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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
----------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended July 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to _______________________
----------------
COMMISSION FILE NO. 0-21526
ZALE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-0675400
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
901 W. WALNUT HILL LANE
IRVING, TEXAS 75038-1003
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (214) 580-4000
Securities registered pursuant to Section 12(b) of the Act:
NONE.
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK ($.01 PAR VALUE PER SHARE)
(Title of class)
WARRANTS TO PURCHASE COMMON STOCK, SERIES A
(Title of class)
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. [ ]
As of September 5, 1995, the aggregate market value of the
registrant's voting stock held by non-affiliates of the registrant was
approximately $430,719,380.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
As of September 5, 1995, the registrant had outstanding 34,984,508
shares of its common stock, $.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE.
Part II of this report incorporates information from the registrant's
Annual Report to Stockholders for the year ended July 31, 1995. Part III of
this report incorporates information from the registrant's definitive Proxy
Statement relating to the registrant's annual meeting of stockholders to be
held November 2, 1995.
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PART I
ITEM 1. BUSINESS
GENERAL
Zale Corporation (the "Company"), founded in 1924, is the nation's
largest chain of specialty retail jewelry stores, operating 1,177 retail
locations at July 31, 1995. For the twelve months ended July 31, 1995, total
Company retail sales were approximately $1,036.1 million. The Company sells
jewelry and giftware throughout the United States, Puerto Rico and Guam through
its Zales, Gordon's, Guild and Diamond Park Divisions. The Company operates
stores primarily in regional shopping malls and leased departments in
department stores. Merchandise is sold for cash, on the Company's private
label credit cards and on bank and national credit and charge cards. The
Company also markets credit insurance to its private label credit card
customers.
The Company historically has purchased substantially all of its
merchandise in finished form from a network of established suppliers and
manufacturers located primarily in the United States, the Orient and Italy.
The Company is also centrally purchasing certain commodity items such as gold
chains direct from manufacturers or other primary sources. A portion of the
merchandise offered by the Company is procured from vendors under consignment
programs through which the Company is not obligated to pay for the merchandise
until it is sold to retail customers.
BUSINESS STRATEGY
The Company's goal in fiscal 1995 was to restore Zale Corporation as
the pre-eminent fine jewelry retailer in the nation. To accomplish this task,
the Company developed a three-phase plan, starting with getting back to the
basics of retailing. That meant understanding and satisfying customers' needs,
offering the right selection and quality of merchandise, and pursuing an
effective and efficient marketing strategy. It also entailed paying close
attention to the Company's store environment and operations, especially in
improving customer service.
A major element of the Company's three-phase plan was to strengthen
the merchandising in the stores. The Company developed a core group of items
which have been perennial best-sellers. These items include tennis bracelets,
diamond anniversary bands and diamond stud earrings. The Company made certain
that these key items were available in a variety of styles and began to fill
out the assortments with "good, better and best" price points. The Company has
been diligent about maintaining a depth of stock on these key items at all
times versus the traditional approach of having one or two pieces per store.
Inventory management systems have been structured so that key items would be
more consistently in stock and systems have been developed for prompt
replenishment of key items.
Consistent with the Company's new merchandising plan, the Company
began to make its marketing efforts more product-focused. Print, television
and radio advertising feature selected key items in a variety of price points.
The Company has broadened its advertising beyond the Christmas season, to tie
in with other gift-giving holidays such as Valentine's Day and Mother's Day.
In-store promotions have been synchronized to take advantage of high mall
traffic periods. These strategies have helped to position Zales and Gordon's
as gift-giving destinations.
After refining the merchandise mix and marketing, the Company worked
to improve the quality of service and the efficiency of the stores. The
Company focused initially on the top 300 stores in the Zales and Gordon's
Divisions, moving the most experienced and capable managers into these stores.
The Company also modified staff scheduling to put more sales personnel "on the
floor" during peak traffic periods and introduced more extensive training in
sales techniques and customer relationship building in all of its stores. The
"focus" group of stores also received an increased level of merchandise and
marketing support. As a result, the focus group stores outperformed the rest
of the chain.
A majority of the Company's stores are situated in prime, centercourt
mall locations or other high traffic areas of shopping malls. Beginning in
late fiscal 1994 and continuing into fiscal 1995, the Company set out to
establish separate identities for its Zales and Gordon's brand names.
Previously managed by a single team, the two divisions were placed under
separate management teams. New divisional management was brought in to the
Zales, Gordon's and Guild divisions to create and implement an individualized
merchandising approach. Different marketing techniques have been adopted,
targeted toward each division's specific demographic base. At the same time,
the Company is committed to enhancing the cost and efficiency benefits of
centralized support operations.
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The Company offers credit through its own private label credit cards
to enable creditworthy customers to finance their purchases without using cash
or bank card lines of credit. The Company seeks to establish a relationship
with its customers through merchandise and credit card programs that encourages
repeat purchases of fashion and gift items as well as substantial purchases on
occasions such as engagements, anniversaries, Christmas, birthdays, graduations
and other gift-giving holidays. Through mailing lists available from the
Company's credit operations, the Company can mail promotional material directly
to customers to advertise special sales or unique items that are offered in its
stores. The Company encourages customers with major credit cards to apply for
a Company credit card even when no purchase is made. This enables the Company
to solicit new business from those customers by direct mailings. The Company
believes that this program enhances future sales to customers with a strong
credit history.
As part of the Company's business strategy, it has embarked on a store
remodeling and refurbishment program. This program will enable the Company to
enhance its stores in certain key markets relative to its competition.
Additionally, the Company plans on making expenditures of approximately $15.0
million on its management information systems to migrate to client server based
applications from mainframe applications over the next several years. The
Company anticipates spending approximately $50.0 million on capital
expenditures in fiscal 1996. Capital expenditures are typically scheduled for
the late spring through early fall in order to have new or renovated stores
ready for the Christmas selling season. During the year ended July 31, 1995,
the Company made approximately $42.3 million in capital expenditures
principally to open 18 new stores and enhance the appearance of 393 stores.
This included 153 relocations, complete remodelings or major refurbishments and
240 stores that were enhanced through addition of either or all of new carpet,
paint and new wall coverings and display elements. The Company intends to
continue its store upgrade program and open 250 new locations over the next
three years.
SELECTED DIVISIONAL DATA
The Company operates principally under four divisions as described
below. The following table presents net sales for the Zales, Gordon's, Guild
and Diamond Park Divisions of the Company.
<TABLE>
<CAPTION>
Net Sales By Division
----------------------------------------------------
Pro Forma (1)
----------------------
Year Ended July 31, Year Ended July 31,
---------------------------- -----------------------
1995 1994 1993
---------- --------- ---------
(amounts in thousands except number of stores)
<S> <C> <C> <C>
Net Sales:
Zales Division . . . . . . . . . $ 428,794 $374,849 $370,981
Gordon's Division . . . . . . . . 262,540 234,974 221,549
Guild Division . . . . . . . . . 197,267 182,278 213,219
Diamond Park Division . . . . . . 138,187 127,761 149,595
Other . . . . . . . . . . . 9,361(2) 445 1,103
---------- -------- --------
Total . . . . . . . . . . . $1,036,149 $920,307 $956,447
========== ======== ========
Number of stores (end of period) . . 1,177 1,231 1,265
===== ===== =====
</TABLE>
(1) Amounts in this column represent historical income statement data for
the twelve months ended July 31, 1993 which includes the four month
period ended July 31, 1993 and the eight months ended March 31, 1993.
(2) Other net sales in fiscal 1995 includes sales from the Company's
Outlet stores which are being used to sell overstocked and other
merchandise no longer sold in the regular retail locations. Outlet
store sales and operating results in the prior years were not
significant and were classified in cost of sales.
Zales Division
At August 1, 1995, the Zales Division operated 534 stores, including 35
stores transferred from the Gordon's Division effective August 1, 1995, under
the name "Zales" in 48 states and Puerto Rico. The Zales Division is being
positioned as the leading national brand name in jewelry retailing in the
United States. Zales' customers represent a solid cross-section of mainstream
America, seeking good value in fine-quality merchandise. The average purchase
at a Zales location is $257. The Zales Division stores average approximately
1,400 square feet.
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The following table sets forth the number of stores and average sales
per store for the Zales Division for the periods indicated:
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Average sales per store . . . . . . $849,100 $716,700 $692,100
Stores opened during period . . . . 8 2 10
Stores closed during period . . . . 30 4 43
Total stores . . . . . . . . . . . 499 521 523
</TABLE>
Gordon's Division
At August 1, 1995, the Gordon's Division operated 332 stores,
subsequent to the transfer of 35 stores to the Zales Division effective August
1, 1995. The division operates 318 stores under the name "Gordon's"(R) in 39
states and Puerto Rico and 14 stores operating under the name "Daniel's"(R) in
Arizona. The Company has positioned Gordon's as a dominant regional brand to
differentiate it from the national Zales brand. Its merchandise mix features
more contemporary and localized looks, and its average sale is $225. The
Gordon's Division stores average approximately 1,300 square feet.
The following table sets forth the number of stores and average sales
per store for the Gordon's Division for the periods indicated:
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------------
1995 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
Average sales per store . . . . . . $711,500 $624,900 $580,000
Stores opened during period . . . . 5 4 5
Stores closed during period . . . . 13 6 14
Total stores . . . . . . . . . . . 367 375 377
</TABLE>
Guild Division
At August 1, 1995, the Guild Division operated 123 upscale jewelry
stores in 26 states and Guam. The following table sets forth the Guild
Division's trade names and the number of stores operating under each of those
names as of August 1, 1995.
<TABLE>
<CAPTION>
Trade Names Number of Stores Trade Names Number of Stores
----------- ---------------- ----------- ----------------
<S> <C> <C> <C>
Bailey, Banks & Biddle(R) 87 Dobbins(R) . . . . . . . 2
Corrigan's(R) . . . . . 20 J. Herbert Hall(R). . . . 2
Sweeney's(R) . . . . . . 5 Linz(R) . . . . . . . . . 2
Stifft's(R) . . . . . . 3 Zell Bros.(R) . . . . . . 2
</TABLE>
The Guild Division offers higher-end merchandise, more exclusive
designs and a prestigious shopping environment for the upscale customer. The
Guild Division has an average sale of $477. The Guild Division stores average
approximately 3,200 square feet.
The following table sets forth the number of stores and average sales
per store for the Guild Division for the periods indicated:
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Average sales per store . . . . . . $1,529,200 $1,391,400 $1,171,500
Stores opened during period . . . . 4 4 4
Stores closed during period . . . . 11 7 103
Total stores . . . . . . . . . . . 123 130 133
</TABLE>
3
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Diamond Park Division
At August 1, 1995, the Diamond Park Division operated 188 leased
locations in department stores including Dillard's(R) (66 locations),
Mercantile (59 locations), The Broadway(R) (41 locations), and Marshall
Field's(R) (22 locations) in 24 states. The Diamond Park Division offers a
service for retailers that wish to turn to an outside provider for specialized
management and marketing skills required to sell fine jewelry. The Diamond
Park Division creates leased jewelry departments at specified locations,
primarily major department stores, tailoring the merchandising concept to that
of the host company.
The following table sets forth the number of departments and average
sales per department for the Diamond Park Division for the periods indicated:
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Average sales per department . . . $701,500 $591,500 $577,600
Departments opened during period . 18 19 1
Departments closed during period . 35 46 94
Total departments . . . . . . . . . 188 205 232
</TABLE>
BUSINESSES OF NON-RETAIL AFFILIATES
Zale Indemnity Company, Zale Life Insurance Company and Jewel
Re-Insurance Ltd. are providers of various types of insurance coverage, which
typically are marketed to the Company's private label credit card customers.
The three companies are the insurers (either through direct written or
reinsurance contracts) of the Company's customer credit insurance coverages.
In addition to providing replacement property coverage for certain perils, such
as theft, credit insurance coverage provides protection to the creditor and
cardholder for losses associated with the disability, involuntary unemployment
or death of the cardholder. Zale Life Insurance Company also provides group
life insurance coverage for eligible employees of the Company. Zale Indemnity
Company, in addition to writing direct credit insurance contracts, also has
certain discontinued businesses that it continues to run off. Credit insurance
operations are dependent on the Company's retail sales on its private label
credit cards and are not significant on a stand-alone basis.
PURCHASING AND INVENTORY
The Company purchases substantially all of its merchandise in finished
form from a network of established suppliers and manufacturers located
primarily in the United States, the Orient and Italy. The Company either
purchases merchandise from its vendors or acquires merchandise on consignment.
The Company had approximately $85.9 million and $111.4 million of consignment
inventory on hand at July 31, 1995 and 1994, respectively. The Company is
subject to the risk of fluctuation in prices of diamonds, precious stones and
gold. The Company historically has not engaged in any substantial amount of
hedging activities with respect to merchandise held in inventory, since the
Company has been able to adjust retail prices to reflect significant price
fluctuations in the commodities that are used in the merchandise it sells. No
assurances, however, can be given that the Company will be able to adjust
prices to reflect commodity price fluctuations in the future. The Company is
not subject to substantial currency fluctuations because most purchases are
dollar denominated. During the years ended July 31, 1995 and March 31, 1994,
the Company purchased approximately 29 percent and 38 percent, respectively, of
its merchandise from its top five vendors. Although the Company believes that
alternate sources of supply are available, the abrupt loss of any significant
supplier during the three months ended November 30 of any year, the period
leading up to the Christmas selling season, could result in a material adverse
effect on the Company's business.
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COMPETITION
The jewelry retailing industry is highly competitive. The industry is
fragmented, and the Company competes with a large number of independent
regional and local jewelry retailers, as well as nationally recognized jewelry
chains. The Company's sales represent approximately 6% of national retail
jewelry store sales. The Company must also compete with other types of
retailers who sell jewelry and gift items, such as department stores, catalog
showrooms, discounters and home shopping programs. The Company believes that
it is also competing for consumers' discretionary spending dollars. The
Company must, therefore, also compete with retailers who offer merchandise
other than jewelry or giftware.
Notwithstanding the national or regional reputation of its
competition, the Company believes that it must compete on a mall-by-mall basis
with other retailers of jewelry as well as with retailers of other types of
discretionary items. Therefore, the Company competes primarily on the basis of
store location, reputation for high- quality, distinctive and value-priced
merchandise, personal service and its ability to offer private label credit
card programs to customers wishing to finance their purchases. The Company's
success is also dependent on its ability to react to and create customer demand
for specific product lines.
The Company also competes for desirable new store locations with other
jewelers and specialty retailers. Historically, the Company has generally been
able to lease locations in new or vacated mall space which the Company
considered desirable.
The Company holds no material patents, licenses (other than its
licenses to operate its Diamond Park leased locations), franchises or
concessions; however, the established tradenames for stores and products in the
Company's Zales, Gordon's and Guild Divisions are important to the Company in
maintaining its competitive position in the jewelry retailing industry.
CREDIT OPERATIONS
Jewelers Financial Services, Inc. ("JFS") has credit approval,
customer service and collection systems that management considers to be
sophisticated. The Company offers and grants credit to qualified customers.
See "Business Strategy". The credit programs help facilitate the sale of
merchandise to customers who wish to finance their purchases rather than use
cash or major credit cards. Credit extension, customer service and advanced
collections for all the accounts are performed by JFS at servicing centers
located in Tempe, Arizona; Clearwater Florida; San Juan, Puerto Rico; and Guam.
The Company has Point-of-Sale Instant Credit ("POSIC") which allows sales
associates to obtain new account credit approval generally within two minutes
for most qualified customers. This compares to the previous instant credit
turnaround time of approximately fifteen minutes. Flexible payment
arrangements, typically twenty-eight to thirty-four months, are extended to
credit customers. Early stage collection of accounts, collection agency
placement of charged- off accounts and collection of accounts under which the
related obligors are involved in bankruptcy proceedings are performed by JFS at
the Company's National Collections Center located in San Marcos, Texas. The
mailing of statements regarding the accounts and the processing of payments on
the accounts are performed by JFS at the Company's headquarters in Irving,
Texas. The Company's credit insurance affiliates provide coverage for credit
purchasers in the event of total disability, involuntary unemployment, death
and losses due to theft, burglary, fire and windstorm. See "Businesses of
Non-Retail Affiliates".
Approximately 52 percent of the Company's retail sales during the year
ended July 31, 1995 through its Zales, Gordon's and Guild Divisions were
generated by credit sales on the private label credit cards. At July 31, 1995,
there were approximately 656,000 active customer charge accounts. The Company
also has an additional 473,000 promotable charge customers without an
outstanding balance and over 2.5 million customer names on file that are not
current charge customers.
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The following table presents certain data concerning sales, credit
sales and accounts receivable for the past two fiscal years (1):
<TABLE>
<CAPTION>
As at or for the
fiscal year ended July 31,
-------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Net sales (thousands) $888,601 $792,101
Net credit sales (thousands) 458,664 413,305
Accounts receivable (thousands) 436,336 437,936
Credit sales as a percentage of net sales 51.6% 52.2%
Average number of active customer accounts
(thousands) 689.5 728.6
Average balance per customer account $668.0 $645.0
Average monthly collection percentage 9.1% 8.8%
Bad debt expense as a percentage of credit sales 9.1% 8.7%
Bad debt expenses as a percentage of net sales 4.7% 4.6%
</TABLE>
(1) The table excludes the Diamond Park Division which does not have a
proprietary credit plan.
EMPLOYEES
As of July 31, 1995, the Company had approximately 9,000 employees, of
whom 23 are represented by unions. The Company considers its relations with
its employees to be good.
OTHER
On December 13, 1993, the Board of Directors of the Company authorized
the change in the Company's fiscal year end to July 31. Such change was
effective as of April 1, 1994. The Company's determination to change its
fiscal year was based on several considerations. By changing to a July 31
fiscal year end, the Company has established quarterly reporting periods that
are more consistent with other companies in the retail industry. Additionally,
a July 31 year end coincides with the Company's emergence from bankruptcy
proceedings, thereby providing for greater comparability of historical
financial data in the future, and, it makes the Company's planning process more
effective.
ITEM 2. PRINCIPAL PROPERTIES
The Company occupies a corporate headquarters facility, completed in
March 1984 with 430,000 square feet, under a lease extending through September
1997. The facility is located on a 17-acre tract in Las Colinas, a planned
business development in Irving, Texas, near the Dallas/Fort Worth International
Airport. The Company owns 33 acres of land surrounding the corporate
headquarters facility and a 120,000 square foot warehouse in Dallas, Texas.
The Company also leases four servicing centers located in Clearwater,
Florida (30,000 square feet), Tempe, Arizona (24,200 square feet), San Juan,
Puerto Rico (2,900 square feet) and Guam (556 square feet) and one national
collections center located in San Marcos, Texas (9,000 square feet).
The Company rents all of its retail spaces, other than the Diamond
Park Division leased locations, under leases with terms ranging from five to
fifteen years. Most of the store leases provide for the payment of base
rentals plus real estate taxes, insurance, common area maintenance fees and
merchants association dues, as well as percentage rents based on the stores'
gross sales.
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The following table indicates the expiration dates of the current
terms of the Company's leases:
<TABLE>
<CAPTION>
Diamond
Term Expires Zales Gordon's Guild Park Percentage
In Calendar Years Division Division Division Division Total of Total
----------------------- -------- -------- -------- --------- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
1996 and prior 139 96 30 116 381 32%
1997 82 52 18 13 165 14%
1998 71 42 13 38 164 14%
1999 38 34 15 0 87 7%
2000 and thereafter 204 108 47 21 380 33%
--- --- --- ---- ----- ----
Total number of leases 534 332 123 188 1,177 100%
=== === === === ===== ====
</TABLE>
The Company owns several parcels of developed and undeveloped real
estate formerly owned by Gordon, which the Company no longer uses in operations
and intends to sell.
ITEM 3. LEGAL PROCEEDINGS
JEWEL RECOVERY, L.P. Pursuant to the Plan of Reorganization, Zale
assigned certain claims and causes of action and advanced $3.0 million to Jewel
Recovery, L.P., a limited partnership ("Jewel Recovery") which was formed upon
Zale's emergence from bankruptcy. The sole purpose of Jewel Recovery is to
prosecute and settle such assigned claims and causes of action. The general
partner of Jewel Recovery is Jewel Recovery, Inc., a subsidiary of the Company.
Its limited partners are holders of various unsecured claims against Zale.
There is a possibility that the Company may recover the $3.0 million
advance made to Jewel Recovery as well as other amounts related to the
finalization of the Chapter 11 claims settlement process. It is likely that
these matters will be resolved by the end of the second quarter of fiscal 1996.
The Company does not expect these recoveries to be material to its financial
position or recurring operations.
In addition, the Company and ZDel have agreed to indemnify certain
parties to litigation settlements entered into by the Company in connection
with the Plan of Reorganization against cross-claims, similar third-party
claims or costs of defending such claims brought against such parties as a
result of litigation instigated by the Company, ZDel or Jewel Recovery. At
October 6, 1995, no material claims had been asserted against the Company or
ZDel for such indemnification.
OTHER. The Company is involved in certain other legal actions and
claims arising in the ordinary course of business. Management believes that
such litigation and claims will be resolved without material effect on the
Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the quarter ended July 31, 1995.
7
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The information required by this item is included in the registrant's
Annual Report to Stockholders for the year ended July 31, 1995 on page 32 under
the caption "Common Stock Information," and is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included in the registrant's
Annual Report to Stockholders for the year ended July 31, 1995 on page 13 under
the caption "Selected Financial Data," and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item is included in the registrant's
Annual Report to Stockholders for the year ended July 31, 1995 on pages 13
through 16 under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included in the registrant's
Annual Report to Stockholders for the year ended July 31, 1995 on pages 17
through 31, and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
8
<PAGE> 10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
The following individuals serve as executive officers of the Company.
Officers are elected by the Board of Directors, each to serve until his
successor is elected and qualified, or until his earlier resignation, removal
from office or death.
ROBERT J. DINICOLA, Age 48.
Chairman of the Board, Chief Executive Officer and Director
Mr. DiNicola has served as Chairman of the Board, Chief Executive
Officer and a director of the Company since April 18, 1994. For the
three years prior to joining the Company, Mr. DiNicola was a senior
executive officer of The Bon Marche Division of Federated Department
Stores, Inc., having served as Chairman and Chief Executive Officer of
that Division from 1992 to 1994 and as its President and Chief
Operating Officer from 1991 to 1992. From 1989 to 1991, Mr. DiNicola
was a Senior Vice President of Rich's Department Store Division of
Federated. For seventeen years, prior to joining the Federated
organization, Mr. DiNicola was associated with Macy's, where he held
various executive, management and merchandising positions, except for
a one-year period while he held a division officer position with May
Co.
LARRY POLLOCK, Age 48.
President, Chief Operating Officer and Director
The Board of Directors elected Mr. Pollock President and Chief
Operating Officer of the Company on January 10, 1994 and appointed him
as a director on July 27, 1994. From January 1990 until joining the
Company, Mr. Pollock served as President and Chief Executive Officer
of Kartens Jewelers. From 1987 to 1990, Mr. Pollock was a consultant
in the retail jewelry industry. For eighteen years prior to 1987, Mr.
Pollock was associated with J.B. Robinson Jewelers, Inc. where he held
various executive positions including President and Chief Executive
Officer from 1981 through 1986. Mr. Pollock has an ownership interest
in two radio stations in the Cleveland area and also serves as a
director of New West Eyeworks.
MERRILL J. WERTHEIMER, Age 55.
Executive Vice President - Finance and Administration
Mr. Wertheimer was appointed Executive Vice President - Finance and
Administration on January 27, 1995. From June 1991 through January
1995, he served as Senior Vice President and Controller of the
Company. From February 1990 to May 1991, Mr. Wertheimer served as
President and Chief Executive Officer of Henry Silverman Jewelers.
Mr. Wertheimer served as Senior Vice President of the Company from
September 1987 to October 1989 and also served as Chief Financial
Officer of the Company from March 1987 to October 1989.
BERYL RAFF, Age 44.
Senior Vice President and President, Zales Division
Ms. Raff joined the Company on November 21, 1994 as President of the
Zales Division. From March 1991 through October 1994, Ms. Raff served
as Senior Vice President of Macy's East with responsibilities for its
jewelry business in a 12 - state region. From April 1988 to March
1991, Ms. Raff served as Group Vice President of Macy's
South/Bullocks. Prior to 1988, Ms. Raff has seventeen years of
retailing and merchandising experience with the Emporium and Macy's
department stores.
9
<PAGE> 11
MARY FORTE, Age 44
Senior Vice President and President, Gordon's Division
Ms. Forte joined the Company on July 18, 1994 as President of the
Gordon's Division. From January 1994 to July 1994, Ms. Forte served
as Senior Vice President of QVC - Home Shopping Network. From July
1991 through January 1994, Ms. Forte served as Senior Vice President
of the Bon Marche', Home Division. From July 1989 to July 1991, Ms.
Forte was Vice President of Rich's Department Store, Housewares
Division. In addition to the above, Ms. Forte has an additional
thirteen years of retailing and merchandising experience with Macy's,
The May Company and Federated Department stores.
PAUL LEONARD, Age 40.
Senior Vice President and President, Guild Division
Mr. Leonard was appointed President of the Company's Fine Jewelers
Guild Division on January 27, 1995. From October 1994 to January
1995, Mr. Leonard served as President of Corporate Merchandising for
the Company. For three years prior to joining the Company, Mr.
Leonard held positions as General Manager of Jewelry and then Senior
Vice President of Soft Lines for Ames Department Store. Prior to
that, Mr. Leonard was a Merchandise Vice President with The May
Company. Mr. Leonard has more than twenty years of retailing and
merchandising experience with an emphasis in jewelry.
MAX BROWN, Age 66.
