Consistent Basis, and certified by the chief financial
officer of the Borrower.
ARTICLE VI
NEGATIVE COVENANTS
Until all the obligations of the Borrower hereunder to be performed
and paid shall have been performed and paid in full, and for so long as the
Letter of Credit shall be outstanding, the Borrower covenants and agrees that,
unless the Bank consents otherwise in writing, the Borrower will not, and will
not permit any Subsidiary to, either directly or indirectly:
6.1 Merger and Dissolution; Sale of Assets. Except for the
transactions contained on Schedule 6.1, liquidate, windup or dissolve, or enter
into any consolidation, merger, share exchange, syndicate or other combination,
or sell, lease, transfer or otherwise dispose of, in a single transaction or a
series of related transactions, all or substantially all of its business or
assets or any portion thereof if such portion of its business or assets
represents ten percent (10%) or more of the net revenues, profits or assets of
the Borrower or such Subsidiary (except for sales of inventory in the ordinary
course of business); provided, that (i) subject to the requirements of Section
6.8 hereof, any Subsidiary may be wound up and dissolved if the proceeds of the
dissolution are transferred to the Borrower or another Subsidiary of the
Borrower, and (ii) any Subsidiary may be merged into another Subsidiary or into
the Borrower.
6.2 Acquisitions. Except for the transactions contained on Schedule
6.2, acquire the business or all or a substantial portion of the assets of any
Person, unless the effect of such acquisition on a pro forma basis measured
over a period commencing four (4) fiscal quarters prior to the effective date
of the acquisition and continuing thereafter until such acquisition has been
effective for a total period of four (4) fiscal quarters would not result in an
Event of Default.
6.3 Indebtedness. Create, incur or suffer to exist any Indebtedness or
the equivalent (including any Indebtedness incurred as a general partner or as
a joint venturer) except for: (a) the obligations owed to the Bank under this
Agreement; (b) the obligations owed by the Borrower under the Indenture or any
other Bond Document; (c) current trade accounts payable or accrued by the
Borrower or any of its Subsidiaries in the ordinary course of its business,
provided that the same shall be paid when due in accordance with customary
trade terms unless
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contested by appropriate proceedings; (d) Indebtedness secured by Permitted
Liens; (e) unsecured Indebtedness, provided that the effect of such unsecured
Indebtedness on a pro forma basis measured over a period commencing four (4)
fiscal quarters prior to the date the unsecured Indebtedness is incurred would
not result in an Event of Default; (f) purchase money Indebtedness of the
Borrower and its Subsidiaries in an aggregate amount not to exceed $5,000,000
on any date of determination; (g) Indebtedness existing on the Date of Issuance
and not otherwise permitted under this Section 6.3, as set forth on Schedule
6.3; and (h) any other Indebtedness specifically permitted by the Bank.
6.4 Liens and Encumbrances. Create, assume or suffer to exist any
lien, deed of trust, mortgage, encumbrance or security interest (including the
interest of a conditional seller of goods) securing a charge or obligation, on
or of any of its property, real or personal, whether now owned or hereafter
acquired, except for (a) Permitted Liens and (b) liens necessary to secure
purchase money Indebtedness, subject to the dollar limitation contained in
Section 6.3(f).
6.5 Transactions With Related Persons. Except as otherwise permitted
hereunder, make any loan or advance to, purchase, assume or guarantee any note
to or from, or enter into any transaction with, any of its officers, directors,
shareholders or Affiliates, or any member of the immediate family of any of its
officers, directors, shareholders or Affiliates, or subcontract any operations
to any Affiliate, except (a) as otherwise permitted hereunder; (b) for
transactions with its officers, directors, shareholders or Affiliates in an
aggregate amount not to exceed $2,000,000 in any fiscal year; and (c) in the
ordinary course of and pursuant to the reasonable requirements of its business,
consistent with past practices and upon fair and reasonable terms that are
fully disclosed to the Bank and are no less favorable to it than would obtain
in a comparable arm's length transaction with a Person not an Affiliate of the
Borrower or such Subsidiary, as the case may be, provided, however, that the
restrictions contained in this Section 6.5 shall not prohibit the Borrower or
any Subsidiary from entering into any such transactions with another Subsidiary
of the Borrower.
6.6 Sale and Leaseback. Subsequent to the Date of Issuance, enter into
any arrangement with any Person providing for the leasing by the Borrower or
any of its Subsidiaries of any asset that has been sold or transferred by the
Borrower or any of its Subsidiaries to such Person, if the book value of the
assets of the Borrower and its Subsidiaries which have been sold and leased
back, including the transaction currently being contemplated, in the aggregate
represent more than 10% of the book value of the assets of the Borrower and its
Subsidiaries as of the Borrower's last fiscal quarter end.
6.7 New Business. Engage in any business other than the business in
which it is currently engaged or a business reasonably related thereto.
6.8 Subsidiaries. Unless the requirements of Section 5.13 have been
satisfied and as otherwise provided on Schedule 6.8, create any new Subsidiary
or transfer any assets to a Subsidiary if the formation of such new Subsidiary
or the transfer of assets to such Subsidiary would cause any one of the
aggregate of net revenues or profits or assets of all the Subsidiaries on a
consolidated basis to exceed five percent (5%) of any one of the net revenues
or profits or
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assets of the Borrower and its Subsidiaries on a consolidated basis, unless
such new Subsidiary or Subsidiary to which assets are transferred executes and
delivers a guaranty agreement supplement in form reasonably acceptable to the
Bank and the Borrower, unconditionally guaranteeing the obligations under this
Agreement and the Letter of Credit.
6.9 Guaranties. Guarantee or otherwise, in any way, become liable with
respect to the obligations or liabilities of any Person, except for (a)
guaranties issued in favor of the Bank; (b) guaranties which do not exceed
$10,000,000 in the aggregate at any time; (c) endorsements for collection or
deposit in the ordinary course of business; (d) the guaranty by the Borrower of
certain letter of credit obligations of Belk International, Inc.; (e) the
guaranties by the Subsidiaries pursuant to Sections 5.13 and 6.8 hereof; and
(f) any guaranty by the Borrower or any Subsidiary of any Indebtedness or
obligation of the Borrower or any Subsidiary to the extent such Indebtedness or
obligation is permitted hereunder.
6.10 Restrictive Transactions. Enter into any transaction that
materially and adversely affects the Borrower's ability to repay any
Indebtedness or the obligations hereunder.
6.11 Hazardous Wastes. Permit, in violation of any federal, state or
local laws, regulations or orders, any hazardous or toxic wastes, contaminants,
oil, radioactive or other materials the removal of which is required or the
maintenance of which is restricted, prohibited or penalized by any federal,
state or local agency, authority or governmental unit to be brought on to any
real property owned by the Borrower or any Subsidiary, or if so brought or
found located thereon, the same shall be immediately removed, if required by
Applicable Law, with proper disposal, and all required environmental cleanup
procedures shall be diligently undertaken pursuant to all such laws, ordinances
and regulations.
6.12 Fiscal Year. Change its fiscal year end.
6.13 Amendments. Amend, modify or change in any manner the Borrower's
Articles of Incorporation or Bylaws, or any agreement entered into by the
Borrower with respect to its Capital Stock, or enter into any new agreement
with respect to its Capital Stock if such amendment or new agreement would have
an adverse effect on the enforcement of this Agreement or would otherwise have
a Material Adverse Effect on the business of the Borrower or any of its
Subsidiaries.
6.14 Leverage Ratio. Permit the Leverage Ratio (i) as of the last day
of the first quarter of any fiscal year to be greater than 3.25 to 1.0; (ii) as
of the last day of the second quarter of any fiscal year to be greater than
3.25 to 1.0; (iii) as of the last day of the third quarter of any fiscal year
to be greater than 3.7 to 1.0; and (iv) as of the last day of any fiscal year
to be greater than 3.0 to 1.0.
6.15 Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage
Ratio as of the last day of any fiscal quarter to be less than 1.5 to 1.0.
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6.16 Net Worth. Permit Consolidated Tangible Net Worth as of the last
day of any fiscal quarter to be less than the sum of (i) $650,000,000, plus
(ii) 50% of Comprehensive Income for each fiscal year, beginning as of the
fiscal year ending on January 30, 1999, provided that Comprehensive Income for
any such fiscal year shall be taken into account for purposes of this
calculation only if positive, plus (iii) 100% of the increase in the stated
capital and additional paid-in capital accounts of the Borrower and its
Subsidiaries resulting from the issuance or purchase of equity securities
(including pursuant to the exercise of options, rights or warrants or pursuant
to the conversion of convertible securities) or other Capital Stock, excluding
any stock issuance and stock purchase, where the proceeds of the issuance are
used to purchase stock from other shareholders or their estates, all determined
as of the end of each fiscal year on a consolidated basis in accordance with
Generally Accepted Accounting Principles,.
ARTICLE VII
CONDITIONS TO ISSUANCE OF LETTER OF CREDIT
7.1 Conditions to Issuance. The obligation of the Bank to issue the
Letter of Credit shall be subject to the Bank's receipt of the following, in
form satisfactory to the Bank:
(a) two executed counterparts of this Agreement;
(b) executed counterparts of each of the Bond Documents
(except for the Bonds, as to which a specimen copy may be furnished);
(c) an opinion of counsel for the Borrower dated the Date of
Issuance addressed to the Bank, and substantially in the form attached
hereto as Exhibit C, or otherwise in form and substance acceptable to,
the Bank;
(d) (i) a copy of the Certificate of Incorporation of the
Borrower, certified as of June 8, 1998, by the Secretary of State of
the State of Delaware; (ii) a certificate from the Borrower that since
June 8, 1998, no change has been made to the Articles of Incorporation
of the Borrower; and (iii) a certificate dated no earlier than 60 days
prior to the Date of Issuance of the Secretary of State of Delaware as
to the good standing of the Borrower;
(e) a certificate from the secretary or an assistant
secretary of the Borrower certifying to and attaching copies of its
bylaws and resolutions of its board of directors authorizing and
approving the transactions contemplated by this Agreement and as to
the incumbency of each of its officers executing any of such
documents;
(f) an opinion from Robinson, Bradshaw & Hinson, P.A.,
Special Bond Counsel, or a letter in substantially the form of Exhibit
D hereto consenting to the Bank's reliance on certain opinions
delivered by such counsel in form and substance satisfactory to the
Bank and its counsel;
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(g) copies of all governmental approvals required in
connection with this transaction, including resolution of the Borrower
authorizing the issuance of the Bonds;
(h) evidence of payment to the Bank of the initial annual
letter of credit commission pursuant to Section 3.4 of this Agreement;
(i) an executed counterpart of the Commitment Letter; and
(j) such other documents, instruments and certifications as
the Bank may reasonably require.
7.2 Additional Conditions Precedent to Issuance of the Letter of
Credit. The obligation of the Bank to issue the Letter of Credit shall be
subject to the following further conditions precedent:
(a) On the date of issuance the following statements shall be
true and the Bank shall have received a certificate signed by an
authorized officer of the Borrower, dated the date of issuance,
stating that:
(i) The representations and warranties contained in
Article II of this Agreement and Section 701 of the
Indenture, are true and correct on and as of the date of
issuance of the Letter of Credit as though made on and as of
such date; and
(ii) No event has occurred or would result from the
issuance of the Letter of Credit, which constitutes an Event
of Default or would constitute an Event of Default but for
the requirement that notice be given or time elapse or both;
and
(b) There shall have been no introduction of or change in, or
in the interpretation of, any law or regulation that would make it
unlawful or unduly burdensome for the Bank to issue the Letter of
Credit, no outbreak or escalation of hostilities or other calamity or
crisis affecting the Bank, no suspension of or material limitation on
trading on the New York Stock Exchange or any other national
securities exchange, no declaration of a general banking moratorium by
United States or North Carolina banking authorities, and no
establishment of any new restrictions on transactions in securities or
on banks materially affecting the free market for securities or the
extension of credit by banks.
7.3 Conditions Precedent to Each Tender Advance. Each payment made by
the Bank under the Letter of Credit pursuant to a Tender Draft shall constitute
a Tender Advance hereunder only if on the date of such payment the following
statements shall be true:
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(a) The representations and warranties contained in Article
II of this Agreement and Section 701 of the Indenture are true and
correct on and as of the date of such Tender Advance as though made on
and as of such date; and
(b) No event has occurred or would result from such Tender
Advance, which constitutes an Event of Default or would constitute an
Event of Default but for the requirement that notice be given or time
elapse or both.
Unless the Borrower shall have previously advised the Bank in writing or the
Bank has actual knowledge that one or more of the above statements is no longer
true, the Borrower shall be deemed to have represented and warranted, on the
date of payment by the Bank under the Letter of Credit pursuant to a Tender
Draft, that on the date of such payment the above statements are true and
correct.
ARTICLE VIII
DEFAULT
8.1 Events of Default. Each of the following shall constitute an Event
of Default under this Agreement, whereupon all obligations of the Borrower
hereunder, whether then owing or contingently owing, will, at the option of the
Bank or its successors or assigns, immediately become due and payable by the
Borrower without presentation, demand, protest or notice of any kind, all of
which are hereby expressly waived, and the Borrower will pay the reasonable
attorneys' fees incurred by the Bank, or its successors or assigns, in
connection with such Event of Default, or its successors or assigns, as
security for the obligations hereunder:
(a) Failure of the Borrower to pay when due (i) any payment
of principal, interest, commission, charge or expense referred to in
Article III hereof, except for amounts owed by the Borrower pursuant
to a Tender Advance under Section 3.3 and (ii) any payment of
principal or interest referred to in Section 3.3 hereof and such
failure shall continue for a period of five (5) Business Days after
notice of such failure is given by the Bank to the Borrower; or
(b) The occurrence of an "event of default" or an "Event of
Default" under any of the Bond Documents or the Indenture; or
(c) The Borrower or any Subsidiary defaults in the payment of
principal or interest on any other Indebtedness (other than the
indebtedness to the Bank arising hereunder) the aggregate outstanding
amount of which Indebtedness is in excess of $5,000,000 beyond any
period of grace provided with respect thereto, or in the performance
of any other agreement, term or condition contained in any agreement
under which any such obligation is created, if the effect of such
default is to cause, or permit the holder or holders of such
obligation to cause such obligation to become due prior to its stated
maturity; or
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(d) Any representation, warranty, certification or statement
made by the Borrower herein, or in any writing furnished by or on
behalf of the Borrower or any Subsidiary pursuant to this Agreement or
the Indenture shall have been false, misleading or incomplete in any
material respect on the date as of which made; or
(e) The Borrower or any Subsidiary defaults in the
performance or observance of any agreement, covenant, term or
condition binding on it contained herein and such default shall not
have been remedied within thirty (30) days (or any shorter period set
forth in such agreement or document) after the earlier of: (i) the
Borrower having knowledge thereof; or (ii) written notice having been
received by it from the Bank; or
(f) With respect to the Borrower or any Subsidiary, (i) the
commencement of its liquidation or dissolution or the suspension of
its business or the entry of an order or decree approving or requiring
the same, (ii) the filing by it of a voluntary petition in bankruptcy
or a voluntary petition or an answer seeking reorganization,
arrangement, readjustment of its debts or for any other relief under
the Bankruptcy Reform Act of 1978, as amended (the "Bankruptcy Code"),
or under any other insolvency act or law, state or federal, now or
hereafter existing, or any other action by it indicating its consent
to, approval of, or acquiescence in any such petition or proceeding,
(iii) the application by it for (or the consent or acquiescence to)
the appointment of a receiver or a trustee or an assignment for the
benefit of creditors, or (iv) its inability or admission in writing of
its inability to pay its debts as they mature; or
(g) With respect to the Borrower or any Subsidiary, (i) the
filing of an involuntary petition against it in bankruptcy or seeking
reorganization, arrangement, readjustment of its debts or for any
other relief under the Bankruptcy Code or under any other insolvency
act or law, state or federal, now or hereafter existing, or the
involuntary appointment of a receiver or trustee for it or for all or
a substantial part of its property, and the continuance of any of such
action for sixty (60) days undismissed or undischarged, or (ii) the
issuance of an order for attachment, execution or similar process
against any substantial part of its property and the continuance of
any such order for sixty (60) days undismissed or undischarged; or
(h) The entry of an order in any proceedings against the
Borrower decreeing the dissolution or split-up of the Borrower; or
(i) The (a) entry of a final judgment against the Borrower or
any Subsidiary, which with other outstanding final judgments against
the Borrower and its Subsidiaries exceeds an aggregate of $10,000,000
and is not otherwise fully covered by insurance or for which coverage
is denied by the insurer, if within thirty (30) days after entry
thereof such judgment shall not have been discharged or execution
thereof stayed pending appeal or (b) the attachment or levy against
any property of the Borrower or any Subsidiary in excess of $1,000,000
in the aggregate which attachment or levy remains undischarged or
unstayed for a period of ninety (90) days; or
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(j) The dissolution or termination of the existence of the
Borrower; or
then upon the occurrence of an Event of Default and at any time thereafter, the
Bank may (A) pursuant to Section 802 of the Indenture, advise the Trustee that
an Event of Default has occurred and instruct the Trustee to declare the
principal of all Bonds then outstanding and interest thereon to be immediately
due and payable, and (B) proceed hereunder and, to the extent therein provided,
under the Bond Documents, in such order as it may elect, and exercise all other
rights and remedies available to it at law; and the Bank shall have no
obligation to proceed against any Person, to exhaust any other remedy or
remedies which it may have, or to resort to any other or particular security,
whether held by or available to the Bank.
8.2 No Remedy Exclusive. No remedy herein conferred upon or reserved
to the Bank is intended to be exclusive of any other available remedy or
remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder, or now or hereafter existing at
law or in equity.
ARTICLE IX
PLEDGED BONDS
9.1 The Pledge. The Borrower hereby pledges, assigns, hypothecates,
transfers, and delivers to the Bank all its right, title and interest to, and
hereby grants to the Bank a first lien on, and security interest in, all right,
title and interest of the Borrower in and to the following (hereinafter
collectively called the "Pledged Bond Collateral"):
(i) all Bonds delivered by the owners thereof to the Tender
Agent (as defined in the Indenture) or Remarketing Agent (as defined
in the Indenture) and purchased on behalf of the Borrower with
proceeds of drawings under the Letter of Credit (the "Pledged Bonds");
(ii) all income, earnings, profits, interest, premium or
other payments in whatever form in respect of the Pledged Bonds; and
(iii) all proceeds (cash and non-cash) arising out of the
sale, exchange, collection, enforcement or other disposition of all or
any portion of the Pledged Bonds.
The Pledged Bond Collateral shall serve as security for the payment and
performance when due of all obligations of the Borrower hereunder. The Borrower
shall deliver, or cause to be delivered, the Pledged Bonds to the Bank or to a
pledge agent designated by the Bank immediately upon receipt thereof or, in the
case of Pledged Bonds held under a book-entry system administered by The
Depository Trust Company ("DTC"), New York, New York (or any other clearing
corporation), the Borrower shall cause the Pledged Bonds to be reflected on the
records of DTC (or such other clearing corporation) as a position held by the
Bank (or a pledge
26
<PAGE> 31
agent acceptable to the Bank) as a DTC participant (or a participant in such
other clearing corporation) and the Bank (or its pledge agent) shall reflect on
its records that the Pledged Bonds are owned beneficially by the Borrower
subject to the pledge in favor of the Bank.
9.2 Remedies Upon Default. If any Event of Default shall have occurred
and be continuing, the Bank, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon the Borrower or any other
person (all and each of which demands, advertisements and/or notices are hereby
expressly waived), may forthwith collect, receive, appropriate and realize upon
the Pledged Bond Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase, contract to sell or otherwise
dispose of and deliver said Pledged Bond Collateral, or any part thereof, in
one or more parcels at public or private sale or sales, at any exchange,
broker's board or at any of the Bank's offices or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk,
with the right to the Bank upon any such sale or sales, public or private, to
purchase the whole or any part of said Pledged Bond Collateral so sold, free of
any right or equity of redemption in the Borrower, which right or equity is
hereby expressly waived or released. The Bank shall apply the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all reasonable costs and expenses of every kind incurred
therein or incidental to the care, safekeeping or otherwise of any and all of
the Pledged Bond Collateral or in any way relating to the rights of the Bank
hereunder, including reasonable attorneys' fees and legal expenses, to the
payment in whole or in part of the obligations of the Borrower hereunder in
such order as the Bank may elect, the Borrower remaining liable for any
deficiency remaining unpaid after such application, and only after so applying
such net proceeds and after the payment by the Bank of any other amount
required by any provision of law, including, without limitation, Section
9-504(1)(c) of the Uniform Commercial Code, need the Bank account for the
surplus, if any, to the Borrower. The Borrower agrees that the Bank need not
give more than ten days' notice of the time and place of any public sale or of
the time after which a private sale or other intended disposition is to take
place and that such notice is reasonable notification of such matters. No
notification need be given to the Borrower if it has signed after an Event of
Default a statement renouncing or modifying any right to notification of sale
or other intended disposition. In addition to the rights and remedies granted
to the Bank in this Agreement and in any other instrument or agreement
securing, evidencing or relating to any of the obligations of the Borrower
hereunder, the Bank shall have all the rights and remedies of a secured party
under the Uniform Commercial Code in effect in the State at that time.
9.3 Valid Perfected First Lien. The Borrower covenants that the
pledge, assignment and delivery of the Pledged Bond Collateral hereunder will
create a valid, perfected, first priority security interest in all right, title
or interest of the Borrower in or to such Pledged Bond Collateral, and the
proceeds thereof, subject to no prior pledge, lien, mortgage, hypothecation,
security interest, charge, option or encumbrance or to any agreement purporting
to grant to any third party a security interest in the property or assets of
the Borrower which would include the Pledged Bond Collateral. The Borrower
covenants and agrees that it will defend the Bank's
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right, title and security interest in and to the Pledged Bond Collateral and
the proceeds thereof against the claims and demands of all persons whomsoever.