Senior Vice President and President, Diamond Park Division
Mr. Brown has been President of the Company's Diamond Park Division
since January 11, 1993. From July 1989 to January 1993, Mr. Brown was
Vice President and General Manager of the Diamond Park Division.
Prior to 1989, he served as the Director of Stores for the Diamond
Park Division.
JO ANN CONNOLLY, Age 48.
Senior Vice President, Corporate Merchandising
Ms. Connolly was appointed Senior Vice President of Corporate
Merchandising in January 1995. From 1989 to January 1995, Ms.
Connolly served as Vice President and Merchandise Manager in the Zales
Division and from 1984 to 1989 as Vice President and Merchandise
Manager in the Guild Division.
PAUL KANNEMAN, Age 38.
Senior Vice President and Chief Information Officer
Mr. Kanneman joined the Company on November 14, 1994 as Chief
Information Officer. From July 1993 to November 1994, Mr. Kanneman
was an Associate Partner with Andersen Consulting LLP. Mr. Kanneman
was a Principal from August 1991 to July 1993, and a Senior Associate
from August 1989 to July 1991 with Booz, Allen & Hamilton, Inc.
HERSCHEL KRANITZ, Age 55.
Senior Vice President, Human Resources
Mr. Kranitz has been Senior Vice President -- Human Resources of the
Company since March 14, 1994. From May 1989 to March 1994, Mr.
Kranitz served as Vice President -- Human Resources of Raynet, Inc.
10
<PAGE> 12
ALAN P. SHOR, Age 36.
Senior Vice President, General Counsel and Secretary
Mr. Shor joined the Company on June 5, 1995 as Senior Vice President,
General Counsel and Secretary. For two years prior to joining the
Company, Mr. Shor was the managing partner of the Washington, D.C.
office of the Troutman Sanders law firm, whose principal office is
based in Atlanta, Georgia. Mr. Shor, a member of Troutman Sanders
since 1983, was a partner of the firm from 1990 to 1995.
JOHN SKINNER, Age 57.
Senior Vice President and President, Jewelers Financial Services, Inc.
Mr. Skinner has been a Senior Vice President of the Company since
October 7, 1992. Mr. Skinner has served in various capacities with
the Company since September 1984, including President of Jewelers
Financial Services, Inc., and Vice President and General Credit
Manager of the Company.
THOMAS E. WHIDDON, Age 42.
Senior Vice President and Chief Financial Officer
Mr. Whiddon was appointed Senior Vice President and Chief Financial
Officer on August 28, 1995. From April 1994 through August 1995, he
served as Senior Vice President and Treasurer of the Company. From
September 1988 to April 1994, Mr. Whiddon served as Vice President and
Treasurer of Eckerd Corporation. Prior to becoming Treasurer, Mr.
Whiddon served as Vice President and Assistant Treasurer of Eckerd
Corporation from April 1986 to August 1988.
The information required by this item relating to directors and
Section 16(a) Reporting is included in the registrant's definitive Proxy
Statement relating to its annual meeting of stockholders to be held on November
2, 1995 under the captions "Proposal No. 1 -- Election of Directors," on pages
4 through 6, and "Section 16(a) Reporting," on pages 16 to 17, and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included in the registrant's
definitive Proxy Statement relating to its annual meeting of stockholders to be
held on November 2, 1995 under the caption "Executive and Director
Compensation," on pages 9 through 12, and, except as stated in the next
sentence, is incorporated herein by reference. The foregoing incorporation by
reference specifically excludes the discussion in such Proxy Statement under
the captions "Report of the Compensation Committee on Executive Compensation"
and "Stock Price Performance."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included in the registrant's
definitive Proxy Statement relating to its annual meeting of stockholders to be
held on November 2, 1995 under the caption "Outstanding Voting Securities of
the Company and Principal Holders Thereof," on pages 2 to 3, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included in the registrant's
definitive Proxy Statement relating to its annual meeting of stockholders to be
held on November 2, 1995 under the caption "Related Party Transactions," on
pages 12 to 13, and is incorporated herein by reference.
11
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report.
(1) FINANCIAL STATEMENTS
See Item 8 on page 8.
<TABLE>
<CAPTION>
(2) INDEX TO FINANCIAL STATEMENT SCHEDULES PAGE NUMBER
-----------
<S> <C>
Report of Independent Public Accountants 16
Schedule II - Valuation and Qualifying Accounts 17
</TABLE>
All other financial statements and financial statement
schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange
Commission are not required under the related instructions,
are not material or are not applicable and, therefore, have
been omitted or are included in the consolidated financial
statements or notes thereto.
(3) EXHIBITS
<TABLE>
<S> <C>
2.1 Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code with Respect to Plan of
Reorganization under Chapter 11 of the Bankruptcy Code for Zale Corporation and its Affiliated
Debtors, dated March 22, 1993 (Exhibit T3E-1). (1)
2.2 Motion to Approve Amendments to the Plan of Reorganization under Chapter 11 of the Bankruptcy
Code of Zale Corporation and its Affiliated Debtors, dated May 19, 1993 (Exhibit 2.6).
(2)
2.3 Order Approving Amendments to the Plan of Reorganization under Chapter 11 of the Bankruptcy
Code of Zale Corporation and its Affiliated Debtors, dated May 20, 1993 (Exhibit 2.7). (2)
4.1 Restated Certificate of Incorporation of Zale Corporation, dated July 30, 1993. (3)
4.2 Bylaws of Zale Corporation, dated July 30, 1993. (3)
4.3 Warrant Agreement, dated as of July 30, 1993, between Zale Corporation and The First National
Bank of Boston, as warrant agent, governing the Warrants to Purchase Common Stock, Series A.
(3)
4.4 Indenture, dated as of July 1, 1994, among Zale Funding Trust, as Issuer and Bankers Trust
Company, as Indenture Trustee. (6)
4.5 Purchase and Servicing Agreement, dated as of July 1, 1994, among Zale Funding Trust, Diamond
Funding Corp., Zale Delaware, Inc., and Jewelers Financial Services, Inc. (6)
</TABLE>
12
<PAGE> 14
<TABLE>
<S> <C> <C>
4.6 Revolving Credit Agreement, dated as of August 11, 1995, among Zale Corporation, Zale Delaware,
Inc., the lending institutions set forth therein, and The First National Bank of Boston, as
Agent for such lenders. (6)
4.7 Amended and Restated Lender Security Agreement, dated as of August 11, 1995, among Zale
Delaware, Inc., Zale Corporation, and The First National Bank of Boston, as collateral
agent. (6)
* 10.1 Indemnification agreement, dated as of July 21, 1993, between Zale Corporation and certain
present and former directors thereof. (6)
10.2 Amended and Restated Agreement of Limited Partnership of Jewel Recovery, L.P., dated as of
July 30, 1993. (3)
* 10.3 Zale Corporation Stock Option Plan. (3)
10.4 Trust Agreement, dated as of November 24, 1993, among Zale Corporation, Zale Delaware, Inc. and
United States Trust Company of New York. (4)
10.5 Agreement for Systems Operations Services, dated as of February 1, 1993, between Zale
Corporation and Integrated Systems Solutions Corporation. (3)
10.5a Amendment #1 to Agreement for Systems Operations Services, dated as of August 1, 1994, between
Zale Corporation and Integrated Systems Solutions Corporation. (6)
* 10.6 Severance and Settlement Agreement, dated as of December 3, 1993, between Zale Corporation and
E. Peter Healey. (4)
* 10.7 Severance and Settlement Agreement, dated as of May 15, 1995, between Zale Corporation and
Dolph B. Simon. (6)
* 10.8 The Executive Severance Plan for Zale Corporation and Its Affiliates, as amended and restated
as of February 10, 1994. (4)
* 10.9 Employment Agreement, dated as of December 22, 1993, between Zale Corporation and Larry
Pollock. (4)
* 10.10 Employment Agreement, dated as of March 14, 1994, between Zale Corporation and Robert DiNicola.
(5)
11 Statement re computation of per share earnings. (6)
13 Incorporated Portions of the Annual Report to Stockholders for the year ended July 31,
1995. (6)
21 Subsidiaries of the registrant. (6)
23 Consent of Independent Public Accountants. (6)
27 Financial data schedule. (6)
</TABLE>
13
<PAGE> 15
____________________________________________
(1) Incorporated by reference from the exhibit shown in
parenthesis to the registrant's Form T-3 (No.
22-24-68) filed with the Commission on April 2, 1993.
(2) Incorporated by reference from the exhibit shown in
parenthesis to the registrant's Form 8-A/A (No.
02-21526) filed with the Commission on July 16, 1993.
(3) Previously filed as an exhibit to the registrant's
Form 10-Q (No. 1-4129) for the quarterly period ended
September 30, 1993, and incorporated herein by
reference.
(4) Incorporated by reference to the corresponding
exhibit to the registrant's Registration Statement
on Form S-1 (No. 33-73310) filed with the Commissions
on December 23, 1993, as amended.
(5) Previously filed as an exhibit to the registrant's
Form 10-K (No. 0-21526) for the fiscal year ended
March 31, 1994, and incorporated herein by reference.
(6) Filed herewith.
* Management Contracts and Compensatory Plans.
(4) REPORTS ON FORM 8-K
None.
14
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, as of the 16 day
of October, 1995.
ZALE CORPORATION
By: /s/ ROBERT J. DINICOLA
-----------------------------------------
Robert J. DiNicola
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ ROBERT J. DINICOLA Chairman of the Board and Chief Executive October 16, 1995
------------------------------------ Officer (principal executive officer of
Robert J. DiNicola the registrant)
/s/ LARRY POLLOCK President and Chief Operating Officer October 16, 1995
------------------------------------
Larry Pollock
/s/ MERRILL J. WERTHEIMER Executive Vice President - Finance and October 16, 1995
------------------------------------ Administration
Merrill J. Wertheimer
/s/ THOMAS E. WHIDDON Senior Vice President and Chief Financial October 16, 1995
------------------------------------ Officer (principal financial officer of
Thomas E. Whiddon the registrant)
/s/ MARK R. LENZ Vice President and Controller (principal October 16, 1995
------------------------------------ accounting officer of the registrant)
Mark R. Lenz
/s/ GLEN ADAMS Director October 16, 1995
------------------------------------
Glen Adams
/s/ PETER P. COPSES Director October 16, 1995
------------------------------------
Peter P. Copses
/s/ MARK DICKSTEIN Director October 16, 1995
------------------------------------
Mark Dickstein
/s/ FRANK E. GRZELECKI Director October 16, 1995
------------------------------------
Frank E. Grzelecki
/s/ RICHARD C. MARCUS Director October 16, 1995
------------------------------------
Richard C. Marcus
/s/ ANDREW H. TISCH Director October 16, 1995
------------------------------------
Andrew H. Tisch
</TABLE>
15
<PAGE> 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Zale Corporation:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Zale Corporation (a Delaware corporation) and
subsidiaries' Annual Report to Stockholders incorporated by reference in this
Form 10-K, and have issued our reports thereon dated September 12, 1995. Our
report on the financial statements for the four months ended July 31, 1993, and
for the year ended March 31, 1993, includes an explanatory paragraph with
respect to changes in methods of accounting for postretirement benefits other
than pensions and accounting for income taxes as discussed in the Notes to
Consolidated Financial Statements. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole.
Schedule II is the responsibility of the Company's management and is presented
for the purpose of complying with the Securities and Exchange Commission's
rules and is not part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
September 12, 1995
16
<PAGE> 18
SCHEDULE II
ZALE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance At Additions Balance At
Beginning Charged to End
of Period Earnings Deductions of Period
------------ ----------- ----------- -----------
(amounts in thousands)
<S> <C> <C> <C> <C>
Fiscal year ended July 31, 1995
Allowance for doubtful accounts $ 42,708 $ 41,696 $ 41,808 (1) $ 42,596
Fiscal year ended July 31, 1994
Allowance for doubtful accounts 54,353 36,163 47,808 (1) 42,708
Four months ended July 31, 1993
Allowance for doubtful accounts 57,141 12,627 15,415 (1) 54,353
Fiscal year ended March 31, 1993
Allowance for doubtful accounts 50,841 66,692 (2) 60,392 (1) 57,141
</TABLE>
(1) Accounts written off, less recoveries and other adjustments.
(2) Amount includes a provision for excess customer receivable chargeoffs of
closed store accounts of $8,230 and a provision for valuation of customer
receivables of $12,500.
17
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------------- -------------
<S> <C>
2.1 Disclosure Statement Pursuant to Section 1125 of the Bankruptcy
Code with Respect to Plan of Reorganization under Chapter 11 of
the Bankruptcy Code for Zale Corporation and its Affiliated
Debtors, dated March 22, 1993 (Exhibit T3E-1). (1)
2.2 Motion to Approve Amendments to the Plan of Reorganization
under Chapter 11 of the Bankruptcy Code of Zale Corporation
and its Affiliated Debtors, dated May 19, 1993 (Exhibit 2.6).
(2)
2.3 Order Approving Amendments to the Plan of Reorganization under
Chapter 11 of the Bankruptcy Code of Zale Corporation and its
Affiliated Debtors, dated May 20, 1993 (Exhibit 2.7). (2)
4.1 Restated Certificate of Incorporation of Zale Corporation,
dated July 30, 1993. (3)
4.2 Bylaws of Zale Corporation, dated July 30, 1993. (3)
4.3 Warrant Agreement, dated as of July 30, 1993, between Zale
Corporation and The First National Bank of Boston, as warrant
agent, governing the Warrants to Purchase Common Stock, Series
A. (3)
4.4 Indenture, dated as of July 1, 1994, among Zale Funding Trust,
as Issuer and Bankers Trust Company, as Indenture Trustee. (6)
4.5 Purchase and Servicing Agreement, dated as of July 1, 1994,
among Zale Funding Trust, Diamond Funding Corp., Zale Delaware,
Inc., and Jewelers Financial Services, Inc. (6)
4.6 Revolving Credit Agreement, dated as of August 11, 1995, among
Zale Corporation, Zale Delaware, Inc., the lending institutions
set forth therein, and The First National Bank of Boston, as
Agent for such lenders. (6)
4.7 Amended and Restated Lender Security Agreement, dated as of
August 11, 1995, among Zale Delaware, Inc., Zale Corporation,
and The First National Bank of Boston, as collateral agent. (6)
* 10.1 Indemnification agreement, dated as of July 21, 1993, between
Zale Corporation and certain present and former directors
thereof. (6)
10.2 Amended and Restated Agreement of Limited Partnership of Jewel
Recovery, L.P., dated as of July 30, 1993. (3)
* 10.3 Zale Corporation Stock Option Plan. (3)
10.4 Trust Agreement, dated as of November 24, 1993, among Zale
Corporation, Zale Delaware, Inc. and United States Trust
Company of New York. (4)
</TABLE>
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------------- -------------
<S> <C>
10.5 Agreement for Systems Operations Services, dated as of February 1,
1993, between Zale Corporation and Integrated Systems Solutions
Corporation. (3)
10.5a Amendment #1 to Agreement for Systems Operations Services, dated
as of August 1, 1994, between Zale Corporation and Integrated
Systems Solutions Corporation. (6)
* 10.6 Severance and Settlement Agreement, dated as of December 3, 1993,
between Zale Corporation and E. Peter Healey. (4)
* 10.7 Severance and Settlement Agreement, dated as of May 15, 1995,
between Zale Corporation and Dolph B. Simon. (6)
* 10.8 The Executive Severance Plan for Zale Corporation and Its
Affiliates, as amended and restated as of February 10, 1994. (4)
* 10.9 Employment Agreement, dated as of December 22, 1993, between Zale
Corporation and Larry Pollock. (4)
* 10.10 Employment Agreement, dated as of March 14, 1994, between Zale
Corporation and Robert DiNicola. (5)
11 Statement re computation of per share earnings. (6)
13 Incorporated Portions of the Annual Report to Stockholders for the
year ended July 31, 1995. (6)
21 Subsidiaries of the registrant. (6)
23 Consent of Independent Public Accountants. (6)
27 Financial data schedule. (6)
</TABLE>
- ---------------------
(1) Incorporated by reference from the exhibit shown in
parenthesis to the registrant's Form T-3 (No. 22-24-68) filed
with the Commission on April 2, 1993.
(2) Incorporated by reference from the exhibit shown in
parenthesis to the registrant's Form 8-A/A (No. 02-21526)
filed with the Commission on July 16, 1993.
(3) Previously filed as an exhibit to the registrant's Form 10-Q
(No. 1-4129) for the quarterly period ended September 30,
1993, and incorporated herein by reference.
<PAGE> 21
INDEX TO EXHIBITS
(4) Incorporated by reference to the corresponding exhibit to
the registrant's Registration Statement on Form S-1 (No.
33-73310) filed with the Commissions on December 23, 1993,
as amended.
(5) Previously filed as an exhibit to the registrant's Form 10-K
(No. 0-21526) for the fiscal year ended March 31, 1994, and
incorporated herein by reference.
(6) Filed herewith.
* Management Contracts and Compensatory Plans.
<PAGE> 1
EXHIBIT 4.4
EXECUTION COPY
================================================================================
================================================================================
INDENTURE
Dated as of July 1, 1994
Between
ZALE FUNDING TRUST,
as Issuer
And
BANKERS TRUST COMPANY,
as Indenture Trustee
================================================================================
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
ISSUE, EXECUTION, FORM,
REGISTRATION AND PAYMENT OF NOTES
Section 2.01. Issuance of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.02. Execution of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.03. Authentication and Delivery of Notes . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.04. Certificate of Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.05. Book-Entry Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.06. Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.07. Notices to Clearing Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.08. Letter of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.09. Definitive Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.10. Note Register; Persons Deemed Registered Noteholders . . . . . . . . . . . . . . . 6
Section 2.11. Payments of Interest; Payment to Noteholder on Record Date . . . . . . . . . . . . 7
Section 2.12. Payments of Monthly Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.13. Optional Redemptions of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.14. Exchange and Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.15. Mutilated, Defaced, Destroyed, Lost or Stolen Notes . . . . . . . . . . . . . . . . 12
Section 2.16. Cancellation of Notes; Destruction Thereof . . . . . . . . . . . . . . . . . . . . 13
Section 2.17. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.18. Appointment of Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.19. Issuer and Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.20. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.21. Certain Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.22. Issuance of Additional Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
ARTICLE III
SECURITY INTEREST
<S> <C> <C>
Section 3.01. Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.02. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.03. License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.04. The Issuer Remains Liable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.05. Delivery of Certain Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.06. Copies as Financing Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE IV
BANK ACCOUNTS AND COLLECTIONS
Section 4.01. Post Office Boxes and Collection Deposit Accounts . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.02. Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.03. Excess Funding Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.04. Optional Redemption Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 4.05. Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.06. Other Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.07. Correction of Improper Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.08. Maintenance of Collateral Account, Excess Funding Account or Optional Redemption Account . . . 27
ARTICLE V
ALLOCATIONS, TRANSFERS AND PAYMENTS
Section 5.01. On Business Days during the Interest-Only Period . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.02. On Payment Dates during the Interest-Only Period . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.03. On Business Days During the Amortization Period . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.04. On Payment Dates During the Amortization Period . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.05. Allocation of Noteholder Charge-Offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.06. Final Payment of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.07. Series Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VI
SERVICING OF PURCHASED RECEIVABLES
Section 6.01. Servicing of Purchased Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
<S> <C> <C>
Section 7.01. Representations and Warranties of the Issuer . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VIII
COVENANTS
Section 8.01. Affirmative Covenants of the Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.02. Negative Covenants of the Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE IX
REDEMPTIONS
Section 9.01. Optional Full Redemption of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 9.02. Partial Redemption of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.03. Mechanics of an Optional Full Redemption and Partial Redemption . . . . . . . . . . . . . . . 42
Section 9.04. Amounts Due; Premium; Notice; Partial Redemptions; Wire Transfer Payment Recipients . . . . . 44
Section 9.05. Scheduled Redemption of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.06. Mandatory Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE X
REMEDIES OF THE TRUSTEE AND NOTEHOLDERS
Section 10.01. Early Amortization Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.02. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.03. Additional Rights Upon the Occurrence of Certain Events . . . . . . . . . . . . . . . . . . . 50
Section 10.04. Indenture Trustee May Enforce Claims Without Possession of the Notes . . . . . . . . . . . . 51
Section 10.05. Restoration of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.06. Limitations on Suits by Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.07. Control by Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.08. Indenture Trustee To Give Notice of Early Amortization Event, But May Withhold in Certain
Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
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<TABLE>
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ARTICLE XI
CONCERNING THE TRUSTEE
<S> <C> <C>
Section 11.01. Duties and Responsibilities of the Indenture Trustee;
Prior to Early Amortization Event; After Early Amortization Event . . . . . . . . . . . . . 53
Section 11.02. Certain Rights of the Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 11.03. Certificate of Authorized Officer and Opinion of Counsel . . . . . . . . . . . . . . . . . . 57
Section 11.04. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 11.05. Fees and Expenses of the Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 11.06. Acts of Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 11.07. Payments on the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.08. Documents and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.09. Application of Funds; Return of Unclaimed Funds . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.10. Forwarding of Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.11. Notes Held by the Indenture Trustee; Rights of Indenture Trustee . . . . . . . . . . . . . . 61
Section 11.12. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.13. Indenture Trustee; Resignation; Removal; Successors . . . . . . . . . . . . . . . . . . . . 61
Section 11.14. Merger and Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 11.15. Separate Indenture Trustees or Co-Trustees . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE XII
DISCHARGE OF INDENTURE
Section 12.01. Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE XIII
AMENDMENTS
Section 13.01. Modification of Terms without Consent of Noteholders . . . . . . . . . . . . . . . . . . . . 65
Section 13.02. Modifications of Terms with Consent of Noteholders . . . . . . . . . . . . . . . . . . . . . 66
Section 13.03. Amendment of the Purchase and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . 67
Section 13.04. Rating Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
</TABLE>
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<TABLE>
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<S> <C> <C>
Section 13.05. Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 13.06. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE XIV
MISCELLANEOUS
Section 14.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 14.02. No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 14.03. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 14.04. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 14.05. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 14.06. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 14.07. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 14.08. No Petition in Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 14.09. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 14.10. Jurisdiction; Consent to Service of Process . . . . . . . . . . . . . . . . . . . . . . . 71
Section 14.13. Independent Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
</TABLE>
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<TABLE>
<CAPTION>
Exhibits
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<S> <C>
Exhibit A Form of Class A-1 Asset Backed Note
Exhibit B Form of Class A-2 Asset Backed Note
Exhibit C Form of Class B Asset Backed Note
Exhibit D Form of Class C Asset Backed Note
Exhibit E Form of Notice to Noteholders
Exhibit F Reserved
Exhibit G Form of Certificate of Transferor (Transfer of Beneficial Interest in Restricted Global Notes)
Exhibit H Form of Assignment (Transfer of Notes)
Exhibit I Form of Certificate of Transferor (Transfer of Notes)
Exhibit J Form of Transferee Letter (Transfer of Notes)
Exhibit K Form of Certificate of Transferor (NonRule 144A/Rule 904 Transfer of Notes)
Exhibit L Form of Certificate of Transferee (NonRule 144A/Rule 904 Transfer of Notes)
Exhibit M Form of Standing Delivery Order
Exhibit N Form of Collection Deposit Account Letter
Exhibit O Reserved
Schedules
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Schedule I Post Office Boxes, Collection Deposit Account Banks, Collection Deposit Accounts, Collateral Account,
Excess Funding Account, Optional Redemption Account, Concentration Accounts
Schedule II Reserved
Schedule III UCC Filing Jurisdictions
Annexes
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Annex I Glossary of Terms
Annex II Reserved
Annex III Calculation of Partial Redemption Premium
Annex IV Calculation of Pro Forma Net Yield
</TABLE>
vi
<PAGE> 8
This INDENTURE (this "Indenture"), dated as of July 1, 1994,
between ZALE FUNDING TRUST, a Delaware business trust (the "Issuer"), and
BANKERS TRUST COMPANY, a New York banking corporation, not in its individual
capacity, but solely as Indenture Trustee (the "Indenture Trustee").
W I T N E S S E T H
WHEREAS, the Issuer, the Seller, the Servicer, the Indenture
Trustee and the Noteholders desire to enter into a receivables financing
facility pursuant to which, inter alia, (1) the Issuer shall purchase from the
Seller and the Seller shall sell to the Issuer, Receivables, (2) the Issuer
shall purchase Receivables with, inter alia, net cash proceeds received by the
Issuer from the issuance and sale of the Notes and cash collections on the
Purchased Receivables, (3) the repayment of the Notes shall be secured by a
security interest in substantially all of the assets of the Issuer, including
the Purchased Receivables, and (4) the Servicer shall service the Purchased
Receivables, in each case in accordance with the terms and conditions set forth
in the Transaction Documents;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby expressly acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Capitalized terms used but not
otherwise defined in this Indenture are used in this Indenture with the
meanings assigned to such terms in the Glossary of Terms attached to this
Indenture as Annex I.
ARTICLE II
ISSUE, EXECUTION, FORM,
REGISTRATION AND PAYMENT OF NOTES
Section 2.01. Issuance of Notes. Upon the execution and
delivery of this Indenture, the Issuer may issue on a private placement basis,
$37,620,000 in aggregate principal amount of
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Class A-1 Floating Rate Asset Backed Notes (the "Class A-1 Notes"), $294,100,000
in aggregate principal amount of Class A-2 7.325% Asset Backed Notes (the "Class
A-2 Notes"), $28,600,000 in aggregate principal amount of Class B 7.50% Asset
Backed Notes (the "Class B Notes") and $20,440,000 in aggregate principal amount
of Class C 8.15% Asset Backed Notes (the "Class C Notes" and, collectively with
the Class A-1 Notes, the Class A-2 Notes and the Class B Notes, the "Notes").
The Notes shall be issued in minimum denominations of $250,000 and in integral
multiples of $1,000 in excess thereof.
Section 2.02. Execution of Notes. The Notes shall be signed
on behalf of the Issuer by one of the Authorized Officers of the Owner Trustee
under its corporate seal which may be in facsimile form and be imprinted or
otherwise reproduced thereon. Such signatures may be the manual or facsimile
signatures of the present or any future such officers of the Owner Trustee on
behalf of the Issuer. The seal of the Issuer may be in the form of a facsimile
thereof and may be impressed, affixed, imprinted or otherwise reproduced on the
Notes. Typographical and other minor errors or defects in any such reproduction
of the seal or any such signature shall not affect the validity or
enforceability of any Note which has been duly authenticated and delivered by
the Indenture Trustee. In case any such officer of the Owner Trustee on behalf
of Issuer who shall have signed any of the Notes shall cease to be such officer
before the Note so signed shall be authenticated and delivered by the Indenture
Trustee or disposed of by the Issuer, such Note nevertheless may be
authenticated and delivered or disposed of as though the person who signed such
Note had not ceased to be such officer of the Owner Trustee on behalf of the
Issuer; and any Note may be signed on behalf of the Issuer by such officers as,
at the actual date of the execution of such Note, shall be the proper officers
of the Issuer, although at the date of the execution and delivery of this
Indenture any such officer was not such an officer.
Section 2.03. Authentication and Delivery of Notes. Notes
executed by the Owner Trustee on behalf of the Issuer as set forth in Section
2.02 of this Indenture shall be delivered to the Indenture Trustee for
authentication, and upon such delivery and written direction, an Authorized
Officer of the Indenture Trustee shall authenticate and deliver such Notes.
Each Note shall be dated the date of its authentication.
Section 2.04. Certificate of Authentication. Only such Notes
as shall bear thereon a certificate of authentication substantially in the form
set forth in the form of Class A-1 Notes, Class A-2 Notes, Class B Notes and
Class C Notes attached
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to this Indenture as Exhibit A, Exhibit B, Exhibit C and Exhibit D,
respectively, authenticated by the Indenture Trustee by manual signature of one
of its Authorized Officers, shall be entitled to the benefits of this Indenture
or be valid or obligatory for any purpose. Such certificate of authentication
by the Indenture Trustee upon any Note executed by the Issuer shall be
conclusive evidence that the Note so authenticated has been duly authenticated
and delivered under this Indenture and that the Noteholder thereof is entitled
to the benefits of this Indenture.
Section 2.05. Book-Entry Notes. The Notes, upon original
issuance, will be issued in the form of one or more typewritten Notes
representing the Book-Entry Notes, to be delivered to the Depository, as the
initial Clearing Agency, by, or on behalf of, the Issuer. The Notes shall
initially be registered on the Note Register in the name of Cede & Co., the
nominee of the Depository, and no Noteholder will receive a definitive Note
representing such Noteholder's interest in the Notes, except as provided in
Section 2.09. Unless and until certificated, fully registered Notes (the
"Definitive Notes") have been issued to Noteholders pursuant to Section 2.09:
(a) the provisions of this Section 2.05 shall be in full
force and effect;
(b) the Issuer, the Servicer and the Indenture Trustee
may deal with the Clearing Agency and the Clearing Agency Participants
for all purposes (including the making of payments on the Notes) as
the authorized representative of the Noteholders;
(c) to the extent that the provisions of this Section
2.05 conflict with any other provisions of this Indenture, the
provisions of this Section 2.05 shall control; and
(d) the rights of Noteholders shall be exercised only
through the Clearing Agency and the Clearing Agency Participants and
shall be limited to those established by law and agreements between
such Noteholders and the Clearing Agency and/or the Clearing Agency
Participants. Unless and until Definitive Notes are issued pursuant
to Section 2.09, the initial Clearing Agency will make book-entry
transfers among the Clearing Agency Participants and receive and
transmit distributions of principal and interest on the Notes to such
Clearing Agency Participants.
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The Clearing Agency Participants shall have no rights under this
Indenture under or with respect to any of the Notes held on their behalf by the
Depositary, and the Depositary may be treated by the Issuer and the Indenture
Trustee, and any of their respective agents, employees, officers and directors,
as the absolute owner of the Notes for all purposes whatsoever.
Notwithstanding the foregoing, nothing in this Indenture shall prevent the
Issuer and the Indenture Trustee, or any of their respective agents, from
giving effect to any written certification, proxy or other authorization
furnished by the Depositary, or shall impair, as between the Depositary and the
Clearing Agency Participants, the operation of customary practices governing
the exercise of the rights of a Noteholder of any Class A-1 Notes, Class A-2
Notes, Class B Notes or Class C Notes. Subject to the foregoing provisions of
this Section 2.05, any Noteholder may grant proxies and otherwise authorize any
Person, including Clearing Agency Participants and Persons that may hold
interests through Clearing Agency Participants, to take any action which a
Noteholder is entitled to take under this Indenture or the Notes.
Section 2.06. Legends. (a) The Book-Entry Notes shall bear
a legend in substantially the following form:
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY ("DTC"), NEW YORK, NEW YORK, TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC OR
TO SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE, AND TRANSFERS OF BENEFICIAL INTERESTS IN THIS
NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO HEREIN.
(b) The Definitive Notes shall bear a legend in substantially the
following form:
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<PAGE> 12
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED (AND THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES
THAT THIS NOTE MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED) EXCEPT (1) PURSUANT TO RULE 144A OR ANOTHER EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT, (2) IF SUCH OFFER FOR SALE
OR OTHER TRANSFER IS MADE IN COMPLIANCE WITH STATE SECURITIES LAWS AND
(3) IN ACCORDANCE WITH THE CONDITIONS TO TRANSFER SET FORTH IN THE
INDENTURE REFERRED TO HEREIN.
Section 2.07. Notices to Clearing Agency. Whenever notice or
other communication to the Noteholders is required under this Indenture to be
delivered as provided in Section 14.01, unless and until Definitive Notes shall
have been issued to Noteholders pursuant to Section 2.09, the Issuer, the
Indenture Trustee and the Servicer shall give all such notices and
communications specified herein to be given to Noteholders to the Clearing
Agency.
Section 2.08. Letter of Representations. Notwithstanding
anything to the contrary in this Indenture or any Series Supplement, the
parties hereto shall comply with the terms of each Letter of Representations.
Section 2.09. Definitive Notes. If (a) the Trust advises the
Indenture Trustee in writing that the Depositary is no longer willing or able to
discharge properly its responsibilities as depository with respect to such
Notes, and the Trust is unable to locate a qualified successor, or (b) after the
occurrence of a Servicer Default, Class A-1 Noteholders, Class A-2 Noteholders,
Class B Noteholders or Class C Noteholders representing not less than 50% of the
aggregate outstanding principal amount of the Class A-1 Notes, the Class A-2
Notes, the Class B Notes or the Class C Notes, collectively, as the case may be,
advise the Indenture Trustee and the Depositary (which notice may be made
through Clearing Agency Participants), in writing, that the continuation of a
book-entry system through the Depositary (or a successor thereto) is no longer
in the best interests of Noteholders of such class, the Indenture Trustee shall
notify the Clearing Agency of the occurrence of any such event and of the
availability of Definitive Notes to Noteholders requesting the same. Upon
surrender by the Depositary of the Notes representing the Class A-1 Notes, the
Class A-2 Notes, the Class B Notes or the Class C Notes, as the case may be, and
instructions by the Depositary to the Indenture Trustee for re-registration, the
Indenture Trustee will authenticate and deliver the Class A-1
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<PAGE> 13
Notes, the Class A-2 Notes, the Class B Notes or the Class C Notes, as the case
may be, to the Class A-1 Noteholders, the Class A-2 Noteholders, the Class B
Noteholders or the Class C Noteholders, as the case may be, or their respective
nominees, in the form of Definitive Notes, and thereafter the Indenture Trustee
will recognize the holders of such Definitive Notes as Registered Noteholders
under the Transaction Documents. Neither the Trust nor the Indenture Trustee
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be fully protected in relying on, such
instructions. Upon the issuance of Definitive Notes, all references herein to
obligations with respect to such Notes imposed upon or to be performed by the
Clearing Agency shall be deemed to be imposed upon and performed by the
Indenture Trustee, to the extent applicable with respect to such Definitive
Notes and the Indenture Trustee shall recognize the holders of the Definitive
Notes as Noteholders hereunder.
Section 2.10. Note Register; Persons Deemed Registered
Noteholders. In the event any classes of Notes are issued as Definitive Notes,
the Issuer shall keep, or shall cause to be kept by the Indenture Trustee, a
note register (the "Note Register") in which, subject to reasonable regulations
as the Issuer may prescribe, the Issuer shall provide for the registration of,
and the registration of transfer and exchange of, the Notes. The Note Register
shall be the definitive record in which shall be recorded the name, address,
telephone number, facsimile number, contact person (if any) and taxpayer
identification number of each registered holder of the Class A-1 Notes (a
"Class A-1 Registered Noteholder"), the Class A-2 Notes (a "Class A-2
Registered Noteholder"), the Class B Notes (a "Class B Registered Noteholder")
and the Class C Notes (a "Class C Registered Noteholder") (the Class A-1
Registered Noteholders, the Class A-2 Registered Noteholders, the Class B
Registered Noteholders and the Class C Registered Noteholders being referred to
collectively, as the "Registered Noteholders") as provided by the Noteholders
by delivery by each Noteholder to the Indenture Trustee of a completed
Noteholder Data Sheet in substantially the form attached to this Indenture as
Exhibit F (a "Noteholder Data Sheet"), together with the numbers of the Notes,
the principal amount of each Note and details with respect to the registration
of any transfer or exchange of Notes. The Indenture Trustee shall rely on the
information set forth in Noteholder Data Sheets provided by the Noteholders
(and shall be entitled to so rely absent manifest error), as may be modified in
a written notice by any Noteholder received by the Indenture Trustee. The
Issuer and the Indenture Trustee and any of their respective agents may deem
and treat the
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<PAGE> 14
Noteholder of any Note as the absolute owner of such Note for the purpose of
receiving payment of the principal of and interest and premium, if any, on such
Note and for all other purposes whatsoever, whether or not such Note may be
overdue, and the Issuer and the Indenture Trustee and any of their respective
agents shall not be affected by any notice to the contrary.
Section 2.11. Payments of Interest; Payment to Noteholder on
Record Date.
The Class A-1 Notes shall bear interest at a variable rate
equal to LIBOR as in effect for the applicable Interest Period plus 0.40% (the
"Class A-1 Notes Rate") subject to a maximum Note Rate of 12.0%, calculated as
set forth below in this Section 2.11. The Class A-2 Notes shall bear interest
at a fixed rate equal to 7.325% per annum (the "Class A-2 Notes Rate"),
calculated as set forth below in this Section 2.11. The Class B Notes shall
bear interest at a fixed rate equal to 7.50% per annum (the "Class B Notes
Rate"), calculated as set forth below in this Section 2.11. The Class C Notes
shall bear interest at a fixed rate equal to 8.15% per annum (the "Class C
Notes Rate"), calculated as set forth below in this Section 2.11. Interest on
the outstanding principal amount of the Class A-1 Notes, the Class A-2 Notes,
the Class B Notes and the Class C Notes (1) shall accrue for each Interest
Period, at the Class A-1 Notes Rate, the Class A-2 Notes Rate, the Class B
Notes Rate and the Class C Notes Rate, respectively, from the end of the most
recent Interest Period for which interest has been paid or duly provided for,
or, if no interest has yet been paid or duly provided for, from the Issuance
Date, (2) except with respect to the Class A-1 Notes (with respect to which
interest shall be calculated on the basis of a 360-day year and the actual
number of days elapsed), shall be calculated on the basis of a 360-day year of
twelve 30-day months and (3) shall be payable monthly, in arrears, on each
Payment Date, commencing with the August 1994 Payment Date, in an amount equal
to the interest that accrued during the immediately preceding Interest Period
on the principal balance of the Class A-1 Notes, the Class A-2 Notes, the Class
B Notes and the Class C Notes, respectively, outstanding during such Interest
Period (from time to time and after giving effect to payments of principal and
allocations of Noteholder Charge-Offs, if any, made during such preceding
Interest Period, including payments of principal and allocations of Noteholder
Charge-Offs made on the Payment Date during such preceding Interest Period).
All payments of interest with respect to the Notes shall be paid, on each
Payment Date therefor, to the Person who is the Noteholder of the Note or Notes
(or predecessor or predecessors thereof) with respect to which such interest is
being paid as of the close of business on the
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<PAGE> 15
last day of the calendar month immediately preceding such Payment Date, whether
or not such date is a Business Day (the "Record Date"), notwithstanding any
transfer or exchange of such Note or Notes subsequent to the Record Date and
prior to such Payment Date; provided that, the final interest payment shall be
payable to the Person to whom principal is payable pursuant to Section 2.12 of
this Indenture. All payments of interest with respect to the Definitive Notes
of any Noteholder shall be paid (A) by wire transfer of immediately available
funds to the account maintained by such Noteholder in the United States who (1)
is an original Noteholder, (2) is a transferee that delivers to the Indenture
Trustee account payment instructions ("Account Payment Instructions") prior to
the applicable Record Date and holds an aggregate original principal amount of
at least $1,000,000 of any class of Notes or (3) is designated by the Trust and
with respect to which such Noteholder has provided to the Indenture Trustee,
prior to the applicable Record Date for such payment, Account Payment
Instructions specifying the bank account and wire transfer instructions to and
under which such payments are to be made (any such Noteholder providing such
Account Payment Instructions, a "Wire Transfer Payment Recipient") or (B) with
respect to Noteholders as to which Account Payment Instructions have not been so
received, by check of the Indenture Trustee mailed to such Noteholder at the
address of such Noteholder as set forth on the Record Date in the Note Register.
All payments of interest to Wire Transfer Payment Recipients with respect to the
Notes shall continue to be made pursuant to the applicable Account Payment
Instructions until such time, if any, that revised written Account Payment
Instructions of such Noteholder are received by the Indenture Trustee. The
Indenture Trustee and the Issuer are entitled to rely on such Account Payment
Instructions and to make payments in accordance therewith until receipt of
revised written Account Payment Instructions in accordance with this Indenture.
Payments of interest with respect to Book-Entry Notes shall be made in
accordance with Section 2.05 hereof.
Section 2.12. Payments of Monthly Principal. Payments of
Monthly Principal of the Notes shall be made on each Payment Date, commencing
with the Amortization Commencement Date, pursuant to and in accordance with
Section 2.05 of this Indenture. All payments of Monthly Principal of the
Definitive Notes shall be paid by the Indenture Trustee (1) to Noteholders that
are Wire Transfer Payment Recipients, by wire transfer of immediately available
funds to the account maintained by such Wire Payment Recipient specified in
such Wire Payment Recipient's Account Payment Instructions, and (2) to
Noteholders that are not Wire Transfer Payment Recipients, by check of the
Indenture Trustee mailed to such Noteholder at the address of such Noteholder
as set
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forth in the Note Register. With respect to the final payment by the Indenture
Trustee to a Noteholder of the final installment of Monthly Principal and
accrued but unpaid interest and the Optional Full Redemption Price, if any, on
any Note, the Indenture Trustee shall make such final payment (1) to Noteholders
that are Wire Transfer Payment Recipients, by wire transfer of immediately
available funds to the account maintained by such Wire Payment Recipient in the
United States which was designated in the applicable note purchase agreement or
in later written instructions delivered to the Indenture Trustee, only upon
presentation and surrender of such Note at the Corporate Trust Office of the
Indenture Trustee on or after such date of payment, and (2) to Noteholders that
are not Wire Transfer Payment Recipients, by check of the Indenture Trustee
mailed to such Noteholder at the address of such Noteholder as set forth in the
Note Register, only upon presentation and surrender of such Note at the
Corporate Trust Office of the Indenture Trustee on or after such date of
payment. Any reduction in the principal amount of the Notes effected by any
payments of Monthly Principal or otherwise shall be binding upon all Noteholders
and all future Noteholders, whether or not any such reduction is noted upon a
Note so reduced, or a Note issued upon the registration of exchange or transfer
thereof. Payments of principal with respect to the Book-Entry Notes shall be
made in accordance with Section 2.05 hereof.
Section 2.13. Optional Redemptions of the Notes. In
connection with any Optional Full Redemption, Division Sale Optional Redemption
or Excess Funding Account Optional Redemption, the Indenture Trustee shall pay
the Optional Full Redemption Price and the Partial Redemption Price, as the
case may be, pursuant to and in accordance with Section 9.03 of this Indenture.
Section 2.14. Exchange and Transfer.
(a) Exchanges of Notes. Definitive Notes may be
exchanged for one or more Definitive Notes of any authorized denomination in an
aggregate principal amount equal to the aggregate principal amount of the
Definitive Notes surrendered, upon surrender of the Definitive Notes to be
exchanged at the Corporate Trust Office of the Indenture Trustee. Whenever any
Definitive Notes are so surrendered for exchange, the Owner Trustee, on behalf
of the Issuer shall execute, and the Indenture Trustee shall authenticate and
deliver, in exchange for the surrendered Definitive Notes, the Notes which the
Noteholder making the exchange is entitled to receive, bearing numbers not
contemporaneously outstanding.
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(b) Transfers.
(1) Transfers of Beneficial Interests in the
Book-Entry Notes. Transfers of all or any part of any beneficial interest in
any of the Book-Entry Notes shall be made in accordance with the rules and
procedures of the Depositary. Unless and until Definitive Certificates are
issued pursuant to Section 2.09, the initial Clearing Agency will make
book-entry transfers among the Clearing Agency Participants.
(2) Transfers of Definitive Notes. Each
Noteholder of a Definitive Note may, at any time, subject to the restrictions
on transfer set forth in the Notes and this Indenture, transfer such Note, in
whole or in part, to another Person. Subject to the requirements of the Issuer
and the Indenture Trustee, upon receipt by the Indenture Trustee at its
Corporate Trust Office of (A) a Note to be transferred, (B) the form of
assignment attached to this Indenture as Exhibit H (or a written instrument of
transfer in form and substance satisfactory to the Indenture Trustee and to the
Issuer), duly executed by the Noteholder thereof or its attorney duly
authorized in writing and (C) written instructions from such Noteholder,
requesting the Indenture Trustee to authenticate and deliver, in authorized
denominations, one or more Notes of the same aggregate principal amount as the
Notes to be transferred to a designated transferee or transferees, and setting
forth appropriate delivery instructions, then, if all of the conditions set
forth in any of Sections 2.14(b)(2)(A), 2.14(b)(2)(B), 2.14(b)(2)(C) or
2.14(b)(2)(D) below are satisfied, (x) the Indenture Trustee shall cancel or
cause to be cancelled the Note to be transferred, (y) the Owner Trustee, on
behalf of the Issuer shall execute and the Indenture Trustee shall authenticate
and deliver, one or more Notes which the Noteholder or the transferee or
transferees thereof is entitled to receive in the same aggregate principal
amount as the Notes so cancelled, in accordance with the instructions referred
to above, and (z) the Indenture Trustee shall register such transfer.
(A) Transfers at Least Three Years After
Issuance. The date of the requested transfer is at least
three (3) years after the date of original issuance of the
Note being transferred;
(B) Transfers Pursuant to Rule 144A.
Such transfer is being made pursuant to the exemption from
registration under the Securities Act provided by Rule 144A
and (i) the transferor checks the box on the form of
assignment attached to this Indenture as Exhibit H
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indicating that such transfer is being made in compliance
with Rule 144A, (ii) the Indenture Trustee is provided with a
certificate of the transferor substantially to the effect set
forth in the form attached to this Indenture as Exhibit I and
(iii) the Indenture Trustee is provided with an investment
letter from the proposed transferee substantially to the
effect set forth in the form attached to this Indenture as
Exhibit J;
(C) Transfers Pursuant to Rule 904. Such
transfer is being made pursuant to the exemption from
registration under the Securities Act provided by Rule 904 and
(i) the transferor checks the box on the form of assignment
attached to this Indenture as Exhibit H indicating that such
transfer is being made in compliance with Rule 904, (ii) the
Indenture Trustee is provided with a certificate of the
transferor substantially to the effect set forth in the form
attached to this Indenture as Exhibit I and (iii) the Indenture
Trustee is provided with an investment letter from the proposed
transferee substantially to the effect set forth in the form
attached to this Indenture as Exhibit J; or
(D) Other Transfers. The proposed
transfer is not being made within three (3) years after the
date of original issuance of the Notes being transferred and
is not being made pursuant to Rule 144A or Rule 904, and the
Indenture Trustee and the Issuer shall have received: (i) an
opinion of counsel satisfactory to the Issuer, and
satisfactory in form and substance to the Issuer,
substantially to the effect that such transfer does not
require registration under the Securities Act or qualification
of this Indenture under the Trust Indenture Act, and that such
transfer shall not otherwise violate any United States Federal
or state securities laws; (ii) a certificate of the transferor
substantially to the effect set forth in the form attached to
this Indenture as Exhibit K; and (iii) a certificate of the
transferee substantially to the effect set forth in the form
attached to this Indenture as Exhibit L.
(c) General. The Noteholders shall present directly to
the Indenture Trustee all requests for registration of transfer of Notes.
In connection with any registration of exchange or transfer of Notes, (1) the
Issuer and the Indenture
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Trustee may require the payment of a sum sufficient to cover any fees and
expenses (including without limitation any governmental charge or tax and the
fees) that may be imposed in connection therewith and (2) the Issuer and the
Indenture Trustee shall not be required to register the exchange or transfer of
any Note (A) for a period of fifteen (15) days immediately preceding the mailing
of a notice of redemption pursuant to Section 9.03 of this Indenture or (B)
selected, called or being called for redemption. All Notes issued upon any
exchange or transfer of Notes permitted by this Indenture (1) shall be delivered
to the Noteholder thereof at the Corporate Trust Office of the Indenture Trustee
or (at the risk of such Noteholder) sent by mail to such address as may be
specified by such Noteholder in the related request for exchange or transfer;
(2) shall be valid obligations of the Issuer, evidencing the same debt and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such exchange or transfer. All Notes presented for registration of
transfer, exchange, redemption or payment shall (if so required by the Issuer or
the Indenture Trustee) be duly endorsed by, or be accompanied by a written
instrument or instruments of transfer in form satisfactory to the Issuer and the
Indenture Trustee (including the form of assignment attached to this Indenture
as Exhibit H) duly executed by, the Noteholder thereof or its attorney duly
authorized in writing.
Section 2.15. Mutilated, Defaced, Destroyed, Lost or Stolen
Notes. In case any temporary or Definitive Note shall become mutilated,
defaced, destroyed, lost or stolen, the Issuer, in its discretion, may execute,
and upon the written order of the Issuer, an authorized officer of the
Indenture Trustee shall authenticate and deliver, a new temporary or definitive
Note bearing a number not contemporaneously outstanding, evidencing the same
rights and obligations as such mutilated, defaced, destroyed, lost or stolen
Note, in exchange and substitution for the mutilated or defaced Note, or in
lieu of a substitution for the Note destroyed, lost or stolen. The applicant
for such a substituted Note shall (1) furnish to the Issuer and to the
Indenture Trustee and any agent of the Issuer or the Indenture Trustee either
(a) if the Noteholder is an original holder or an institution, an indemnity
agreement in favor of the Issuer and the Indenture Trustee in a form
satisfactory to the Issuer and the Indenture Trustee or (b) such security or
indemnity (which may be in the form of a bond) as may be required by the
Issuer, the Indenture Trustee and such agent, (2) in each case of destruction,
loss or theft, furnish to the Issuer and to the Indenture Trustee evidence to
the satisfaction of the Issuer and the Indenture Trustee of the destruction,
loss or theft of the relevant Note and the ownership thereof and (3) in each
case of mutilation or
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defacing, surrender the mutilated or defaced Note to the Issuer or to the
Indenture Trustee for cancellation thereof. Upon the issuance of any
substituted Note, the Issuer and the Indenture Trustee may require the payment
of a sum sufficient to cover any fees and expenses (including without
limitation any governmental charge or tax) that may be imposed in connection
therewith. Every substitute Note issued pursuant to the provisions of this
Section 2.15 by virtue of the fact that any Note is destroyed, lost or stolen
shall constitute an additional contractual obligation of the Issuer, whether or
not the destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of and shall be subject to
all the limitations of rights set forth in this Indenture equally and
proportionately with any and all other Notes, of the class of Note destroyed,
lost or stolen, duly authenticated and delivered under this Indenture. In the
case of any Note which is mutilated, defaced, destroyed, lost or stolen within
the fifteen (15) day period prior to the Optional Redemption Date, the
Scheduled Redemption Date or Series Termination Date of such Note, the Issuer
may, instead of issuing a substitute Note, pay or authorize the payment of the
same (without surrender thereof except in the case of a mutilated or defaced
Note) if the applicant for such payment shall (1) furnish to the Issuer and to
the Indenture Trustee and any agent of the Issuer or the Indenture Trustee such
security or indemnity (which may be in the form of a bond) as may be required
by the Issuer, the Indenture Trustee and such agent and (2) in each case of
destruction, loss or theft, furnish to the Issuer and to the Indenture Trustee
evidence to the satisfaction of the Issuer and the Indenture Trustee of the
destruction, loss or theft of the relevant Note and the ownership thereof. All
Notes shall be held and owned upon the express condition that, to the extent
permitted by law, the foregoing provisions are exclusive with respect to the
replacement or payment of mutilated, defaced, destroyed, lost or stolen Notes
and shall preclude any and all other rights or remedies notwithstanding any law
or statute existing or hereafter enacted to the contrary with respect to the
replacement or payment of negotiable instruments or other securities without
the surrender thereof.