9.4 Release of Pledged Bonds. The Pledged Bonds shall not be released:
(a) in connection with Pledged Bonds purchased with the
proceeds of a Tender Draft, (i) until the Bank shall have been
reimbursed in full for any drawings under the Letter of Credit in
order to purchase Pledged Bonds or First Union Capital Markets has
received the proceeds from the remarketing of the Pledged Bonds, and
(ii) until the amount available to be drawn under the Letter of Credit
shall have been reinstated in an amount equal to the principal amount
(and related interest) of the Pledged Bonds to be so released. If the
Borrower, or the Remarketing Agent or the Tender Agent on behalf of
the Borrower, reimburses the Bank for any such Tender Advances and
such payment is accompanied by a certificate completed and signed by
the Trustee in substantially the form of Annex F to the Letter of
Credit, the Bank or its Agent may release from the lien of this
Article IX and deliver to the Borrower (or its order) or the
Remarketing Agent (if such reimbursement is made by the Remarketing
Agent or Tender Agent on behalf of the Borrower or if such Bonds are
to be remarketed) Pledged Bonds in a principal amount equal to the
amount of such reimbursement; and
(b) in connection with Pledged Bonds that are purchased with
the proceeds of a Conversion Draft, until the Bank is reimbursed in
full pursuant to Section 3.2 hereof with respect to the drawing under
the Letter of Credit in connection with the presentation of such
Conversion Draft. Upon such reimbursement, there may be released from
the lien of this Article IX and delivered to the Borrower (or its
order) Pledged Bonds in a principal amount equal to the amount of such
reimbursement.
With respect to a Tender Draft, the Bank will instruct the Tender
Agent not to release Pledged Bonds until the Tender Agent receives notice from
the Bank that the Letter of Credit has been reinstated in the principal amount
of the Pledged Bonds to be released.
ARTICLE X
MISCELLANEOUS
10.1 Indemnification.
(a) The Borrower hereby indemnifies and holds the Bank
harmless from and against any and all claims, damages, losses,
liabilities, costs or expenses whatsoever which the Bank may incur (or
which may be claimed against the Bank by any Person): (i) by reason of
or in connection with the execution and delivery or transfer of, or
payment or failure to pay under, the Letter of Credit, provided that
the Borrower shall not be required to indemnify the Bank for any
claims, damages, losses, liabilities, costs or expenses to the extent,
but only to the extent, caused by the willful misconduct or gross
28
<PAGE> 33
negligence of the Bank or failure of the Bank to pay a draw which
strictly conforms to the terms of the Letter of Credit or (ii) by
reason of or in connection with the execution, delivery or performance
of any of the Bond Documents or any transaction contemplated by any
thereof. Anything herein to the contrary notwithstanding, nothing in
this Section 10.1 is intended or shall be construed to limit the
Borrower's reimbursement obligation contained in Article III hereof.
Without prejudice to the survival of any other obligation of the
Borrower, the indemnities and obligations of the Borrower contained in
this Section 10.1 shall survive the payment in full of amounts payable
pursuant to Article III and the Expiration Date.
10.2 Transfer of Letter of Credit. The Letter of Credit may be
transferred and assigned in accordance with its terms.
10.3 Reduction of Letter of Credit.
(a) The Letter of Credit is subject to reduction pursuant to
its terms.
(b) If the amount available to be drawn under the Letter of
Credit shall be permanently reduced in accordance with the terms
thereof, then the Bank shall have the right to require the Trustee to
surrender the Letter of Credit to the Bank and to issue on such date,
in substitution for such outstanding Letter of Credit, a substitute
irrevocable letter of credit, substantially in the form of the Letter
of Credit but with such changes therein as shall be appropriate to
give effect to such reduction, dated such date, for the amount to
which the amount available to be drawn under the Letter of Credit
shall have been reduced.
10.4 Liability of the Bank. The Borrower, to the extent permitted by
applicable law, assumes all risks of the acts or omissions of the Trustee and
any beneficiary or transferee of the Letter of Credit with respect to its use
of the Letter of Credit. Neither the Bank nor any of its officers, directors,
employees, agents or consultants shall be liable or responsible for:
(a) the use which may be made of the Letter of Credit or for
any acts or omissions of the Trustee or any beneficiary or transferee
in connection therewith;
(b) the validity, sufficiency or genuineness of documents, or
of any endorsement(s) thereon, even if such documents should in fact
prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged;
(c) payment by the Bank against presentation of documents
which do not comply on their face with the terms of the Letter of
Credit, including failure of any documents to bear any reference or
adequate reference to the Letter of Credit; or
(d) any other circumstances whatsoever in any way related to
the making or failure to make payment under the Letter of Credit;
29
<PAGE> 34
In furtherance and not in limitation of the foregoing, the Bank may accept
documents that appear on their face to comply with the terms of the Letter of
Credit, without responsibility for further investigation, regardless of any
notice or information to the contrary.
10.5 Successors and Assigns. This Agreement shall be binding upon the
Borrower, its successors and assigns and all rights against the Borrower arising
under this Agreement shall be for the sole benefit of the Bank, its successors
and assigns, all of whom shall be entitled to enforce performance and observance
of this Agreement to the same extent as if they were parties hereto.
10.6 Notices. All notices, requests and demands to or upon the
respective parties hereto shall be deemed to have been given or made when hand
delivered or mailed first class, certified or registered mail, postage prepaid,
addressed as follows or to such other address as the parties hereto shall have
been given notice pursuant to this Section 10.6:
The Bank: First Union National Bank
301 South Tryon Street, M-7
Charlotte, North Carolina 28288-0742
Attention: Hal A. Telimen
also:
First Union National Bank
301 South Tryon Street, M-2
Charlotte, North Carolina 28288-0145
Attention: William W. Tyson
The Borrower: Belk, Inc.
2801 West Tyvola Road
Charlotte, North Carolina 28217-4500
Attention: Luther T. Moore, Esq.
except in cases where it is expressly herein provided that such notice, request
or demand is not effective until received by the party to whom it is addressed,
in which event said notice, request or demand shall be effective only upon
receipt by the addressee.
10.7 Amendment. This Agreement may be amended, modified or discharged
only upon an agreement in writing of the Borrower and the Bank.
10.8 Effect of Delay and Waivers. No delay or omission to exercise any
right or power accruing upon any default, omission or failure of performance
hereunder shall impair any such right or power or shall be construed to be a
waiver thereof, but any such right and power may be exercised from time to time
and as often as may be deemed expedient. In order to entitle the Bank to
exercise any remedy now or hereafter existing at law or in equity or by
statute, it shall not be necessary to give any notice, other than such notice
as may be herein expressly required.
30
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In the event any provision contained in this Agreement should be breached by
any party and thereafter waived by the other party so empowered to act, such
waiver shall be limited to the particular breach hereunder. No waiver,
amendment, release or modification of this Agreement shall be established by
conduct, custom or course of dealing, but solely by an instrument in writing
duly executed by the parties thereunto duly authorized by this Agreement.
10.9 Counterparts. This Agreement may be executed simultaneously in
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
10.10 Severability. The invalidity or unenforceability of any one or
more phrases, sentences, clauses or Sections contained in this Agreement shall
not affect the validity or enforceability of the remaining portions of this
Agreement, or any part thereof.
10.11 Payment of Expenses. The Borrower shall be liable for the
payment of all fees and expenses, including reasonable attorneys' fees (based
on actual hours at standard billing rates and without regard to any statutory
presumption), incurred in connection with the preparation, execution, and
enforcement of this Agreement, the modification hereof, and the exercise of any
rights and remedies of the Bank hereunder. The obligations of the Borrower
contained in this Section 10.11 shall survive (i) the payment in full of
amounts payable pursuant to Article III and (ii) the Expiration Date.
10.12 Set Off. Upon the occurrence of an Event of Default hereunder,
the Bank is hereby authorized, without notice to the Borrower, to set off,
appropriate and apply any and all monies, securities and other properties of
the Borrower hereafter held or received by or in transit to the Bank from or
for the Borrower, against the obligations of the Borrower irrespective of
whether the Bank shall have made any demand hereunder; provided, however, that
the Bank hereby waives any such right, and any other right which it may have at
law or otherwise to set off and apply such deposits at any time held, if, when
and after there shall be a drawing under the Letter of Credit during the
pendency of any proceeding by or against the Borrower seeking to adjudicate it
a bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of either of them or
either of their debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, custodian, trustee or other similar
official for either of them or for any substantial part of either of their
property.
10.13 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of North Carolina. The Borrower hereby
acknowledges that the Letter of Credit shall be governed by and construed in
accordance with Uniform Customs and Practice for Documentary Credits (1993
revisions), International Chamber of Commerce Publication No. 500.
10.14 References. The words "herein", "hereof", "hereunder" and other
words of similar import when used in this Agreement refer to this Agreement as
a whole, and not to any particular article, section or subsection.
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<PAGE> 36
10.15 Taxes, Etc. Any taxes (excluding income taxes) payable or ruled
payable by federal or state authority in respect of the Letter of Credit or
this Agreement shall be paid by the Borrower upon demand by the Bank, together
with interest and penalties, if any.
10.16 Consent to Jurisdiction. AS PART OF THE CONSIDERATION FOR NEW
VALUE THIS DAY RECEIVED, THE BORROWER HEREBY CONSENTS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY STATE COURT WITHIN MECKLENBURG COUNTY, NORTH CAROLINA OR
ANY FEDERAL COURT LOCATED WITHIN THE WESTERN DISTRICT OF THE STATE OF NORTH
CAROLINA FOR ANY PROCEEDING INSTITUTED HEREUNDER OR ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF DOCUMENT EXECUTED IN CONNECTION
HEREWITH, OR ANY PROCEEDING TO WHICH THE BANK OR THE BORROWER IS A PARTY,
INCLUDING ANY ACTIONS BASED UPON, ARISING OUT OF, OR IN CONNECTION WITH ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF THE BANK OR THE BORROWER. THE BORROWER IRREVOCABLY AGREES TO BE
BOUND (SUBJECT TO ANY AVAILABLE RIGHT OF APPEAL) BY ANY JUDGMENT RENDERED OR
RELIEF GRANTED THEREBY AND FURTHER WAIVES ANY OBJECTION THAT IT MAY HAVE BASED
ON LACK OF JURISDICTION OR IMPROPER VENUE OR FORUM NON CONVENIENS TO THE
CONDUCT OF ANY SUCH PROCEEDING. THE BORROWER CONSENTS THAT ALL SERVICE OF
PROCESS BE MADE BY REGISTERED OR CERTIFIED MAIL DIRECTED TO IT AT ITS ADDRESS
SET FORTH HEREIN, AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE
EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE UNITED
STATES MAILS, PROPER POSTAGE PREPAID AND PROPERLY ADDRESSED. NOTHING IN THIS
SECTION SHALL AFFECT THE RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
10.17 Indirect Means. Any act which the Borrower is prohibited from
doing shall not be done indirectly through a Subsidiary or by any other
indirect means.
[Signature pages to follow]
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<PAGE> 37
IN WITNESS WHEREOF, the Borrower and the Bank have caused this
Agreement to be executed in their respective names and their respective seals
to be hereunto affixed and attested by their duly authorized representatives,
all as of the date first above written.
THE BORROWER:
BELK, INC.
By: ____________________________________
ATTEST: Title: ____________________________________
_______________________
Assistant Secretary
(CORPORATE SEAL)
33
<PAGE> 38
THE BANK:
FIRST UNION NATIONAL BANK
By: ____________________________________
Title: ____________________________________
34
<PAGE> 39
IRREVOCABLE LETTER OF CREDIT
Date: July 23, 1998
LETTER OF CREDIT NO. S159736
First Union National Bank, as Trustee
Corporate Trust Department
230 South Tryon Street
Charlotte, North Carolina 28288-1179
Attention: Ms. Shannon Schwartz
Ladies and Gentlemen:
We (the "Bank") hereby issue to you, First Union National Bank, as
Trustee ("you" or the "Trustee") under the Trust Indenture dated as of July 1,
1998 between Belk, Inc. (the "Borrower") and you (as amended or supplemented,
the "Indenture"), pursuant to which $125,000,000 Belk, Inc. Taxable Variable
Rate Demand Revenue Bonds, Series 1998 (the "Bonds") have been issued, this
Irrevocable Letter of Credit No. S159736 (the "Letter of Credit") for the
account of the Borrower in the amount of $126,849,316 (the "Initial Stated
Amount" and, as from time to time reduced and reinstated as hereinafter
provided, the "Amount Available"), of which (i) subject to the provisions below
reducing amounts available hereunder, $125,000,000 (as from time to time
reduced and reinstated as hereinafter provided, the "Principal Amount
Available") shall be available for the payment of principal or the portion of
the purchase price corresponding to principal of the Bonds and (ii) subject to
the provisions below reducing amounts available hereunder, $1,849,316 (as from
time to time reduced and reinstated as hereinafter provided, for the "Interest
Amount Available") shall be available for the payment of up to 45 days'
interest or the portion of the purchase price corresponding to interest on the
Bonds at an assumed rate of twelve percent (12%) per annum. Subject to such
aggregate limits and to the conditions set forth herein, funds may be drawn
upon hereunder (i) with respect to payment of the unpaid principal amount or
the portion of purchase price corresponding to the principal of the Bonds and
(ii) with respect to payment of up to 45 days' interest accrued and payable or
the portion of purchase price corresponding to interest accrued on the Bonds on
or prior to their stated maturity date. This Letter of Credit is effective
immediately and expires as of the close of business at our Presentation Office
(as hereinafter defined) on July 23, 2001 (the "Expiration Date") or earlier as
hereinafter provided. Prior to any anniversary of the Closing Date, the Bank
may, in its sole discretion, extend the applicable Expiration Date for an
additional one year period. The Bank shall notify the Borrower and you, or any
successor Trustee, in writing at least one hundred twenty (120) days prior to
the applicable Expiration Date by U. S. certified mail, return receipt
requested or express courier that such Expiration Date has been extended. The
Bank shall be under no obligation or commitment to extend any applicable
Expiration Date and no such obligation or commitment on the part of the Bank
shall be inferred from the provisions of this paragraph. Failure on the part of
the Bank to notify the Borrower and you as to
<PAGE> 40
an extension of the applicable Expiration Date shall be deemed to be a refusal
to extend such Expiration Date. All drawings under this Letter of Credit will
be paid with our own funds.
We hereby irrevocably authorize you to draw on us, in an aggregate
amount not to exceed the Amount Available and in accordance with the terms and
conditions and subject to the reductions in amount as hereinafter set forth,
(1) in a single drawing (subject to the provisions contained in the next
following paragraph) by your draft drawn on us at sight, presented for payment
on a day on which banks in the State of North Carolina are open for the
transaction of business of the nature required pursuant to the Indenture (a
"Business Day") and referring therein to the number of this Letter of Credit,
and accompanied by your written and completed certificate signed by you in the
form of Annex A attached hereto (such draft accompanied by such certificate
being your "Interest Draft"), an amount not exceeding the Interest Amount
Available on the date of such drawing; (2) in one or more drawings by one or
more of your drafts drawn on us at sight, presented for payment on a Business
Day and referring therein to the number of this Letter of Credit, and
accompanied by your written completed certificate signed by you in the form of
Annex B attached hereto (any such draft accompanied by such certificate being
your "Tender Draft"), an aggregate amount not exceeding the Amount Available on
the date of such drawing; (3) in one or more drawings by one or more of your
drafts drawn on us at sight, presented for payment on a Business Day and
referring therein to the number of this Letter of Credit, and accompanied by
your written and completed certificate signed by you in the form of Annex C
attached hereto (any such draft accompanied by such certificate being your
"Partial Redemption Draft"), an aggregate amount not exceeding the Amount
Available on the date of such drawing; (4) in a single drawing by your draft
drawn on us at sight presented for payment on a Business Day and referring
therein to the number of this Letter of Credit, and accompanied by your written
and completed certificate signed by you in the form of Annex D hereto (any such
draft accompanied by such certificate being your "Conversion Draft"), an amount
not exceeding the Amount Available on the date of such drawing; and (5) in a
single drawing by your draft drawing on us at sight, presented for payment on a
Business Day and referring therein to the number of this Letter of Credit, and
accompanied by your written and completed certificate signed by you in the form
of Annex E attached hereto (such draft accompanied by such certificate being
your "Final Draft"), an amount not exceeding the Amount Available on the date
of such drawing.
If you shall draw on us by an Interest Draft and you shall not have
received from us within ten (10) calendar days from the date of such drawing a
notice to the effect that we have not been reimbursed for such drawing and that
the interest portion of the Letter of Credit will not be reinstated, then (x)
your right to draw on us in a single drawing by your Interest Draft under
clause (1) of the immediately preceding paragraph shall be automatically
reinstated and (y) effective as of the eleventh (11th) calendar day from the
date of such drawing, you shall again be authorized to draw on us by your
Interest Draft in accordance with said clause (1). The provisions of this
paragraph providing for the reinstatement of your right to draw on us by your
Interest Draft in a succeeding single drawing shall be applicable to each
successive drawing by your Interest Draft under clause (1) of the immediately
preceding paragraph so long as this Letter of Credit shall not have terminated
as set forth below.
2
<PAGE> 41
Upon our honoring any Tender Draft presented by you hereunder, the
Amount Available under this Letter of Credit shall be automatically reduced by
the amount drawn under such Tender Draft, the Principal Amount Available to be
drawn hereunder by you shall be automatically reduced by an amount equal to the
principal component of such Tender Draft and the Interest Amount Available to
be drawn hereunder by you shall be automatically reduced by an amount equal to
the amount of the interest component of such Tender Draft.
Upon our honoring any Partial Redemption Draft presented by you
hereunder, the Amount Available under this Letter of Credit shall be
automatically and permanently reduced by the amount drawn under any such
Partial Redemption Draft, the Principal Amount Available to be drawn hereunder
by you shall be automatically and permanently reduced by an amount equal to the
principal component of such Partial Redemption Draft honored by us hereunder
and the Interest Amount Available to be drawn hereunder by you shall be
automatically and permanently reduced by an amount equal to the amount of the
interest which would accrue on an amount of principal equal to the principal
component of such Partial Redemption Draft for 45 days at an assumed rate of
twelve percent (12%) per annum.
Upon our honoring any Conversion Draft presented by you hereunder, the
Amount Available under this Letter of Credit shall be automatically and
permanently reduced by the amount drawn under any such Conversion Draft, the
Principal Amount Available to be drawn hereunder by you shall be automatically
and permanently reduced by an amount equal to the principal component of such
Conversion Draft honored by us hereunder, and the Interest Amount Available to
be drawn hereunder by you shall be automatically and permanently reduced by an
amount equal to the amount of the interest component of any such Conversion
Draft honored by us hereunder.
The Amount Available, the Principal Amount Available and the Interest
Amount Available drawn under this Letter of Credit with respect to any Tender
Draft shall be reinstated as provided in this paragraph to the extent, but only
to the extent, that we are reimbursed by or on behalf of the Borrower in
immediately available funds delivered to us at the Presentation Office on or
before 3:00 P.M. (Charlotte, North Carolina time) on a Business Day for any
amount drawn in respect of principal and interest under any Tender Draft. If we
receive such reimbursement by or on behalf of the Borrower, all in strict
conformity with the terms and conditions of this Letter of Credit, after 3:00
P.M. (Charlotte, North Carolina time) on a Business Day prior to the
termination hereof, such reimbursement will be honored as stated above as if
received on the next succeeding Business Day. Any amount received by us from or
on behalf of the Borrower in reimbursement of amounts drawn hereunder by a
Tender Draft shall, if accompanied by your completed certificate signed by you
in the form of Annex F attached hereto, be applied to the extent of the amount
received by us and indicated therein to reimburse us for amounts drawn
hereunder by your Tender Drafts and we will confirm to you the amount of the
Principal Amount Available and the Interest Amount Available reinstated by such
reimbursement by delivering to you the executed and completed acknowledgment
accompanying the form of Annex F delivered by you in connection with such
reimbursement. The Amount Available, the Principal Amount Available and the
Interest Amount Available shall be reinstated only in compliance with the
provisions of this paragraph.
3
<PAGE> 42
Each draft and certificate presented hereunder shall be dated the date
of its presentation and each such draft and certificate shall be presented at
our office located at 301 South Tryon Street, M-7 Charlotte, North Carolina
28288-0742, Attention: International Operations (or at any other office in the
State of North Carolina which may be designated by us by written notice
delivered to you at least three Business Days prior to a date on which interest
is payable on the Bonds) (the "Presentation Office") and shall be presented on
a Business Day. Notwithstanding the foregoing, all drawings hereunder may be
made by telecopy to (704) 383-6984 and promptly confirmed by written
certificate. As an accommodation and not as a condition, you will endeavor to
give the Bank telephonic notice that a draft is being submitted at
(704)374-3028. If we receive any of your drafts and certificates at such
office, all in strict conformity with the terms and conditions of this Letter
of Credit, not later than 11:00 A.M. (Charlotte, North Carolina time) on a
Business Day on or prior to the termination hereof, we will honor the same by
initiating the wire of funds by 2:30 P.M. (Charlotte, North Carolina time) on
the same day in accordance with your payment instructions. If we receive any of
your drafts and certificates at such office, all in strict conformity with the
terms and conditions of this Letter of Credit, after 11:00 A.M. (Charlotte,
North Carolina time) on a Business Day prior to the termination hereof, we will
honor the same on the next succeeding Business Day by initiating the wiring of
funds by 2:30 P.M. (Charlotte, North Carolina time) in accordance with your
payment instructions. If requested by you, payment under this Letter of Credit
may be made by wire transfer of Federal Reserve Bank of Richmond funds to your
account in a bank on the Federal Reserve wire system or by deposit of same day
funds into a designated account that you maintain with us.
In connection with the presentation of any Tender Draft or Conversion
Draft, Bonds in aggregate principal amount equal to the principal amount of
such Tender Draft or Conversion Draft shall be delivered to the Bank or its
designee as promptly as practicable, and in any event within five Business Days
after such presentation, registered in the name of the Bank, or its designee,
as pledgee of the Borrower, pledged to the Bank pursuant to Section 9.1 of the
Letter of Credit and Reimbursement Agreement dated as of July 1, 1998 between
the Borrower and us (the "Reimbursement Agreement"). With respect to any Tender
Draft, the Bank agrees that it shall not release any Bonds pledged to it until
the Trustee shall have received the Bank's executed acknowledgment accompanying
the form of Annex F attached hereto notifying the Trustee that the Letter of
Credit has been reinstated so that the Amount Available, as so reinstated,
shall equal or exceed the aggregate principal and 45 days' interest calculated
at an assumed rate of twelve percent (12%) per annum on all Bonds for which
drawings are available hereunder after giving effect to such release. With
respect to any Conversion Draft, the Bank agrees that it shall not release any
Bonds pledged to it until the Bank is reimbursed in full pursuant to Section
3.2 of the Reimbursement Agreement with respect to the drawing under the Letter
of Credit in connection with the presentation of such Conversion Draft.