Section 2.16. Cancellation of Notes; Destruction Thereof.
All Notes surrendered for payment, redemption or registration of transfer or
exchange pursuant to any of the provisions of this Indenture, whether
surrendered to the Issuer or to any agent of the Issuer or the Indenture
Trustee, shall be delivered to the Indenture Trustee for cancellation and shall
be promptly cancelled and destroyed by the Indenture Trustee in accordance with
its standard procedures (unless previously instructed in writing by the Issuer
to do otherwise), and if
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surrendered to the Indenture Trustee, shall be promptly cancelled and destroyed
by the Indenture Trustee in accordance with its standard procedures (unless
previously instructed in writing by the Issuer to do otherwise); and no Notes
shall be issued in lieu thereof except as expressly permitted by any of the
provisions of this Indenture. The Indenture Trustee shall promptly deliver a
certificate of any such cancellation and destruction to the Issuer.
Section 2.17. Temporary Notes. Pending the preparation of
definitive Notes, the Authorized Officers of the Issuer may execute and the
Indenture Trustee shall, upon the written order of the Issuer authenticate and
deliver temporary Notes (printed, lithographed, typewritten or otherwise
reproduced, in each case in form satisfactory to the Indenture Trustee).
Temporary Notes shall be issuable as registered Notes without coupons, of any
authorized denomination, and substantially in the form of the definitive Notes,
but with such omissions, insertions and variations as may be appropriate for
temporary Notes, all as may be determined by the Issuer. Temporary Notes may
contain such reference to any provisions of this Indenture as may be
appropriate. Every temporary Note shall be executed by the Issuer and be
authenticated and delivered by the Indenture Trustee upon the same conditions
and in substantially the same manner, and with like effect, as the definitive
Notes. Without unreasonable delay after the issuance of any temporary Notes,
the Issuer shall execute and shall furnish definitive Notes and thereupon
temporary Notes may be surrendered in exchange for such definitive Notes
without charge at the Indenture Trustee's Corporate Trust Office, and the
Indenture Trustee shall authenticate and deliver in exchange for such temporary
Notes a like aggregate principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall be entitled to
the same benefits under this Indenture as definitive Notes.
Section 2.18. Appointment of Indenture Trustee. Each
Noteholder, by its acceptance of a Note, shall be deemed to have consented to
the appointment of the Indenture Trustee to act, on the terms and conditions
specified in this Indenture, as Indenture Trustee for the benefit of the
Noteholders. To the extent permitted by the terms of the Notes and this
Indenture and subject to Article XI herein, the Indenture Trustee shall follow
the directions of the Seller, or if for federal income tax purposes, a
different party or parties are deemed to be the holders of the equity interests
in the Trust, the Indenture Trustee shall follow the directions of the holders
of a majority of the equity interests in the Trust.
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Section 2.19. Issuer and Affiliate. Notwithstanding anything
to the contrary contained in this Indenture or the Notes, the Issuer and any
Affiliate thereof may at any time purchase any Notes, at any price or prices,
in the open market or otherwise; provided, however, that their rights and
remedies in respect of the Notes shall be subject to Section 10.13 of the
Purchase and Servicing Agreement. Any Note held by the Issuer or an Affiliate
thereof shall be deemed not to be outstanding for purposes of determining
Majority Noteholders.
Section 2.20. [Reserved]
Section 2.21. Certain Certificates. The Issuer shall furnish
the Indenture Trustee with a certificate of the Owner Trustee certifying the
incumbency and specimen signatures of officers of the Owner Trustee authorized
on behalf of the Owner Trustee to execute Notes and to give instructions or to
make certain representations to the Indenture Trustee in accordance with the
provisions of this Indenture, which certificate the Indenture Trustee shall be
entitled to conclusively rely on until such time, if any, that the Indenture
Trustee receives from the Owner Trustee a revised certificate. The Indenture
Trustee shall furnish the Owner Trustee with a certificate of the Indenture
Trustee certifying the incumbency and specimen signatures of officers of the
Indenture Trustee authorized on behalf of the Indenture Trustee to authenticate
Notes, on which certificate the Owner Trustee shall be entitled to rely.
Section 2.22. Issuance of Additional Notes. Pursuant to any
one or more Series Supplements, the Issuer may issue from time to time a new
Series, subject to the conditions described below (each such issuance or sale,
a "New Issuance"). The Issuer may designate, with respect to any newly issued
Series, the principal terms of such new Series (the "Principal Terms" of such
Series) in any such Series Supplement. The terms of each Series Supplement
may, subject to certain conditions described below, modify or amend the terms
of the Indenture solely as applied to such new Series. None of the Issuer, the
Servicer, the Indenture Trustee or the Seller is required or intends to obtain
the consent of any Noteholder of any outstanding Series to issue any additional
Series.
The Issuer may designate Principal Terms such that each Series
has a period during which accumulation of the principal amount thereof in a
principal funding account or pay-out of the principal amount thereof is
intended to occur, which may have a different length, and begin on a different
date, than such periods for any other Series. Further, one or more Series may
be in their
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interest-only or pay-out periods while other Series are not. Moreover, each
Series may have the benefits of Enhancements issued by providers of Enhancement
different from the providers of Enhancement with respect to any other Series.
The Indenture Trustee shall hold any such Enhancement only on behalf of the
Series to which such Enhancement relates. With respect to each such
Enhancement, the Seller may deliver a different form of Enhancement agreement
(if any). There is no limit to the number of New Issuances that the Issuer may
issue.
A New Issuance may only occur upon the satisfaction of the
following conditions: (a) the Issuer shall have given the Indenture Trustee,
the Servicer, each Rating Agency (if any rated notes are outstanding) and each
provider of Enhancement written notice of such New Issuance and the date upon
which the New Issuance is to occur; (b) the Issuer shall have delivered to the
Indenture Trustee the related Series Supplement in form satisfactory to the
Indenture Trustee; (c) with respect to a new Series only, the Seller shall have
delivered to the Indenture Trustee any related Enhancement agreement; (d) the
Rating Agency Condition shall have been satisfied with respect to such
issuance; (e) the Issuer shall have delivered to the Indenture Trustee, each
Rating Agency (if any rated notes are outstanding) and each provider of an
Enhancement an opinion of counsel (a "Tax Opinion") acceptable to the Indenture
Trustee that for Federal income tax purposes (i) the new notes issued shall be
properly characterized as debt (or as a partnership interest) and (ii) the New
Issuance shall not adversely affect the characterization of the notes of any
outstanding Series or class as debt; (f) the Issuer shall have delivered to the
Indenture Trustee a certificate to the effect that no Early Amortization Event
(or event that if not cured within the applicable grace period would constitute
an Early Amortization Event) has occurred and is continuing and that such New
Issuance is not reasonably expected to result in an Early Amortization Event at
any time in the future; (g) the Issuer shall have delivered to the Indenture
Trustee a certificate to the effect that each of the conditions set forth
herein for the New Issuance and the execution and delivery of the related
Series Supplement has been satisfied; and (h) any other conditions specified in
any Series Supplement. Upon satisfaction of the above conditions, the Owner
Trustee on behalf of the Issuer shall execute the Series Supplement and, with
respect to a New Issuance of a Series, issue to the Issuer the notes of such
new Series for execution by the Owner Trustee on behalf of the Issuer and
deliver such notes to the Indenture Trustee for authentication.
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ARTICLE III
SECURITY INTEREST
Section 3.01. Security Interest. The Issuer hereby assigns
and pledges to the Indenture Trustee, and the Indenture Trustee hereby accepts,
for its benefit and for the benefit of the Noteholders, a security interest in
the following collateral, whether now owned or hereafter acquired
(collectively, the "Collateral"), to secure the payment of all obligations of
the Issuer now or hereafter existing under this Indenture, whether for
principal, interest, premium, indemnities or otherwise (collectively, the
"Secured Obligations"):
(a) all right, title and interest of the Issuer in and to the
Purchased Receivables, including without limitation all
accounts, contract rights, chattel paper, instruments, general
intangibles and other obligations of any Obligor with respect
to any Purchased Receivables, now or hereafter existing,
whether or not arising out of or in connection with the sale
or lease of goods or the rendering of services, including
without limitation, the right to payment of any interest,
Finance Charges, returned check fees or late charges and other
obligations of an Obligor with respect to any Purchased
Receivables, and all rights in and to all security agreements
and other contracts securing or otherwise relating to any such
accounts, contract rights, chattel paper, instruments, general
intangibles and obligations (any and all such security
agreements and other contracts being the "Related Contracts");
(b) all guarantees, insurance and other agreements or arrangements
of whatever character from time to time supporting or securing
payment of any Purchased Receivables;
(c) the Purchase and Servicing Agreement, including without
limitation, (1) all rights of the Issuer to receive moneys due
and to become due under or pursuant to the Purchase and
Servicing Agreement, (2) all rights of the Issuer to receive
proceeds of any insurance, indemnity or warranty with respect
to the Purchase and Servicing Agreement, (3) claims of the
Issuer for damages arising out of or for breach of or default
under the Purchase and Servicing Agreement and (4) the right of
the Issuer to perform thereunder and to compel performance and
otherwise exercise all remedies thereunder;
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(d) the following (the "Account Collateral"):
(1) the Post Office Boxes, the Collection Deposit
Accounts, the Collateral Account (including all
subaccounts thereof) and the Excess Funding Account,
and all funds, and all certificates and instruments,
if any, from time to time representing or evidencing
funds, held in the Post Office Boxes, the Collection
Deposit Accounts, the Collateral Account and the
Excess Funding Account;
(2) all Eligible Investments of funds in the Collateral
Account and the Excess Funding Account from time to
time, and all certificates and instruments, if any,
from time to time representing or evidencing such
Eligible Investments;
(3) all notes, certificates of deposit and other
instruments from time to time hereafter delivered to
or otherwise possessed by the Indenture Trustee for
and on behalf of the Issuer in substitution for or in
addition to any of the then existing Account
Collateral;
(4) all interest, dividends, cash, instruments and other
property from time to time received, receivable or
otherwise distributed in respect of or in exchange
for any and all of the then existing Account
Collateral; and
(5) all additional property that may from time to time
hereafter be assigned or pledged to the Indenture
Trustee for the benefit of the Noteholders by the
Issuer or by any Person on the Issuer's behalf,
including without limitation the deposit with the
Indenture Trustee of additional moneys by the Issuer;
and
(e) proceeds of any and all of the Collateral described in
Sections 3.01(a) through 3.01(d) above (including without
limitation Recoveries and proceeds that constitute property of
the types described in clauses (a) through (d) above) and, to
the extent not otherwise included, all payments under
insurance (whether or not the Indenture Trustee is the loss
payee thereof), or any indemnity, warranty or guaranty,
payable by reason of
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loss or damage to or otherwise with respect to any of such
foregoing Collateral.
Section 3.02. [Reserved].
Section 3.03. License. Upon the occurrence and during the
continuance of an Early Amortization Event, the Issuer shall be deemed to have
granted to the Indenture Trustee a non-exclusive and, except to the extent
provided below in this Section 3.03, non-transferable license to use the
Licensed Names, which license to use (1) may be transferred by the Indenture
Trustee to the extent necessary to collect the Purchased Receivables in a
commercially reasonable manner, (2) is limited to (a) such uses of the Licensed
Names as are reasonably necessary to the collection by the Indenture Trustee in
a commercially reasonable manner of the Purchased Receivables and (b) actions
taken in accordance with the terms of this Indenture and (3) shall expire on
the expiration of a reasonable time for the collection of all Purchased
Receivables. Notwithstanding anything to the contrary in this Indenture or in
any other agreement between the parties, no other uses or display of the
Licensed Names shall be made by the Indenture Trustee except as granted in this
Section 3.03.
Section 3.04. The Issuer Remains Liable. Notwithstanding
anything to the contrary in this Indenture, (a) prior to foreclosure on such
Collateral, the Issuer shall remain liable under the contracts and agreements
included in the Collateral to the extent set forth therein to perform all of its
duties and obligations thereunder to the same extent as if this Indenture had
not been executed and (b) neither the Indenture Trustee nor any of the
Noteholders shall, prior to foreclosure on such Collateral, have any obligation
or liability under the contracts and agreements included in the Collateral by
reason of this Indenture or be obligated to perform any of the obligations or
duties of the Issuer thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder.
Section 3.05. Delivery of Certain Collateral. All
certificates or instruments, if any, representing or evidencing the Collateral
the possession of which by the Indenture Trustee is necessary to perfect the
security interest of the Indenture Trustee therein shall be delivered to and
held by or on behalf of the Indenture Trustee pursuant to this Indenture and
shall be in suitable form for transfer by delivery, or shall be accompanied by
duly executed instruments of transfer or assignment in blank. The Indenture
Trustee shall have the right, at any time in its discretion and without notice
to the Issuer, to transfer to or to register in the name of the Indenture
Trustee or any of its
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nominees or custodians any or all of such Collateral. In addition, the
Indenture Trustee shall have the right at any time to exchange certificates or
instruments representing or evidencing Collateral for certificates or
instruments of smaller or larger denominations.
Section 3.06. Copies as Financing Statements. A carbon,
photographic or other reproduction of this Indenture or any financing statement
covering the Collateral or any part thereof shall be sufficient as a financing
statement where permitted by law.
ARTICLE IV
BANK ACCOUNTS AND COLLECTIONS
Section 4.01. Post Office Boxes and Collection Deposit Accounts.
(a) Post Office Boxes. The Issuer has
established or caused to be established the post office boxes listed on
Schedule I to this Indenture (such post office boxes, or any successor post
office boxes established in accordance with this Indenture, being referred to
as the "Post Office Boxes") for the collection of Mail Payments. The Issuer
(1) represents and warrants that no post office box other than the Post Office
Boxes has been established for the collection of Mail Payments, (2) agrees that
the Indenture Trustee is authorized to receive mail delivered to the Post
Office Boxes, that a Standing Delivery Order in the form attached to this
Indenture as Exhibit M has been filed with the United States Postal Service
authorizing the Indenture Trustee to receive mail delivered to the Post Office
Boxes, and that the Indenture Trustee, acting at the written direction of the
Majority Noteholders, may deny the Issuer access to the Post Office Boxes
following the occurrence and during the continuance of a Servicer Default
(provided that, no direction by the Majority Noteholders to the Indenture
Trustee to deny the Issuer access to any Post Office Box shall be effective
unless such Majority Noteholders provide prior written certification to the
Issuer and the Indenture Trustee that a Servicer Default has occurred and is
continuing) and (3) agrees that no new post office box shall be established for
the collection of Mail Payments unless and until a Standing Delivery Order has
been filed with the United States Postal Service authorizing the Indenture
Trustee to receive mail delivered to such post office box. The Servicer agrees
to pay all fees for the use of the Post Office Boxes.
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(b) Establishment of Collection Deposit Accounts.
The Issuer has established or caused to be established and maintained with the
banks listed on Schedule I to this Indenture (the "Collection Deposit Account
Banks") the blocked deposit accounts listed on such Schedule I in the name of
the Indenture Trustee into which the Mail Payments shall be deposited, from the
Post Office Boxes, from time to time (all such blocked deposit accounts, or any
successor blocked deposit accounts established in accordance with this
Indenture, together with all Collections, moneys, instruments and other
property from time to time deposited therein being collectively referred to as
the "Collection Deposit Accounts"). The Issuer hereby transfers to the
Indenture Trustee the sole and exclusive dominion over and control of the
Collection Deposit Accounts. Prior to or contemporaneously with the execution
of this Indenture, the Issuer shall deliver to the Indenture Trustee fully
executed letters in the form attached to this Indenture as Exhibit N (the
"Collection Deposit Account Letters") from each of the Collection Deposit
Account Banks. To the extent the Indenture Trustee may exercise any authority
granted to it under a Collection Deposit Account Letter, it shall do so only at
the written direction of the Majority Noteholders.
(c) Termination of Collection Deposit Accounts;
Successor Collection Deposit Accounts. In the event any Collection Deposit
Account Bank shall, after the date of this Indenture, terminate a Collection
Deposit Account for any reason, or if the Indenture Trustee, acting at the
written direction of the Majority Noteholders, shall demand such termination,
the Issuer agrees to make all future deposits of Mail Payments to another
Collection Deposit Account that has not been terminated or to a successor
Collection Deposit Account established as provided below in this Section
4.01(c); provided, that, if the Indenture Trustee, acting at the written
direction of the Majority Noteholders, shall demand termination of all
Collection Deposit Accounts, the Issuer agrees to make all future deposits of
Mail Payments directly to the Collateral Account. No direction by the Majority
Noteholders to the Indenture Trustee to demand the termination of a Collection
Deposit Account shall be effective unless such Majority Noteholders give prior
written notice to the Indenture Trustee and to the Issuer that (1) an Early
Amortization Event has occurred and is continuing, (2) the subject Collection
Deposit Account Bank is not performing in all material respects under the terms
of the applicable Collection Deposit Account Letter or (3) such Majority
Noteholders reasonably believe that the Collection Deposit Account Bank at
which the subject Collection Deposit Account is maintained may become subject
to insolvency, receivership or similar proceedings (it being understood that
the Majority Noteholders shall have no obligation
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to give any such notice). No new Collection Deposit Account shall be
established until and unless a successor Collection Deposit Account Bank shall
have executed and delivered to the Issuer and to the Indenture Trustee a
Collection Deposit Account Letter. The Indenture Trustee shall have sole and
exclusive dominion over and control of any such successor Collection Deposit
Account.
Section 4.02. Collateral Account.
(a) Establishment of Collateral Account;
Subaccount Structure. The Issuer has established or caused to be established
and maintained with the Indenture Trustee a collateral account identified as
such on Schedule I to this Indenture (such account, or any successor collateral
account established pursuant to this Indenture, together with all Collections,
moneys, instruments and other property from time to time deposited therein, the
"Collateral Account"), which is a segregated trust account of the Issuer in the
name of the Indenture Trustee. The Collateral Account shall include a notation
that it has been established pursuant to this Indenture. The Collateral
Account shall have the following subaccounts (which need not be separate trust
accounts): (1) an Interest Subaccount (the "Interest Subaccount") and (2) a
General Subaccount (the "General Subaccount"). All amounts initially
transferred to the Collateral Account (including collections received from Mail
Payments pursuant to Section 4.01 hereof and collections received from Store
Payments pursuant to Section 6.04 of the Purchase and Servicing Agreement)
shall be held in the General Subaccount and shall remain in the General
Subaccount unless and until withdrawn or transferred in accordance with the
instructions delivered to the Indenture Trustee pursuant to this Indenture.
Amounts held in the General Subaccount shall be available for use for all
purposes under this Indenture. On the Issuance Date, the proceeds received by
the Issuer from the issuance and sale of the Notes (which proceeds shall be in
the form of immediately available funds), less that amount of such proceeds
used to purchase Receivables pursuant to the Purchase and Servicing Agreement,
shall be deposited into the Collateral Account to effect the allocations,
transfers, applications and payments required and permitted under Article V of
this Indenture. The Issuer hereby transfers to the Indenture Trustee the sole
and exclusive dominion over and control of the Collateral Account.
(b) Investment of Collateral Account Funds.
Funds on deposit in the Collateral Account shall be invested by the Indenture
Trustee, at the written direction of the Servicer, in specified Eligible
Investments which shall mature on or prior to the Business Day preceding the
next Payment Date. Any funds in
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the Collateral Account for which no permitted investment instructions are
received by the Indenture Trustee by 11:00 a.m. (New York City time) on any
Business Day shall be invested by the Indenture Trustee in such investments as
described in clause (vi) of the definition of "Eligible Investments" set forth
in Annex I hereto or, if such investment is not an Eligible Investment or is
otherwise not available, in Eligible Investments of a type specified in clause
(i) of the definition thereof. Eligible Investments shall be maintained in the
name of the Indenture Trustee or its nominee or its custodian (and, in either
case, the Indenture Trustee's books and records shall include the notation that
such Eligible Investments are maintained pursuant to this Indenture) and, if
certificated, the Indenture Trustee or custodian shall maintain possession of
the certificates. Any direction of the Servicer to the Indenture Trustee to
make an investment shall be made in writing and shall certify that the requested
investment qualifies as an Eligible Investment for purposes of this Indenture.
Any earnings (net of losses and investment expenses) on invested Collateral
Account funds shall be invested and reinvested by the Indenture Trustee, at the
written direction of the Servicer, in Eligible Investments, and all such
earnings shall be deposited to and retained in the General Subaccount as set
forth in this Indenture for subsequent application and transfer pursuant to this
Indenture. The Indenture Trustee may, at the written direction of the Servicer,
liquidate an Eligible Investment prior to maturity if such liquidation would not
result in a loss of all or part of the principal portion of such Eligible
Investment or if, prior to the maturity of such Eligible Investment, a default
occurs in the payment of principal, interest or any other amount with respect to
such Eligible Investment. The Indenture Trustee shall not be liable for any loss
or expense incurred or resulting from the investment performance of any
investment or reinvestment of moneys held in the Collateral Account in Eligible
Investments or from the sale or liquidation of any Eligible Investments in
accordance with this Indenture except for any losses or expenses resulting from
the gross negligence or willful misconduct on the part of the Indenture Trustee.
(c) Termination of Collateral Account; Successor
Collateral Account. In the event the Indenture Trustee shall, after the date
of this Indenture, terminate the Collateral Account for any reason, or if the
Indenture Trustee shall, acting at the written direction of the Majority
Noteholders, demand such termination, the Issuer agrees to notify all
Collection Deposit Account Banks to cease the transfer of funds required by the
Collection Deposit Account Letters from the Collection Deposit Accounts to the
Collateral Account (and, if the Issuer fails to so
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notify the Collection Deposit Account Banks, the Issuer irrevocably grants the
Indenture Trustee, acting at the written direction of the Majority Noteholders,
the authority to so notify the Collection Deposit Account Banks). No direction
by the Majority Noteholders to the Indenture Trustee to demand termination of
the Collateral Account shall be effective unless such Majority Noteholders give
prior written notice to the Issuer and to the Indenture Trustee that (1) an
Early Amortization Event has occurred and is continuing, (2) the Indenture
Trustee is not performing in all material respects to the satisfaction of the
Issuer and the Majority Noteholders under the terms of this Indenture and the
other Transaction Documents or (3) such Majority Noteholders reasonably believe
that the Indenture Trustee may become subject to insolvency, receivership or
similar proceedings (it being understood that the Majority Noteholders shall
have no obligation to give any such notice). In the event that the Collateral
Account is terminated pursuant to this Section 4.02(c), the Issuer shall
promptly establish a successor collateral account in accordance with Section
4.02(a) of this Indenture.
Section 4.03. Excess Funding Account.
(a) Establishment of Excess Funding Account. The
Issuer has established or caused to be established and maintained with the
Indenture Trustee an excess funding account identified as such on Schedule I to
this Indenture (such account, or any successor excess funding account
established pursuant to this Indenture, together with all Collections, moneys,
instruments and other property from time to time deposited therein, the "Excess
Funding Account"), which is a segregated trust account of the Issuer in the
name of the Indenture Trustee. The Excess Funding Account shall include a
notation that it has been established pursuant to this Indenture. The Issuer
hereby transfers to the Indenture Trustee the sole and exclusive dominion over
and control of the Excess Funding Account. The Issuer shall deposit to the
Excess Funding Account on the Issuance Date cash in an amount equal to the
excess of (i) $380,760,000 over (ii) the Borrowing Base as of the Issuance
Date.
(b) Investment of Excess Funding Account Funds.
Funds on deposit in the Excess Funding Account shall be invested by the
Indenture Trustee, at the written direction of the Servicer, in specified
Eligible Investments which shall mature on or prior to the Business Day
preceding the next Payment Date. Any funds in the Excess Funding Account for
which no permitted investment instructions are received by the Indenture
Trustee by 11:00 a.m. (New York City time) on any Business Day shall be
invested by the Indenture Trustee in such investments as described
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in clause (vi) of the definition of "Eligible Investments" set forth in Annex I
hereto or, if such investment is not an Eligible Investment or is otherwise not
available, in Eligible Investments of a type specified in clause (i) of the
definition thereof. Eligible Investments shall be maintained in the name of
the Indenture Trustee or its nominee or custodian and, if certificated, the
Indenture Trustee or its nominee or custodian (and, in either case, the
Indenture Trustee's books and records shall include the notation that such
Eligible Investments are maintained pursuant to this Indenture) and, if
certificated, the Indenture Trustee or its custodian shall maintain possession
of the certificates. Any direction of the Servicer to the Indenture Trustee to
make an investment shall be made in writing and shall certify that the requested
investment qualifies as an Eligible Investment for purposes of this Indenture.
Any earnings (net of losses and investment expenses) on invested Excess Funding
Account funds shall be invested and reinvested by the Indenture Trustee, at the
written direction of the Servicer, in Eligible Investments, and, on the Business
Day preceding each Payment Date, all such earnings shall be deposited to and
retained in the General Subaccount for subsequent allocation and transfer
pursuant to this Indenture. The Indenture Trustee may, at the written direction
of the Servicer, liquidate an Eligible Investment prior to maturity if such
liquidation would not result in a loss of all or part of the principal portion
of such Eligible Investment or if, prior to the maturity of such Eligible
Investment, a default occurs in the payment of principal, interest or any other
amount with respect to such Eligible Investment. The Indenture Trustee shall
not be liable for any loss or expense incurred or resulting from the investment
performance of any investment or reinvestment of moneys held in the Excess
Funding Account in Eligible Investments or from the sale or liquidation of any
Eligible Investments in accordance with this Indenture except for any losses or
expenses resulting from the gross negligence or willful misconduct on the part
of the Indenture Trustee.
(c) Termination of Excess Funding Account;
Successor Excess Funding Account. In the event the Indenture Trustee shall,
after the date of this Indenture, terminate the Excess Funding Account for any
reason, or if the Indenture Trustee shall, acting at the written direction of
the Majority Noteholders, demand such termination, the Issuer shall promptly
establish a successor excess funding account in accordance with Section
4.03.(a) of this Indenture. No direction by the Majority Noteholders to the
Indenture Trustee to demand termination of the Excess Funding Account shall be
effective unless such Majority Noteholders give prior written notice to the
Issuer and to the Indenture Trustee that (1) an Early Amortization Event has
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occurred and is continuing, (2) the Indenture Trustee is not performing to the
satisfaction of the Issuer and the Majority Noteholders or (3) such Majority
Noteholders reasonably believe that the Indenture Trustee may become subject to
insolvency, receivership or similar proceedings (it being understood that the
Majority Noteholders shall have no obligation to give any such notice).
(d) Borrowing Base Deficiency. If on any
Business Day during the Interest-Only Period a Borrowing Base Deficiency
exists, the Indenture Trustee shall cure such Borrowing Base Deficiency by
depositing from the General Subaccount into the Excess Funding Account an
amount equal to the Borrowing Base Deficiency. To the extent funds in the
Collateral Account are insufficient to cover the Borrowing Base Deficiency, the
Trust may deposit additional funds from its own accounts in the Excess Funding
Account in an amount not to exceed any Borrowing Base Deficiency remaining
after available funds have been transferred from the Collateral Account. If,
on any Business Day during the Interest-Only Period, the Borrowing Base exceeds
the Net Note Principal Amount, the amount of such excess on deposit in the
Excess Funding Account shall be released at the written direction of the
Servicer or as indicated in the Daily Report for deposit into the General
Subaccount.
(e) Release of Excess Funding Account Funds. On
any Business Day during the Interest-Only Period, the Indenture Trustee shall
release, from the funds on deposit in the Excess Funding Account, that amount
of funds requested to be released by the Issuer (each such action, a "Release")
(as set forth in the Daily Report), for use as set forth in Section 5.01 of
this Indenture; provided that, no such Release shall be permitted to the extent
such Release would create a Borrowing Base Deficiency.
(f) Application of Excess Funding Account Funds
on Amortization Commencement Date. Upon the Amortization Commencement Date,
all funds on deposit in the Excess Funding Account (including without
limitation all earnings thereon) shall be applied pursuant to the first
sentence of Section 5.04(c) of this Indenture.
Section 4.04. Optional Redemption Account.
(a) Establishment of Optional Redemption Account.
The Issuer has established or caused to be established and maintained with the
Indenture Trustee an optional redemption account identified as such on Schedule
I to this Indenture (such account, or any successor optional redemption account
established
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pursuant to this Indenture, together with all Collections, moneys, instruments
and other property from time to time deposited therein, the "Optional Redemption
Account"), which is a segregated trust account of the Issuer in the name of the
Indenture Trustee. The Optional Redemption Account shall include a notation
that it has been established pursuant to this Indenture. The Issuer hereby
transfers to the Indenture Trustee the sole and exclusive dominion over and
control of the Optional Redemption Account.
(b) Deposits from Excess Funding Account. Funds
in the Excess Funding Account which shall be used to effect an Excess Funding
Account Optional Redemption as set forth in Section 9.02 hereof shall be
withdrawn by the Indenture Trustee from the Excess Funding Account and
deposited into the Optional Redemption Account for the period following the
Optional Redemption Announcement Date up to the Partial Redemption Date and
thereafter released to the Noteholders pursuant to Section 9.03 hereof.
Section 4.05. Reserved.
Section 4.06. Other Bank Accounts. The Issuer agrees that it
shall have no, and shall not make or maintain any deposits in any bank account,
deposit account or trust account other than the Collection Deposit Accounts,
the Collateral Account, the Excess Funding Account, the Optional Redemption
Account and such accounts as are maintained pursuant to the Trust Agreement.
Section 4.07. Correction of Improper Deposits. If the Issuer
provides the Indenture Trustee with written notice that a deposit has been made
improperly into the Collateral Account, the Excess Funding Account or the
Collection Deposit Accounts, the Indenture Trustee shall promptly release the
amount of the improper deposit, together with interest actually earned thereon
(net of related losses and investment expenses), to correct such improper
deposit.
Section 4.08. Maintenance of Collateral Account, Excess
Funding Account or Optional Redemption Account. The Collateral Account, the
Excess Funding Account and the Optional Redemption Account shall at all times
be maintained (i) with a depositary institution whose deposits are insured to
the limits provided by law by the FDIC having corporate trust powers and acting
as trustee for funds deposited therein (provided, however, that such account
need not be maintained as a segregated trust account with the corporate trust
department of such institution if at all times the certificates of deposit,
short-term deposits or commercial paper or the long-term unsecured debt
obligations (other than such obligation whose rating is based on collateral or
on the credit of
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a Person other than such institution or trust company) of such depositary
institution or trust company shall have a credit rating from Standard & Poor's
of at least A-1+ and Duff-1 from Duff & Phelps in the case of the certificates
of deposit, short-term deposits or commercial paper, or a rating from Standard
& Poor's of AAA and from Duff & Phelps of AAA in the case of the long-term
unsecured debt obligations) or (ii) with a depositary institution, which may
include the Indenture Trustee, which is acceptable to the Rating Agency (in the
case of (i) and (ii), a "Qualified Institution"). If at any time, the
institution holding the Collateral Account, Excess Funding Account or Optional
Redemption Account ceases to be a Qualified Institution, the Issuer shall
direct the Servicer to establish within 10 Business Days a new Collateral
Account, Excess Funding Account or Optional Redemption Account with a Qualified
Institution, transfer any cash and/or any investments to such new Collateral
Account, Excess Funding Account or Optional Redemption Account and from the
date such new Collateral Account, Excess Funding Account or Optional Redemption
Account is established, it shall be the "Collateral Account", the "Excess
Funding Account" or the "Optional Redemption Account". The Servicer shall give
written notice to the Indenture Trustee of the location and account number of
the Collateral Account, the Excess Funding Account or the Optional Redemption
Account and shall notify the Indenture Trustee in writing prior to any
subsequent change thereof. In the event any of the Collateral Account, Excess
Funding Account or Optional Redemption Account is maintained with a bank other
than with the Indenture Trustee, the Indenture Trustee shall receive a wire
transfer of immediately available funds from such bank no later than 10:00 a.m.
on any Payment Date with respect to any amounts from any such Collateral
Account, Excess Funding Account or Optional Redemption Account which the
Indenture Trustee is required to receive in order to make the distributions
required in accordance with Article V herein.
ARTICLE V
ALLOCATIONS, TRANSFERS AND PAYMENTS
Section 5.01. On Business Days during the Interest-Only
Period. By no later than 1:00 p.m. (New York City time) on each Business Day
during the Interest-Only Period (including without limitation on Business Days
that are also Payment Dates), the Indenture Trustee shall make the following
allocations, transfers and payments based on the Daily Report covering the
Applicable Day:
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(1) On each Business Day during the Interest-Only Period,
funds on deposit in the Collateral Account representing Series Allocable
Collections and Investment Proceeds shall be allocated in the following
priority:
(i) to the Interest Subaccount, an amount equal to (A)
1/10th of the aggregate Monthly Interest payable in
respect of each class of Notes on the Payment Date
occurring in the next succeeding Settlement Period,
plus (B) the amount by which deposits to the Interest
Subaccount required pursuant to clause (i)(A) exceed
amounts actually deposited therein for the period
from and including the first day of the current
Settlement Period to the date of determination, until
the amount deposited in the Interest Subaccount
equals the aggregate Monthly Interest payable in
respect of each class of Notes on the Payment Date
occurring in the next succeeding Settlement Period;
(ii) to the Interest Subaccount, an amount equal to (A)
1/10th of the Monthly Servicing Fee payable on the
Payment Date occurring in the next succeeding
Settlement Period, plus (B) the amount by which
deposits to the Interest Subaccount required pursuant
to clause (ii)(A) exceed amounts actually deposited
therein for the period from and including the first
day of the current Settlement Period to the date of
determination, until the amount deposited in the
Interest Subaccount equals the Monthly Servicing Fee
payable on the Payment Date occurring in the next
succeeding Settlement Period; and
(iii) to the Excess Funding Account, an amount equal to the
greater of (a) the portion of the Noteholder Default
Amount reported by the Servicer on such Business Day
and (b) 100% of the amount of any Borrowing Base
Deficiency.
Notwithstanding clause (i) above, the Issuer shall deposit in the
Interest Subaccount on the Issuance Date an amount equal to the Monthly Interest
payable on the August 1994 Payment Date and no other deposits to the Interest
Subaccount pursuant to clause (i) shall be required in respect of the Settlement
Period relating to the August 1994 Payment Date.
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(2) All Series Allocable Collections and Investment
Proceeds remaining after application in accordance with clause (1) above,
together with funds released from the Excess Funding Account on such day
pursuant to Section 4.03(e) hereof, if any, shall be applied in the following
priority:
(i) to pay to the Seller an amount equal to the lesser of
(A) the aggregate Purchase Price for all Receivables
sold to the Issuer by the Seller on such Business Day
pursuant to and in accordance with the terms of the
Purchase and Servicing Agreement and (B) the amount
so directed by the Servicer in the applicable Daily
Report; and
(ii) solely at the Issuer's option, to individually or in
any combination and without regard to priority: (A)
to make distributions to the Trust in respect of the
Trust Interest, or (B) to pay any other Trust expenses
due and payable on such Business Day; provided that,
all funds not so paid or transferred shall be retained
in the General Subaccount.
Section 5.02. On Payment Dates during the Interest-Only
Period. By no later than 1:00 p.m. (New York City time) on each Payment Date
during the Interest-Only Period, the Indenture Trustee shall (on the basis of
the information set forth in the related Monthly Settlement Statement) use the
Series Allocable Collections and Investment Proceeds deposited in the Interest
Subaccount to make the following distributions in the following amounts,
according to the following priorities, satisfying, to the extent required and
possible, each priority before making any distribution with respect to any
succeeding priority:
(i) to the Class A-1 Noteholders and Class A-2 Noteholders,
respectively, Monthly Interest on the Class A-1 Notes and the
Class A-2 Notes on such Payment Date on a pro rata basis
(based on interest due) as between the Class A-1 Notes and the
Class A-2 Notes;
(ii) to the Class B Noteholders, Monthly Interest on the Class B
Notes on such Payment Date;
(iii) to the Class C Noteholders, Monthly Interest on the Class C
Notes on such Payment Date; and
(iv) to the Servicer, the Monthly Servicing Fee, if any.
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Section 5.03. On Business Days During the Amortization Period.
By no later than 1:00 p.m. (New York City time) on each Business Day during the
Amortization Period (including, without limitation, on Business Days that are
also Payment Dates), the Indenture Trustee shall, upon the written direction of
the Servicer or as indicated in the Daily Report, distribute in respect of the
Trust Interest the Trust Daily Distribution Amount for such business Day;
provided, however , that if on any such Business day the Trust's Participation
Amount (after giving effect to any Principal Receivables transferred to the
Trust on such date) is less than the Aggregate Available Subordinated Amount
calculated as of the immediately preceding Determination Date (after giving
effect to the allocations, distributions, withdrawals and deposits to be made on
the Payment date immediately following such Determination Date), the Trust Daily
Distribution Amount shall be deposited in the Collateral Account.
Section 5.04. On Payment Dates During the Amortization Period.
By no later than 1:00 p.m. (New York City time) on each Payment Date commencing
with the Amortization Commencement Date, the Servicer shall instruct the
Indenture Trustee (on the basis of the information set forth in the preceding
Monthly Settlement Statement) to apply the funds deposited in the Collateral
Account and the Excess Funding Account to make the following distributions:
(a) Available Noteholder Finance Charge Collections and Investment
Proceeds, if any, in respect of the related Settlement Period shall be applied
in the following priority:
(1) an amount equal to Monthly Interest with respect to
each class of Notes for such Payment Date, in the following order of
priority: first, to the Class A-1 Notes and Class A-2 Notes, pro rata
on the basis of interest due thereon, until paid in full; second to
the Class B Notes until paid in full; and third, to the Class C Notes;
(2) an amount equal to the Monthly Servicing Fee payable
on such Payment Date shall be distributed to the Servicer;
(3) an amount equal to the Noteholder Default Amount, if
any, for such Payment Date shall be treated as a portion of Available
Noteholder Principal Collections for such Payment Date and distributed
pursuant to Subsection (c) hereof; and
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(4) the balance, if any, shall constitute Excess Finance
Charge Collections and shall be distributed pursuant to subsection (b)
hereof.
(b) Excess Finance Charge Collections shall be applied in the
following priority:
(1) an amount equal to the aggregate amount of Noteholder
Charge-Offs allocated pursuant to Section 5.05 hereof that have not
been previously reimbursed (after giving effect to the allocation of
Series Allocable Miscellaneous Payments on such Payment Date) shall be
distributed to the Noteholders in reimbursement thereof in the same
priority as set forth in subsection (c) hereof; and
(2) the balance, if any, shall be distributed in respect
of the Trust Interest.
(c) Available Noteholder Principal Collections shall be applied in
the following priority:
(1) an amount equal to Monthly Principal for such Payment
Date shall be paid to the Noteholders in the following order of
priority: first, to the Class A-1 Notes and the Class A-2 Notes, pro
rata on the basis of the outstanding principal amounts thereof, until
such outstanding principal amounts have been paid in full; second, to
the Class B Notes until the outstanding principal amount thereof has
been paid in full, and third, to the Class C Notes until the
outstanding principal amount thereof has been paid in full; and
(2) the balance, if any, shall be (A) paid in respect of
the Trust Interest if the Trust's Participation Amount (determined
after giving effect to any Receivables transferred to the Trust on
such date) exceeds the Aggregate Available Subordinated Amount for the
immediately preceding Determination Date (after giving effect to the
allocations, distributions, withdrawals and deposits to be made on
such Payment Date) and (B) otherwise held in such account as may be
specified with respect to any Additional Series.
(d) Available Trust's Principal Collections shall be applied in
the following priority:
(1) pursuant to subsection (a) hereof to the extent of
the Draw Amount with respect to such Payment Date, if any;
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(2) in the priority set forth in subsection (c) hereof to
the extent of any required Adjustment Payments not made by the Seller;
and
(3) the balance, if any, shall be distributed in respect
of the Trust Interest.
(e) An amount equal to the excess, if any, of (i) the Excess Trust's
Percentage of Series Allocable Finance Charge Collections and Series Allocable
Principal Collections for the related Settlement Period, over (ii) the
aggregate for such Settlement Period of the Trust Daily Distribution Amounts
actually distributed in respect of the Trust Interest, shall be distributed in
respect of the Trust Interest.
Section 5.05. Allocation of Noteholder Charge-Offs.
Noteholder Charge-Offs for any Payment Date shall be applied in reduction of
the outstanding principal amount of the Notes as set forth in the Monthly
Settlement Statement (in addition to any reductions thereof in respect of
distributions of principal on such Payment Date) in the following order of
priority: first, to the Class C Notes, until the outstanding principal amount
thereof has been reduced to zero; second, to the Class B Notes, until the
outstanding principal amount thereof has been reduced to zero, and third, to
the Class A-1 Notes and the Class A-2 Notes, pro rata on the basis of the
outstanding principal amounts thereof, until the respective outstanding
principal amounts thereof have been reduced to zero.
Section 5.06. Final Payment of Notes. On the Business Day
next succeeding the day on which all amounts due under the Notes have been paid
in full, all remaining amounts on deposit in the Collateral Account and the
Excess Funding Account shall be paid to the Issuer.
Section 5.07. Series Termination Date. If, by thirty days
prior to the Series Termination Date, the outstanding principal amount of the
Notes has not been reduced to zero and the Servicer has not certified to the
Indenture Trustee that it believes, in its sole judgment, that Collections
anticipated to be available for distribution on the Series Termination Date will
be sufficient to reduce the outstanding principal balance of the Notes to zero,
the Receivables shall be sold, disposed and otherwise liquidated in a
commercially reasonable manner and on commercially reasonable terms, which shall
include the solicitation of competitive bids, by institutions acceptable to the
Indenture Trustee and the Servicer. The Servicer shall promptly after receipt
of any offer to purchase the Receivables,
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inform the Seller of such offer and provide to the Seller a reasonably detailed
description of the terms of such offer. The Servicer shall, not less than three
Business Days prior to the Series Termination Date, sell such Receivables to (i)
the Seller, at the purchase price equal to the highest offer received by the
Servicer for the sale of the Receivables, or (ii) the highest bidder for the
sale of the Receivables if the Seller does not elect to purchase the
Receivables. The proceeds of any such sale shall be deposited in the Collateral
Account and shall be paid to the Noteholders on the Series Termination Date. The
proceeds of such sale shall be allocated between Finance Charge Collections and
Principal Collections in proportion to Finance Charge Receivables and Principal
Receivables of the Receivables as of the end of the preceding Settlement Period.
For all other purposes the proceeds of such sale shall be treated as Collections
and shall be allocated among Series and distributed to Noteholders pursuant to
this Article V.
ARTICLE VI
SERVICING OF PURCHASED RECEIVABLES
Section 6.01. Servicing of Purchased Receivables. The
Indenture Trustee, on behalf of the noteholders of all Series, consents to the
appointment of Jewelers Financial Services, Inc. as Servicer of the Purchased
Receivables pursuant to, and in accordance with the terms of, the Purchase and
Servicing Agreement.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.01. Representations and Warranties of the Issuer.
On and as of each Purchase Date, the Issuer represents and warrants to the
Noteholders that:
(a) Organization; Powers. The Issuer (1) is a
business trust duly organized, validly existing and in good standing under the
laws of Delaware, (2) has all requisite power and authority to own its property
and assets and to carry on its business as now conducted and as proposed to be
conducted, (3) is qualified to do business in every jurisdiction where such
qualification is required, except where the failure to so qualify would not
reasonably be expected to have a Material Adverse Effect and (4) has the power
and authority to execute, deliver and
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perform its obligations under each of the Transaction Documents and each
other agreement or instrument contemplated thereby to which it is a party and
to issue the Notes.
(b) Authorization. The execution, delivery and
performance by the Issuer of each of the Transaction Documents to which it is a
party and the performance by the Issuer of the other transactions contemplated
thereby (collectively, the "Transactions") (1) have been duly authorized by the
Owner Trustee on behalf of the Issuer and (2) shall not (A) violate (i) any
provision of law, statute, rule or regulation, which violation would have a
Material Adverse Effect, (ii) any provision of the Certificate of Trust of the
Issuer, (iii) any order of any Governmental Authority or (iv) any provision of
any indenture, agreement or other instrument to which the Issuer is a party or
by which it or any of its property is or may be bound, which violation would
have a Material Adverse Effect, (B) be in conflict with, result in a breach of
or constitute (alone or with notice or lapse of time or both) a default under
any such indenture, agreement or other instrument, which conflict, breach or
default would have a Material Adverse Effect or (C) result in the creation or
imposition of any Lien upon or with respect to any property or assets now owned
or hereafter acquired by the Issuer, except the Liens created, imposed or
contemplated by any of the Transaction Documents.
(c) Enforceability. This Indenture has been duly
executed and delivered by the Issuer and constitutes, and each other
Transaction Document when executed and delivered by the Issuer shall
constitute, a legal, valid and binding obligation of the Issuer enforceable
against the Issuer in accordance with its terms, subject to general principles
of equity and to bankruptcy, insolvency, reorganization, moratorium and similar
laws now or hereafter in effect relating to creditors' rights generally.
(d) Governmental Approvals. No action, consent
or approval of, registration or filing with or any other action by any
Governmental Authority is or shall be required in connection with the
Transactions, except such as have been made or obtained and are in full force
and effect.
(e) Investment Company Act. The Issuer is not an
"investment company" as such term is defined in the Investment Company Act, and
the issuance of the Notes, the repayment thereof by the Issuer and the
consummation of the Transactions shall not violate any provision of the
Investment Company Act or any rule, regulation or order issued by the
Securities and Exchange Commission thereunder.
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(f) No Defaults. Except for payment defaults
continuing for a period of not more than one month as of the Cut-Off Date, no
default, breach, violation or event permitting acceleration under the terms of
any Receivable exists.
(g) No Fraudulent Transfer. The assignment of
pledge of the security interest in the Collateral by the Issuer to the
Indenture Trustee does not constitute a fraudulent transfer or fraudulent
conveyance under the United States Bankruptcy Code or applicable state
bankruptcy or insolvency laws or is otherwise void or voidable or subject to
subordination under similar laws or principles or for any other reason.
ARTICLE VIII
COVENANTS
Section 8.01. Affirmative Covenants of the Issuer. The
Issuer covenants and agrees that, so long as the principal of (or premium, if
any) or interest on any Notes shall be unpaid, unless the Majority Noteholders
shall otherwise consent in writing, the Issuer shall:
(a) Existence. Do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and maintain such legal existence separate from that of the Seller
and any Affiliate thereof.
(b) Obligations and Taxes. Pay its Indebtedness
and other obligations promptly before the same shall become delinquent or in
default and in accordance with their terms and pay and discharge promptly when
due all taxes, assessments and governmental charges or levies imposed upon it
or upon its income or profits or in respect of its property, before the same
shall become delinquent or in default, as well as all lawful claims for labor,
materials and supplies or otherwise that, if unpaid, might give rise to a Lien
upon such properties or any part thereof; provided that, such payment and
discharge shall not be required with respect to any such Indebtedness,
obligation, tax, assessment, charge, levy or claim so long as the validity or
amount thereof shall be contested in good faith by appropriate proceedings and
the Issuer shall have set aside on its books adequate reserves with respect
thereto.
(c) Litigation and Other Notices. Furnish to the
Indenture Trustee prompt written notice of the following:
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(1) any Early Amortization Event or Potential Early
Amortization Event, specifying the nature and extent
thereof and the corrective action (if any) proposed
to be taken with respect thereto;
(2) the filing or commencement of, or any threat or
notice of intention of any Person to file or
commence, any action, suit or proceeding, whether at
law or in equity or by or before any Governmental
Authority, against the Issuer that, if adversely
determined, would have a Material Adverse Effect;
(3) any notices received by the Issuer under the
Purchase and Servicing Agreement (together with copies
thereof); and
(4) any Lien asserted against any of the Collateral of
which it is aware (other than any Lien created,
imposed or contemplated by any of the Transaction
Documents).
(d) Information to the Noteholders. On each
Payment Date, forward to the Indenture Trustee for distribution to each
Noteholder the Monthly Settlement Statement and for so long as any of the Notes
are "restricted securities" within the meaning of Rule 144 under the Securities
Act, cooperate (and direct the Servicer to cooperate) with the Indenture
Trustee to provide to any Noteholder and to any prospective purchaser of the
Notes, upon the request of such Noteholder or prospective purchaser, any
information required to be provided to such Noteholder or prospective purchaser
to satisfy the conditions, if applicable, set forth in Rule 144A(d)(4) under
the Securities Act.
(e) Daily Reports and Monthly Settlement
Statements. Prepare or direct the Servicer to prepare and deliver each Daily
Report and Monthly Settlement Statement pursuant to the Purchase and Servicing
Agreement; and prepare or direct the Servicer to prepare such other monthly
financial and statistical reports, cash flow reports and records of Purchased
Receivables performance that may be reasonably requested by the Indenture
Trustee, acting at the written direction of the Majority Noteholders.
(f) Compliance with Laws. At all times observe
and comply in all material respects with all laws, ordinances, orders,
judgments, rules, regulations, certifications, franchises, permits, licenses,
directions and requirements of any Governmental
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Authority that are now or may at any time be applicable to the Issuer, except
(1) for any nonobservance or noncompliance that would not have a Material
Adverse Effect or (2) for any observance or compliance that shall be contested
in good faith and by appropriate proceedings diligently conducted by the
Issuer.
(g) Delivery of Materials for the Collection of
Purchased Receivables. Upon the occurrence and during the continuance of an
Early Amortization Event and upon the written request of the Indenture Trustee,
acting at the written direction of the Majority Noteholders, make such
arrangements with respect to the collection of the Purchased Receivables as may
be reasonably requested by the Indenture Trustee, acting at the written
direction of the Majority Noteholders.
(h) Maintenance of Office or Agency. Maintain an
office or agency within the United States of America where Notes may be
presented or surrendered for payment, where Notes may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Issuer in respect of the Notes and this Indenture may be served. The
Issuer hereby initially appoints the Corporate Trust Office of the Indenture
Trustee such office or agency. The Issuer shall give prompt written notice to
the Indenture Trustee of the location, and of any change in the location, of
any such office or agency. If at any time the Issuer shall fail to maintain
any such office or agency or shall fail to furnish the Indenture Trustee with
the address thereof, such presentations, surrenders, notices and demands may be
made or served at the Corporate Trust Office, and the Issuer hereby appoints
the Indenture Trustee at its Corporate Trust Office as its agent to receive all
such presentations, surrenders, notices and demands.
(i) Inspection. From time to time, at any
reasonable time during normal business hours and, so long as no Early
Amortization Event has occurred and is continuing upon at least two (2)
Business Days' prior notice, permit representatives of the Indenture Trustee,
acting at the written direction of the Majority Noteholders, to examine and
make copies of and abstracts from its records relating to the Purchased
Receivables.
(j) Collateral Records. Maintain or direct the
Servicer to maintain satisfactory and complete records of the Collateral,
including without limitation a record of all payments received and all credits
granted with respect to the Collateral.
(k) Legend. Mark conspicuously with a legend its
computer records and credit files pertaining to the Collateral and
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the Related Contracts, to evidence this Indenture and the assignment and
security interest granted hereby.