This Letter of Credit shall terminate upon the earliest of (i) our
honoring your Final Draft presented hereunder, (ii) the second day following
the date on which we receive a certificate signed by you stating that the
interest rate on the Bonds has been converted to a Fixed Rate, (iii) the date
on which we receive a certificate signed by you stating that the Borrower has
provided and you have accepted an Alternate Credit Facility (as defined in the
Indenture) in accordance
4
<PAGE> 43
with the terms of the Indenture which is effective the date of such
certificate, (iv) the date on which the Bank receives notice from the Trustee
that there are no longer any Bonds Outstanding (as defined in the Indenture) or
(v) the Expiration Date (as extended from time to time pursuant to the
provisions hereof).
Notwithstanding Article 48 of UCP (as defined below), this Letter of
Credit is transferable more than once. This Letter of Credit is transferable
only in its entirety to any transferee whom you certify to us has succeeded you
as Trustee under the Indenture, and may be successively transferred. Transfer
of the Amount Available under this Letter of Credit to such transferee shall be
effected by the presentation to us of this Letter of Credit accompanied by a
certificate in the form of Annex G attached hereto and payment of the transfer
commission referred to therein. Upon such presentation we shall forthwith
transfer the same to your transferee or, if so requested by your transferee,
issue a letter of credit to your transferee with provisions therein consistent
with this Letter of Credit.
This Letter of Credit sets forth in full our undertaking, and such
undertaking shall not in any way be modified, amended, amplified or limited by
reference to any document, instrument or agreement referred to herein
(including, without limitation, the Bonds or the Indenture), except only the
certificates and the drafts referred to herein which are hereby incorporated by
reference; and any such reference shall not be deemed to incorporate herein by
reference any document, instrument or agreement except for such certificates
and such drafts.
Except as otherwise provided herein, this Letter of Credit shall be
governed by and construed in accordance with the Uniform Customs and Practice
for Documentary Credits (1993 Revisions), International Chamber of Commerce
Publication No. 500 (the "UCP") and, to the extent not inconsistent therewith,
the laws of the State of North Carolina. Communications with respect to this
Letter of Credit other than presentations of drafts and certificates hereunder
shall be in writing and shall be addressed to us at 301 South Tryon Street,
M-7, Charlotte, North Carolina 28288-0742, Attention: International Operations,
specifically referring to the number of this Letter of Credit.
Very truly yours,
FIRST UNION NATIONAL BANK
By: ____________________________________
Title: ___________________________
5
<PAGE> 44
ANNEX A
[Form of Certificate for Interest Draft]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT
OF UP TO 45 DAYS' INTEREST
IRREVOCABLE LETTER OF CREDIT NO. S159736
The undersigned, a duly authorized officer of the undersigned Trustee
(the "Trustee"), hereby certifies to First Union National Bank (the "Bank"),
with reference to Irrevocable Letter of Credit No. S159736 (the "Letter of
Credit"; the terms defined therein and not otherwise defined herein being used
herein as therein defined) issued by the Bank in favor of the Trustee, as
follows:
(1) The Trustee is the Trustee or a Co-Trustee under the
Indenture for the holders of the Bonds.
(2) The Trustee is making a drawing under the Letter of
Credit with respect to a payment of interest on the Bonds, which
payment is due and payable on a regular Interest Payment Date (as
defined in the Indenture). On the record date for such Interest
Payment Date, none of such Bonds for which interest is drawn pursuant
to the draft were held of record by the Borrower, or by the Bank, or
its designee, as pledgee of the Borrower.
(3) [The Interest Draft accompanying this Certificate is the
first Interest Draft presented by the Trustee under the Letter of
Credit.]* [The Interest Draft last presented by the Trustee under the
Letter of Credit was honored and paid by the Bank on
___________________, _______, and the Trustee has not received a
notice within ten days of presentation of such Interest Draft from the
Bank that the Bank has not been reimbursed.]**
(4) The amount of the Interest Draft accompanying this
Certificate is $___________. It was computed in compliance with the
terms and conditions of the Bonds and the Indenture and does not
exceed the Interest Amount Available to be drawn by the Trustee under
the Letter of Credit.
(5) Upon receipt by the undersigned of the amount demanded
hereby, (a) the undersigned will apply the same directly to the
payment when due of the interest amount owing on account of the Bonds
pursuant to the Indenture, (b) no portion of said amount shall be
applied by the undersigned for any other purpose, and (c) no portion
of said amount shall be commingled with other funds held by the
undersigned.
6
<PAGE> 45
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ____ day of ________________, 19__.
FIRST UNION NATIONAL BANK, as Trustee
By: ____________________________________
Name: ___________________________
Title: ___________________________
- -------------------
* To be used in the Certificate relating to the first Interest Draft
only.
** To be used in each Certificate relating to each Interest Draft other
than the first Interest Draft.
7
<PAGE> 46
ANNEX B
[Form of Certificate for Tender Draft]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT
OF PRINCIPAL PURCHASE PRICE AND PORTION OF PURCHASE PRICE
CORRESPONDING TO INTEREST OF BONDS TENDERED
IRREVOCABLE LETTER OF CREDIT NO. S159736
The undersigned, a duly authorized officer of the undersigned Trustee
(the "Trustee"), hereby certifies to First Union National Bank (the "Bank"),
with reference to Irrevocable Letter of Credit No. S159736 (the "Letter of
Credit"; the terms defined herein and not otherwise defined herein being used
herein as therein defined) issued by the Bank in favor of the Trustee, as
follows:
(1) The Trustee is the Trustee or a Co-Trustee under the
Indenture for the holders of the Bonds.
(2) The Trustee is making a drawing under the Letter of
Credit with respect to a payment, upon a tender of all or less than
all of the Bonds, which are Outstanding (as defined in the Indenture),
of the unpaid principal amount of the Bonds and accrued interest
thereon to be purchased as a result of such tender pursuant to the
terms of Article III or Section 203 (except for conversion to the
Fixed Rate) of the Indenture (other than Bonds, presently held of
record by the Borrower, or by the Bank, or its designee, as pledgee of
the Borrower) which payment is due on the date on which this
Certificate and the Tender Draft it accompanies are being presented to
the Bank.
(3) The amount of the Tender Draft accompanying this
Certificate is equal to the sum of (i) $____________ being drawn in
respect of the payment of unpaid principal of Bonds (other than Bonds
presently held of record by the Borrower or by the Bank, or its
designee, as pledgee of the Borrower) to be purchased as a result of a
tender, which amount does not exceed the Principal Amount Available
under the Letter of Credit, and (ii) $_____________ being drawn in
respect of the payment of _______ days' [not to exceed 45 days']
accrued and unpaid interest on such Bonds constituting a portion of
the purchase price of such Bonds being purchased as a result of a
tender, which amount does not exceed the Interest Amount Available
under the Letter of Credit.
(4) The Trustee shall, pursuant to the Reimbursement
Agreement, deliver or cause to be delivered to the Bank or its
designee a principal amount of Bonds equal to the principal amount of
the Tender Draft accompanying this Certificate as promptly as
8
<PAGE> 47
practicable, and in any event within five Business Days after
presentation of the Tender Draft accompanying this Certificate.
(5) Upon receipt by the undersigned of the amount demanded
hereby, (a) the undersigned will apply the same directly to the
payment when due of the purchase price of Bonds tendered pursuant to
the Indenture, (b) no portion of said amount shall be applied by the
undersigned for any other purpose, and (c) no portion of said amount
shall be commingled with other funds held by the undersigned.
(6) The amount of the Tender Draft accompanying this
Certificate was computed in compliance with the terms and conditions
of the Bonds and the Indenture and does not exceed the Amount
Available under the Letter of Credit.
The Trustee acknowledges that, pursuant to the terms of the Letter of
Credit, upon the Bank's honoring of the Tender Draft accompanying this
Certificate, (i) the Amount Available under the Letter of Credit shall be
automatically reduced by the aggregate amount of such Tender Draft, (ii) the
Principal Amount Available under the Letter of Credit shall be automatically
reduced by an amount equal to the amount of the principal component of such
draft set forth in paragraph 3 above, and (iii) the Interest Amount Available
under the Letter of Credit shall be automatically reduced by an amount equal to
the amount of the interest component of such draft set forth in paragraph 3
above, each subject to reinstatement as set forth in the Letter of Credit.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ____ day of ______________, ____.
FIRST UNION NATIONAL BANK, as Trustee
By: ____________________________________
Name: ___________________________
Title: ___________________________
9
<PAGE> 48
ANNEX C
[Form of Certificate For Partial Redemption Draft]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT
OF PRINCIPAL AND UP TO 45 DAYS' INTEREST UPON
PARTIAL REDEMPTION
IRREVOCABLE LETTER OF CREDIT NO. S159736
The undersigned, a duly authorized officer of the undersigned Trustee
(the "Trustee"), hereby certifies to First Union National Bank (the "Bank"),
with reference to Irrevocable Letter of Credit No. S159736 (the "Letter of
Credit"; the terms defined therein and not otherwise defined herein being used
herein as therein defined) issued by the Bank in favor of the Trustee, as
follows:
(1) The Trustee is the Trustee or a Co-Trustee under the
Indenture for the holders of the Bonds.
(2) The Trustee is making a drawing under the Letter of
Credit with respect to a payment, upon redemption of less than all of
the Bonds which are Outstanding (as defined in the Indenture), of the
unpaid principal amount of, and up to 45 days' accrued and unpaid
interest on, the Bonds to be redeemed pursuant to the Indenture (other
than Bonds presently held of record by the Borrower, or by the Bank,
or its designee, as pledgee of the Borrower).
(3) The amount of the Partial Redemption Draft accompanying
this Certificate is $__________ and is equal to the sum of (i)
$________ being drawn in respect of the payment of unpaid principal of
Bonds (other than Bonds presently held of record by the Borrower or by
Bank, or its designee, as pledgee of the Borrower) to be redeemed,
which amount does not exceed the Principal Amount Available under the
Letter of Credit and (ii) $__________ being drawn in respect of the
payment of ____ days' [not to exceed 45 days'] accrued and unpaid
interest on such Bonds, which amount does not exceed the Interest
Amount Available under the Letter of Credit.
(4) The amount of the Partial Redemption Draft accompanying
this Certificate was computed in accordance with the terms and
conditions of the Bonds and the Indenture and does not exceed the
Amount Available under the Letter of Credit.
(5) This Certificate and the Partial Redemption Draft it
accompanies are dated, and are being presented to the Bank on, the
date on which the unpaid principal amount of, and accrued and unpaid
interest on, Bonds to be redeemed are due and
10
<PAGE> 49
payable under the Indenture upon redemption of less than all of the
Bonds which are Outstanding (as defined in the Indenture).
(6) Upon receipt by the undersigned of the amount demanded
hereby, (a) the undersigned will apply the same directly to the
payment when due of the principal amount of and accrued and unpaid
interest on the Bonds pursuant to the Indenture, (b) no portion of
said amount shall be applied by the undersigned for any other purpose
and (c) no portion of said amount shall be commingled with other funds
held by the undersigned.
The Trustee acknowledges that, pursuant to the terms of Letter of
Credit, upon the Bank's honoring the Partial Redemption Draft accompanying this
Certificate, (i) the Amount Available under the Letter of Credit shall be
permanently reduced by the aggregate amount of such Partial Redemption Draft,
(ii) the Principal Amount Available under the Letter of Credit shall be
permanently reduced by an amount equal to the amount of the principal component
of such draft set forth in paragraph 3 above and (iii) the Interest Amount
Available under the Letter of Credit shall be permanently reduced by
$____________, which is equal to an amount of interest which would accrue on an
amount of principal equal to the principal component set forth in paragraph 3
above for a period of 45 days at a maximum rate of twelve percent (12%) per
annum.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ______ day of _______________, 19__.
FIRST UNION NATIONAL BANK, as Trustee
By: ____________________________________
Name: ___________________________
Title: ___________________________
11
<PAGE> 50
ANNEX D
[Form of Certificate for Conversion Draft]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE
PAYMENT OF PRINCIPAL PLUS ACCRUED INTEREST
UPON A MANDATORY PURCHASE
(CONVERSION OF RATE)
IRREVOCABLE LETTER OF CREDIT NO. S159736
The undersigned, a duly authorized officer of the undersigned Trustee
(the "Trustee"), hereby certifies to First Union National Bank (the "Bank"),
with reference to Irrevocable Letter of Credit No. S159736 (the "Letter of
Credit"; the terms defined therein and not otherwise defined herein being used
herein as therein defined) issued by the Bank in favor of the Trustee, as
follows:
(1) The Trustee is the Trustee under the Indenture for the
holders of the Bonds.
(2) The Trustee is making a drawing under the Letter of
Credit with respect to a payment, upon a mandatory tender for purchase
pursuant to Section 203 of the Indenture upon conversion to a Fixed
Rate (as defined in the Indenture) of all or less than all of the
Bonds which are Outstanding (as defined in the Indenture), of the
unpaid principal amount of, and up to 45 days' accrued and unpaid
interest on, the Bonds to be so purchased (other than Bonds presently
held of record by the Borrower, or the Bank, or its designee, as
pledgee of the Borrower), which payment is due on the date on which
this Certificate and the Conversion Draft it accompanies are being
presented to the Bank.
(3) The amount of the Conversion Draft accompanying this
Certificate is $__________ and is equal to the sum of (i) $__________
being drawn in respect of the payment of unpaid principal of Bonds
(other than Bonds presently held of record by the Borrower, or by the
Bank, or its designee, as pledgee of the Borrower) to be purchased,
which amount does not exceed the Principal Amount Available under the
Letter of Credit, and (ii) $_____ being drawn in respect of the
payment of ____ days' [not to exceed 45 days'] accrued and unpaid
interest on such Bonds, which amount does not exceed the Interest
Amount Available under the Letter of Credit.
(4) The amount of the Conversion Draft accompanying this
Certificate was computed in compliance with the terms and conditions
of the Bonds and the Indenture and does not exceed the Amount
Available under the Letter of Credit.
12
<PAGE> 51
(5) Upon receipt by the undersigned of the amount demanded
hereby, (a) the undersigned will apply the same directly to the
payment when due of the principal amount of, and interest accrued and
unpaid on, the Bonds pursuant to the Indenture, (b) no portion of said
amount shall be applied by the undersigned for any other purpose and
(c) no portion of said amount shall be commingled with other funds
held by the undersigned.
(6) The Trustee shall, pursuant to the Reimbursement
Agreement, deliver or cause to be delivered to the Bank or its agent a
principal amount of Bonds equal to the principal amount of the
Conversion Draft accompanying this Certificate as promptly as
practicable, and in any event within five Business Days after
presentation of the Conversion Draft accompanying this Certificate.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ______ day of ______________, 19__.
FIRST UNION NATIONAL BANK, as Trustee
By: ____________________________________
Name: ___________________________
Title: ___________________________
13
<PAGE> 52
ANNEX E
[Form of Certificate for Final Draft]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT
OF PRINCIPAL PLUS ACCRUED INTEREST, UPON STATED
OR ACCELERATED MATURITY OR OPTIONAL OR MANDATORY
REDEMPTION AS A WHOLE
IRREVOCABLE LETTER OF CREDIT NO. S159736
The undersigned, a duly authorized officer of the undersigned Trustee
(the "Trustee"), hereby certifies to First Union National Bank (the "Bank"),
with reference to Irrevocable Letter of Credit No. S159736 (the "Letter of
Credit"; the terms defined therein and not otherwise defined herein being used
herein as therein defined) issued by the Bank in favor of the Trustee, as
follows:
(1) The Trustee is the Trustee or a Co-Trustee under the
Indenture for the holders of the Bonds.
(2) The Trustee is making a drawing under the Letter of
Credit with respect to a payment, either at stated maturity, upon
acceleration, or as a result of a redemption as a whole pursuant to
the Indenture, of the unpaid principal amount of and up to 45 days'
accrued and unpaid interest on, all of the Bonds which are
"Outstanding" within the meaning of the Indenture (other than Bonds
presently held of record by the Borrower or by the Bank, or its
designee, as pledgee of the Borrower).
(3) The amount of the Final Draft accompanying this
Certificate is $__________ and is equal to the sum of (i) $__________
being drawn in respect of the payment of unpaid principal of Bonds
(other than Bonds presently held of record by the Borrower or by the
Bank, or its designee, as pledgee of the Borrower), which amount does
not exceed the Principal Amount Available under the Letter of Credit,
and (ii) $__________ being drawn in respect of the payment of ________
days' [not to exceed 45 days'] accrued and unpaid interest on such
Bonds, which amount does not exceed the Interest Amount Available
under the Letter of Credit.
(4) The amount of the Final Draft accompanying this
Certificate was computed in compliance with the terms and conditions
of the Bonds and the Indenture and does not exceed the Amount
Available under the Letter of Credit.
(5) Upon receipt by the undersigned of the amount demanded
hereby, (a) the undersigned will apply the same directly to the
payment when due of the principal amount and accrued and unpaid
interest thereon owing on account of the Bonds pursuant
14
<PAGE> 53
to the Indenture, (b) no portion of said amount shall be applied by
the undersigned for any other purpose and (c) no portion of said
amount shall be commingled with other funds held by the undersigned.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ______ day of _______________, 19__.
FIRST UNION NATIONAL BANK, as Trustee
By: ____________________________________
Name: ___________________________
Title: ___________________________
15
<PAGE> 54
ANNEX F
[Form of Reinstatement Certificate For Tender Draft]
CERTIFICATE FOR THE REINSTATEMENT OF AMOUNTS AVAILABLE
UNDER IRREVOCABLE LETTER OF CREDIT NO. S159736
The undersigned, a duly authorized officer of the undersigned Trustee
(the "Trustee"), hereby certifies to First Union National Bank (the "Bank"),
with reference to Irrevocable Letter of Credit No. S159736 (the "Letter of
Credit"; the terms defined therein and not otherwise defined herein being used
herein as therein defined) issued by the Bank in favor of the Trustee, as
follows:
(1) The Trustee is the Trustee or a Co-Trustee under the
Indenture for the holders of the Bonds.
(2) The amount of $________ paid to you today by or on behalf
of the Borrower is a payment made to reimburse you, pursuant to
Section 3.2 of the Letter of Credit and Reimbursement Agreement dated
as of July __, 1998 between the Borrower and the Bank, for amounts
drawn under the Letter of Credit by Tender Drafts. The Trustee hereby
requests that you reinstate the Letter of Credit upon receipt of such
payment in an amount equal to the amount of payment so received.
(3) Of the amount referred to in paragraph (2), $__________
represents the aggregate principal amount of Bonds resold or to be
sold on behalf of the Borrower.
(4) Of the amount referred to in paragraph (2), $__________
represents accrued and unpaid interest on the Bonds.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ______ day of ______________, 19__.
FIRST UNION NATIONAL BANK, as Trustee
By: ____________________________________
Name: ___________________________
Title: ___________________________
16
<PAGE> 55
[attached to Annex F]
ACKNOWLEDGMENT
The Bank hereby confirms to the Trustee that the Principal Amount
Available under the Letter of Credit has been reinstated by the amount
$____________ and the Interest Amount Available under the Letter of Credit has
been reinstated by the amount of $____________.
This ______ day of _______________, 19__.
FIRST UNION NATIONAL BANK
By: ____________________________________
Name: ___________________________
Title: ___________________________
17
<PAGE> 56
ANNEX G
[Form of Transfer Certificate]
INSTRUCTION TO TRANSFER
First Union National Bank
301 South Tryon Street, M-7
Charlotte, North Carolina 28288-0742
Attention: International Operations
Re: Your Irrevocable Letter of Credit No. S159736
Ladies and Gentlemen:
For value received, the undersigned beneficiary (the "Transferor")
hereby irrevocably transfers to:
------------------------------
[Name of Transferee]
------------------------------
[Address]
(the "Transferee") all rights of the Transferor with respect to the
above-referenced Letter of Credit, including the right to draw under said
Letter of Credit in the Amount Available. Said Transferee has succeeded the
Transferor as Trustee under that certain Trust Indenture dated as of July 1,
1998 by and between Belk, Inc. and First Union National Bank as initial Trustee
thereunder (as amended or supplemented, the "Indenture"), all with respect to
the $125,000,000 Belk, Inc. Taxable Variable Rate Demand Revenue Bonds, Series
1998, and has complied with the provisions of the Indenture.
By virtue of this transfer, the Transferee shall have the sole rights
as beneficiary of said Letter of Credit, including sole rights relating to any
past or future amendments thereof, whether increases or extensions or
otherwise. All amendments are to be advised directly to the Transferee without
necessity of any consent of or notice to the Transferor.
By its signature below, the Transferee acknowledges that it has duly
succeeded the Transferor as Trustee pursuant to the Trust Indenture.
18
<PAGE> 57
The advice of such Letter of Credit is returned herewith, along with a
transfer fee of $1,000.00, and we ask you to endorse the transfer on the
reverse side thereof and to forward it directly to the Transferee with your
customary notice of transfer.