(l) Purchase and Servicing Agreement. Upon
request of the Indenture Trustee, acting at the written direction of the
Majority Noteholders, make to any counterpart to the Purchase and Servicing
Agreement such demands and requests for information and reports or for action
as the Issuer is entitled to make under the Purchase and Servicing Agreement.
(m) Further Assurances. At any time and from
time to time, at its expense, promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary
or that the Indenture Trustee, acting at the written direction of the Majority
Noteholders, may reasonably request, to perfect and protect the assignments and
security interests granted or purported to be granted by this Indenture or to
enable the Indenture Trustee to exercise and enforce its rights and remedies
under this Indenture with respect to any Collateral, including without
limitation (1) the delivery and pledge to the Indenture Trustee of any
Collateral evidenced by a promissory note or other instrument (which is not
chattel paper), duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form satisfactory to the Indenture Trustee and
(2) the execution and filing of such financing or continuation statements
pertaining to the Collateral, or amendments thereto, which the Indenture
Trustee may file without the signature of the Issuer where permitted by law
(the Indenture Trustee shall promptly send the Issuer copies of any such
financing or continuation statements that it files without the signature of the
Issuer except, in the case of filings of copies of this Indenture as financing
statements, the Indenture Trustee shall promptly send the Issuer the filing or
recordation information with respect thereto).
(n) Payment of Taxes. Pay all taxes, duties,
fees or other charges levied or imposed by any Governmental Authority on the
Issuer in respect of this Indenture or the issuance of the Notes, and pay any
stamp duty, tax, required deduction or withholding or other amount required to
be paid to introduce this document into evidence to enforce the Notes, except
for any such payments that are being contested in good faith by appropriate
proceedings and for which the Issuer shall have set aside on its books adequate
reserves.
(o) Compliance with Trust Agreement. At all
times to observe and comply in all material respects with the provisions
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of the Trust Agreement and to conduct its business in accordance with the terms
of the Trust Agreement.
Section 8.02. Negative Covenants of the Issuer. The Issuer
covenants and agrees that, so long as the principal of (or premium, if any) or
interest on any Notes shall be unpaid, unless the Majority Noteholders shall
otherwise consent in writing, the Issuer shall not:
(a) Indebtedness. Incur, create, assume or
permit to exist any Indebtedness, except: (1) Indebtedness evidenced by the
Notes and the Subordinated Note; (2) Indebtedness representing fees, expenses,
indemnities and other amounts payable pursuant to and in accordance with the
Transaction Documents; and (3) Indebtedness for Issuer Expenses; provided that,
nothing in this Section 8.02(a) shall prohibit or be deemed to prohibit the
Issuer from receiving any capital contribution from the Seller.
(b) Liens. Incur, create, assume or permit to
exist any Lien on any property or assets (including stock or other securities)
now owned or hereafter acquired by it or on any income or revenues or rights in
respect of any thereof, except the Liens created, imposed or contemplated by
any of the Transaction Documents and any Lien created, imposed or contemplated
in connection with any repurchase obligation which is an Eligible Investment;
provided, that, nothing in this Section 8.02(b) shall prohibit or be deemed to
prohibit the Issuer from suffering to exist upon any of the Purchased
Receivables any Liens for municipal, local or state taxes if such taxes shall
not at the time be due and payable or if the Issuer shall currently be
contesting the validity thereof in good faith by appropriate proceedings and
shall have set aside on its books adequate reserves with respect thereto.
(c) Guarantee. Incur, create, assume or permit to
exist any Guarantee.
(d) Creditors. Create or permit to exist any
creditors other than the holders of Indebtedness permitted by Section 8.02(a)
of this Indenture.
(e) Business of Issuer. Engage at any time in
any business or business activity other than the acquisition of Receivables
pursuant to the Purchase and Servicing Agreement, the activities incidental to
the purchase and ownership of such Receivables, the issuance of the Notes, the
Transactions, the making of any investments permitted under this Indenture, the
other incidental and related transactions expressly permitted
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under the Transaction Documents, and the other activities permitted by the
Trust Agreement.
(f) Mergers, Consolidations, Sales of Assets and
Acquisitions. Merge into or consolidate with any other Person, or permit any
other Person to merge into or consolidate with it, or sell, transfer, lease or
otherwise dispose of (in one transaction or in a series of transactions) any of
its assets, including the Collateral (whether now owned or hereafter acquired),
or purchase, lease or otherwise acquire (in one transaction or a series of
transactions) any of the assets of any other Person, other than the acquisition
of Receivables and the sale of Purchased Receivables pursuant to the Purchase
and Servicing Agreement and the repayment of the Notes and the Subordinated
Note pursuant to this Indenture and the Purchase and Servicing Agreement.
(g) Transactions with Affiliates. Sell or
transfer any property or assets to, or purchase or acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates except as permitted under this Indenture and the Purchase and
Servicing Agreement.
(h) Other Agreements. Enter into or be a party
to any agreement, instrument or transaction other than the Transaction
Documents and the agreements, documents, instruments and transactions related
thereto or contemplated thereby.
(i) No Powers of Attorney. Grant any powers of
attorney to any Person for any purposes except (1) for the purpose of
permitting any Person to perform any ministerial functions on behalf of the
Issuer that are not prohibited by or inconsistent with the terms of the
Transaction Documents or (2) as permitted or contemplated by the Transaction
Documents.
ARTICLE IX
REDEMPTIONS
Section 9.01. Optional Full Redemption of the Notes. The
Notes may be redeemed at the option of the Trust, in whole but not in part (an
"Optional Full Redemption"), on any Payment Date commencing with the
Amortization Commencement Date (an "Optional Full Redemption Date"). The
purchase price for an Optional Full Redemption (the "Optional Full Redemption
Price") for each Note shall equal the outstanding principal amount of each Note
to be redeemed together with accrued and unpaid interest thereon at the
applicable Note Rate to the Optional Full Redemption Date.
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Section 9.02. Partial Redemption of the Notes. The Notes
shall be redeemed at the option of the Trust in part (a "Partial Redemption"),
on the Payment Date occurring not earlier than two weeks after an Optional
Redemption Announcement Date (a "Partial Redemption Date"), pro rata in
accordance with the outstanding principal amount of each class of Notes, in an
amount equal to the Partial Redemption Amount, if (i) one of the Seller
Divisions is sold to an unaffiliated purchaser (a "Division Sale Optional
Redemption") or (ii) the amount of funds in the Excess Funding Account has
equaled or exceeded $60 million on each of the two Determination Dates
preceding such Optional Redemption Announcement Date (an "Excess Funding
Account Optional Redemption"). The redemption price for a Partial Redemption
(the "Partial Redemption Price") for each Note shall equal the sum of (i) the
outstanding principal amount of the Note so redeemed, (ii) accrued and unpaid
interest on the principal amount of such Note at the applicable Note Rate and
(iii) the Partial Redemption Premium.
Section 9.03. Mechanics of an Optional Full Redemption and
Partial Redemption. An Optional Full Redemption, a Division Sale Optional
Redemption and an Excess Funding Account Optional Redemption shall be effected
as follows:
(a) the Issuer, at its expense, shall provide a written notice
thereof to the Indenture Trustee not less than 15 Business
Days prior to the Optional Full Redemption Date or Partial
Redemption Date, as applicable (an "Optional Redemption
Notice"), which Optional Redemption Notice shall be
irrevocable and shall:
(1) identify the redemption as an Optional Full
Redemption, a Division Sale Optional Redemption or an
Excess Funding Account Optional Redemption;
(2) set forth the applicable Optional Full Redemption
Date or the Partial Redemption Date and in the case
of a Partial Optional Redemption, the aggregate
outstanding principal amount of Notes to be redeemed
for each $1,000 in original principal amount of Notes
and the Partial Redemption Premium to be paid;
(3) if such redemption is a Division Sale Optional
Redemption or an Excess Funding Account Optional
Redemption, provide that the Notes are being redeemed
on a pro rata basis; and
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(4) if Definitive Notes are outstanding, identify the
location where the Definitive Notes (or portion
thereof) being redeemed are to be surrendered for
payment;
(b) with respect to an Excess Funding Account Optional Redemption,
the Indenture Trustee shall promptly after receipt of the
Optional Redemption Notice withdraw from the Excess Funding
Account and deposit in the Optional Redemption Account an
amount equal to the aggregate outstanding principal amount of
Notes to be redeemed as set forth in the Optional Redemption
Notice;
(c) the Indenture Trustee shall provide to each Noteholder (with a
copy to the Issuer) a notice containing the information set
forth in Section 9.03(a) within 3 Business Days of the receipt
of such Optional Redemption Notice from the Issuer;
(d) the Issuer shall, not later than two (2) Business Days prior
to the Optional Full Redemption Date or any Partial Redemption
Date, provide each Noteholder and the Indenture Trustee by
facsimile transmission a written notice of the Optional Full
Redemption Price or the Partial Redemption Price, as the case
may be, including the Partial Redemption Premium, if any, for
each $1,000 in original principal amount of Notes, payable in
connection with such redemption (an "Optional Redemption
Premium Calculation"); and
(e) on the Optional Full Redemption Date or the Partial Redemption
Date, as applicable, the Optional Full Redemption Price or the
Partial Redemption Price, as the case may be, shall be paid as
follows:
(1) not later than 10:00 a.m. (New York City time) on
such Optional Full Redemption Date or Partial
Redemption Date, the Issuer shall deposit or cause to
be deposited with the Indenture Trustee, an amount of
immediately available funds that, together with funds
on deposit in the Optional Redemption Account, if
any, is sufficient to pay the Optional Full
Redemption Price or the Partial Redemption Price, as
the case may be, due and payable by the Issuer on
such Optional Full Redemption Date or Partial
Redemption Date with respect to the redemption of the
Notes (or that portion of the Notes) being redeemed;
and
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(2) after the deposit of such funds described in Section
9.03(e)(1) above, but not later than 1:00 p.m. (New
York City time) on such Optional Full Redemption Date
or Partial Redemption Date, the Indenture Trustee
shall (A) with respect to each Noteholder all or any
portion of the Notes of which are being redeemed on
such Optional Full Redemption Date or Partial
Redemption Date that is a Wire Transfer Payment
Recipient, wire transfer to such Noteholder, in
immediately available funds and pursuant to the
Account Payment Instructions of such Noteholder, that
portion of the Optional Full Redemption Price or the
Partial Redemption Price, as the case may be, due and
payable to such Noteholder with respect to such Notes
(or portion thereof) being redeemed, against
surrender by such Noteholder of such Notes; and (B)
with respect to each Noteholder all or any portion of
the Notes of which are being redeemed on such
Optional Full Redemption Date or Partial Redemption
Date that is not a Wire Transfer Payment Recipient,
make available, at the Indenture Trustee's Corporate
Trust Office, a check in the amount of that portion
of the Optional Full Redemption Price or the Partial
Redemption Price, as the case may be, due and payable
to such Noteholder with respect to such Notes (or
portion thereof) being redeemed, against surrender by
such Noteholder of such Notes.
Section 9.04. Amounts Due; Premium; Notice; Partial
Redemptions; Wire Transfer Payment Recipients. All amounts with respect to the
Notes (or that portion of the Notes) to be redeemed on any Optional Full
Redemption Date or Partial Redemption Date shall be due and payable on such
date and, from and after such date (unless the Issuer shall default on the
payment of such amounts), such Notes or portion thereof shall cease to bear
interest. The Partial Redemption Premium (1) shall be calculated by the Issuer
pursuant to the formula set forth in Annex III to this Indenture and (2) as set
forth in the Optional Redemption Premium Calculation, shall be binding upon the
Issuer and each Noteholder of the Notes. If by reason of the temporary or
permanent suspension of regular mail service or by reason of any other cause,
it shall be impracticable to give any notice prescribed by Section 9.03 of this
Indenture to the Noteholders, then such notification in lieu thereof as shall
be made by the Issuer shall constitute sufficient provision of such notice;
provided that, such notification shall, so far as may be
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practicable, approximate the terms and conditions of the notice in lieu of
which it is given. Neither the failure to give notice nor any defect in any
notice given to any particular Noteholder shall affect the sufficiency of any
notice with respect to any other Noteholder or any other Notes. Presentation
of the Notes are not required with respect to a Partial Redemption of any
Notes.
Section 9.05. Scheduled Redemption of the Notes.
(a) If the Issuer shall not have given notice by June 15, 1999 that it
will redeem the Notes in full on the Payment Date occurring in July, 1999, the
Servicer, on behalf of the Trustee and the Noteholders, will promptly solicit
bids for the purchase of all or a portion of the Receivables for a purchase
price that, together with funds on deposit in the Collateral Account and Excess
Funding Account and Investment Proceeds available for payment of the Notes on
the Scheduled Redemption Date, will be sufficient to pay in full (a) the
outstanding principal balance of the Notes, (b) Monthly Interest for each class
of Notes payable on the Scheduled Redemption Date and (c) any unpaid Servicing
Fees payable to the Servicer on or prior to the Scheduled Redemption Date. The
Servicer shall promptly, after receipt of any offer to purchase the Receivables,
inform the Seller of such offer and provide to the Seller a reasonably detailed
description of the terms of such offer. The Servicer shall, not less than three
Business Days prior to the Scheduled Redemption Date, sell such Receivables to
(i) the Seller at the purchase price equal to the highest offer received by the
Servicer for the sale of such Receivables, or (ii) the highest bidder for the
sale of such Receivables if the Seller does not purchase such Receivables. The
proceeds of any such sale of Receivables shall be deposited in the Collateral
Account and treated as Collections and shall be paid to the Noteholders on the
Scheduled Redemption Date.
(b) If the Servicer is unable to obtain a bid equal to the amount
required pursuant to subsection (a) above, an Amortization Period will commence
at the beginning of the August Cycle Month in 1999 and Collections will be
allocated on each Business Day pursuant to Section 5.03 and paid to the
Noteholders (together with funds on deposit in the Excess Funding Account
available for payment on the Payment Date occurring in September, 1999)
pursuant to Section 4.03(f).
Section 9.06. Mandatory Redemption. The Servicer shall, in
connection with any sale of a Seller Division, calculate the average of the Pro
Forma Net Yields for the three Settlement Periods immediately preceding the
Settlement Date on or immediately preceding the Optional Redemption
Announcement Date with respect to (x) all Receivables and (y) all Receivables
other
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than Receivables originated by such Seller Division. If the average of the Pro
Forma Net Yields calculated pursuant to clause (y) is less than (i) the excess
of (a) the average of the Pro Forma Net Yields calculated pursuant to clause
(x) over (b) 3.00%, or (ii) the average of (a) the Base Rates for such
Settlement Periods minus (b) 5.00%, the Issuer shall, on the Payment Date
occurring on or immediately following the date that is two weeks after the
Optional Redemption Announcement Date, redeem Notes in an aggregate outstanding
principal amount such that the remaining outstanding principal balance of the
Notes equals the Target Note Amount. The "Target Note Amount" shall equal an
amount such that, if substituted for the denominator of the Pro Forma Net
Yield, the resulting percentage equals the greater of the percentages set forth
in clauses (i) and (ii) of the preceding sentence.
ARTICLE X
REMEDIES OF THE TRUSTEE AND NOTEHOLDERS
Section 10.01. Early Amortization Events. The occurrence of
any of the following events shall constitute an "Early Amortization Event":
(a) failure to pay (1) principal of or interest on any of the
Notes (other than failure to pay the Partial Redemption Price
or Optional Full Redemption Price of any Notes) when the same
shall be due and payable, which failure continues unremedied
for three Business Days or (2) the Partial Redemption Price or
Optional Full Redemption Price of any Notes on the Partial
Redemption Date or Optional Full Redemption Date,
respectively, which failure continues unremedied for three (3)
Business Days;
(b) failure to cure a Borrowing Base Deficiency, which failure
continues unremedied for three (3) Business Days; or the
excess of (i) the aggregate principal amount of Eligible
Receivables over (ii) the Available Subordinated Amount shall
fail to equal or exceed the excess of (x) the outstanding
principal amount of the Notes over (y) the amount of funds on
deposit in the Excess Funding Account, which failure shall
continue unremedied for three (3) Business Days;
(c) breach by the Issuer under this Indenture of any covenant,
which breach remains unremedied for sixty (60)
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days after the Issuer's receipt of written notice of such
breach from the Indenture Trustee;
(d) breach by the Issuer under Section 13.03 of this Indenture
(pertaining to amendments or modifications to the Purchase and
Servicing Agreement), which breach remains unremedied for
thirty days after the Issuer's receipt of written notice of
such breach from the Indenture Trustee;
(e) an involuntary petition or any other pleading shall be filed
in a court of competent jurisdiction seeking (1) relief in
respect of the Issuer, the Seller or the Servicer or of a
substantial part of the property or assets thereof, under the
Bankruptcy Code, or any other Federal or state bankruptcy,
insolvency, receivership or similar law, (2) the appointment
of a receiver, trustee, custodian, sequestrator, conservator
or similar official for the Issuer, the Seller or the Servicer
or for a substantial part of the property or assets thereof or
(3) the winding-up or liquidation of the Issuer, the Seller
or the Servicer; and such proceeding, petition or pleading
shall continue undismissed for sixty (60) days;
(f) the Issuer, the Seller or the Servicer shall (1) voluntarily
commence any proceeding or file any petition seeking relief
under the Bankruptcy Code, or any other Federal or state
bankruptcy, insolvency, receivership or similar law, (2)
consent to the institution of, or fail to contest in a timely
manner, any proceeding or the filing of any petition described
in Section 10.01(e) above, (3) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Issuer, the Seller or
the Servicer or for a substantial part of the property or
assets thereof, (4) make a general assignment for the benefit
of creditors or (5) become unable, admit in writing its
inability or fail generally to pay its debts as they become
due;
(g) the due date of the indebtedness outstanding under the Working
Capital Credit Agreement shall be accelerated or the loans
thereunder shall mature and shall be unpaid;
(h) the average of the Base Rates for the Interest Periods
relating to any three (3) consecutive Payment Dates exceeds
the average of the Net Yields for the related Settlement
Periods by more than 6.00%;
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(i) failure by the Servicer to perform in any material respect its
obligations as Servicer under the Purchase and Servicing
Agreement, which failure would have a material adverse effect
on the rights and remedies of the Noteholders;
(j) the Issuer becoming required to register as an "investment
company" under the Investment Company Act;
(k) any representation or warranty in the Purchase and Servicing
Agreement shall prove to have been false or misleading in any
material respect when made and which continues to be incorrect
in any material respect for a period of sixty (60) days after
the Issuer's receipt of written notice thereof from the
Indenture Trustee and as a result of which the interest of the
Noteholders are materially and adversely affected; and
(l) the amount of funds in the Excess Funding Account shall exceed
$100 million for five (5) consecutive Business Days and the
Issuer shall not have provided notice to the Indenture Trustee
of a Partial Redemption in accordance with Section 9.03
hereof, which Partial Redemption shall be in an amount such
that after giving effect to the withdrawal from the Excess
Funding Account pursuant to Section 4.04(b) hereof, the amount
of funds remaining in the Excess Funding Account shall be less
than $100 million.
If any event described in clauses (a)(2), (c), (d), (i) or (k)
of Section 10.01 occurs, an Early Amortization Event shall be deemed to have
occurred only if, after the applicable grace period described in such clauses,
if any, either (A) the Indenture Trustee acting under the written direction of
the Majority Noteholders, by written notice to the Seller and the Servicer or
(B) the Majority Noteholders by written notice to the Issuer and the Indenture
Trustee declare that an Early Amortization Event has occurred as of the date of
such notice. If any event described in clauses (a)(1), (b), (e), (f), (g),
(h), (j) or (l) of Section 10.01 occurs, an Early Amortization Event shall be
deemed to have occurred immediately upon the occurrence of such event, without
any notice or other action on the part of the Indenture Trustee or the
Noteholders. The Early Amortization Period shall commence as of the day on
which the Early Amortization Event occurs.
Notwithstanding the foregoing, a delay in or failure in
performance referred to in clauses (a)(1) and (2) above for a
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period of ten (10) Business Days after the applicable grace period, or in
clauses (c), (h) or (j) above for a period of thirty (30) Business Days after
the applicable grace period, shall not constitute an Early Amortization Event
until the expiration of such additional ten (10) or thirty (30) Business Days,
respectively, if such delay or failure could not be prevented by the exercise
of reasonable diligence by the Issuer or the Servicer and such delay or failure
was caused by a Force Majeure. The Issuer and the Servicer shall nevertheless
be required to use their best efforts to perform their obligations in a timely
manner in accordance with the terms of the transaction documents, and the
Issuer and/or the Servicer, as applicable, shall promptly give the Indenture
Trustee and, in the case of such delay or failure in performance by the
Servicer, the Issuer, any provider of Enhancement, the Seller and noteholders
of each Series issued and outstanding prompt notice of such failure or delay by
it, together with a description of the cause of such failure or delay and its
efforts to perform its obligations.
Section 10.02. Remedies.
(a) Following the occurrence of an Early Amortization Event,
the Indenture Trustee, acting at the written direction of the Majority
Noteholders, may apply all or any part of the Collections to the payment of the
Secured Obligations of the Issuer under this Indenture or under any of the
other Transaction Documents, as provided herein, and all rights and remedies
provided under all other applicable laws, which rights, in the case of each and
all of the foregoing, shall be cumulative.
(b) The Issuer shall be deemed to have appointed the
Indenture Trustee its attorney-in-fact with full authority in its place and
stead, and in its name, to take any action and to execute any instrument
necessary to accomplish the purposes of this Indenture pursuant to and in
accordance with the terms of this Indenture, including without limitation to
(1) ask, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in
connection with the Collateral, (2) settle, compromise, compound, prosecute or
defend any action or proceeding with respect to the Collateral, (3) receive,
endorse and collect all drafts or other instruments and documents made payable
to the Issuer in connection therewith or representing any payment, dividend or
other distribution in respect of the Collateral or any part or proceeds
thereof, and give full discharge for the same or (4) extend the time of payment
of or make any allowance or adjustment with respect to any or all of the
Collateral.
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Section 10.03. Additional Rights Upon the Occurrence of
Certain Events. (a) If an Insolvency Event shall occur with respect to the
Seller, this Agreement and the Trust shall be deemed to have terminated on the
sixty-first day following the Publication Date subject to the last paragraph of
this subsection (a); provided, that within fifteen days of the date of written
notice to an Authorized Officer of the Indenture Trustee of such Insolvency
Event, the Indenture Trustee shall:
(i) publish a notice in an Authorized Newspaper that an
Insolvency Event has occurred with respect to the Seller and that the
Indenture Trustee intends to sell, dispose of or otherwise liquidate
the Receivables and the related transferred assets pursuant to this
Indenture in a commercially reasonable manner and on commercially
reasonable terms, which shall include the solicitation of competitive
bids (a "Disposition"); and
(ii) send written notice substantially in the form set forth
in Exhibit E hereto via Federal Express or another similar overnight
courier to the Noteholders describing the provisions of this Section
10.03 and requesting each Noteholder to advise the Indenture Trustee
in writing whether or not it wishes the Indenture Trustee to instruct
the Servicer not to effectuate a Disposition.
If, after sixty (60) days from the day notice pursuant to
clause (a)(i) is first published (the "Publication Date"), the Indenture
Trustee shall not have received the written instruction described in clause
(a)(ii) above from a majority in aggregate principal amount of the noteholders
of any class, the Indenture Trustee shall instruct the Servicer to effectuate a
Disposition, and the Servicer shall proceed to consummate a Disposition. If,
however, a majority in the aggregate principal amount of the noteholders of any
class instruct the Indenture Trustee not to effectuate a Disposition, the Trust
shall continue pursuant to the terms of this Agreement.
(b) Notwithstanding the termination of this Agreement and the
Trust pursuant to clause (a), the proceeds from any Disposition of the
Receivables and the related transferred assets pursuant to clause (a) shall be
treated as Collections on the Receivables and shall be deposited in the
Collateral Account.
(c) The Indenture Trustee may appoint an agent or agents to
assist with its responsibilities pursuant to this Section 10.03 with respect to
competitive bids.
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(d) The Seller or any of its Affiliates shall be permitted to
bid for the Receivables and the related transferred assets. The Indenture
Trustee may obtain a prior determination from any bankruptcy trustee, receiver
or liquidator that the terms and manner of any proposed Disposition are
commercially reasonable.
(e) Notwithstanding the termination of this Indenture and the
Trust pursuant to clause (a), the Indenture Trustee shall continue to have the
rights described in Section 10.02 and Article XI, and be subject to direction
on terms consistent with those set out in Section 10.07, pending the completion
of any Disposition and/or the reconstitution of the Trust.
Section 10.04. Indenture Trustee May Enforce Claims Without
Possession of the Notes. All rights of action and claims under this Indenture
and the Notes may be prosecuted and enforced by the Indenture Trustee without
the possession of any of the Notes or the production thereof in any Proceeding
relating thereto, and any such Proceeding instituted by the Indenture Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Indenture Trustee, be
for the ratable benefit of the Noteholders. In any Proceedings brought by the
Indenture Trustee (including without limitation any Proceeding involving the
interpretation of any provision of this Indenture), the Indenture Trustee shall
be held to represent all the Noteholders, and it shall not be necessary to make
any Noteholders parties to any such Proceeding.
Section 10.05. Restoration of Rights. In the event the
Indenture Trustee or any Noteholder has instituted any Proceeding to enforce
any right or remedy under this Indenture, and such Proceeding shall have been
discontinued or abandoned for any reason, or shall have been determined
adversely to the Indenture Trustee or such Noteholder, then and in every such
case the Issuer, the Indenture Trustee and the Noteholders shall, subject to
any determination in such Proceeding, be restored severally and respectively to
their former positions and rights under this Indenture, and all rights,
remedies and powers of the Issuer, the Indenture Trustee and the Noteholders
shall continue as though no such Proceeding had been instituted.