Very truly yours,
FIRST UNION NATIONAL BANK, as Trustee
By: _____________________________________________
[insert name and title of authorized officer]
(CORPORATE SEAL)
Acknowledged by:
_____________________________
[Insert name of Transferee]
By: _______________________
[insert name and title of
authorized officer]
(CORPORATE SEAL)
19
<PAGE> 1
EXHIBIT 10.7
===============================================================================
CREDIT AGREEMENT
DATED AS OF
SEPTEMBER 11, 1998
by and among
BELK, INC.
as Borrower,
and
WACHOVIA BANK, N.A.,
as Bank
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS.........................................................................................1
SECTION 1.01. Definitions.........................................................................1
SECTION 1.02. Accounting, Terms and Determinations...............................................10
SECTION 1.03. References.........................................................................10
ARTICLE II
REVOLVING CREDIT FACILITY..........................................................................11
SECTION 2.01. Revolving Credit Loans.............................................................11
SECTION 2.02. Procedure for Advances of Loans....................................................11
(a) Requests for Borrowing..................................................................11
(b) Disbursement of Loans...................................................................11
(c) FMA/Commercial Loan Access Agreement....................................................12
SECTION 2.03. Repayment of Loans.................................................................12
(a) Repayment on Termination Date...........................................................12
(b) Mandatory Repayment of Excess Loans.....................................................12
(c) Prepayment under FMA/Commercial Loan Access Agreement...................................12
SECTION 2.04. Note...............................................................................12
SECTION 2.05. Termination of Credit Facility.....................................................12
SECTION 2.06. Use of Proceeds....................................................................12
SECTION 2.07. Interest...........................................................................13
(a) Interest Rate Options...................................................................13
(b) Default Rate............................................................................13
(c) Interest Payment and Computation........................................................13
(d) Maximum Rate............................................................................13
SECTION 2.08. Notice and Manner of Conversion or Continuation of Loans...........................14
SECTION 2.09. Manner of Payment..................................................................14
SECTION 2.10. Crediting of Payments and Proceeds.................................................14
ARTICLE III
CHANGE IN CIRCUMSTANCES; COMPENSATION..............................................................14
SECTION 3.01. Basis for Determining Interest Rate Inadequate or Unfair...........................14
SECTION 3.02. Illegality.........................................................................15
SECTION 3.03. Increased Cost and Reduced Return..................................................15
SECTION 3.04. Base Rate Loan Substituted for Affected LIBOR Rate Loan............................16
SECTION 3.05. Compensation.......................................................................17
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV
CONDITIONS TO LOAN CLOSING.........................................................................17
SECTION 4.01. Conditions to Loan Closing.........................................................17
SECTION 4.02. Conditions to all Loans............................................................18
(a) Continuation of Representations and Warranties..........................................18
(b) No Existing Default.....................................................................18
(c) Officer's Compliance Certificate........................................................18
ARTICLE V
REPRESENTATIONS AND WARRANTIES.....................................................................18
SECTION 5.01. Corporate Existence and Power......................................................19
SECTION 5.02. Corporate and Governmental Authorization, Contravention............................19
SECTION 5.03. Binding Effect.....................................................................19
SECTION 5.04. Financial Information..............................................................19
SECTION 5.05. Litigation.........................................................................19
SECTION 5.06. Compliance with ERISA..............................................................20
SECTION 5.07. Taxes..............................................................................20
SECTION 5.08. Subsidiaries.......................................................................20
SECTION 5.09. Not an Investment Company..........................................................20
SECTION 5.10. Ownership of Property; Liens.......................................................20
SECTION 5.11. No Default.........................................................................20
SECTION 5.12. Full Disclosure....................................................................20
SECTION 5.13. Environmental Matters..............................................................21
SECTION 5.14. Compliance with Laws...............................................................21
SECTION 5.15. Capital Stock......................................................................21
SECTION 5.16. Margin Stock.......................................................................21
SECTION 5.17. Insolvency.........................................................................22
SECTION 5.18. Survival of Representations and Warranties, Etc....................................22
ARTICLE VI
COVENANTS..........................................................................................22
SECTION 6.01. Information........................................................................22
SECTION 6.02. Notice of Certain Events...........................................................23
SECTION 6.03. Corporate Existence................................................................24
SECTION 6.04. Payment of Indebtedness; Performance of Other Obligations..........................24
SECTION 6.05. Maintenance of Books and Records; Inspection.......................................25
SECTION 6.06. Comply with ERISA..................................................................25
SECTION 6.07. Maintenance of Properties; Conduct of Business. ...................................25
SECTION 6.08. Insurance..........................................................................26
SECTION 6.09. Observe all Laws...................................................................26
SECTION 6.10. Year 2000..........................................................................26
SECTION 6.11. Subsidiary Guaranties..............................................................26
SECTION 6.12. Merger and Dissolution; Sale of Assets.............................................27
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
SECTION 6.13. Acquisitions.......................................................................27
SECTION 6.14. Indebtedness.......................................................................27
SECTION 6.15. Liens and Encumbrances.............................................................28
SECTION 6.16. Transactions With Related Persons..................................................28
SECTION 6.17. Sale and Leaseback.................................................................28
SECTION 6.18. New Business.......................................................................28
SECTION 6.19. Subsidiaries.......................................................................28
SECTION 6.20. Guaranties.........................................................................29
SECTION 6.21. Restrictive Transactions...........................................................29
SECTION 6.22. Hazardous Wastes...................................................................29
SECTION 6.23. Change in Fiscal Year..............................................................29
SECTION 6.24. Amendments.........................................................................29
SECTION 6.25. Leverage-Ratio.....................................................................29
SECTION 6.26. Fixed Charge Coverage Ratio........................................................29
SECTION 6.27. Net Worth..........................................................................29
SECTION 6.28. Additional Covenants...............................................................30
SECTION 6.29. Use of Proceeds....................................................................30
SECTION 6.30. Crestar Facility...................................................................31
ARTICLE VII
DEFAULTS...........................................................................................31
SECTION 7.01. Events of Default..................................................................31
SECTION 7.02. Remedies on Default................................................................33
SECTION 7.03. Security Interest, Offset, Sharing of Offsets......................................33
ARTICLE VIII
MISCELLANEOUS......................................................................................33
SECTION 8.01. Notices............................................................................33
SECTION 8.02. No Waivers.........................................................................34
SECTION 8.03. Expenses; Documentary Taxes........................................................34
SECTION 8.04. Amendments and Waivers.............................................................35
SECTION 8.05. Successors and Assigns.............................................................35
SECTION 8.06. Confidentiality....................................................................36
SECTION 8.07. Governing Law......................................................................37
SECTION 8.08. Counterparts.......................................................................37
SECTION 8.09. Severability.......................................................................37
SECTION 8.10. Captions...........................................................................37
</TABLE>
<PAGE> 5
SCHEDULES
Schedule 1.1 Existing Liens
Schedule 6.12 Purchases, Mergers and Exchanges
Schedule 6.13 Acquisitions
Schedule 6.14 Existing Indebtedness
Schedule 6.19 Creation of Subsidiaries
EXHIBITS
Exhibit A Form of Promissory Note
Exhibit B Form of Notice of Borrowing
Exhibit C Form of Notice of Conversion/Continuation
Exhibit D Form of Officer's Compliance Certificate
Exhibit E Form of Assignment and Acceptance
Exhibit F Form of Notice of Account Designation
Exhibit G Form of Borrower Opinion
<PAGE> 6
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, made as of the 11th day of September,
1998 (this "Agreement"), by and among BELK, INC., a Delaware corporation
(together with its successors, the "Borrower"), and WACHOVIA BANK, N.A., a
national banking association (together with its endorsees, successors and
assigns, the "Bank").
BACKGROUND
The Borrower desires to borrow from the Bank loans in the
aggregate principal amount of up to $150,000,000, the proceeds of which will be
used to finance seasonal working capital requirements, and the Bank is willing
to make such loans on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
promises herein contained, and each intending to be legally bound hereby, the
parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The terms as defined in this Section
1.01 shall, for all purposes of this Agreement and any amendment hereto (except
as herein otherwise expressly provided or unless the context otherwise
requires), have the meanings set forth herein (terms defined in the singular to
have the same meanings when used in the plural and vice versa):
"Affiliate" means, with respect to any Person, any other Person
(i) directly or indirectly controlling (including, but not limited to, all
directors and officers of such Person), controlled by, or under direct or
indirect common control with, such Person or (ii) that directly or indirectly
owns more than 5% of the voting securities of such Person. A Person shall be
deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Alternate Rate" means for any Alternate Rate Loan for any day,
(i) the rate per annum offered by the Bank in its discretion and agreed to by
the Borrower, or (ii) in the event the Borrower and the Bank do not agree on
such offered rate, three-quarters of one percent above the Federal Funds Rate
for such day per annum.
"Alternate Rate Loans" means the Loans or any portion of the
Loans during periods which the Loans or such portion of the Loans bears
interest calculated by reference to the Alternate Rate.
<PAGE> 7
"Applicable Law" means all applicable provisions of
constitutions, laws, statutes, ordinances, rules, treaties, regulations,
permits, licenses, approvals, interpretations and orders of all Governmental
Authorities and all orders and decrees of all courts and arbitrators.
"Assignee" has the meaning set forth in Section 8.05(c).
"Assignment and Acceptance" means an Assignment and Acceptance
executed in accordance with Section 8.05(c) in the form attached hereto as
Exhibit E.
"Base Rate" means for any Base Rate Loan for any day, the rate
per annum equal to the higher as of such day of (i) the Prime Rate, or (ii)
one-half of one percent above the Federal Funds Rate for such day. For purposes
of determining the Base Rate for any day, changes in the Prime Rate shall be
effective on the date of each such change.
"Base Rate Loans" means the Loans or any portion of the Loans
during periods in which the Loans or such portion of the Loans bears interest
calculated by reference to the Base Rate.
"Big Five" means the listing of the largest certified public
accounting firms currently comprised of Arthur Andersen, Ernst & Young, KPMG,
Deloitte and Touche, and Price Waterhouse Coopers, or any similar listing as
may be expanded or reduced in the future.
"Business Day" means (i) for all purposes other than as set
forth in clause (ii) below, any day other than a Saturday, Sunday or legal
holiday on which banks in Charlotte, North Carolina are open for the conduct of
their commercial banking business, and (ii) with respect to all notices and
determinations in connection with, and payments and interest on, any LIBOR Rate
Loan, any day that is a Business Day described in clause (i) and that is also a
day for trading by and between banks in Dollar deposits in the London interbank
market.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests or equivalents in capital stock
(whether voting or nonvoting, and whether common or preferred) of such
corporation, and (ii) with respect to any Person that is not a corporation, any
and all partnership, membership, limited liability company or other equity
interests of such Person; and in each case, any and all warrants, rights or
options to purchase any of the foregoing.
"CERCLA" means the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq. and its implementing
regulations and amendments.
"CERCLIS" means the Comprehensive Environmental Response
Compensation and Liability Inventory System established pursuant to CERCLA.
"Change of Law" shall have the meaning set forth in Section 3.02.
2
<PAGE> 8
"Closing Date" means the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, or
any successor Federal tax code.
"Commitment" means the obligation of the Bank to make Loans to
the Borrower hereunder in an aggregate principal amount at any time outstanding
not to exceed $150,000,000.00, as the same may be reduced or modified at any
time or from time to time pursuant to the terms hereof.
"Comprehensive Income" means comprehensive income of Borrower
and its Subsidiaries on a consolidated basis determined in accordance with
Generally Accepted Accounting Principles.
"Consistent Basis" means, in reference to the application of
Generally Accepted Accounting Principles, that the accounting principles
observed in the period referred to are comparable in all material respects to
those applied in the preceding period, except as to any changes consented to by
the Bank or required by Generally Accepted Accounting Principles.
"Consolidated Net Income" means, for any period of computation
thereof, the net income of the Borrower and its Subsidiaries (excluding
extraordinary items) as determined on a consolidated basis in accordance with
Generally Accepted Accounting Principles applied on a Consistent Basis.
"Consolidated Tangible Net Worth" means, at any date of
determination, the total stockholders' equity (including Capital Stock,
additional paid-in capital and retained earnings after deducting treasury
stock), less any intangible assets (excluding Lease Intangibles) of the
Borrower and its Subsidiaries and calculated on a consolidated basis in
accordance with Generally Accepted Accounting Principles.
"Contingent Obligation" means, with respect to any Person, any
direct or indirect liability of such Person with respect to any Indebtedness,
liability or other obligation (the "primary obligation") of another Person (the
"primary obligor"), whether or not contingent, (a) to purchase, repurchase or
otherwise acquire such primary obligation or any property constituting direct
or indirect security therefor, (b) to advance or provide funds (i) for the
payment or discharge of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor in respect thereof to make
payment of such primary obligation or (d) otherwise to assure or hold harmless
the owner of any such primary obligation against loss or failure or inability
to perform in respect thereof, provided, however, that, with respect to the
Borrower and its Subsidiaries, the term Contingent Obligation shall not include
endorsements for collection or deposit in the ordinary course of business.
3
<PAGE> 9
"Controlled Group" means 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 Code.
"Credit Facility" means the revolving credit facility
established pursuant to Article II hereof.
"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.
"Dollars" or "$" means dollars in lawful currency of the United
States of America.
"EBITDA" means, for any period, the aggregate of (i)
Consolidated Net Income for such period, plus (ii) the sum of the following:
(a) interest expense, (b) federal, state, local and other income taxes, and (c)
depreciation, amortization and non-cash charges incurred solely in compliance
with FASB Statement of Financial Accounting Standards No. 121, all to the
extent taken into account in the calculation of such Consolidated Net Income
for such period and determined on a consolidated basis in accordance with
Generally Accepted Accounting Principles applied on a Consistent Basis.
"Environmental Authorizations" means all licenses, permits,
orders, approvals, notices, registrations or other legal prerequisites, for
conducting the business of the Borrower or any Subsidiary required by any
Environmental Requirement.
"Environmental Requirements" means any legal requirement
relating to health, safety or the environment and applicable to the Borrower,
any Subsidiary or the Properties, including but not limited to any such
requirement under CERCLA or similar state legislation and all federal, state
and local laws, ordinances, regulations, orders, writs, decrees and common law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor law, including any rules
or regulations promulgated thereunder. Any reference to any provision of ERISA
shall also be deemed to be a reference to any successor provision or provisions
thereof.
"Event of Default" shall have the meaning assigned to such term
in Section 7.01.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the next higher 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 Business Day
next succeeding such day; provided, that (i) if the day for which such rate is
to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day, and (ii) if such
4
<PAGE> 10
rate is not so published for any day, the Federal Funds Rate for such day shall
be the average rate charged to the Bank on such day on such transactions.
"Financing Charges" means those charges owed and allocated to
third parties with respect to any on or off balance sheet asset financing
transaction to which the Borrower or any Subsidiary of the Borrower is a party,
such transactions to include, without limitation, securitizations, sales to
commercial paper conduits, synthetic leases, or other similar financing
techniques.
"Fiscal Quarter" means any fiscal quarter of the Borrower.
"Fiscal Year" means any fiscal year of the Borrower.
"Fixed Charge Coverage Ratio" means, as of the last day of any
Fiscal Quarter of the Borrower and its Subsidiaries, commencing January 30,
1999, for the consecutive four-quarter period ending on such date (or in the
case of the Fiscal Quarter ending on January 30, 1999, the consecutive
three-quarter period ending on such date), the ratio of (i) EBITDA for such
period plus, to the extent deducted in arriving at EBITDA, lease, rental and
all other payments made in respect of or in connection with operating leases,
to (ii) Fixed Charges for such period.
"Fixed Charges" means, for any period, the aggregate (without
duplication) of the following, all determined on a consolidated basis for the
Borrower and its Subsidiaries in accordance with Generally Accepted Accounting
Principles for such period: (a) interest expense for such period, (b) to the
extent deducted in arriving at EBITDA, lease, rental and all other payments
made in respect of or in connection with operating leases, (c) Financing
Charges, and (d) the aggregate (without duplication) of all scheduled payments
of principal on Funded Debt with an original maturity of more than one year
required to have been made by the Borrower and its Subsidiaries during such
period (whether or not such payments are actually made).
"FMA/Commercial Loan Access Agreement" means that certain
Financial Management Account agreement dated September 11, 1998 between the
Borrower and the Bank and that certain Financial Management Account
Investment/Commercial Loan Access Agreement dated September 11, 1998 between
the Borrower and the Bank, as the same may be amended or supplemented from
time to time.
"Funded Debt" means all Indebtedness for borrowed money of the
Borrower and its Subsidiaries on a consolidated basis (including, without
limitation, all current maturities and borrowings under short term loans) plus
all indebtedness incurred in connection with or arising from any on or off
balance sheet asset financing transaction to which the Borrower or any
Subsidiary of the Borrower is a party, such transactions to include, without
limitation, securitizations, sales to commercial paper conduits, synthetic
leases, or other similar financing techniques.
"Generally Accepted Accounting Principles" means those
principles of accounting set forth in pronouncements of the Financial
Accounting Standards Board and its predecessors or
5
<PAGE> 11
Pronouncements of the American Institute of Certified Public Accountants or
those principles of accounting which have other substantial authoritative
support and are applicable in the circumstances as of the date of application,
as such principles are from time to time supplemented or amended.
"Governmental Approval" means all authorizations, consents,
approvals, licenses, and exemptions of, registrations and filings with, and
reports to, all Governmental Authorities.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any central bank thereof, any
municipal, local, city or county government, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Guarantee" means, with respect to any Person, any obligation,
contingent or otherwise, of such Person directly or indirectly guaranteeing any
Indebtedness or other obligation of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to secure, purchase or pay (or advance or supply
funds for the purchase or payment of) such Indebtedness or other obligation
(whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to provide
collateral security, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in
any other manner the obligee of such Indebtedness against loss in respect
thereof (in whole or in part); 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 corresponding meaning.
"Hazardous Substances" means any substances or materials (i)
that are or become defined as hazardous wastes, hazardous substances,
pollutants, contaminants or toxic substances under any Environmental Law, (ii)
that are defined by any Environmental Law, as toxic, explosive, corrosive,
ignitable, infectious, radioactive, mutagenic or otherwise hazardous (iii) the
presence of which require investigation or response under any Environmental
Law, (iv) that constitute a nuisance, trespass or health or safety hazard to
Persons or neighboring properties, (v) that consist of underground or
aboveground storage tanks, whether empty, filled or partially filled with any
substance or (vi) that contain, without limitation, asbestos, polychlorinated
biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons, petroleum
derived substances or wastes, crude oil, nuclear fuel, natural gas or synthetic
gas.
"Indebtedness" means, with respect to any Person (without
duplication), (i) all indebtedness and obligations of such Person for borrowed
money or in respect of loans or advances of any kind, (ii) all obligations of
such Person evidenced by notes, bonds, debentures or similar instruments, (iii)
all reimbursement obligations of such Person with respect to surety bonds,
letters of credit and bankers' acceptances (in each case, whether or not drawn
or matured and in the stated amount thereof), (iv) all obligations of such
Person to pay the deferred purchase price of property or services, (v) all
indebtedness created or arising under any conditional sale or other title
retention agreement
6
<PAGE> 12
with respect to property acquired by such Person, (vi) all obligations of such
Person as lessee under leases that are or are required to be, in accordance
with Generally Accepted Accounting Principles, recorded as capital leases,
(vii) all Contingent Obligations of such Person and (viii) all indebtedness
referred to in clauses (i) through (vii) above secured by any Lien on any
property or asset owned or held by such Person regardless of whether the
indebtedness secured thereby has been assumed by such Person or is nonrecourse
to the credit of such Person.
"Lease Intangibles" means the amount of lease intangibles
appearing on the balance sheet of the Borrower determined in accordance with
Generally Accepted Accounting Principles.
"Leverage Ratio" means, as of the last day of any Fiscal
Quarter, the ratio of (i) Funded Debt as of such date to (ii) EBITDA for the
period of four consecutive Fiscal Quarters then ending.
"Lending Office" means the Bank's office located at its address
set forth on the signature pages hereof (or identified on the signature pages
hereof as its Lending Office) or such other office as the Bank may hereafter
designate as its Lending Office by notice to the Borrower.
"LIBOR Market Index Rate" means, as determined each Business
Day, the rate per annum (rounded upward, if necessary, to the next higher
1/100th of 1%) which is equal to:
(i) the rate for deposits in Dollars which appears
on the Telerate Page 3750 at approximately 11:00
a.m. (London time) on such day for a term equal to
one month, from time to time, with each change in
such rate to be effective as of the opening of
business on the effective date of the change in
such rate; provided, that if the day for which
such rate is to be determined is not a Business
Day, the LIBOR Market Index Rate for such day
shall be such rate for the next preceding Business
Day; provided further, that if such rate is not
reported on Telerate Page 3750, such rate shall be
the rate determined by the Bank from another
recognized source or interbank quotation, divided
by (ii) 1.00 minus the reserve requirement
(expressed as a percentage) with respect to
eurocurrency liabilities prescribed for member
banks of the Federal Reserve System by the Board
of Governors of the Federal Reserve System from
time to time (if and only to the extent that the
Banks have eurocurrency liabilities subject
thereto) and any other similar reserve
requirements imposed against a category of
liabilities which includes eurocurrency deposits
or a category of assets which includes
eurocurrency loans.
(ii) If, for any reason, the rate described in
clause (i) is not available, such rate shall be
the rate per annum at which, in the reasonable
opinion of the Bank, Dollars in an amount
substantially equal to the amount of the
applicable Loan are being offered by
7
<PAGE> 13
leading reference banks for settlement in the
London interbank market at approximately 11:00
a.m. (London time), on the second Business Day
next preceding the applicable date for a term
equal to one month.
"LIBOR Rate Loan" means the Loans or any portion of the Loans
during periods in which the Loans or such portion of the Loans bears interest
calculated by reference to the LIBOR Market Index Rate.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall
be deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
asset.
"Loan" means any Revolving Credit Loan made to the Borrower
under Section 2.01, and all such Loans collectively as the context requires.
"Loan Documents" means this Agreement, the Note, and any other
document guaranteeing, evidencing or securing the Loans.
"Margin Stock" means "margin stock" as defined in Regulations T,
U or X of the Board of Governors of the Federal Reserve System, as in effect
from time to time, together with all official rulings and interpretations
issued thereunder.
"Material Adverse Effect" means, with respect to the Borrower or
any of its Subsidiaries, a material adverse effect on the properties, business,
prospects, operations or condition (financial or otherwise) of any such Person
or the ability of any such Person to perform its obligations under this
Agreement or the other Loan Documents, in each case to which it is a party.
"Multiemployer Plan" shall have the meaning set forth in Section
4001(a)(3) of ERISA.
"Note" means the Promissory Note made by the Borrower payable to
the order of the Bank, substantially in the form of Exhibit A attached hereto.
"Notice of Account Designation" shall have the meaning assigned
thereto in Section 2.02(b).
"Notice of Borrowing" shall have the meaning assigned thereto in
Section 2.02(a).