Section 10.06. Limitations on Suits by Noteholders. No
Noteholder shall have any right to institute any Proceeding, judicial or
otherwise, upon, under or with respect to this Indenture or the Notes, or for
the appointment of a receiver,
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trustee, custodian, sequestrator, conservator or similar official, or for any
other remedy under this Indenture or the Notes, unless:
(a) such Noteholder shall have previously given written notice to
the Indenture Trustee and to the Issuer of a continuing Early
Amortization Event;
(b) the Majority Noteholders shall have previously (1) made
written request to the Indenture Trustee to institute, or to
cause the institution of, Proceedings in respect of such Early
Amortization Event in its own name as Indenture Trustee under
this Indenture and (2) offered to the Indenture Trustee
reasonable indemnity against the costs, expenses and
liabilities that may reasonably be incurred by the Indenture
Trustee in compliance with such request;
(c) the Indenture Trustee, for sixty (60) days after its receipt
of such notice, request and offer of indemnity, has failed to
institute any such Proceeding; and
(d) no direction inconsistent with such request has been given to
the Indenture Trustee during such sixty (60) day period by the
Majority Noteholders;
it being understood and intended that no Noteholder or Noteholders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture or the Notes to affect, disturb or prejudice the rights of
any other Noteholder or Noteholders, or to obtain or to seek to obtain priority
or preference over any other such Noteholder or Noteholders (except as set
forth in this Indenture) or to enforce any right under this Indenture or the
Notes, except in the manner provided in this Indenture and for the equal and
proportionate benefit of all the Noteholders.
Section 10.07. Control by Noteholders. Pursuant to the terms
and provisions of this Indenture, the Majority Noteholders are authorized to
direct the Indenture Trustee to take all actions on behalf of the Noteholders
under this Indenture, the Notes and the other Transaction Documents and to
direct the time, method and place of conducting any Proceeding for any remedy
available to the Indenture Trustee or the Noteholders, or the exercising of any
trust or power conferred on the Indenture Trustee under this Indenture, the
Notes or the other Transaction Documents; provided that, such direction shall
not conflict with any rule of law or this Indenture, the Notes or the other
Transaction Documents; and provided further that, subject to the provisions of
Section 11.01
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of this Indenture, the Indenture Trustee shall have the right to decline to
follow any such direction (1) if the Indenture Trustee is advised pursuant to
the advice or an opinion of counsel that the action or Proceeding so directed
may not lawfully be taken or (2) if an Authorized Officer of the Indenture
Trustee determines in good faith that the action or Proceeding so directed
would involve the Indenture Trustee in personal liability. Nothing in this
Indenture shall impair the right of the Indenture Trustee in its discretion to
take any action deemed proper by the Indenture Trustee and which is not
inconsistent with any direction by the Majority Noteholders.
Section 10.08. Indenture Trustee To Give Notice of Early
Amortization Event, But May Withhold in Certain Circumstances. The Indenture
Trustee shall transmit to the Noteholders and each Rating Agency notice of any
Early Amortization Event known to an Authorized Officer of the Indenture
Trustee, such notice to be transmitted within fifteen (15) days after the
occurrence thereof; provided, however, that the Indenture Trustee shall not be
required to transmit to the Noteholders such notice if such Early Amortization
Event shall have been cured before the giving of such notice.
ARTICLE XI
CONCERNING THE TRUSTEE
Section 11.01. Duties and Responsibilities of the Indenture
Trustee; Prior to Early Amortization Event; After Early Amortization Event.
Except as otherwise required by law, the Indenture Trustee, prior to the
occurrence of an Early Amortization Event and after the curing or waiving of
all Early Amortization Events which may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in this
Indenture. Except as otherwise required by law, prior to the occurrence of an
Early Amortization Event and after the curing or waiving of all Early
Amortization Events which may have occurred, the Indenture Trustee shall at all
times exercise reasonable care with respect to the Collateral. The Indenture
Trustee shall be deemed to have exercised reasonable care with respect to the
Collateral if the Collateral is accorded treatment substantially equal to that
which the Indenture Trustee accords its own property. If an Early Amortization
Event of which an Authorized Officer has knowledge of has occurred (which has
not been cured or waived), the Indenture Trustee shall exercise such of the
rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent man would
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exercise or use under the circumstances in the conduct of his own affairs. If
an Early Amortization Event of which an Authorized Officer has knowledge of has
occurred (which has not been cured or waived), the Indenture Trustee shall at
all times exercise such care with respect to the Collateral as a prudent man
would exercise with respect to his own property. No provision of this
Indenture shall be construed to relieve the Indenture Trustee from liability
for its own negligent action, its own negligent failure to act or its own
wilful misconduct, provided that:
(a) prior to the occurrence of an Early Amortization Event and
after the curing or waiving of all such Early Amortization
Events which may have occurred:
(1) the duties and obligations of the Indenture Trustee
shall be determined solely by the express provisions
of this Indenture, and the Indenture Trustee shall
not be liable except for the performance of such
duties and obligations as are specifically set forth
in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against
the Indenture Trustee; and
(2) in the absence of bad faith on the part of the
Indenture Trustee, the Indenture Trustee may
conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed
therein, upon any statements, certificates or
opinions furnished to the Indenture Trustee and
conforming to the requirements of this Indenture; but
in the case of any such statements, certificates or
opinions which by any provision of this Indenture are
specifically required to be furnished to the
Indenture Trustee, the Indenture Trustee shall be
under a duty to examine the same to determine whether
or not they conform to the requirements of this
Indenture;
(b) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by an Authorized Officer of the
Indenture Trustee, unless it shall be proved that the
Indenture Trustee was negligent in ascertaining the pertinent
facts;
(c) the Indenture Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good
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faith in accordance with the written direction of the Majority
Noteholders relating to the time, method and place of
conducting any Proceeding for any remedy available to the
Indenture Trustee, or exercising any trust or power conferred
upon the Indenture Trustee, under this Indenture or any Series
Supplement;
(d) the Indenture Trustee shall not be charged with knowledge of
any failure by the Servicer to comply with any of its
obligations under the Purchase and Servicing Agreement unless
an Authorized Officer of the Indenture Trustee obtains actual
knowledge of such failure or the Indenture Trustee receives
written notice of such failure;
(e) the Indenture Trustee shall not be charged with knowledge of
an Early Amortization Event unless an Authorized Officer
obtains actual knowledge of such event or the Indenture
Trustee receives written notice of such event from the
Servicer or the Majority Noteholders;
(f) the Indenture Trustee shall have no duty to monitor the
performance of the Servicer, nor shall it have any liability
in connection with malfeasance or nonfeasance by the Servicer
provided, however, that the Trustee shall forward to the
Noteholders any reports, certificates, or other documents
required to be delivered pursuant to this Indenture and the
Purchase and Servicing Agreement; the Indenture Trustee shall
have no liability in connection with compliance of the
Servicer or the Seller with statutory or regulatory
requirements related to the Receivables; the Indenture Trustee
shall not make or be deemed to have made any representations
or warranties with respect to the Receivables or the validity
or sufficiency of any assignment of the Receivables to the
Trust or the Indenture Trustee; and
(g) the Indenture Trustee shall not be required to expend or risk
its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or under any
Series Supplement or in the exercise of any of its rights or
powers, if there is reasonable ground for believing that the
repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
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Section 11.02. Certain Rights of the Indenture Trustee.
Subject to Section 11.01 of this Indenture:
(a) the Indenture Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting, as applicable,
in accordance with any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture or other paper or document
believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) unless expressly required otherwise, any request or direction
of the Issuer mentioned in this Indenture shall be
sufficiently evidenced by a written request or order signed by
an Authorized Officer of the Owner Trustee;
(c) whenever in the administration of this Indenture the Indenture
Trustee shall deem it desirable that a matter (including
without limitation an Early Amortization Event) be proved or
established prior to taking, suffering or omitting any action
hereunder, the Indenture Trustee (unless other evidence be
herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon a certificate of a Financial
Officer of the Servicer;
(d) the Indenture Trustee may consult with counsel and the advice
of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and
in reliance thereon;
(e) the Indenture Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at
the request or direction of any of the Noteholders pursuant to
this Indenture, unless such Noteholders shall have offered to
the Indenture Trustee reasonable indemnity against the costs,
expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(f) prior to the occurrence of an Early Amortization Event and
after the curing or waiving of all such Early Amortization
Events which may have occurred, the Indenture Trustee shall
not be bound to make any investigation into the facts or
matters stated in any
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resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond,
debenture or other paper or document, unless so requested in
writing by the Majority Noteholders, but the Indenture
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit,
and, if the Indenture Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to
examine, upon two (2) Business Days prior notice and during
normal business hours, the books, records and premises of the
Issuer, Seller or Servicer, personally or by agent or
attorney;
(g) the Indenture Trustee may execute any of the trusts or powers
under this Indenture or perform any duties under this
Indenture either directly or through agents, attorneys,
custodians or nominees, and the Indenture Trustee shall not be
responsible for any misconduct or negligence on the part of,
or for the supervision of, any such agent, attorney, custodian
or nominee appointed with due care by it hereunder;
(h) the Indenture Trustee shall not be personally liable for any
action taken, suffered or omitted by it in good faith and
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Indenture or any
Supplement;
(i) the Indenture Trustee shall not be required to make any
initial or periodic examination of any documents or records
related to the Receivables for the purpose of establishing the
presence or absence of defects, the compliance by the Seller
with its representations and warranties or for any other
purpose; and
(j) when the Indenture Trustee incurs expenses or renders services
in connection with an Insolvency Event, such expenses
(including the fees and expenses of its counsel) and the
compensation for such services are intended to constitute
expenses of administration under any bankruptcy law.
Section 11.03. Certificate of Authorized Officer and Opinion
of Counsel. Upon any application or request by the Issuer to the Indenture
Trustee to take any action under any provision of this Indenture, the Issuer
shall furnish to the Indenture Trustee a certificate of an Authorized Officer
of the Issuer stating that
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all conditions precedent, if any (including any covenants compliance with which
constitutes a condition precedent), provided for in this Indenture relating to
the proposed action have been complied with and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any
(including any covenants compliance with which constitutes a condition
precedent), have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished. Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include (1) a
statement that each individual signing such certificate or opinion has read
such covenant or condition and the definitions in this Indenture relating
thereto, (2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based, (3) a statement that, in the opinion of each
such individual, he has made such examination or investigation as is necessary
to enable him to express an informed opinion as to whether or not such covenant
or condition has been complied with and (4) a statement as to whether, in the
opinion of each such individual, such condition or covenant has been complied
with.
Section 11.04. Indemnification.
The Issuer agrees to indemnify and hold harmless the Indenture
Trustee and each Noteholder and each of its respective directors, officers,
employees and agents from and against any and all liabilities, losses, claims,
damages, actions, suits, judgments, demands, costs and expenses (including
reasonable legal fees and expenses) sustained by reason of any acts, omissions
or alleged acts or omissions relating to or arising out of the activities of
the Trust or the Indenture Trustee pursuant to this Indenture or in connection
with the Issuer's performance under this Indenture or the Purchase and
Servicing Agreement, except to the extent such liabilities, losses, claims,
damages, actions, suits, judgments, demands, costs or expenses are caused by
the gross negligence or wilful misconduct of the Indenture Trustee or any of
its directors, officers, employees or agents. Notwithstanding the foregoing,
the rights of the Indenture Trustee hereunder to indemnification from the
Issuer shall be subordinated to the rights of the Noteholders to
indemnification hereunder from the Issuer and payments to the Indenture Trustee
in respect of such indemnification shall be payable solely from amounts
available for distribution to the Trust pursuant to Article V hereof. The
Indenture Trustee's rights and remedies in respect of
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claims for indemnification from the Issuer hereunder shall be subject to the
provisions of Section 14.08 hereof. The indemnity set forth in this Section
11.04 shall survive the resignation or removal of the Indenture Trustee and the
satisfaction or discharge termination of this Indenture.
Section 11.05. Fees and Expenses of the Indenture Trustee.
The fees and expenses of the Indenture Trustee will be paid out of the
Servicing Fee paid to the Servicer pursuant to Section 6.02 of the Purchase and
Servicing Agreement.
Section 11.06. Acts of Noteholders. Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by an agent duly appointed in writing; and,
except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Indenture
Trustee, and where it is hereby expressly required, to the Issuer or any other
Person. Proof of execution of any such instrument or of a writing appointing
any such agent shall be sufficient for any purpose of this Indenture or any
other Transaction Document and (subject to Section 11.01 of this Indenture)
conclusive in favor of the Indenture Trustee and the Issuer, if made in the
manner provided in this Section 11.06. The fact and date of the execution by
any Person of any such instrument or writing may be proved by the affidavit of
a witness to such execution or by the certificate of any notary public or other
officer authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him the execution
thereof. Where such execution is by an officer of a corporation or a member of
a partnership, on behalf of such corporation or partnership, such certificate
shall also constitute sufficient proof of his authority. The fact and date of
the execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner that the Indenture
Trustee deems sufficient. Any request, demand, authorization, direction,
notice, consent, waiver or other action by any Noteholder shall bind the
Noteholder of every Note issued upon the transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done or suffered to be done
by the Indenture Trustee or the Issuer in reliance thereon whether or not
notation of such action is made upon such Note. The ownership of a Note for
the purpose of this Section 11.06 shall be proved by the Note Register.
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Section 11.07. Payments on the Notes. On each Payment Date
(whether during the Interest-Only Period or the Amortization Period), the
Indenture Trustee shall effect all payments with respect to the Notes pursuant
to and in accordance with the terms of this Indenture.
Section 11.08. Documents and Information. Whenever the
Indenture Trustee has the right to require the delivery of information pursuant
to this Indenture or any other Transaction Document, the Indenture Trustee
shall, acting at the written direction of the Majority Noteholders, request the
delivery of such information pursuant to such document. The Indenture Trustee
shall make available copies of any document, report or schedule delivered to it
pursuant to this Indenture or any other Transaction Document for inspection
upon the written request of any of the Noteholders, and shall forward a copy of
any such document, report or schedule to any Noteholder, at such Noteholder's
expense, upon the written request of such Noteholder. The Indenture Trustee
shall also furnish a copy of any such document, report or schedule to each
Rating Agency at the expense of the Issuer. The Indenture Trustee shall, upon
a Noteholder's written request, advise the Noteholder to the extent then known
of (1) the amount of interest and Monthly Principal due on the next Payment
Date with respect to each $1,000 in principal amount of the Notes and with
respect to the outstanding principal amount of all Notes, and (2) the
outstanding principal amount of each Note and the outstanding principal amount
of all Notes.
Section 11.09. Application of Funds; Return of Unclaimed
Funds. Until used or applied as provided in this Indenture, all funds received
by the Indenture Trustee under this Indenture shall be held in trust for the
purposes for which they were received, shall be uninvested for as long as such
funds are held in trust (unless otherwise provided by this Indenture) and shall
be segregated from other funds of the Indenture Trustee to the extent required
by law and under this Indenture. The Indenture Trustee shall be under no
liability for interest on any funds received by it except as otherwise agreed
with the Issuer. Any funds deposited with the Indenture Trustee for the
payment of principal of, and premium (if any) or interest on, the Notes, and
remaining unclaimed for two years after the date upon which such principal,
premium or interest became due and payable, shall be repaid to the Issuer by
the Indenture Trustee upon demand, and any Noteholder to which such deposit
related previously entitled to receive payment thereof shall thereafter, as an
unsecured general creditor, look only to the Issuer for the payment thereof,
and all liability of the Indenture Trustee with respect to such funds shall
thereupon cease.
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Section 11.10. Forwarding of Notices. If the Indenture
Trustee shall receive any notice, demand or other written communication from
any Noteholder pursuant or related to this Indenture, the Notes or any other
Transaction Documents, the Indenture Trustee shall promptly forward a copy of
such notice, demand or other written communication to the Issuer.
Section 11.11. Notes Held by the Indenture Trustee; Rights of
Indenture Trustee. The Indenture Trustee, in its individual or other capacity,
may become the owner or pledgee of the Notes with the same rights it would have
if it were not acting as Indenture Trustee under this Indenture. The Indenture
Trustee may become a creditor, directly or indirectly, of the Issuer or any of
its Affiliates or agencies, make any loan or loans thereto, hold or become a
pledgee of any form of indebtedness thereof (including without limitation the
Notes), own, accept or negotiate any drafts, bills of exchange, acceptances or
obligations thereof, make disbursements therefor and enter into any commercial
or business arrangement therewith without limitation, all without any liability
on the part of the Indenture Trustee under this Indenture for any real or
apparent conflict of interest by reason of any such dealing.
Section 11.12. Inspection. Upon reasonable notice to the
Indenture Trustee, the Issuer may, at its sole cost and expense, during normal
business hours, inspect and photocopy any Notes held by the Indenture Trustee,
any books of registration and transfer relating to the Notes, and any other
books and records maintained by the Indenture Trustee under this Indenture or
any other Transaction Document. Upon reasonable notice to the Indenture
Trustee, the Noteholders may, at their sole cost and expense, during normal
business hours, inspect and photocopy all relevant books, records and notices
furnished to or available to the Indenture Trustee under or in connection with
this Indenture.
Section 11.13. Indenture Trustee; Resignation; Removal;
Successors. The Issuer agrees, for the benefit of the Noteholders, that there
shall at all times be a Indenture Trustee under this Indenture until such time
as there are no longer any Notes outstanding under this Indenture, which
Indenture Trustee (1) shall be a bank or trust company organized, doing
business and in good standing under the laws of the United States of America or
of the State of New York with a combined capital and surplus of at least $250
million, (2) shall have a long-term debt rating not less than BBB by Standard
& Poor's and, if rated by Duff & Phelps, BBB by Duff & Phelps, or shall
otherwise be acceptable to Standard & Poor's and to Duff & Phelps, (3) shall
have its principal place of business in the Borough of Manhattan, the City of
New York and
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(4) shall be authorized under the laws of the United States of America or of the
State of New York to exercise corporate trust powers. The Indenture Trustee may
at any time resign by giving written notice to the Issuer and the Noteholders of
its resignation (which notice shall also be delivered to each Rating Agency),
specifying the date on which its resignation shall become effective (which shall
not be less than sixty (60) days after the date on which such notice is given
unless the Issuer and the Majority Noteholders shall agree to a shorter period);
provided that, no resignation shall take effect until the appointment of a
successor Indenture Trustee and the acceptance of such appointment by such
successor Indenture Trustee in accordance with this Section 11.13. The
Indenture Trustee may at any time be removed by the Majority Noteholders by
written notice (which notice shall also be delivered to each Rating Agency) from
the Majority Noteholders to the Issuer and the Indenture Trustee specifying the
date on which such removal shall become effective; provided that, no removal
shall take effect until the appointment of a successor Indenture Trustee and the
acceptance of such appointment by such successor Indenture Trustee in accordance
with this Section 11.13. If at any time the Indenture Trustee shall resign, or
shall be removed, or shall become incapable of acting, or shall be adjudged a
bankrupt or insolvent, or shall file a voluntary petition in bankruptcy or make
an assignment for the benefit of its creditors or consent to the appointment of
a receiver or conservator of all or any substantial part of its property, or
shall generally not be paying its debts as they become due, or if an order of
any court shall be entered approving any petition filed by or against it under
the provisions of Chapter 7 or 11 of Title 11 of the Bankruptcy Code or under
the provisions of any similar legislation, or if a receiver or custodian of it
or of all or any substantial part of its property shall be appointed, or if any
public officer shall have taken charge or control of the Indenture Trustee or of
its property or affairs, for the purpose of rehabilitation, conservation or
liquidation, a successor Indenture Trustee, qualified as aforesaid, shall be
appointed as follows:
(a) (1) so long as no Early Amortization Event shall have
occurred and be continuing at the time of receipt by
the Issuer of such resignation notice or removal
notice, or the time of such incapability of acting,
adjudication, filing, assignment, consent, nonpayment
of debts, entry of court order, appointment, or
taking of charge or control, as the case may be, the
successor Indenture Trustee shall be appointed by the
Issuer, with the consent of the Majority Noteholders
(which consent shall not be
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unreasonably withheld); provided that, if the Issuer
and the Majority Noteholders fail to agree on a
successor Indenture Trustee within thirty (30) days
after such receipt, incapability of acting,
adjudication, filing, assignment, consent, nonpayment
of debts, entry of court order, appointment, or taking
of charge or control, as the case may be, the
successor Indenture Trustee shall be appointed by the
Majority Noteholders; and
(2) so long as an Early Amortization Event shall have
occurred and be continuing at the time of receipt by
the Issuer of such resignation notice or removal
notice, or the time of such incapability of acting,
adjudication, filing, assignment, consent, nonpayment
of debts, entry of court order, appointment, or
taking of charge or control, as the case may be, the
successor Indenture Trustee shall be appointed by the
Majority Noteholders; and
(b) the successor Indenture Trustee shall accept its appointment
as Indenture Trustee under this Indenture by the execution and
delivery of an instrument of appointment, acceptance and
succession, whereupon (1) the predecessor Indenture Trustee
shall (A) cease to be Indenture Trustee under this Indenture
and (B) at the written direction of the Issuer and the
Majority Noteholders deliver and pay over to the successor
Indenture Trustee any and all securities, moneys and any other
properties then in its possession as Indenture Trustee, and
execute all such documents and take all such other actions as
may be necessary or advisable to effect the succession and (2)
the successor Indenture Trustee, without any further act, deed
or conveyance, shall succeed to and become vested with all the
authority, rights, powers, trusts, immunities, duties and
obligations of such predecessor Indenture Trustee, with like
effect as if originally named as such Indenture Trustee under
this Indenture.
If no successor Indenture Trustee shall have been so appointed and shall have
accepted such appointment within sixty (60) days after the receipt by the
Issuer of the predecessor Indenture Trustee's notice of resignation, the
predecessor Indenture Trustee may, on behalf of the Majority Noteholders,
appoint a successor Indenture Trustee, which shall be qualified as required in
this Section
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11.13. Upon any succession of the Indenture Trustee under this Indenture
(notice of which shall be provided to each Rating Agency), the predecessor
Indenture Trustee shall be entitled to the payment of compensation and
reimbursement agreed to under this Indenture for services rendered and expenses
incurred. After any succession of the Indenture Trustee under this Indenture,
the provisions of Section 11.04 of this Indenture shall inure to the benefit of
the predecessor Indenture Trustee as to any action taken or omitted to be taken
by it while it was Indenture Trustee under this Indenture. The Majority
Noteholders shall give prompt written notice of the appointment of a successor
Indenture Trustee to all of the Noteholders. No Indenture Trustee under this
Indenture shall be personally liable for any action or omission of any
successor Indenture Trustee.
Section 11.14. Merger and Consolidation. Any corporation
into which the Indenture Trustee may be merged or converted or with which it
may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which the Indenture Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Indenture Trustee, shall be the successor of the Indenture
Trustee under this Indenture, without the execution or filing of any paper or
any further act on the part of any of the parties hereto and shall be required
to meet the requirements of Section 11.13 of this Indenture. In case any Notes
shall have been authenticated, but not delivered, by the Indenture Trustee then
in office, any successor by merger, conversion or consolidation to such
authenticating Indenture Trustee may adopt such authentication and deliver the
Notes so authenticated with the same effect as if such successor Indenture
Trustee had itself authenticated such Notes.
Section 11.15. Separate Indenture Trustees or Co-Trustees.
For purposes of meeting the legal requirements of certain local jurisdictions,
the Indenture Trustee shall have the power to appoint a co-trustee or separate
trustees of all or any part of the Issuer. In the event of such appointment,
all rights, powers, duties and obligations conferred or imposed upon the
Indenture Trustee by the Indenture shall be conferred or imposed upon the
Indenture Trustee and such separate trustee or co-trustee jointly, or, in any
jurisdiction in which the Indenture Trustee shall be incompetent or unqualified
to perform certain acts, singly upon such separate trustee or co-trustee who
shall exercise and perform such rights, powers, duties and obligations solely
at the direction of the Indenture Trustee.
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ARTICLE XII
DISCHARGE OF INDENTURE
Section 12.01. Satisfaction and Discharge of Indenture. This
Indenture shall cease to be of further effect, and the Indenture Trustee, on
demand of and at the expense of the Issuer, shall execute all proper
instruments acknowledging satisfaction and discharge of this Indenture, when
either (1) all Notes theretofore authenticated and delivered (other than Notes
which have been destroyed, lost or stolen and which have been replaced, and
Notes for payment of which money has theretofore been deposited with the
Indenture Trustee at the direction of the Issuer and held in trust by the
Indenture Trustee and thereafter repaid to the Issuer and discharged from such
trust, as provided in Section 11.09 of this Indenture) have been delivered to
the Indenture Trustee canceled or for cancellation and the Issuer has paid all
sums payable by it under this Indenture, any Series Supplement and under such
Notes with respect to such Notes or (2) the Issuer has deposited or caused to
be deposited with the Indenture Trustee as funds in trust for the benefit of
the Noteholders an amount sufficient (without giving effect to any income or
earnings therefrom), in the written opinion of a firm of nationally recognized,
independent certified public accountants (which firm may also render other
services to the Issuer or any Affiliate thereof) delivered to the Indenture
Trustee, to pay and discharge the entire indebtedness on the Notes for
principal and interest and premium, if any, and the Issuer has delivered to the
Indenture Trustee an Opinion of Counsel stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture with respect to the Notes have been complied with. Notwithstanding
the satisfaction and discharge of this Indenture with respect to the Notes, the
obligations under Sections 11.04, 11.05 and 11.09 of this Indenture shall
survive such satisfaction and discharge.