"Notice of Conversion/Continuation" shall have the meaning
assigned thereto in Section 2.08.
8
<PAGE> 14
"Officer's Compliance Certificate" shall have the meaning
assigned thereto in Section 6.01(d).
"Participant" has the meaning set forth in Section 8.05(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Liens" means any of the following liens securing any
indebtedness of the Borrower and its Subsidiaries on their property, real or
personal, whether now owned or hereafter acquired:
(i) Liens of carriers, warehousemen, mechanics,
contractors and materialmen incurred in the ordinary course of
business for sums not yet due and payable or that are being
contested in good faith and in appropriate proceedings and for
which bonds have been posted or other security acceptable to the
Bank provided, such bonds or other security to be in amounts
sufficient to pay off the liens during the pendency of any
controversies relating to them;
(ii) Liens incurred in the ordinary course of
business in connection with worker's compensation, unemployment
insurance or other forms of governmental insurance or benefits,
or liens to secure the performance of letters of credit, bids,
tenders, statutory obligations, leases and contracts (other than
for borrowed funds) entered into in the ordinary course of
business or to secure obligations on surety or appeal bonds,
(iii) Liens of suppliers of inventory purchased on
credit in the ordinary course of business;
(iv) Liens for current taxes, assessments or other
governmental charges that are not delinquent or remain payable
without any penalty or that are being contested in good faith
and by appropriate proceedings and if reasonably requested by
the Bank, the Borrower shall establish reserves satisfactory to
the Bank with respect thereto;
(v) Liens securing Indebtedness as permitted by
the Bank from time to time; and
(vi) Liens set forth on Schedule 1.1.
"Person" means an individual, partnership, corporation, limited
liability company, trust unincorporated organization, association, joint
venture or a government or agency or political subdivision or instrumentality
thereof.
"Plan" means at any time an employee pension benefit plan which
is covered by Title IV of ERISA or subject to the minimum funding standards
under Section 412 of the Code and is either (i)
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maintained by a member of the Controlled Group for employees of any member of
the Controlled Group or (ii) maintained pursuant to a collective bargaining
agreement or any other arrangement under which more than one employer makes
contributions and to which a member of the Controlled Group is then making or
accruing an obligation to make contributions or has within the preceding five
plan years made contribution.
"Prime Rate" means, at any time, the rate of interest per annum
publicly announced from time to time by the Bank as its prime rate. Each change
in the Prime Rate shall be effective as of the opening of business on the day
such change in the Prime Rate occurs. The parties hereto acknowledge that the
rate announced publicly by the Bank as its Prime Rate is an index or base rate
and shall not necessarily be the lowest or best rate charged to its customers
or other banks.
"Properties" means all real property owned, leased or otherwise
used or occupied by the Borrower or any Subsidiary, wherever located.
"Reportable Event" has the meaning given such term in Section
4043(b) of Title V of ERISA.
"Subsidiary" means, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such Person has more than a 50% equity interest at the time. Unless the context
indicates otherwise, all references herein to Subsidiaries are references to
Subsidiaries of the Borrower.
"Termination Date" means the earliest of the dates referred to in
Section 2.05.
"Transferee" has the meaning set forth in Section 8.05(d).
"Wholly Owned Subsidiary" means any Subsidiary 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
Borrower.
SECTION 1.02. Accounting, Terms and Determinations. Unless
otherwise specified herein, all terms of an accounting character used herein
shall be interpreted, all accounting determinations hereunder shall be made,
and all financial statements required to be delivered hereunder shall be
prepared substantially in accordance with Generally Accepted Accounting
Principles as in effect from time to time, applied on a Consistent Basis.
SECTION 1.03. References. Except as otherwise expressly provided
in this Agreement: the words "herein," "hereof," "hereunder" and other words of
similar import refer to this Agreement
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as a whole, including the Schedules hereto which are a part hereof, and not to
any particular Section, Article, paragraph or other subdivision; the singular
includes the plural and the plural includes the singular; "or" is not
exclusive; the words "include," "includes" and "including" are not limiting; a
reference to any agreement or other contract includes past and future permitted
supplements, amendments, modifications and restatements thereto or thereof, a
reference to an Article, Section, paragraph or other subdivision is a reference
to an Article, Section, paragraph or other subdivision of this Agreement; a
reference to any law includes any amendment or modification to such law and any
rules and regulations promulgated thereunder; a reference to a Person includes
its permitted successors and assigns; any right may be exercised at any time
and from time to time; and, except as otherwise expressly provided therein, all
obligations under any agreement or other contract are continuing obligations
throughout the term of such agreement or contract.
ARTICLE II
REVOLVING CREDIT FACILITY
SECTION 2.01. Revolving Credit Loans. Subject to the terms and
conditions of this Agreement, the Bank agrees to make Loans to the Borrower
from time to time from the Closing Date through the Termination Date as
requested by the Borrower in accordance with the terms of Section 2.02;
provided, that the aggregate principal amount of all outstanding Loans (after
giving effect to any amount requested) shall not exceed the Commitment. Subject
to the terms and conditions hereof, the Borrower may borrow, repay and reborrow
Loans hereunder until the Termination Date. Partial repayments hereunder shall
be in an aggregate amount of $100,000 or a whole multiple of $100,000 in excess
thereof.
SECTION 2.02. Procedure for Advances of Loans.
(a) Requests for Borrowing. The Borrower shall give the Bank
irrevocable prior written notice in the form attached hereto as Exhibit B (a
"Notice of Borrowing") not later than 1: 00 p.m. (Charlotte time) on the same
Business Day as each Loan of its intention to borrow specifying (i) the date of
such borrowing, which shall be a Business Day, (ii) the amount of such
borrowing, which shall be in an aggregate principal amount of $100,000 or a
whole multiple of $100,000 in excess thereof, and (iii) whether the Loans are
to be LIBOR Rate Loans or Base Rate Loans. Notices received after 1:00 p.m.
(Charlotte time) shall be deemed received on the next Business Day.
(b) Disbursement of Loans. Not later than 2:00 p.m. (Charlotte
time) on the proposed borrowing date, the Bank will make available to the
Borrower the Loans to be made on such borrowing date. The Borrower hereby
irrevocably authorizes the Bank to disburse the proceeds of each borrowing
requested pursuant to this Section 2.02 in immediately available funds by
crediting or wiring such proceeds to the deposit account of the Borrower
identified in the most recent Notice of Account Designation substantially in
the form of Exhibit F hereto (a "Notice of Account Designation") delivered by
the Borrower to the Bank or as may be otherwise agreed upon by the Borrower and
the Bank from time to time.
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(c) FMA/Commercial Loan Access Agreement. The Borrower and the
Bank agree that so long as no Default or Event of Default shall have occurred
and be continuing, proceeds of the Loans shall also be disbursed from time to
time pursuant to the FMA/Commercial Loan Access Agreement, provided that the
aggregate amount of all Loans outstanding at any time pursuant to Section
2.02(b) and this Section 2.02(c) shall not exceed the Commitment.
SECTION 2.03. Repayment of Loans.
(a) Repayment on Termination Date. The Borrower shall repay the
outstanding principal amount of all Loans in full on the Termination Date,
together with all accrued but unpaid interest thereon.
(b) Mandatory Repayment of Excess Loans. If at any time the
outstanding principal amount of all Loans exceeds the Commitment, the Borrower
shall repay immediately upon notice from the Bank, Loans in an amount equal to
such excess. Each such repayment shall be accompanied by any amount required to
be paid pursuant to Section 3.05 hereof.
(c) Prepayment under FMA/Commercial Loan Access Agreement. The
Loans shall be prepaid from time to time in accordance with the provisions of
the FMA/Commercial Loan Access Agreement.
SECTION 2.04. Note. The Bank's Loans and the obligation of the
Borrower to repay such Loans shall be evidenced by the Note executed by the
Borrower payable to the order of the Bank representing the Borrower's
obligation to pay the Bank's Commitment or, if less, the aggregate unpaid
principal amount of all Loans made and to be made by the Bank to the Borrower
hereunder, plus interest and all other fees, charges and other amounts due
thereon. The Note shall be dated the date hereof and shall bear interest on the
unpaid principal amount thereof at the applicable interest rate per annum
specified in Section 2.07.
SECTION 2.05. Termination of Credit Facility. The Credit
Facility shall terminate on the earliest of (a) May 31, 1999, (b) the date of
termination by the Bank pursuant to Section 7.02 and (c) the date on which the
Bank shall give the Borrower notice of the termination of the Credit Facility
and make demand for payment of the Credit Facility. It is the intention of the
Borrower and the Bank that the Credit Facility be immediately due and payable
in full on demand of the Bank at its option notwithstanding the inclusion in
this Agreement of provisions regarding Defaults and Events of Default, the
occurrence and continuation of which would permit the Bank to declare the Note
and the Loans immediately due and payable as provided in Section 7.02.
SECTION 2.06 Use of Proceeds. The Borrower shall use the
proceeds of the Loans to finance its seasonal working capital needs.
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SECTION 2.07. Interest.
(a) Interest Rate Options. Subject to the provisions of this
Section 2.07, at the election of the Borrower, the principal balance of the
Note or any portion thereof shall bear interest per annum at (i) the Base Rate
or (ii) the LIBOR Market Index Rate plus 0.60% or (iii) under the circumstances
specified in Section 3.04 only, the Alternate Rate. The Borrower shall select
the rate of interest applicable to any Loan at the time a Notice of Borrowing
is given pursuant to Section 2.02 or at the time a Notice of
Conversion/Continuation is given pursuant to Section 2.08. Each Loan or portion
thereof bearing interest based on the Base Rate shall be a "Base Rate Loan,"
each Loan or portion thereof bearing interest based on the LIBOR Market Index
Rate shall be a "LIBOR Rate Loan" and each Loan or portion thereof bearing
interest based on the Alternate Rate shall be an "Alternate Rate Loan." Any
Loan or any portion thereof as to which the Borrower has not duly specified an
interest rate as provided herein shall be deemed a Base Rate Loan. The Borrower
is deemed to have elected the LIBOR Market Index Rate plus 0.60% as the
interest rate for all Loans funded pursuant to Section 2.02(c).
(b) Default Rate. Upon the occurrence and during the continuance
of an Event of Default, (i) the Borrower shall no longer have the option to
request LIBOR Rate Loans, (ii) all outstanding LIBOR Rate Loans shall be
converted to Base Rate Loans and (iii) all outstanding Loans shall bear
interest at a rate per annum equal to two percent (2 %) in excess of the rate
then applicable to Base Rate Loans. Interest shall continue to accrue on the
Note after the filing by or against the Borrower of any petition seeking any
relief in bankruptcy or under any act or law pertaining to insolvency or debtor
relief, whether state, federal or foreign.
(c) Interest Payment and Computation. Notwithstanding the
provisions of the FMA/Commercial Loan Access Agreement, interest on each Loan
shall be payable in arrears on the last Business Day of each Fiscal Quarter of
the Borrower commencing October 30, 1998. All interest rates, fees and
commissions provided hereunder shall be computed on the basis of a 360-day year
and assessed for the actual number of days elapsed.
(d) Maximum Rate. In no contingency or event whatsoever shall
the aggregate of all amounts deemed interest hereunder or under the Note
charged or collected pursuant to the terms of this Agreement or pursuant to the
Note exceed the highest rate permissible under any Applicable Law which a court
of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that such a court determines that the Bank has charged or
received interest hereunder in excess of the highest applicable rate, the rate
in effect hereunder shall automatically be reduced to the maximum rate
permitted by Applicable Law and the Bank shall at its option promptly refund to
the Borrower any interest received by the Bank in excess of the maximum lawful
rate or shall apply such excess to the principal balance of the Loans. It is
the intent hereof that the Borrower not pay or contract to pay, and that the
Bank not receive or contract to receive, directly or indirectly in any manner
whatsoever, interest in excess of that which may be paid by the Borrower under
Applicable Law.
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SECTION 2.08. Notice and Manner of Conversion or Continuation of
Loans. Provided that no Event of Default has occurred and is then continuing,
the Borrower shall have the option to (a) convert at any time all or any
portion of its outstanding Base Rate Loans in a principal amount equal to
$100,000 or any whole multiple of $100,000 in excess thereof into one or more
LIBOR Rate Loans, (b) convert all or any part of its outstanding LIBOR Rate
Loans in a principal amount equal to $100,000 or a whole multiple of $100,000
in excess thereof into Base Rate Loans, or (c) continue such LIBOR Rate Loans
as LIBOR Rate Loans. Whenever the Borrower desires to convert or continue Loans
as provided above, the Borrower shall give the Bank irrevocable prior written
notice in the form attached as Exhibit C (a "Notice of
Conversion/Continuation") not later than 1:00 p.m. (Charlotte time) on the
Business Day on which a proposed conversion or continuation of such Loan is to
be effective specifying (i) the Loans to be converted or continued, (ii) the
effective date of such conversion or continuation (which shall be a Business
Day), and (iii) the principal amount of such Loans to be converted or
continued.
SECTION 2.09. Manner of Payment. Each payment by the Borrower on
account of the principal of or interest on the Loans or of any fee, commission
or other amounts payable to the Bank under this Agreement or the Note (other
than payments made pursuant to the FMA/Commercial Loan Access Agreement, which
payments shall be made as therein provided) shall be made not later than 1:00
p.m. (Charlotte time) on the date specified for payment under this Agreement to
the Bank at the Bank's Lending Office in Dollars, in immediately available
funds and shall be made without any set-off, counterclaim or deduction
whatsoever. Any payment received after such time but before 2:00 p.m.
(Charlotte time) on such day shall be deemed a payment on such date for the
purposes of Section 7.01, but for all other purposes shall be deemed to have
been made on the next succeeding Business Day. Any payment received after 2:00
p.m. (Charlotte time) shall be deemed to have been made on the next succeeding
Business Day for all purposes.
SECTION 2.10. Crediting of Payments and Proceeds. In the event
that the Borrower shall fail to pay any of the Loans when due and the Loans
have been accelerated pursuant to Section 7.02 or Bank demands payment of the
Loans, all payments received by the Bank upon the Note and the other Loans and
all net proceeds from the enforcement of the Loans shall be applied first to
all expenses then due and payable by the Borrower hereunder, then to all
indemnity obligations then due and payable by the Borrower hereunder, then to
all fees, if any, then due and payable, then to accrued and unpaid interest on
the Note, then to the principal amount of the Note.
ARTICLE III
CHANGE IN CIRCUMSTANCES; COMPENSATION
SECTION 3.01. Basis for Determining Interest Rate Inadequate or
Unfair. If:
(a) the Bank determines that deposits in Dollars (in the
applicable amounts) are not being offered in the London interbank market, or
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(b) the Bank determines that the LIBOR Market Index Rate as
determined by the Bank will not adequately and fairly reflect the cost to the
Bank of funding LIBOR Rate Loans,
the Bank shall forthwith give notice thereof to the Borrower, whereupon until
the Bank notifies the Borrower that the circumstances giving rise to such
suspension no longer exist, the obligations of the Bank to make or maintain
LIBOR Rate Loans shall be suspended.
SECTION 3.02. Illegality. If, after the date hereof, the
adoption of any Applicable Law, or any change therein, or any change in the
interpretation or administration thereof by any Governmental Authority (any
such event being referred to as a "Change of Law"), or compliance by the Bank
(or its Lending Office) with any request or directive (whether or not having
the force of law) of any Governmental Authority shall make it unlawful or
impossible for the Bank (or its Lending Office) to make, maintain or fund any
LIBOR Rate Loan the Bank shall forthwith give notice thereof to the Borrower,
whereupon until the Bank notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, the obligation of the Bank to make any
LIBOR Rate Loan shall be suspended. If the Bank shall determine that it may not
lawfully continue to maintain and fund any outstanding LIBOR Rate Loan to
maturity and shall so specify in such notice, such Loan shall immediately
become a Base Rate Loan.
SECTION 3.03. Increased Cost and Reduced Return.
(a) If after the date hereof, a Change of Law or compliance by
the Bank (or its Lending Office) with any request or directive (whether or not
having the force of law) of any Governmental Authority:
(i) shall subject the Bank (or its Lending Office)
to any tax, duty or other charge with respect to any LIBOR Rate
Loan, the Note or its obligation to make or maintain any LIBOR
Rate Loan, or shall change the basis of taxation of payments to
the Bank (or its Lending Office) of the principal of or interest
on any LIBOR Rate Loan or any other amounts due under this
Agreement in respect of any LIBOR Rate Loan or its obligation to
make or maintain any LIBOR Rate Loan (except for changes in the
rate of tax on the overall net income of the Bank or its Lending
Office imposed by the jurisdiction in which the Bank's principal
executive office or Lending Office is located); or
(ii) shall impose, modify or deem applicable any
reserve, special deposit or similar requirement (including,
without limitation, any such requirement imposed by the Board of
Governors of the Federal Reserve System, but excluding with
respect to any LIBOR Rate Loan any applicable eurodollar reserve
requirement included in the definition of LIBOR Market Index
Rate) against assets of, deposits with or for the account of, or
credit extended by, the Bank (or its Lending Office); or
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(iii) shall impose on the Bank (or its Lending
Office) or the London interbank market any other condition
affecting any LIBOR Rate Loan, the Note or its obligation to
make or maintain any LIBOR Rate Loan;
and the result of any of the foregoing is to increase the cost to the Bank (or
its Lending Office) of making or maintaining any LIBOR Rate Loan, or to reduce
the amount of any sum received or receivable by the Bank (or its Lending
Office) under this Agreement or under the Note with respect thereto, by an
amount deemed by Bank to be material, then, within 15 days after demand by the
Bank, the Borrower shall pay to the Bank, such additional amount or amounts as
will compensate the Bank for such increased cost or reduction.
(b) If the Bank shall have determined that after the date hereof
the adoption of any Applicable Law regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof, or
compliance by the Bank (or its Lending Office) with any request or directive
regarding capital adequacy (whether or not having the force of law) of any
Governmental Authority, has or would have the effect of reducing the rate of
return on the Bank's capital as a consequence of its obligations under this
Agreement with respect to its Loans to a level below that which the Bank could
have achieved but for such adoption, change or compliance (taking into
consideration the Bank's policies with respect to capital adequacy) by an
amount deemed by the Bank to be material, then from time to time, within 15
days after demand by the Bank, the Borrower shall pay to the Bank such
additional amount or amounts as will compensate the Bank for such reduction.
(c) The Bank will promptly notify the Borrower of any event of
which it has knowledge, occurring after the date hereof, which will entitle the
Bank to compensation pursuant to this Section. A certificate of the Bank
claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it and the calculation (with reasonable detail)
of such amount or amounts hereunder shall be conclusive in the absence of
manifest error. In determining, such amount, the Bank may use any reasonable
averaging and attribution methods.
(d) The provisions of this Section shall be applicable with
respect to any Participant in, or Assignee or other Transferee of, the
obligations of the Borrower hereunder to the Bank, and any calculations
required by such provision shall be made based upon the circumstances of such
Participant, Assignee or other Transferee.
SECTION 3.04. Base Rate Loan Substituted for Affected LIBOR Rate
Loan. If (a) the obligation of the Bank to make or maintain any LIBOR Rate Loan
has been suspended pursuant to Section 3.01 or Section 3.02 or (b) the Bank has
demanded compensation under Section 3.03, and if in either case the Borrower,
by at least one Business Day's prior notice to the Bank shall have elected that
the provisions of this Section shall apply, then, unless and until the Bank
notifies the Borrower that the circumstances giving rise to such suspension or
demand for compensation no longer apply:
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(i) the Loan or any portion thereof which would otherwise be a
LIBOR Rate Loan shall be instead an Alternate Rate Loan, and
(ii) after each LIBOR Rate Loan has been repaid, all payments of
principal which would otherwise be applied to repay any such LIBOR Rate Loan
shall be applied to repay an Alternate Rate Loan or Base Rate Loan instead.
SECTION 3.05. Compensation. Upon the request of the Bank,
delivered to the Borrower, the Borrower shall pay to the Bank, such amount or
amounts as shall compensate the Bank for any loss, cost or expense incurred by
the Bank as a result of:
(a) any optional or mandatory payment, prepayment or conversion
(pursuant to Section 3.02 or otherwise) of a LIBOR Rate Loan; or
(b) any failure by the Borrower to borrow on a date specified
therefor in a Notice of Borrowing or Notice of Conversion/Continuation;
such compensation to include, without limitation, an amount equal to the
excess, if any, of (x) the amount of interest which would have accrued on the
amount so paid or prepaid or not prepaid or borrowed, minus (y) the amount of
interest (as reasonably determined by the Bank) the Bank would have paid on
deposits in Dollars of comparable amounts having terms comparable to such
period placed with it by leading banks in the London interbank market.
ARTICLE IV
CONDITIONS TO LOAN CLOSING
SECTION 4.01. Conditions to Loan Closing. The obligation of the
Bank to make the Loans is subject to the satisfaction of the following
conditions:
(a) receipt by the Bank from the Borrower of a duly executed
counterpart of this Agreement signed by the Borrower;
(b) receipt by the Bank of the duly executed Note complying with
the provisions of Section 2.04;
(c) receipt by the Bank of an opinion of counsel of Luther T.
Moore, Esq., counsel for the Borrower, substantially in the form of Exhibit G
hereto, and covering such additional matters relating to the transactions
contemplated hereby as the Bank may reasonably request;
(d) receipt by the Bank of a certificate from the chief
executive officer or chief financial officer of the Borrower, in form and
substance satisfactory to the Bank, to the effect that all representations and
warranties of the Borrower contained in this Agreement and the other Loan
Documents are true, correct and complete; that the Borrower is not in violation
of any of the
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covenants contained in this Agreement and the other Loan Documents; that, after
giving effect to the transactions contemplated by this Agreement, no Default or
Event of Default has occurred and is continuing; and that the Borrower has
satisfied each of the closing conditions;
(e) receipt by the Bank of all documents which the Bank may
reasonably request relating to the existence of the Borrower, the corporate
authority for and the validity of this Agreement, the Note, and any other
matters relevant hereto, all in form and substance satisfactory to the Bank,
including without limitation a certificate of incumbency of the Borrower,
signed by the Secretary or an Assistant Secretary of the Borrower, as
applicable, certifying as to the names, and incumbency of the officer or
officers of the Borrower authorized to execute and deliver the Loan Documents,
and certified copies of the following items as to the Borrower: (i) the
Certificate of Incorporation, (ii) the Bylaws, (iii) a certificate of the
Secretary of State (or other appropriate office) of the state of its
incorporation as to its good standing as a corporation of such jurisdiction,
and (iv) the action taken by the Board of Directors authorizing the execution,
delivery and performance of this Agreement, the Note and the other Loan
Documents to which the Borrower is a party; and
(f) receipt by the Bank of evidence satisfactory to the Bank
that on the Closing Date the Borrower is terminating and will pay in full its
existing seasonal facility provided by First Union National Bank and the Bank
pursuant to the Credit Agreement dated as of November 14, 1997.
SECTION 4.02. Conditions to all Loans. The obligations of the
Bank to make any Loan is subject to the satisfaction of the following
conditions precedent on the relevant borrowing date:
(a) Continuation of Representations and Warranties. The
representations and warranties contained in Article V shall be true and correct
on and as of such borrowing date with the same effect as if made on and as of
such date; except for any representation and warranty made as of an earlier
date, which representation and warranty shall remain true and correct as of
such earlier date.
(b) No Existing Default. No Default or Event of Default shall
have occurred and be continuing hereunder on the borrowing date with respect to
such Loan or after giving effect to the Loans to be made on such date.
(c) Officer's Compliance Certificate; Additional Documents. The
Bank shall have received the current Officer's Compliance Certificate and each
additional document, instrument, legal opinion or other item of information
reasonably requested by it.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement and to make the
Loans, the Borrower hereby represents and warrants to the Bank as follows:
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SECTION 5.01. Corporate Existence and Power. The Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, is duly qualified to transact
business in every jurisdiction where, by the nature of its business, such
qualification is necessary, and has all corporate powers and all governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
SECTION 5.02. Corporate and Governmental Authorization,
Contravention. The execution, delivery and performance by the Borrower of this
Agreement, the Note and the other Loan Documents (a) are within the Borrower's
corporate powers, (b) have been duly authorized by all necessary corporate
action, (c) require no action by or in respect of, or filing with, any
governmental body, agency or official, (d) do not contravene, or constitute a
default under, any provision of Applicable Law or of the certificate of
incorporation or by-laws of the Borrower or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Borrower or any
of its Subsidiaries, and (e) do not result in the creation or imposition of any
Lien on any asset of the Borrower or any of its Subsidiaries.
SECTION 5.03. Binding Effect. This Agreement constitutes a valid
and binding agreement of the Borrower enforceable in accordance with its terms,
and the Note and the other Loan Documents, when executed and delivered in
accordance with this Agreement, will constitute valid and binding obligations
of the Borrower enforceable in accordance with their respective terms;
provided, that the enforceability hereof and thereof is subject in each case to
general principles of equity and to bankruptcy, insolvency and similar laws
affecting the enforcement of creditors' rights generally.
SECTION 5.04. Financial Information.
(a) The financial statements of the Borrower and its
Consolidated Subsidiaries dated as of January 31, 1998, reflecting its
operation during the Fiscal Year then ended, including a balance sheet, profit
and loss statement and statement of cash flows, with supporting schedules,
copies of which have been delivered to the Bank, and the unaudited
management-prepared quarterly financial statements of the Borrower and its
Consolidated Subsidiaries for the interim period ended May 2, 1998, copies of
which have been delivered to the Bank, fairly present, in substantial
conformity with Generally Accepted Accounting Principles, the consolidated
financial position of the Borrower and its Consolidated Subsidiaries as of such
dates and their consolidated results of operations and cash flows for such
periods stated.
(b) Since January 31, 1998 there has been no material adverse
change in the business, financial position, results of operations or prospects
of the Borrower and its Consolidated Subsidiaries.
SECTION 5.05. Litigation. There is no action, suit or proceeding
pending, or to the knowledge of the Borrower threatened, against or affecting
the Borrower or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official which could reasonably
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be expected to have a Material Adverse Effect, or which in any manner draws
into question the validity of, or could reasonably be expected to impair the
ability of the Borrower to perform its obligations under, this Agreement, the
Note or any of the other Loan Documents.
SECTION 5.06. Compliance with ERISA.
(a) The Borrower and each member of the Controlled Group have
fulfilled their obligations under the minimum funding standards of ERISA and
the Code with respect to each Plan and are in compliance in all material
respects with the presently applicable provisions of ERISA and the Code, and
have not incurred any liability to the PBGC or a Plan under Title IV of ERISA.
(b) Neither the Borrower nor any member of the Controlled Group
is or ever has been obligated to contribute to any Multiemployer Plan.
SECTION 5.07. Taxes. There have been filed on behalf of the
Borrower and its Subsidiaries all Federal, state and local income, excise,
property and other tax returns which are required to be filed by them and all
taxes due pursuant to such returns or pursuant to any assessment received by or
on behalf of 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 5.08. Subsidiaries. Each of the Borrower's Subsidiaries
is a corporation or limited liability company duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization, as the case may be, and has all corporate or limited liability
company powers and all governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted.
SECTION 5.09. Not an Investment Company. The Borrower is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 5.10. Ownership of Property; Liens. Each of the Borrower
and its Consolidated Subsidiaries has title to its properties sufficient for the
conduct of its business. None of the properties of the Borrower or any
Subsidiary thereof is subject to any Lien except for Permitted Liens.
SECTION 5.11. No Default. Neither the Borrower nor any of its
Consolidated Subsidiaries is in default under or with respect to any agreement,
instrument or undertaking to which it is a party or by which it or any of its
property is bound which could reasonably be expected to have or cause a
Material Adverse Effect. No Default or Event of Default has occurred and is
continuing.
SECTION 5.12. Full Disclosure. All information heretofore
furnished by the Borrower to the Bank for purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all such information
hereafter furnished by the Borrower to the Bank will be, true,
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accurate and complete in every material respect or based on reasonable
estimates on the date as of which such information is stated or certified. The
Borrower has disclosed to the Bank in writing any and all facts which could
reasonably be expected to have or cause a Material Adverse Effect.
SECTION 5.13. Environmental Matters. To the best of the
Borrower's knowledge:
(a) neither the Borrower nor any of its Subsidiaries is subject
to any Environmental Liability and neither the Borrower nor any Subsidiary
thereof has been designated as a potentially responsible party under CERCLA or
under any state statute similar to CERCLA. None of the Properties have been
identified on any current or proposed (i) National Priorities List under 40
C.F.R. ss. 300, (ii) CERCLIS list or (iii) any list arising from a state
statute similar to CERCLA.
(b) no Hazardous Substances have been or are being used,
produced, manufactured, processed, generated, stored, disposed of, managed at,
or shipped or transported to or from the Properties or are otherwise present
at, on, in or under the Properties, or, to the best of the knowledge of the
Borrower, at or from any adjacent site or facility, except for Hazardous
Substances, such as cleaning solvents, pesticides and other materials used,
produced, manufactured, processed, generated, stored, disposed of, and managed
in the ordinary course of business in compliance with all applicable
Environmental Requirements.
(c) the Borrower, and each of its Subsidiaries and Affiliates,
has procured all Environmental Authorizations necessary for the conduct of its
business, and is in compliance with all Environmental Requirements in
connection with the operation of the Properties and the Borrower's, and each of
its Subsidiary's and Affiliate's, respective businesses.
SECTION 5.14. Compliance with Laws. The Borrower and each
Subsidiary thereof is in compliance with all Applicable Law, including, without
limitation, all Environmental Requirements, except where any failure to comply
with any such laws could not reasonably be expected to, alone or in the
aggregate, have a Material Adverse Effect.
SECTION 5.15. Capital Stock. All Capital Stock, debentures,
bonds, notes and all other securities of the Borrower and its Subsidiaries
presently issued and outstanding are validly and properly issued in accordance
with all Applicable Law, including, but not limited to, the "Blue Sky" laws of
all applicable states and the federal securities laws. The issued shares of
Capital Stock of the Borrower's Wholly Owned Subsidiaries are owned by the
Borrower free and clear of any Lien or adverse claim. At least a majority of
the issued shares of capital stock of each of the Borrower's other Subsidiaries
(other than Wholly Owned Subsidiaries) is owned by the Borrower free and clear
of any Lien or adverse claim.
SECTION 5.16. Margin Stock. Neither the Borrower nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of purchasing or carrying any Margin Stock, and no part of the
proceeds of any Loan will be used to purchase or carry any Margin Stock
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or to extend credit to others for the purpose of purchasing or carrying any
Margin Stock, or be used for any purpose which violates, or which is
inconsistent with, the provisions of Regulation X.
SECTION 5.17. Insolvency. After giving effect to the execution
and delivery of the Loan Documents and the making of each Loan under this
Agreement, the Borrower will not be "insolvent," within the meaning of such
term as used in North Carolina General Statutes ss. 23-3 or as defined in ss.
101 of Title 11 of the United States Code or Section 2 of the Uniform
Fraudulent Transfer Act, or any other applicable state law pertaining to
fraudulent transfers, as each may be amended from time to time, or be unable to
pay its debts generally as such debts become due, or have an unreasonably small
capital to engage in any business or transaction, whether current or
contemplated.
SECTION 5.18. Survival of Representations and Warranties, Etc.
All representations and warranties set forth in this Article V and all
representations and warranties contained in any certificate, or any of the Loan
Documents (including but not limited to any such representation or warranty
made in or in connection with any amendment thereto) shall constitute
representations and warranties made under this Agreement. All representations
and warranties made under this Agreement shall be made or deemed to be made at
and as of the Closing Date, shall survive the Closing Date and shall not be
waived by the execution and delivery of this Agreement, any investigation made
by or on behalf of the Bank or any borrowing hereunder.
ARTICLE VI
COVENANTS
Until all of the Loans have been finally and indefeasibly paid
in full and the Commitment terminated, unless consent has been obtained in the
manner provided for in Section 8.04, the Borrower hereby covenants and agrees
that:
SECTION 6.01. Information. The Borrower will deliver to the Bank
at its address set forth on the signature pages hereto, or such other office as
may be designated by the Bank from time to time:
(a) As soon as practicable and in any event within 45 days after
the close of each Fiscal Quarter, beginning with the close of the current
Fiscal Quarter for the Borrower and its Subsidiaries on a consolidated basis,
balance sheets and statements of income and cash flows for or relating to the
Fiscal Quarter then ended, all prepared in accordance with Generally Accepted
Accounting Principles (subject to normal year-end adjustments), applied on a
Consistent Basis, and certified by the chief financial officer of the Borrower.
The requirements of this paragraph shall be fully satisfied upon the delivery
to the Bank within the time period specified above of the Borrower's quarterly
report on form 10-Q with respect to any Fiscal Quarter, provided, that the
financial statements and accompanying notes are fully disclosed within such
filing;
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(b) As soon as practicable and in any event within 90 days
after, the close of each Fiscal Year, beginning with the close of the current
Fiscal Year, an audited consolidated balance sheet of Borrower and its
Subsidiaries as of the close of such Fiscal Year and audited consolidated
statements of income and cash flows for the Fiscal Year then ended prepared by
a Big Five independent certified public accounting firm in accordance with
Generally Accepted Accounting Principles, applied on a Consistent Basis, and
accompanied by a report thereon by such certified public accountants and, with
respect to such audited financial statements, containing an opinion that is not
qualified with respect to scope limitations imposed by Borrower, as to going
concern or with respect to accounting principles followed by Borrower not in
accordance with Generally Accepted Accounting Principles;
(c) Concurrently with the delivery of the financial statements
described in subsection (b) above, a certificate from the independent certified
public accountants stating that in making their examination of the financial
statements of the Borrower and its Subsidiaries, they obtained no knowledge of
the occurrence or existence of any condition or event which constitutes or
would constitute, upon the giving of notice or lapse of time or both, an Event
of Default, or a statement specifying the nature and period of existence of any
such condition or event disclosed by their examination;
(d) Concurrently with the delivery of the financial statements
described in subsections (a) and (b) above or at such other times as the Bank
may reasonably request, a certificate from the chief financial officer of the
Borrower certifying to the Bank that to the best of their knowledge after
review of this Agreement and appropriate inquiry, the Borrower has kept,
observed, performed and fulfilled each and every covenant, obligation and
agreement binding upon the Borrower contained in this Agreement, accompanied by
a worksheet completed in accordance with Generally Accepted Accounting
Principles detailing the Borrower's compliance with the financial covenants
contained in Sections 6.25, 6.26 and 6.27 hereto in form satisfactory to the
Bank, and that no Default or Event of Default has occurred or specifying any
such Default or Event of Default;
(e) Immediately upon issuance, each report to the Securities and
Exchange Commission and each notice, financial report or proxy statement
rendered to its shareholders;
(f) Immediately upon the Borrower's receipt thereof, copies of
any management letter or other written communications from certified public
accountants the effect of which would have a Material Adverse Effect on the
business of the Borrower or any Subsidiary; and
(g) Upon the Bank's request such other information about the
financial condition, business or operations of the Borrower and its
Subsidiaries as the Bank may from time to time reasonably request.
SECTION 6.02. Notice of Certain Events. The Borrower shall
promptly, after any officer of the Borrower learns or obtains knowledge of the
occurrence thereof, give written notice to the Bank of:
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(a) any litigation or proceedings brought against the Borrower
or any of its Subsidiaries or any attachments, judgments, liens, levies or
orders (other than Permitted Liens) that may be placed on or assessed against
or threatened against the Borrower or any of its Subsidiaries which are (i) not
otherwise covered by insurance or are contested by the insurer and (ii) in the
aggregate exceed $5,000,000 in uninsured exposure and the Borrower shall set up
such reserves as required by Generally Accepted Accounting Principles.
(b) any written notice of a violation received by the Borrower
or any of its Subsidiaries from any governmental regulatory body or law
enforcement authority which, if such violation were established, might have a
Material Adverse Effect on the business of the Borrower or any of its
Subsidiaries;
(c) any other matter that has resulted in a Material Adverse
Effect on the Borrower or any of its Subsidiaries;
(d) any breach or violation of or noncompliance with any
covenant or condition of this Agreement or any Event of Default hereunder; and
(e) any change in the name of the Borrower or any Subsidiary.
SECTION 6.03. Corporate Existence. Except as provided in Section
6.12, the Borrower will, and will cause each of its Subsidiaries to, maintain
and preserve its corporate or limited liability company existence and all
rights, privileges and franchises now enjoyed.
SECTION 6.04. Payment of Indebtedness; Performance of Other
Obligations. The Borrower will, and will cause each of its Subsidiaries to pay,
all material Indebtedness before such Indebtedness shall become past due, all
material taxes, assessments and other governmental charges that may be levied
or assessed upon it when due and all other material obligations in accordance
with customary trade practices, and comply in all material respects with all
acts, rules, regulations and orders of any legislative, administrative or
judicial body or official applicable to any part thereof or to the operation of
its business; provided, however, that the Borrower or any Subsidiary may in
good faith by appropriate proceedings and with due diligence contest any such
Indebtedness, taxes, assessments, governmental charges, acts, rules,
regulations, orders and directions that do not in the Bank's reasonable
judgment materially and adversely affect the Borrower's business and if
requested by the Bank, shall establish reserves reasonably satisfactory to the
Bank. The Borrower will, and will cause each of its Subsidiaries to, observe
and remain in compliance in all material respects with all laws, ordinances,
governmental rules and regulations to which it is subject and obtain all
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of its properties or the conduct of its business, and observe and
perform all covenants and conditions of all material agreements and instruments
to which it is a party, where failure to comply would have a Material Adverse
Effect on the business of the Borrower or any Subsidiary.
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SECTION 6.05. Maintenance of Books and Records; Inspection. The
Borrower will, and will cause each of its Subsidiaries to, (i) maintain
adequate books, accounts and records, and prepare all financial statements
required under this Agreement in accordance with Generally Accepted Accounting
Principles (subject, in the case of unaudited interim statements, to normal
year-end adjustments) and in material compliance with the regulations of any
governmental regulatory body having jurisdiction over it; and (ii) permit
employees or agents of the Bank at any time during normal business hours and
upon reasonable notice to inspect the properties of the Borrower and its
Subsidiaries, and to examine or audit the books of the Borrower and its
Subsidiaries, accounts and records and make copies and memoranda of them, and
to discuss the affairs, finances and accounts of the Borrower with its
executive officers, and independent public accountants (and by this provision
the Borrower and its Subsidiaries authorize said accountants to discuss the
finances and affairs of the Borrower and its Subsidiaries), all at such
reasonable times and as often as may be reasonably requested, but in any event
at least twice during each fiscal year of the Borrower.
SECTION 6.06. Comply with ERISA. The Borrower will, and will
cause each of its Subsidiaries to, (i) at all times make prompt payment of
contributions required to meet the minimum funding standards set forth in ERISA
with respect to any Plan, except to the extent that failure to make such
payment would not have a Material Adverse Effect on the business of the
Borrower or any Subsidiary; (ii) not withdraw from participation in, permit the
termination or partial termination of, or permit the occurrence of any other
event with respect to any Plan that could result in liability to the PBGC,
except to the extent that such withdrawal, termination, partial termination or
occurrence would not have a Material Adverse Effect on the business of the
Borrower or any Subsidiary; (iii) notify the Bank as soon as practicable of any
Reportable Event and of any additional act or condition arising in connection
with any Plan which the Borrower or any of its Subsidiaries believe might
constitute grounds for the termination thereof by the PBGC or for the
appointment by the appropriate United States district court of a trustee to
administer such Plan, and (iv) furnish to the Bank upon the Bank's request,
such additional information about any Plan as may be reasonably requested.
Neither the Borrower nor any of its Subsidiaries will permit the occurrence of
any "prohibited transaction" (as defined in ERISA).
SECTION 6.07. Maintenance of Properties; Conduct of Business.
The Borrower will, and will cause each of its Subsidiaries to, conduct its
business in an orderly, efficient and customary manner, keep its properties
used in the operations of its business in good working order and condition
(normal wear and tear excepted), and from time to time make all needed repairs
to, renewals of or replacements of its properties (except where failure to make
such repairs, renewals or replacements would not have a Material Adverse Effect
on the business of the Borrower or any of its Subsidiaries or to the extent
that any of such properties is obsolete or is being replaced) so that the
efficiency of such property shall be fully maintained and preserved. The
Borrower and its Subsidiaries shall file or cause to be filed in a timely
manner all reports, applications, estimates and licenses that shall be required
by any Governmental Authority and which, if not timely filed, would have a
Material Adverse Effect on the Borrower or any of its Subsidiaries.
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SECTION 6.08. Insurance. The Borrower will, and will cause each
of its Subsidiaries to, maintain insurance with financially sound and reputable
insurance companies against such risks and in such amounts as are customarily
maintained by similar businesses as that of the Borrower and its Subsidiaries.
SECTION 6.09. Observe all Laws. The Borrower will conform to and
duly observe all laws, regulations and other valid requirements of any
regulatory authority with respect to the conduct of its business, except to the
extent that failure to do so would not have a Material Adverse Effect on the
business of the Borrower or any of its Subsidiaries.
SECTION 6.10. Year 2000. The Borrower has taken all action
deemed reasonably necessary by Borrower to assure that the Borrower's and its
Subsidiaries' computer based systems are able to operate, and effectively
process data including dates, on and after January 1, 2000. At the request of
the Bank, the Borrower will provide the Bank with assurances acceptable to the
Bank of the Borrower's year 2000 compatibility.
SECTION 6.11. Subsidiary Guaranties. All Subsidiaries of the
Borrower (excluding any Subsidiary operating as an insurance or banking entity)
shall, within ninety (90) days of the Closing Date, execute and deliver to the
Bank a guaranty agreement in form reasonably acceptable to Bank and Borrower,
unconditionally guaranteeing the obligations under this Agreement and the Note
and any Subsidiary created or acquired subsequent to the Closing Date
(excluding any Subsidiary operating as an insurance or banking entity) shall,
within thirty (30) days of the date of creation or acquisition, execute a
guaranty agreement supplement in form reasonably acceptable to the Bank and the
Borrower; provided that, subject to the requirements of Section 6.19 hereof,
failure to provide such guarantees shall not create or result in an Event of
Default, but shall require the Borrower to deliver to the Bank as soon as
practicable and (i) in any event within 45 days after the close of each Fiscal
Quarter of the Borrower, beginning with the close of the first Fiscal Quarter
subsequent to the deadline for delivery of the guaranty agreements or guaranty
agreement supplements required above, consolidating balance sheets and
statements of income and cash flows of the Borrower and its Subsidiaries for or
relating to the Fiscal Quarter then ended, and (ii) in any event within 90 days
after the close of each Fiscal Year of the Borrower, beginning with the close
of the first Fiscal Year subsequent to the deadline for delivery of the
guaranty agreements or guaranty agreement supplements required above,
consolidating balance sheets and statements of income and cash flows of the
Borrower and its Subsidiaries for or relating to the Fiscal Year then ended,
all prepared in the case of clause (i) and clause (ii) above in accordance with
Generally Accepted Accounting Principles (in the case of such quarterly
statements, subject to normal year-end adjustments and the absence of notes),
applied on a Consistent Basis, and certified by the chief financial officer of
the Borrower. Each Subsidiary delivering a guaranty or guaranty agreement
supplement hereunder shall at the same time deliver to the Bank all documents
which the Bank may reasonably request relating to the existence of the
Subsidiary, the authority for and the validity of the guaranty or guaranty
agreement supplement and any other matters relevant thereto, all in form and
substance satisfactory to the Bank, including without limitation a certificate
of incumbency of the Subsidiary, signed by the Secretary or an Assistant
Secretary or other appropriate representative of the Subsidiary, as applicable,
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certifying as to the names, and incumbency of the officer or other
representative of the Subsidiary authorized to execute and deliver the guaranty
or guaranty agreement supplement, and certified copies of the following items
as to the Subsidiary: (i) the certificate of incorporation or article of
organization, (ii) the bylaws or operating agreement, (iii) a certificate of
the Secretary of State (or other appropriate office) of the state of its
incorporation as to its good standing as a corporation or limited liability
company of such jurisdiction, and (iv) the action taken by the board of
directors or members authorizing the execution, delivery and performance of the
guaranty or guaranty agreement supplement to which the Subsidiary is a party.
SECTION 6.12. Merger and Dissolution; Sale of Assets. Except for
the transactions contained on Schedule 6.12, the Borrower shall not, and shall
not permit any Subsidiary to, liquidate, windup or dissolve, or enter into any
consolidation, merger, share exchange, syndicate or other combination, or sell,
lease, transfer or otherwise dispose of, in a single transaction or a series of
related transactions, all or substantially all of its business or assets or any
portion thereof if such portion of its business or assets represents ten
percent (10%) or more of the net revenues, profits or assets of the Borrower or
such Subsidiary (except for sales of inventory in the ordinary course of
business); provided, that (i) subject to the requirements of Section 6.11
hereof, any Subsidiary may be wound up and dissolved if the proceeds of the
dissolution are transferred to the Borrower or another Subsidiary of the
Borrower, and (ii) any Subsidiary may be merged into another Subsidiary or into
the Borrower.
SECTION 6.13. Acquisitions. Except for the transactions
contained on Schedule 6.13, the Borrower shall not, and shall not permit any
Subsidiary to, acquire the business or all or a substantial portion of the
assets of any Person, unless the effect of such acquisition on a pro forma
basis measured over a period commencing four (4) Fiscal Quarters prior to the
effective date of the acquisition and continuing thereafter until such
acquisition has been effective for a total period of four (4) Fiscal Quarters
would not result in an Event of Default.
SECTION 6.14. Indebtedness. The Borrower shall not, and shall
not permit any Subsidiary to, create, incur or suffer to exist any Indebtedness
or the equivalent (including any Indebtedness incurred as a general partner or
as a venturer) except for: (a) the obligations owed to the Bank under this
Agreement and the Note; (b) the obligations owed by the Borrower under any
other Loan Document; (c) current trade accounts payable or accrued by the
Borrower or any of its Subsidiaries in the ordinary course of its business,
provided that the same shall be paid when due in accordance with customary
trade terms unless contested by appropriate proceedings; (d) Indebtedness
secured by Permitted Liens; (e) unsecured Indebtedness, provided that the
effect of such unsecured Indebtedness on a pro forma basis measured over a
period commencing four (4) Fiscal Quarters prior to the date the unsecured
Indebtedness is incurred would not result in an Event of Default; (f) purchase
money Indebtedness of the Borrower and its Subsidiaries in an aggregate amount
not to exceed $5,000,000 on any date of determination; (g) Indebtedness
existing on the Closing Date and not otherwise permitted under this Section
6.14, as set forth on Schedule 6.14; and (h) any other Indebtedness
specifically permitted by the Bank.
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SECTION 6.15. Liens and Encumbrances. The Borrower shall not,
and shall not permit any Subsidiary to, create, assume or suffer to exist any
Lien except for (a) Permitted Liens and (b) Liens necessary to secure purchase
money Indebtedness, subject to the dollar limitation contained in Section
6.14(f).
SECTION 6.16. Transactions With Related Persons. Except as
otherwise permitted hereunder, the Borrower shall not, and shall not permit any
Subsidiary to, make any loan or advance to, purchase, assume or guarantee any
note to or from, or enter into any transaction with, any of its officers,
directors, shareholders or Affiliates, or any member of the immediate family of
any of its officers, directors, shareholders or Affiliates, or subcontract any
operations to any Affiliate, except (a) as otherwise permitted hereunder; (b)
for transactions with its officers, directors, shareholders or Affiliates in an
aggregate amount not to exceed $2,000,000 in any Fiscal Year; and (c) in the
ordinary course of and pursuant to the reasonable requirements of its business,
consistent with past practices and upon fair and reasonable terms that are
fully disclosed to the Bank and are no less favorable to it than would obtain
in a comparable arm's length transaction with a Person not an Affiliate of the
Borrower or such Subsidiary, as the case may be, provided, however, that the
restrictions contained in this Section 6.16 shall not prohibit the Borrower or
any Subsidiary from entering into any such transactions with another Subsidiary
of the Borrower.
SECTION 6.17. Sale and Leaseback. Subsequent to the Closing
Date, the Borrower shall not, and shall not permit any Subsidiary to, enter
into any arrangement with any Person providing for the leasing by the Borrower
or any of its Subsidiaries of any asset that has been sold or transferred by
the Borrower or any of its Subsidiaries to such Person, if the book value of
the assets of the Borrower and its Subsidiaries which have been sold and leased
back, including the transaction currently being contemplated, in the aggregate
represent more than 10% of the book value of the assets of the Borrower and its
Subsidiaries as of the Borrower's last Fiscal Quarter end.
SECTION 6.18. New Business. The Borrower shall not, and shall not
permit any Subsidiary to, engage in any business other than the business in
which it is currently engaged or a business reasonably related thereto.
SECTION 6.19. Subsidiaries. Unless the requirements of Section
6.11 have been satisfied and as otherwise provided on Schedule 6.19, the
Borrower shall not, and shall not permit any Subsidiary to, create any new
Subsidiary or transfer any assets to a Subsidiary if the formation of such new
Subsidiary or the transfer of assets to such Subsidiary would cause any one of
the aggregate of net revenues or profits or assets of all the Subsidiaries on a
consolidated basis to exceed five percent (5%) of any one of the net revenues or
profits or assets of the Borrower and its Subsidiaries on a consolidated basis,
unless such new Subsidiary or Subsidiary to which assets are transferred
executes and delivers a guaranty agreement supplement in form reasonably
acceptable to the Bank and the Borrower, unconditionally guaranteeing the
obligations under this Agreement and the Note.
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SECTION 6.20. Guaranties. The Borrower shall not, and shall not
permit any Subsidiary to, guarantee or otherwise, in any way, become liable
with respect to the obligations or liabilities of any Person, except for (a)
guaranties issued in favor of the Bank; (b) guaranties which do not exceed
$10,000,000 in the aggregate at any time; (c) endorsements for collection or
deposit in the ordinary course of business; (d) the guaranty by the Borrower of
certain letter of credit obligations of Belk International, Inc.; (e) the
guaranties by the Subsidiaries pursuant to Sections 6.11 and 6.19 hereof; and
(f) any guaranty by the Borrower or any Subsidiary of any Indebtedness or
obligation of the Borrower or any Subsidiary to the extent such Indebtedness or
obligation is permitted hereunder.
SECTION 6.21. Restrictive Transactions. The Borrower shall not,
and shall not permit any Subsidiary to, enter into any transaction that
materially and adversely affects the Borrower's ability to repay any
Indebtedness or the obligations hereunder.
SECTION 6.22. Hazardous Wastes. Permit, in violation of any
federal, state or local laws, regulations or orders, any hazardous or toxic
wastes, contaminants, oil, radioactive or other materials the removal of which
is required or the maintenance of which is restricted, prohibited or penalized
by any federal, state or local agency, authority or governmental unit to be
brought on to any real property owned by the Borrower or any Subsidiary, or if
so brought or found located thereon, the same shall be immediately removed, if
required by Applicable Law, with proper disposal, and all required
environmental cleanup procedures shall be diligently undertaken pursuant to all
such laws, ordinances and regulations.
SECTION 6.23. Change in Fiscal Year. The Borrower will not change
its Fiscal Year end without the consent of the Bank.
SECTION 6.24. Amendments. The Borrower shall not, and shall not
permit any Subsidiary to, amend, modify or change in any manner the Borrower's
articles of incorporation or bylaws, or any agreement entered into by the
Borrower with respect to its Capital Stock, or enter into any new agreement
with respect to its Capital Stock if such amendment or new agreement would have
an adverse effect on the enforcement of this Agreement or would otherwise have
a Material Adverse Effect on the business of the Borrower or any of its
Subsidiaries.
SECTION 6.25. Leverage-Ratio. The Borrower shall not permit the
Leverage Ratio (i) as of the last day of the first Fiscal Quarter of any Fiscal
Year to be greater than 3.25 to 1.0; (ii) as of the last day of the second
Fiscal Quarter of any Fiscal Year to be greater than 3.25 to 1.0; (iii) as of
the last day of the third Fiscal Quarter of any Fiscal Year to be greater than
3.7 to 1.0; and (iv) as of the last day of any Fiscal Year to be greater than 3
.0 to 1.0.
SECTION 6.26. Fixed Charge Coverage Ratio. The Borrower shall not
permit the Fixed Charge Coverage Ratio as of the last day of any Fiscal Quarter
to be less than 1.5 to 1.0.
SECTION 6.27. Net Worth. The Borrower shall not permit
Consolidated Tangible Net Worth as of the last day of any Fiscal Quarter to be
less than the sum of (i) $650,000,000, plus (ii)
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50% of Comprehensive Income for each Fiscal Year, beginning as of the Fiscal
Year ending on January 30, 1999, provided that Comprehensive Income for any
such Fiscal Year shall be taken into account for purposes of this calculation
only if positive, plus (iii) 100% of the increase in the stated capital and
additional paid in capital accounts of the Borrower and its Subsidiaries
resulting from the issuance or purchase of equity securities (including
pursuant to the exercise of options, rights or warrants or pursuant to the
conversion of convertible securities) or other Capital Stock, excluding any
stock issuance and stock purchase, where the proceeds of the issuance are used
to purchase stock from other shareholders or their estates, all determined as
of the end of each Fiscal Year on a consolidated basis in accordance with
Generally Accepted Accounting Principles.
SECTION 6.28. Additional Covenants. In the event that at any
time this Agreement is in effect the Borrower or any Subsidiary shall enter
into any agreement, guarantee, indenture or other instrument (each a "Financing
Agreement") governing, relating to or guaranteeing any Financing or to amend
any terms and conditions applicable to any Financing, which Financing Agreement
includes covenants concerning or limiting the Borrower or any Subsidiary with
respect to the matters addressed in Sections 6.01, 6.11, 6.25, 6.26 or 6.27 of
this Agreement, which are more favorable to the lender or other counterparty
thereunder with respect to such matters, than Sections 6.01, 6.11, 6.25, 6.26
or 6.27 of this Agreement, the Borrower shall promptly so notify the Bank.
Thereupon, if the Bank shall request by written notice to the Borrower (after a
determination has been made by the Bank that any such Financing Agreement
contains any provisions which either individually or in the aggregate are more
favorable than one of Sections 6.01, 6.11, 6.25, 6.26 or 6.27 of this
Agreement), the Borrower and the Bank shall enter into an amendment to this
Agreement providing for substantially the same such covenants as those provided
for in such Financing Agreement, to the extent required and as may be selected
by the Bank, such amendment to remain in effect, unless otherwise specified in
writing by the Bank, for the entire duration of the stated term to maturity of
such Financing (to and including the date to which the same may be extended at
the Borrower's option), notwithstanding that such Financing might be earlier
terminated by prepayment, refinancing, acceleration or otherwise, provided that
if any such Financing Agreement shall be modified, supplemented, amended or
restated so as to modify, amend or eliminate from such Financing Agreement any
such covenant so made a part of this Agreement, then unless required by the
Bank pursuant to this Section, such modification, supplement or amendment shall
not operate to modify, amend or eliminate such covenant as so made a part of
this Agreement. As used in this Section, "Financing" means (i) any transaction
or series of transactions for the incurrence by the Borrower or any Subsidiary
of any Indebtedness or for the establishment of a commitment to make advances
which would constitute Indebtedness of the Borrower or any Subsidiary, which
Indebtedness is not by its terms subordinate and junior to other Indebtedness
of the Borrower or such Subsidiary, (ii) any obligation incurred in a
transaction or series of transactions in which assets of the Borrower or any
Subsidiary are sold and leased back, or (iii) a sale of accounts or other
receivables or any interest therein.
SECTION 6.29. Use of Proceeds. No portion of the proceeds of the
Loan will be used by the Borrower or any Subsidiary (a) in connection with,
either directly or indirectly, any tender offer for, or other acquisition of,
stock of any corporation with a view towards obtaining control of such
30
<PAGE> 36
other corporation, (b) directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any Margin Stock,
or (c) for any purpose in violation of any Applicable Law.
SECTION 6.30. Crestar Facility. The Borrower shall permanently
reduce its Credit Facility with Crestar Bank on or before January 1, 1999 such
that no more than $5,000,000.00 is thereafter outstanding and/or available to
be drawn thereunder.
ARTICLE VII
DEFAULTS
SECTION 7.01. Events of Default. The occurrence of any one or
more of the following events shall constitute an Event of Default by the
Borrower under this Agreement:
(a) the Borrower shall fail to pay any principal of the Loans
within five days after such principal shall become due or shall fail to pay any
interest on the Loans within ten days after such interest shall become due, or
shall fail to pay any other amount payable hereunder within ten days after such
other amount becomes due; or
(b) the Borrower shall fail to observe or perform any covenant
or agreement contained in this Agreement or any Loan Document (other than those
covered by clause (a) above) for thirty days after the earlier of (i) the first
day on which a responsible officer of the Borrower has knowledge of such
failure, or (ii) written notice thereof has been given to the Borrower by the
Bank; or
(c) any representation, warranty, certification or statement
made by the Borrower in Article V 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); or
(d) the Borrower or any Subsidiary shall fail to make any
payment in respect of Indebtedness outstanding (other than the Note) when due
or within any applicable grace period; or
(e) any event or condition shall occur which results in the
acceleration of the maturity of Indebtedness outstanding of the Borrower or any
Subsidiary or the purchase of such Indebtedness by the Borrower (or its
designee) or such Subsidiary (or its designee) prior to the scheduled maturity
thereof or would enable (or, with the giving of notice or lapse of time or
both, would enable) the holders of such Indebtedness or any Person acting on
such holders' behalf to accelerate the maturity thereof or require the purchase
thereof by the Borrower (or its designee) or such Subsidiary (or its designee)
prior to the scheduled maturity thereof, without regard to whether such holders
or other Person shall have exercised or waived their right to do so; or
31
<PAGE> 37
(f) the Borrower or any Subsidiary of the Borrower 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, or shall admit in writing its inability, to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing; or
(g) an involuntary case or other proceeding shall be commenced
against the Borrower or any Subsidiary of the Borrower 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 60 days; or an order for relief shall be entered against the
Borrower or any Subsidiary of the Borrower under the federal bankruptcy laws as
now or hereafter in effect; or
(h) the Borrower or any member of the Controlled Group shall
fail to pay when due any material amount which it shall have become liable to
pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to
terminate a Plan or Plans shall be filed under Title IV of ERISA by the
Borrower, any member of the Controlled Group, any plan administrator or any
combination of the foregoing, or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any such Plan or Plans or a proceeding shall be instituted by a
fiduciary of any such Plan or Plans to enforce Section 515 or 4219(c)(5) of
ERISA and such proceeding shall not have been dismissed within 30 days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any such Plan or Plans must be
terminated; or the Borrower or any other member of the Controlled Group shall
enter into, contribute or be obligated to contribute to, terminate or incur any
withdrawal liability with respect to, a Multiemployer Plan; or
(i) one or more judgments or orders for the payment of money in
an aggregate amount in excess of $100,000 shall be rendered against the
Borrower or any Subsidiary and such judgment or order shall continue without
discharge or stay for a period of 30 days; or
(j) a federal tax lien shall be filed against the Borrower under
Section 6323 of the Code or a lien of the PBGC shall be filed against the
Borrower or any Subsidiary under Section 4068 of ERISA and in either case such
lien shall remain undischarged for a period of 60 days after the date of
filing; or
(k) any default or event of default shall occur under any Loan
Document.
32
<PAGE> 38
SECTION 7.02. Remedies on Default. Upon the occurrence of an
Event of Default, the Bank may by notice to the Borrower, declare the Note and
the Loans (together with accrued interest thereon), and the Note and the Loans
(together with accrued interest thereon) 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 and terminate the Credit
Facility; provided, that if any Event of Default specified in clause (f) or (g)
of Section 7.01 above occurs with respect to the Borrower, without any notice
to the Borrower or any other act by the Bank, the Note and the Loans (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 and the Credit Facility shall be automatically
terminated.
SECTION 7.03. Security Interest, Offset, Sharing of Offsets.
(a) In addition to, and not in limitation of, all rights of
offset that the Bank or other holder of the Note may have under Applicable Law,
the Borrower hereby grants to the Bank, as security for the full and punctual
payment and performance of the obligations to pay to the Bank the principal of
and interest on the Loans and other amounts due hereunder, a continuing lien on
and security interest in all deposits and other sums credited by or due from
the Bank to the Borrower or subject to withdrawal by the Borrower; and
regardless of the adequacy of any collateral or other means of obtaining
repayment of the Loans, the Bank may, at any time after the occurrence of an
Event of Default and without notice to the Borrower, set off the whole or any
portion or portions of any or all such deposits and other sums against the
amounts owing under this Agreement and the Note, whether or not any other
Person or Persons could also withdraw money therefrom.
(b) The Borrower agrees, to the fullest extent it may
effectively do so under Applicable Law, that any holder of a participation in a
Note 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.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
transmission or similar writing) and shall be given to such party at its
address referenced below or such other address as such party may hereafter
specify for the purpose by notice to the other party:
33
<PAGE> 39
(a) If to the Borrower:
Belk, Inc.
2801 West Tyvola Road
Charlotte, North Carolina 28217-4500
Attention: Mr. James M. Berry
Fax number: (704) 357-1883
(b) If to the Bank, to its address set forth on the signature
pages hereof.
Each such notice, request or other communication shall be effective (i) if
given by mail, 72 hours after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid or (ii) if given by any
other means, when delivered at the address specified in this Section; provided,
that notices to the Bank under Article II or Article III shall not be effective
until received.
SECTION 8.02. No Waivers. No failure or delay by the Bank or
Borrower in exercising any right, power or privilege hereunder or under the
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 8.03. Expenses; Documentary Taxes.
(a) The Borrower shall pay (i) all out-of-pocket expenses of the
Bank, including reasonable fees and disbursements of counsel for the Bank, in
connection with the preparation of this Agreement and the other Loan Documents,
any waiver or consent hereunder or any amendment hereof or any actual or
alleged Default hereunder; provided, that the Borrower shall not be liable for
the expenses of the Bank in connection with the preparation of this Agreement
and the other Loan Documents to the extent such expenses exceed $10,000, and
(ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the
Bank, including fees and disbursements of outside counsel, in connection with
such Event of Default and collection and other enforcement proceedings
resulting therefrom, including out-of-pocket expenses incurred in enforcing
this Agreement and the other Loan Documents.
(b) The Borrower shall indemnify the Bank against any transfer
taxes, documentary taxes, assessments or charges made by any Governmental
Authority by reason of the execution and delivery of this Agreement or the
other Loan Documents.
(c) The Borrower shall indemnify the Bank and its directors,
officers, employees and agents from, and hold each of them harmless against,
any and all losses, liabilities, claims or damages to which any of them may
become subject, insofar as such losses, liabilities, claims or damages arise
out of or result from any actual or proposed use by the Borrower of the
proceeds of any extension of credit by the Bank hereunder or breach by the
Borrower of this Agreement or any
34
<PAGE> 40
other Loan Document or from investigation, litigation (including, without
limitation, any actions taken by the Bank to enforce this Agreement or any of
the other Loan Documents) or other proceeding (including, without limitation,
any threatened investigation or proceeding) relating to the foregoing, and the
Borrower shall reimburse the Bank and its directors, officers, employees and
agents, upon demand for any expenses (including, without limitation, legal
fees) incurred in connection with any such investigation or proceeding; but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence, willful misconduct or bad faith of the Person
to be indemnified.
SECTION 8.04. Amendments and Waivers. Any provision of this
Agreement, the Note or any other Loan Documents may be amended or waived if,
but only if, such amendment or waiver is in writing and is signed by the
Borrower and the Bank.
SECTION 8.05. 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; provided, that the Borrower may not assign or otherwise transfer any
of its rights under this Agreement.
(b) The Bank may at any time sell to one or more Persons (each a
"Participant") participating interests in the Loans, the Note or any other
interest of the Bank hereunder; provided, that no participating interests in
the Loans, the Note or any other interest of the Bank may be sold pursuant to
this paragraph (b) to a Person not an Affiliate of the Bank without the prior
written consent of the Borrower. In the event of any such sale by the Bank of a
participating interest the Bank's obligations under this Agreement shall remain
unchanged, the Bank shall remain solely responsible for the performance
thereof, the Bank shall remain the holder of the Note for all purposes under
this Agreement, and the Borrower shall continue to deal solely and directly
with the Bank in connection with the Bank's rights and obligations under this
Agreement. In no event shall the Bank be obligated to the Participant to take
or refrain from taking any action hereunder except that the Bank may agree that
it will not (except as provided below), without the consent of the Participant,
agree to (i) the change of any date fixed for the payment of principal of or
interest on the Loan, (ii) the change of the amount of any principal, interest
or fees due on any date fixed for the payment thereof with respect to the Loan,
(iii) the change of the principal of the Loan, (iv) any change in the rate at
which interest is payable thereon from the rate at which the Participant is
entitled to receive interest in respect of such participation, (v) the release
or substitution of all or any substantial part of the collateral (if any) held
as security for the Loan, or (vi) the release of any guaranty given to support
payment of the Loan. The Bank shall, within ten Business Days after selling a
participating interest in the Loan, the Note or other interest under this
Agreement, provide the Borrower with written notification stating that such
sale has occurred and identifying the Participant and the interest purchased by
such Participant. The Borrower agrees that each Participant shall be entitled
to the benefits of Article III and Section 7.03 with respect to its
participation in the Loans.
(c) The Bank may at any time assign to one or more banks or
financial institutions
35
<PAGE> 41
(each an "Assignee") all, or a proportionate part of all, of its rights and
obligations under this Agreement and the Note and the other Loan Documents, and
the Assignee shall assume all such rights and obligations, pursuant to an
Assignment and Acceptance in the form attached hereto as Exhibit E executed by
such Assignee, the Bank and the Borrower; provided, that no interest may be
sold by the Bank pursuant to this paragraph (c) to any Assignee which is not an
Affiliate of the Bank without the consent of the Borrower. Upon (i) execution
of the Assignment and Acceptance by the Bank, such Assignee, and the Borrower
(if required), (ii) delivery of an executed copy of the Assignment and
Acceptance to the Borrower, and (iii) payment by such Assignee to the Bank of
an amount equal to the purchase price agreed between Bank and such Assignee,
such Assignee shall for all purposes be a Bank party to this Agreement and
shall have all the rights and obligations of a Bank under this Agreement to the
same extent as if it were an original party hereto, and the Bank shall be
released from its obligations hereunder to a corresponding extent, and no
further consent or action by the Borrower or the Bank shall be required. Upon
the consummation of any transfer to an Assignee pursuant to this paragraph (c),
the Bank and the Borrower shall make appropriate arrangements so that, if
required, new Notes are issued to such Assignee and the Bank.
(d) Subject to the provisions of Section 8.06, the Borrower
authorizes the Bank to disclose to any Participant, Assignee or other
transferee (each a "Transferee") and any prospective Transferee any and all
financial information in the Bank's possession concerning the Borrower which
has been delivered to the Bank by the Borrower pursuant to this Agreement or
which has been delivered to the Bank by the Borrower in connection with the
Bank's credit evaluation prior to entering into this Agreement.
(e) No Transferee shall be entitled to receive any greater
payment under Section 3.03 than the Bank would have been entitled to receive
with respect to the rights transferred, unless such transfer is made with the
Borrower's prior written consent.
(f) Anything in this Section to the contrary notwithstanding,
the Bank may assign and pledge all or any portion of the Loan and/or
obligations owing to it to any Federal Reserve Bank or the United States
Treasury as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and Operating Circular issued by such
Federal Reserve Bank; provided, that any payment in respect of such assigned
Loan and/or obligations made by the Borrower to the Bank in accordance with the
terms of this Agreement shall satisfy the Borrower's obligations hereunder in
respect of such assigned Loans and/or obligations to the extent of such
payment. No such assignment shall release the Bank from its obligations
hereunder.
SECTION 8.06. Confidentiality. The Bank agrees to exercise its
best efforts to keep any information delivered or made available by the
Borrower to it which is clearly indicated to be confidential information,
confidential from any one other than persons employed or retained by the Bank
who are or are expected to become engaged in evaluating, approving, structuring
or administering the Loan; provided, however, that nothing herein shall prevent
the Bank from disclosing such information (a) upon the order of any court or
administrative agency, (b) upon the request or demand of any regulatory agency
or authority having jurisdiction over the Bank, (c) which
36
<PAGE> 42
has been publicly disclosed, (d) to the extent reasonably required in
connection with any litigation to which the Bank or its respective Affiliates
may be a party, (e) to the extent reasonably required in connection with the
exercise of any remedy hereunder, (f) to the Bank's affiliates, legal counsel
and independent auditors and (g) to any actual or proposed Participant,
Assignee or other Transferee of all or part of its rights hereunder which has
agreed in writing to be bound by the provisions of this Section.
SECTION 8.07. Governing Law. This Agreement, the Note and the
other Loan Documents shall be construed in accordance, with and governed by the
law of the State of North Carolina. This Agreement, the Note and the other Loan
Documents are intended to be effective as instruments executed under seal.
SECTION 8.08. 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.
SECTION 8.09. Severability. If any provisions of this Agreement
shall be held invalid under any Applicable Law, such invalidity shall not
affect any other provision of this Agreement that can be given effect without
the invalid provision, and, to this end, the provisions hereof are severable.
SECTION 8.10. Captions. Captions in this Agreement are for the
convenience of reference only and shall not affect the meaning or interpretation
of the provisions hereof.
[Remainder of this page intentionally left blank]
37
<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the year and day first above written.
BORROWER:
BELK, INC.
[CORPORATE SEAL]
By:
-----------------------------
Title:
38
<PAGE> 44
BANK:
Lending Office WACHOVIA BANK, N.A.
Wachovia Bank, N.A.
400 South Tryon Street
Charlotte, North Carolina 28202 By:
---------------------------------------
Title:
------------------------------------
ADDRESS:
Wachovia Bank, N.A.
400 South Tryon Street
Charlotte, North Carolina 28202
Attn: David W. Shore
Telephone: (704) 378-5144
Fax: (704) 378-5181
39
<PAGE> 45
Exhibit A
to Credit Agreement
dated as of September 11, 1998
by and among Belk, Inc.
and
Wachovia Bank, N.A.
PROMISSORY NOTE
$150,000,000.00 September 11, 1998
FOR VALUE RECEIVED, the undersigned BELK, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of WACHOVIA
BANK, N.A. (together with its endorsees, successors and assigns, the "Bank"),
the principal sum of One Hundred Fifty Million and No/100 Dollars
($150,000,000.00) on the dates provided for in the Credit Agreement. The
Borrower promises to pay interest on the unpaid principal amount of this Note
on the dates and at the rate or rates provided for in the Credit Agreement.
Interest on any overdue principal of and, to the extent permitted by law,
overdue interest on the principal amount hereof shall bear interest at the rate
or rates as 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 funds immediately available at the Bank's office set forth in
the Credit Agreement.
This Note evidences the Loans made by the Bank under, is the
Note referred to in and issued pursuant to, and is subject to the terms and
provisions of, the Credit Agreement, dated as of September 11, 1998, between
the Borrower and the Bank (as the same may be modified, amended, supplemented
or restated, the "Credit Agreement") to which Agreement reference is hereby
made for a statement of said terms and provisions. This Note is entitled to the
benefits of the Credit Agreement. Any term used herein that is defined in the
Credit Agreement shall have the meaning afforded it in the Credit Agreement
when used herein.
The Bank may, but shall not be obligated to, record on the
schedule attached to and made a part hereof, or on a continuation of such
schedule, Loans extended by the Bank to the Borrower, the effective interest
rates for the Loans evidenced hereby, and the principal payments and
prepayments of this Note; 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.
Upon the occurrence and during the continuation of any Event of
Default, the Bank may declare the entire unpaid principal balance hereof and
all accrued interest hereon to be immediately due and payable in the manner and
with the effect provided in the Credit Agreement, and may thereafter exercise
any of the remedies referred to in the Credit Agreement or existing under
Applicable Law.
A-1
<PAGE> 46
This Note may be prepaid in whole or in part only on the terms
and conditions set forth in the Credit Agreement.
TIME IS OF THE ESSENCE OF THIS CONTRACT. In addition and not in
limitation of the foregoing and the provisions of the Credit Agreement, the
Borrower further agrees to pay all expenses of collection, including reasonable
attorneys' fees, if this Note shall be collected by law or through an attorney
at law, or in bankruptcy, receivership or other court proceedings.
This Note shall be governed by and construed under the internal
laws of the State of North Carolina, without giving effect to principles of
conflicts of laws. This Note is intended to be effective as an instrument
executed under seat.
PRESENTMENT, DEMAND, PROTEST AND NOTICE OF DISHONOR ARE HEREBY
WAIVED BY THE BORROWER.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed under seal by a duly authorized officer as of the day and year first
above written.
BELK, INC.
ATTEST:
By:
- ---------------------------- -------------------------------
Assistant Secretary Title:
----------------------------
[CORPORATE SEAL]
A-2
<PAGE> 47
Note (continued)
PAYMENTS OF PRINCIPAL
=======================
<TABLE>
<CAPTION>
Amount
of Unpaid
Type of Interest Principal Principal Notation
Date Loan* Rate Repaid Amount Made by
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------
* I.e., a Base Rate Loan or LIBOR Rate Loan.
A-3
<PAGE> 48
Exhibit B
to Credit Agreement
dated as of September 11, 1998
by and among
Belk, Inc.
and
Wachovia Bank, N.A.
NOTICE OF BORROWING
Wachovia Bank, N.A.
400 South Tryon Street
Charlotte, North Carolina 28202
Attn: David W. Shore
Ladies and Gentlemen:
This irrevocable Notice of Borrowing is delivered to you under
Section 2.02 (a) of the Credit Agreement dated as of September 11, 1998 (as
amended, restated or otherwise modified, the "Credit Agreement"), by and among
Belk, Inc. ("the Borrower") and Wachovia Bank, N.A.
1. The Borrower hereby requests that the Bank make a Loan in the
aggregate principal amount of $___________ (the "Loan").(1)
2. The Borrower hereby requests that the Loan be made on the
following Business Day: _______________________.(2)
3. The Borrower hereby requests that the Loan bear interest at
the following interest rate, as set forth below:
Principal Component
of Interest
Loan Rate
- ------------------- --------
- --------
(1) Complete with an amount in accordance with Section 2.02 of the Credit
Agreement.
(2) Complete with a Business Day in accordance with Section 2.02 of the Credit
Agreement.
B-1
<PAGE> 49
Wachovia Bank, N.A.
Page 2
4. The principal amount of all Loans outstanding as of the date
hereof (including the requested Loan) does not exceed the maximum amount
permitted to be outstanding pursuant to the terms of the Credit Agreement.
5. All of the conditions applicable to the Loan requested herein
as set forth in the Credit Agreement have been satisfied as of the date hereof
and will remain satisfied to the date of such Loan.
6. All capitalized undefined terms used herein has the meanings
assigned thereto in the Credit Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Notice of
Borrowing this _____day of _________, ___.
BELK, INC.
By:
-----------------------------
Name:
------------------------
Title:
-----------------------
B-2
<PAGE> 50
Exhibit C
to Credit Agreement
dated as of September 11, 1998
by and among
Belk, Inc.
and
Wachovia Bank, N.A.
NOTICE OF CONVERSION/CONTINUATION
Wachovia Bank, N.A.
400 South Tryon Street
Charlotte, North Carolina 28202
Attn: David W. Shore
Ladies and Gentlemen:
This irrevocable Notice of Conversion/Continuation (the
"Notice") is delivered to you under Section 2.08 of the Credit Agreement dated
as of September 11, 1998 (as amended, restated or otherwise modified, the
"Credit Agreement"), by and among Belk, Inc. ("the Borrower") and Wachovia
Bank, N.A.
1. This Notice of Conversion/Continuation is submitted for the
purpose of: (Complete applicable information.)
(a) [Converting] [continuing] a Loan [into] [as] a
Loan.(1)
(b) The aggregate outstanding principal balance of
such Loan is $____________.
(c) The principal amount of such Loan to be
[converted] [continued] is $_________.(2)
(d) The requested effective date of the [conversion]
[continuation] of such Loan is __________.
2. No Default or Event of Default exists, and none will exist
upon the conversion or continuation of the Loan requested herein.
3. All capitalized undefined terms used herein have the meanings
assigned thereto in the Credit Agreement.
C-1
<PAGE> 51
Wachovia Bank, N.A.
Page 2
IN WITNESS WHEREOF, the undersigned have executed this Notice of
Conversion/Continuation this ______ day of ____________, 19__.
BELK, INC.
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
1. Delete the bracketed language and insert "Base Rate" or "LIBOR
Rate", as applicable, in each blank.
2. Complete with an amount in compliance with Section 2.08 of the
Credit Agreement.
C-2
<PAGE> 52
Exhibit D
to Credit Agreement
dated as of September 11, 1998
by and among
Belk, Inc.
and
Wachovia Bank, N.A.
OFFICER'S COMPLIANCE CERTIFICATE
The undersigned, on behalf of Belk, Inc. (the "Borrower"), hereby
certifies to Wachovia Bank, N.A. (the "Bank"), as follows:
1. This Certificate is delivered to you pursuant to Section 6.01
of the Credit Agreement dated as of September 11, 1998 (as amended, restated or
otherwise modified, the "Credit Agreement"), by and among the Borrower and the
Bank. Capitalized terms used herein and not defined herein shall have the
meanings assigned thereto in the Credit Agreement.
2. I have reviewed the financial statements of the Borrower and
its Subsidiaries dated as of and for the period[s] then ended and such
statements fairly present the financial condition of the Borrower and its
Subsidiaries as of the dates indicated and the results of its operations and
cash flows for the period[s] indicated.
3. I have reviewed the terms of the Credit Agreement, the Note
and the related Loan Documents and have made, or caused to be made under my
supervision, a review in reasonable detail of the transactions and the
condition of the Borrower and its Subsidiaries during the accounting period
covered by the financial statements referred to in Paragraph 2 above. Such
review has not disclosed the existence during or at the end of such accounting
period of any condition or event that constitutes a Default or an Event of
Default, nor do I have any knowledge of the existence of any such condition or
event as at the date of this Certificate [except, [if such condition or event
existed or exists, describe the nature and period of existence thereof and what
action the Borrower has taken, is taking and proposes to take with respect
thereto]].
4. The Borrower and its Subsidiaries are in compliance within
the covenants and restrictions contained in Article VI of the Credit Agreement.
D-1
<PAGE> 53
WITNESS the following signatures as of the ____ day of
_____________, ____.
BELK, INC.
By:
----------------------------
Name:
-----------------------
Title:
----------------------
D-2
<PAGE> 54
Exhibit E
to Credit Agreement
dated as of September 11, 1998
by and among Belk, Inc.
and
Wachovia Bank, N.A.
ASSIGNMENT AND ACCEPTANCE
Dated ___________, ____
Reference is made to the Credit Agreement dated as of September
11, 1998 (the "Credit Agreement") between, Belk, Inc. (the "Borrower") and
Wachovia Bank, N.A. (the "Bank"). Terms defined in the Credit Agreement are
used herein with the same meaning.
Wachovia Bank, N.A. (the "Assignor") and ________________ (the
"Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, a _________%
interest in and to all of the Assignor's rights and obligations under the
Credit Agreement as of the Effective Date (as defined below) (including,
without limitation, a _________% interest (which on the Effective Date hereof
is $____________) in the Loans owing to the Assignor and a ______% interest in
the Note held by the Assignor (which on the Effective Date hereof is
$____________).
2. The Assignor (i) makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Credit Agreement or any other instrument or document furnished
pursuant thereto, other than that it is the legal and beneficial owner of the
interest being assigned by it hereunder, that such interest is free and clear
of any adverse claim and that as of the date hereof the aggregate outstanding
principal amount of the Loans owing to it (without giving effect to assignments
thereof which have not yet become effective) is $___________; (ii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under the Credit Agreement or any other
instrument or document furnished pursuant thereto; and (iii) attaches the Note
referred to in paragraph 1 above and requests that the Borrower exchange such
Note for [a new Note dated ____________________, _____ in the principal amount
of ________________ payable to the order of the Assignee] [new Notes as
follows: a Note dated __________, ____ in the principal amount of
$_______________ payable to the order of the Assignee and a Note dated
___________, ____ in the principal amount of $______________ payable to the
order of such Assignor].
E-1
<PAGE> 55
3. The Assignee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 5.04(a) thereof (or any more recent financial statements of the
Borrower delivered pursuant to Section 6.01 (a) or (b) thereof) and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (ii) agrees
that it will, independently and without reliance upon the Assignor and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Credit Agreement; (iii) confirms that it is a bank or financial
institution; (iv) agrees that it will perform in accordance with their terms
all of the obligations which by the terms of the Credit Agreement are required
to be performed by it as a Bank; (v) specifies as its Lending Office (and
address for notices) the office set forth beneath its name on the signature
pages hereof, (vi) represents and warrants that the execution, delivery and
performance of this Assignment and Acceptance are within its corporate powers
and have been duly authorized by all necessary corporate action [, and (vii)
attaches the forms prescribed by the Internal Revenue Service of the United
States certifying as to the Assignee's status for purposes of determining
exemption from United States withholding taxes with respect to all payments to
be made to the Assignee under the Credit Agreement and the Notes or such other
documents as are necessary to indicate that all such payments are subject to
such taxes at a rate reduced by an applicable tax treaty].(1)
4. The Effective Date for this Assignment and Acceptance shall
be ______________ (the "Effective Date"). Following the execution of this
Assignment and Acceptance, it will be delivered to the Borrower for execution by
the Borrower (if required by the Credit Agreement).
5. Upon such execution and acceptance by the Borrower (if
required), from and after the Effective Date, (i) the Assignee shall be a party
to the Credit Agreement and, to the extent rights and obligations have been
transferred to it by this Assignment and Acceptance, have the rights and
obligations of a Bank thereunder and (ii) the Assignor shall, to the extent its
rights and obligations have been transferred to the Assignee by this Assignment
and Acceptance, relinquish its rights (other than under Section 3.03 of the
Credit Agreement) and be released from its obligations under the Credit
Agreement.
6. Upon such execution by the Borrower (if required), from and
after the Effective Date, the Borrower shall make all payments in respect of
the interest assigned hereby to the Assignee. The Assignor and Assignee shall
make all appropriate adjustments in payments for periods prior to such
execution by the Borrower directly between themselves.
- --------
(1) If the Assignee is organized under the laws of a jurisdiction
outside the United States.
E-2
<PAGE> 56
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of North Carolina.
WACHOVIA BANK, N.A.
By:
------------------------------
Title:
---------------------------
[NAME OF ASSIGNEE]
By:
------------------------------
Title:
---------------------------
Lending Office:
[Address]
BELK, INC.
By:
------------------------------
Title:
---------------------------
E-3
<PAGE> 57
Exhibit F
to Credit Agreement
dated as of September 11, 1998
by and among
Belk, Inc.
and
Wachovia Bank, N.A.
NOTICE OF ACCOUNT DESIGNATION
Dated
Wachovia Bank, N.A.
400 South Tryon Street
Charlotte, North Carolina 28202
Attn: David W. Shore
Ladies and Gentlemen:
This Notice of Account Designation is delivered to you by Belk,
Inc. (the "Borrower") under Section 2.02(b) of the Credit Agreement dated as of
September 11, 1998 (as amended, restated or otherwise modified, the "Credit
Agreement") by and among the Borrower and Wachovia Bank, N.A.
(the "Bank").
The Bank is hereby authorized to disburse all Loan proceeds into
the following account(s):
[Insert name of bank/ ABA Routing Number/ and Account Number]
IN WITNESS WHEREOF, the undersigned has executed this Notice of
Account Designation this ____ day of _______________, 199_.
[CORPORATE SEAL] BELK, INC.
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE> 58
Exhibit G
to Credit Agreement
dated as of September 11, 1998
by and among
Belk, Inc.
and Wachovia Bank, N.A.
OPINION OF BORROWER'S COUNSEL
[Letterhead of Borrower's Counsel]
[Date]
Wachovia Bank, N.A.
400 South Tryon Street
Charlotte, North Carolina 28202
Gentlemen:
We have acted as counsel to BELK, INC., a Delaware corporation
(the "Borrower"), in connection with that certain Credit Agreement, dated as of
September 11, 1998 (the "Credit Agreement"), between the Borrower and Wachovia
Bank, N.A. (the "Bank"). 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. We have assumed for purposes of our opinions set
forth below that the execution and delivery of the Credit Agreement by the Bank
have been duly authorized by the Bank. As to questions of fact relating to the
Borrower material to such opinions, we have relied upon representations of
appropriate officers of the Borrower, as appropriate.
Upon the basis of the foregoing, we are of the opinion that:
1. The Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of Delaware and has all corporate
powers required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of
the Credit Agreement, the Note and the other Loan Documents (i) are within the
Borrower's corporate powers, (ii) have
G-1
<PAGE> 59
Wachovia Bank, N.A.
Page 2
been duly authorized by all necessary corporate action, (iii) require no action
by or in respect of, or filing with, any governmental body, agency or official,
(iv) do not contravene, or constitute a default under, any provision of
Applicable Law or of the certificate of incorporation or bylaws of the Borrower
or of any agreement, judgment, injunction, order, decree or other instrument
which is binding upon the Borrower and (v) except as provided in the Credit
Agreement and the other Loan Documents, do not result in the creation or
imposition of any Lien on any asset of the Borrower or any of its Subsidiaries.
3. The Credit Agreement, the Note and the other Loan Documents
constitute valid and binding agreements of the Borrower, enforceable against
the Borrower in accordance with their respective terms, except as such
enforceability may be limited by: (i) bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally and (ii) general
principles of equity.
4. There is no action, suit or proceeding pending, or
threatened, against or affecting the Borrower or any of its Subsidiaries before
any court or arbitrator or any governmental body, agency or official in which
there is a reasonable possibility of an adverse decision which could materially
adversely affect the business, consolidated financial position or consolidated
results of operations of the Borrower and its Consolidated Subsidiaries,
considered as a whole, or which in any manner questions the validity or
enforceability of the Credit Agreement, the Note or any other Loan Documents.
5. Neither the Borrower nor any of its subsidiaries is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
I am qualified to practice in the State of North Carolina and do
not purport to be expert on any laws other than the laws of the United States
and the State of North Carolina, and this opinion is rendered only with respect
to such laws. I have made no independent investigation of the laws of any other
jurisdiction.
We express no opinion as to the laws of any jurisdiction wherein
the Bank may be located which limits rates of interest which may be charged or
collected by the Bank other than in paragraph 4 with respect to the State of
North Carolina.
This opinion is delivered to you in connection with the
transaction referenced above and may only be relied upon by you or any
Assignee, Participant or other Transferee under the Credit Agreement, without
our prior written consent.
Very truly yours,
G-2
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
Belk-Simpson Company, Greenville, South Carolina
Belk Administration Company
Belk Accounts Receivable LLC
Belk Stores Services, Inc.
United Electronic Services, Inc.
Belk Stores Mutual Insurance Company
The Belk Center, Inc.
Belk International, Inc.
Belk Stores of Virginia, LLC
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 18,313
<SECURITIES> 24,164
<RECEIVABLES> 360,495
<ALLOWANCES> 9,352
<INVENTORY> 482,247
<CURRENT-ASSETS> 881,555
<PP&E> 1,088,711
<DEPRECIATION> 527,762
<TOTAL-ASSETS> 1,593,918
<CURRENT-LIABILITIES> 258,586
<BONDS> 403,713
0
0
<COMMON> 567
<OTHER-SE> 787,368
<TOTAL-LIABILITY-AND-EQUITY> 1,593,918
<SALES> 2,091,060
<TOTAL-REVENUES> 2,091,060
<CGS> 1,422,257
<TOTAL-COSTS> 1,422,257
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,237
<INTEREST-EXPENSE> 37,132
<INCOME-PRETAX> 92,437
<INCOME-TAX> 34,651
<INCOME-CONTINUING> 57,974
<DISCONTINUED> 0
<EXTRAORDINARY> (1,004)
<CHANGES> 0
<NET-INCOME> 56,970
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
</TABLE>