ARTICLE XIII
AMENDMENTS
Section 13.01. Modification of Terms without Consent of
Noteholders. Modifications of and amendments to this Indenture or the Notes
may be made by the Issuer and the Indenture Trustee without the consent of any
Noteholder for the purpose of curing any ambiguity, or curing, correcting or
supplementing any provisions contained in this Indenture or the Notes that may
be defective or inconsistent with any other provision contained in
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this Indenture or the Notes or in any other manner which the Issuer and the
Indenture Trustee may deem necessary or desirable and which shall not adversely
affect the interests of the Noteholders. In addition, except for the items set
forth in Section 13.02 below, modifications of and amendments to this Indenture
or the Notes may be made by the Issuer and the Indenture Trustee without the
consent of any Noteholder (a) if each of the Rating Agencies have provided
confirmation to the Issuer and the Indenture Trustee that such amendment or
waiver shall not result in a reduction or removal of the rating of any class of
the Notes or (b) in order to maintain the rating of the Notes. Any such
modifications or waivers of or amendments to this Indenture or the Notes shall
be conclusive and binding on all Noteholders and on all future Noteholders,
whether or not notation of such modifications, waivers or amendments is made
upon the Notes.
Section 13.02. Modifications of Terms with Consent of
Noteholders. Modifications of and amendments to this Indenture or the Notes
may also be made, and future compliance therewith or past default by the Issuer
thereunder may be waived, with the consent of the Majority Noteholders;
provided that, no such modification or amendment to the Indenture or any Note,
and no waiver of the terms and conditions of the Indenture or any Note, may,
without the consent of the Noteholder of each such Note affected thereby, (1)
change the Scheduled Redemption Date or a Series Termination Date or the method
of determining the required amounts of principal payments on, any Note, (2)
reduce the amount of Monthly Principal, premium (if any) or interest payable
with respect to such Note, (3) change the date of payment of principal, premium
(if any) or interest with respect to such Note, (4) change the currency in
which the payment of principal, premium (if any) or interest with respect to
such Note is payable, (5) impair the right to institute suit for the
enforcement of any payment due and payable with respect to such Note, (6)
reduce the above-stated percentage of the outstanding principal amount of
Notes, the consent of whose Noteholders is necessary to modify or amend this
Indenture or the Notes or to waive future compliance therewith or past default
thereunder, (7) change the method of calculating the Optional Full Redemption
Price, (8) change any provision with respect to the optional redemption of the
Notes or (9) change any provision regarding the law governing the Transaction
Documents. Any such modifications of or amendments to, or waivers with respect
to, this Indenture or the Notes shall be conclusive and binding on all
Noteholders and on all future Noteholders, whether or not notation of such
modifications, amendments or waivers is made upon the Notes. Any instrument
given by or on behalf of any Noteholder of a Note in connection with any
consent to any such modification, amendment or waiver shall be irrevocable once
given
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and shall be conclusive and binding on all subsequent Noteholders of such Note.
Any amendment or modification consented to by the Noteholders shall be not be
effective unless each of the Rating Agencies has provided confirmation to the
Issuer and the Indenture Trustee that such amendment or waiver shall not result
in reduction or removal of the rating of any class of the Notes.
Section 13.03. Amendment of the Purchase and Servicing
Agreement. Except as expressly provided otherwise in this Indenture, no
amendment shall be made to the Purchase and Servicing Agreement that would
adversely affect in any material respect the interests of the Noteholders or
the Indenture Trustee unless the Majority Noteholders or Indenture Trustee, as
applicable, have consented to such amendment; provided, however, that such
amendment shall be deemed to not adversely affect in any material respect the
interests of the Noteholders or the Indenture Trustee (a) if each of the Rating
Agencies has provided confirmation to the Issuer and the Indenture Trustee that
such amendment or waiver shall not result in reduction or removal of the rating
of any class of the Notes or (b) if such amendment is necessary to maintain the
ratings of the Notes; provided, further, that such amendment or waiver shall
not have a material adverse effect against the Indenture Trustee's interest.
Section 13.04. Rating Agencies. This Agreement may not be
amended unless the Issuer shall have delivered the proposed amendment or any
Series Supplement to each Rating Agency at least ten Business Days (or such
shorter period as shall be acceptable to each of them) prior to the execution
and delivery thereof.
Section 13.05. Indenture Trustee. In accepting any
additional trusts created by any modification of or amendment to this Indenture
or the Notes, the Indenture Trustee shall be entitled to receive, and shall be
fully protected in relying upon, an opinion of counsel stating that such
modification or amendment is authorized or permitted by this Indenture. The
Indenture Trustee may, but shall not be obligated to, enter into any such
modified or amended Indenture or authenticate any such modified or amended
Note, in either case that affects the Indenture Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Section 13.06. Notes. Notes to be authenticated and
delivered after the modification of, amendment to or waiver under this
Indenture permitted by this Indenture may, and shall if required by the
Indenture Trustee or the Noteholders thereof, bear a notation in form approved
by the Indenture Trustee and the Issuer as to any matter provided for in
connection with such
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modification, amendment or waiver. If the Indenture Trustee or the Majority
Noteholders shall so determine, new Notes so modified as to conform, in the
opinion of the Indenture Trustee, the Majority Noteholders and the Issuer, to
any such modification, amendment or waiver may be prepared and executed by the
Issuer and authenticated and delivered by the Indenture Trustee in connection
with any registered transfer or exchange of Notes.
ARTICLE XIV
MISCELLANEOUS
Section 14.01. Notices. All notices and other communications
provided under this Indenture shall be in writing (including telegraphic,
telex, facsimile or cable communication) and shall be delivered in hand, mailed
by United States certified or registered first class mail, sent by overnight
courier, telegraphed, telexed, transmitted, telecopied or cabled:
(a) If to the Issuer, to it at:
Zale Funding Trust
c/o Wilmington Trust Company, as Trustee
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telephone: (302) 651-1000
Telecopy: (302) 651-8882
with separate copies to:
General Counsel and Secretary
and
Treasurer, Finance Department
Zale Corporation
901 West Walnut Hill Lane
Irving, Texas 75038
Telephone: (214) 580-4576
Telecopy: (214) 580-5336
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(b) If to Bankers Trust Company, to it at:
Four Albany Street
New York, New York 10006
Attention: Corporate Trust and Agency Group,
Structured Finance Team
Telephone: (212) 250-6137
Telecopy: (212) 250-6439
or, as to each such party, at such other address as shall be designated by such
party in a written notice to the other party. All notices and other
communications given under this Indenture in accordance with the provisions of
this Indenture shall be deemed to have been given (1) on the date of receipt if
delivered by hand or overnight courier service or cabled or sent by telex,
telecopy or other telegraphic communications equipment of the sender or (2) on
the date five (5) Business Days after dispatch by certified or registered mail
if mailed, in each case delivered, sent or mailed (properly addressed) to such
party as provided in this Section 14.01 or in accordance with the latest
unrevoked direction from such party given in accordance with this Section
14.01. Except as set forth in Section 10.08 of this Indenture, the Indenture
Trustee shall promptly forward to each Noteholder a copy of each notice it
receives pursuant to this Indenture or any other Transaction Document. All
such notices to Noteholders shall be given at the addresses set forth in the
Note Register. In addition, upon the receipt thereof, the Indenture Trustee
shall promptly forward to each Noteholder a copy of any proposed and final
amendment, modification or waiver that the Indenture Trustee receives with
respect to this Indenture or any other Transaction Document. In any case where
notice to Noteholders is given by first-class mail, postage prepaid, neither
the failure to mail such notice, nor any defect in any notice so mailed, to any
particular Noteholder shall affect the sufficiency of such notice with respect
to any other Noteholder. Where this Indenture or any Note provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice.
Section 14.02. No Waiver; Remedies Cumulative. No failure on
the part of any party to this Indenture to exercise, and no delay by any such
party in exercising, any right under this Indenture shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right preclude
any other or further exercise thereof or the exercise of any other right. The
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remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
Section 14.03. Binding Effect. This Indenture shall become
effective, as of the date first written above, when it shall have been executed
by the Issuer and the Indenture Trustee. From and after the date this
Indenture shall have so become effective, this Indenture shall be binding upon
and inure to the benefit of the Issuer and the Indenture Trustee, and their
respective successors and assigns; provided that, the Issuer shall not have the
right to assign its rights under this Indenture or any interest in this
Indenture without the prior written consent of the Indenture Trustee, and the
Indenture Trustee shall not have the right to assign its rights under this
Indenture or any interest in this Indenture without the prior written consent
of the Issuer and the Majority Noteholders, except as may be otherwise
expressly provided in Section 11.13 of this Indenture with respect to a
successor Indenture Trustee. This Indenture is solely for the benefit of the
parties hereto, their successors and permitted assigns and the Noteholders, and
no other Person shall acquire or have any right hereunder or by virtue hereof.
Upon the payment in full of the Notes, the Issuer shall be entitled to the
prompt return, upon its request and at its expense, of such of the Collateral
as shall not have been sold or otherwise applied pursuant to the terms of this
Indenture, and upon such request the Indenture Trustee shall promptly reassign
and deliver to the Issuer, or to such Person or Persons as the Issuer shall
designate, against receipt, such of the Collateral as shall not have been sold
or otherwise applied pursuant to the terms of this Indenture, together with
appropriate instruments of reassignment and release.
Section 14.04. GOVERNING LAW. THIS INDENTURE SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT
TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST GRANTED
HEREUNDER OR REMEDIES HEREUNDER IN RESPECT OF ANY COLLATERAL, ARE GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
Section 14.05. Headings. All section and subsection headings
and the Table of Contents used in this Indenture are for convenience of
reference only and shall not affect the construction or interpretation of this
Indenture.
Section 14.06. WAIVER OF JURY TRIAL. EACH PARTY TO THIS
INDENTURE WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN
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RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS INDENTURE. EACH PARTY TO THIS INDENTURE (1) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF SUCH
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (2) ACKNOWLEDGES THAT IT
AND THE OTHER PARTY HERETO HAVE BEEN INDUCED TO ENTER INTO THIS INDENTURE BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
14.06.
Section 14.07. Severability. In the event any one or more of
the provisions contained in this Indenture should be held invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby, and the parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid, legal and enforceable provisions, the economic effect of which comes as
close as possible to that of the invalid, illegal or unenforceable provisions.
Section 14.08. No Petition in Bankruptcy. The Indenture
Trustee covenants and agrees that it shall not institute against, or join any
other Person in instituting against, the Issuer 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 14.09. Counterparts. This Indenture may be executed
in one or more counterparts, each of which shall constitute an original but all
of which when taken together shall constitute but one contract.
Section 14.10. Jurisdiction; Consent to Service of Process.
Each party to this Indenture hereby irrevocably and unconditionally (1)
submits, for itself and its property, to the nonexclusive jurisdiction of any
New York State court or Federal court of the United States of America for the
Southern District of New York, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Indenture, or for
recognition or enforcement of any judgment arising out of or relating to this
Indenture; (2) agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, Federal court; (3) agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law;
(4) consents that any such action or proceeding
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may be brought in such courts and waives any objection it may now or hereafter
have to the laying of venue of any such action or proceeding in any such court
and any objection it may now or hereafter have that such action or proceeding
was brought in an inconvenient court, and agrees not to plead or claim the
same; (5) consents to service of process in the manner provided for notices in
Section 14.01 of this Indenture (provided that, nothing in this Indenture shall
affect the right of any such party to serve process in any other manner
permitted by law); and (6) waives, to the maximum extent not prohibited by law,
any right it may have to claim or recover in any such action or proceeding any
special, exemplary, punitive or consequential damages.
Section 14.11. No Recourse. The obligations of the Issuer under
this Indenture, the Notes and each other agreement, instrument, document or
certificate executed and delivered or issued by the Issuer in connection
herewith or therewith are solely the corporate obligations of the Issuer.
Except as expressly provided for in Sections 7.03, 7.08 or 8.04(b) of the Trust
Agreement, no recourse shall be had for the payment of any fee or any other
obligations or claim arising out of or based upon this Indenture, the Notes or
any other agreement, instrument, document or certificate executed and delivered
or issued by the Issuer in connection herewith or therewith against any holder
of a Trust Certificate, employee, officer, director, incorporator or agent of
the Issuer or any Affiliate of the Issuer.
Section 14.12. Limitation of Liability. It is expressly
understood and agreed by the parties hereto that (a) this Indenture is executed
and delivered by Wilmington Trust Company, not individually or personally but
solely as the Owner Trustee of the Issuer under the Trust Agreement, in the
exercise of the powers and authority conferred and vested in it, (b) each of
the representations, undertakings and agreements herein made on the part of the
Issuer is made and intended not as personal representations, undertakings and
agreements by Wilmington Trust Company but is made and intended for the purpose
of binding only the Issuer, (c) nothing herein contained shall be construed as
creating any liability on Wilmington Trust Company, individually or personally,
to perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the Indenture Trustee and by any
Person claiming by through or under the Indenture Trustee and (d) under no
circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Issuer or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Issuer under this Indenture or the other Transaction
Documents.
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Section 14.13. Independent Investigation. Each of the
Noteholders, by its purchase of the Notes, acknowledges that it has
independently and without reliance upon any of the other Noteholders, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Issuer, the Seller
and the Servicer, and made its own decision to enter into the Transaction
Documents to which it is a party and to consummate the transactions
contemplated thereby.
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IN WITNESS WHEREOF, each of the parties to this Indenture has
caused this Indenture to be executed on its behalf by its officers thereunto
duly authorized, all as of the day and year first above written.
ZALE FUNDING TRUST
By: WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee
under the Amended and Restated
Trust Agreement dated as of July
1, 1994
By: /S/ EMMETT R. HARMON
---------------------------------
Name: EMMETT R. HARMON
----------------------------
Title: VICE PRESIDENT
---------------------------
BANKERS TRUST COMPANY, not in its
individual capacity, but solely as
Indenture Trustee
By: /S/ LOUIS BODI
---------------------------------
Name: LOUIS BODI
----------------------------
Title: ASSISTANT VICE PRESIDENT
---------------------------
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EXHIBIT A
Form of Class A-1 Asset Backed Note
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY ("DTC"), A NEW YORK CORPORATION, TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC OR TO SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART,
TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE, AND
TRANSFERS OF BENEFICIAL INTERESTS IN THIS NOTE SHALL BE LIMITED TO TRANSFERS
MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO
HEREIN.
PRINCIPAL PAYMENTS OF THIS NOTE MAY BE MADE PRIOR TO THE Series Termination Date
UNDER CERTAIN CONDITIONS AS SET FORTH IN THE INDENTURE REFERRED TO HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
ZALE FUNDING TRUST
CLASS A-1 FLOATING RATE ASSET BACKED NOTES
NO. 1
PRINCIPAL AMOUNT: $ 37,620,000
ISSUANCE DATE: July 15, 1994
SERIES TERMINATION DATE: March 15, 2003
CLASS A-1 NOTE RATE: LIBOR plus 0.40% (but not to exceed
12%) Per Annum
ZALE FUNDING TRUST (the "Issuer"), for value received, hereby
promises to pay to CEDE & CO., or its registered assigns, the principal amount
of Thirty-Seven Million Six Hundred Twenty Thousand Dollars (as may be reduced
by any payment of Monthly Principal), on the Series Termination Date. The
Issuer agrees to pay the principal amount, if any, which is the Monthly
Principal,
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on the fifteenth day of each calendar month or, if such fifteenth day is not a
Business Day, the next succeeding Business Day (each, a "Payment Date"),
commencing with the Amortization Commencement Date, until the outstanding
principal amount hereof is paid or reduced to zero pursuant to the terms of the
Indenture or payment therefor is made available pursuant to the Indenture (as
referred to below). The Issuer further agrees to pay interest at the rate of
LIBOR plus 0.40% (but not to exceed 12% per annum) (the "Class A-1 Note Rate"),
calculated on the basis of the actual number of days elapsed and a 360-day year
on each Payment Date, commencing with August 15, 1994, equal to the interest
that accrued during the preceding Floating Rate Interest Period on the
principal balance of this Note outstanding during such calendar month after
giving effect to payments of principal, if any, made on the preceding Payment
Date. Interest on this Note will accrue from and including the previous
Payment Date (or, in the case of the first Payment Date, from and including the
Issuance Date) to and including the day preceding such Payment Date.
Interest for any Payment Date due but not paid on such Payment
Date will be due on the next succeeding Payment Date together with additional
interest on such amount at the Class A-1 Note Rate.
The principal of, premium if any, and interest on this Note
are payable in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts. All
payments made by the Issuer with respect to this Note shall be applied first to
interest due and payable on this Note as provided above and then to the unpaid
principal (and premium, if any) of this Note.
This Note is one of the Notes referred to in the Indenture
dated as of July 1, 1994 (the "Indenture"), between the Issuer and Bankers
Trust Company, as Indenture Trustee which, among other things contains
provisions for the acceleration of the maturity hereof upon the occurrence of
certain events, for the optional redemption of this Note by the Issuer and for
the amendment or waiver of certain provisions of the Indenture, all upon the
terms and conditions therein specified. Capitalized terms which are used
herein that are not defined shall have the meaning assigned to such terms in
the Indenture. Upon written request, the Indenture Trustee shall provide a
copy of such Indenture to the holder of this Note. This Note shall not be
subject to optional prepayment except as provided in the Indenture.
<PAGE> 84
Any funds deposited with the Indenture Trustee for the payment
of principal of, and premium (if any) or interest on, the Notes, and remaining
unclaimed for two years after the date upon which such principal, premium or
interest became due and payable, shall be repaid to the Issuer by the Indenture
Trustee upon demand, and any Noteholder to which such deposit related
previously entitled to receive payment thereof shall thereafter, as an
unsecured general creditor, look only to the Issuer for the payment thereof,
and all liability of the Indenture Trustee with respect to such funds shall
thereupon cease.
It is the intention of the Issuer to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of
Delaware and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary in any agreement entered into in
connection with this Note, it is agreed as follows: (i) the aggregate of all
consideration that constitutes interest, if any, under applicable law that is
taken, reserved, contracted for, charged or received under this Note or any
other agreement or document executed in connection with this Note shall under
no circumstances exceed the maximum amount of interest allowed by applicable
law, and any excess shall be credited to other amounts due under this Note by
the holder hereof (or if this Note shall have been paid in full, refunded to
the Issuer); and (ii) in the event that maturity of this Note is accelerated by
reason of any election by the holder hereof resulting from any default
hereunder or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest may never include
more than the maximum amount allowed by applicable law, and excess interest, if
any, provided for in this Note or otherwise shall be cancelled automatically as
of the date of such acceleration or prepayment and, if theretofore prepaid,
shall be credited to other amounts due under this Note (or if this Note shall
have been paid in full, refunded to the Issuer). In the event that applicable
law provides for a ceiling on the rate of interest, if any, chargeable
hereunder, that ceiling shall be the indicated rate ceiling.
This Note shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been manually
signed by or on behalf of the Indenture Trustee under the Indenture.
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE> 85
IN WITNESS WHEREOF, ZALE FUNDING TRUST has caused this
instrument to be signed in its name by an Authorized Officer and its seal to be
imprinted, manually or in facsimile, hereon.
Dated: July 15, 1994
ZALE FUNDING TRUST
By: WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee
under the Amended and Restated
Trust Agreement dated as of July
15, 1994
By:
---------------------------------
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This Note is one of the Class A-1 Notes referred to in the
within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Indenture Trustee
By:
---------------------------------
Authorized Officer
Dated: July 15, 1994
[to come]
<PAGE> 86
EXHIBIT B
Form of Class A-2 Asset Backed Note
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY ("DTC"), A NEW YORK CORPORATION, TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC OR TO SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO
CEDE & CO.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE, AND TRANSFERS OF BENEFICIAL INTERESTS IN THIS
NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO HEREIN.
PRINCIPAL PAYMENTS OF THIS NOTE MAY BE MADE PRIOR TO THE
SERIES TERMINATION DATE UNDER CERTAIN CONDITIONS AS SET FORTH IN THE
INDENTURE REFERRED TO HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL
AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON
THE FACE HEREOF.
ZALE FUNDING TRUST
CLASS A-2 7.325% ASSET BACKED NOTES
NO. 1
PRINCIPAL AMOUNT: $294,100,000
ISSUANCE DATE: July 15, 1994
SERIES TERMINATION DATE: March 15, 2003
CLASS A-2 NOTE RATE: 7.325% Per Annum
ZALE FUNDING TRUST (the "Issuer"), for value received, hereby
promises to pay to CEDE & CO., or its registered assigns,
<PAGE> 87
the principal amount of Two Hundred Ninety-Four Million One Hundred Thousand
Dollars (as may be reduced by any payment of Monthly Principal), on the Series
Termination Date. The Issuer agrees to pay the principal amount, if any, which
is the Monthly Principal, on the fifteenth day of each calendar month or, if
such fifteenth day is not a Business Day, the next succeeding Business Day
(each, a "Payment Date"), commencing with the Amortization Commencement Date,
until the outstanding principal amount hereof is paid or reduced to zero
pursuant to the terms of the Indenture or payment therefor is made available
pursuant to the Indenture (as referred to below). The Issuer further agrees to
pay interest at the rate of 7.325% per annum (the "Class A-2 Note Rate"),
calculated on the basis of a 360-day year consisting of twelve 30-day months on
each Payment Date, commencing with August 15, 1994, equal to the interest that
accrued during the preceding Fixed Rate Interest Period on the principal
balance of this Note outstanding during such calendar month after giving effect
to payments of principal, if any, made on the preceding Payment Date. Interest
on this Note will accrue from and including the 15th day of the month preceding
the month in which such Payment Date occurs (or, in the case of the first
Payment Date, from and including the Issuance Date) to and including the 14th
day of the month in which such Payment Date occurs.
Interest for any Payment Date due but not paid on such Payment
Date will be due on the next succeeding Payment Date together with additional
interest on such amount at the Class A-2 Note Rate.
The principal of, premium if any, and interest on this Note
are payable in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts. All
payments made by the Issuer with respect to this Note shall be applied first to
interest due and payable on this Note as provided above and then to the unpaid
principal (and premium, if any) of this Note.
This Note is one of the Notes referred to in the Indenture
dated as of July 1, 1994 (the "Indenture"), between the Issuer and Bankers
Trust Company, as Indenture Trustee which, among other things contains
provisions for the acceleration of the maturity hereof upon the occurrence of
certain events, for the optional redemption of this Note by the Issuer and for
the amendment or waiver of certain provisions of the Indenture, all upon the
terms and conditions therein specified. Capitalized terms which are used
herein that are not defined shall have the meaning assigned to such terms in
the Indenture. Upon written request, the Indenture Trustee shall provide a
copy of such Indenture to the holder of this Note. This Note shall not be
<PAGE> 88
subject to optional prepayment except as provided in the Indenture.
Any funds deposited with the Indenture Trustee for the payment
of principal of, and premium (if any) or interest on, the Notes, and remaining
unclaimed for two years after the date upon which such principal, premium or
interest became due and payable, shall be repaid to the Issuer by the Indenture
Trustee upon demand, and any Noteholder to which such deposit related
previously entitled to receive payment thereof shall thereafter, as an
unsecured general creditor, look only to the Issuer for the payment thereof,
and all liability of the Indenture Trustee with respect to such funds shall
thereupon cease.
It is the intention of the Issuer to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of
Delaware and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary in any agreement entered into in
connection with this Note, it is agreed as follows: (i) the aggregate of all
consideration that constitutes interest, if any, under applicable law that is
taken, reserved, contracted for, charged or received under this Note or any
other agreement or document executed in connection with this Note shall under
no circumstances exceed the maximum amount of interest allowed by applicable
law, and any excess shall be credited to other amounts due under this Note by
the holder hereof (or if this Note shall have been paid in full, refunded to
the Issuer); and (ii) in the event that maturity of this Note is accelerated by
reason of any election by the holder hereof resulting from any default
hereunder or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest may never include
more than the maximum amount allowed by applicable law, and excess interest, if
any, provided for in this Note or otherwise shall be cancelled automatically as
of the date of such acceleration or prepayment and, if theretofore prepaid,
shall be credited to other amounts due under this Note (or if this Note shall
have been paid in full, refunded to the Issuer). In the event that applicable
law provides for a ceiling on the rate of interest, if any, chargeable
hereunder, that ceiling shall be the indicated rate ceiling.
This Note shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been manually
signed by or on behalf of the Indenture Trustee under the Indenture.
<PAGE> 89
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, ZALE FUNDING TRUST has caused this
instrument to be signed in its name by an Authorized Officer and its seal to be
imprinted, manually or in facsimile, hereon.
Dated: July 15, 1994
ZALE FUNDING TRUST
By: WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee
under the Amended and Restated
Trust Agreement dated as of July
1, 1994
By:
---------------------------------
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This Note is one of the Class A-2 Notes referred to in the
within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Indenture Trustee
By:
---------------------------------
Authorized Officer
Dated: July 15, 1994
<PAGE> 90
EXHIBIT C
Form of Class B Asset Backed Note
THIS CLASS B NOTE IS SUBORDINATED IN RIGHT OF PAYMENT
TO CERTAIN OTHER CLASSES OF NOTES OF THIS SERIES TO
THE EXTENT DESCRIBED IN THE INDENTURE REFERRED TO HEREIN.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY ("DTC"), A NEW YORK CORPORATION, TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC OR TO SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO
CEDE & CO.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE, AND TRANSFERS OF BENEFICIAL INTERESTS IN THIS
NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO HEREIN.
PRINCIPAL PAYMENTS OF THIS NOTE MAY BE MADE PRIOR TO THE
SERIES TERMINATION DATE UNDER CERTAIN CONDITIONS AS SET FORTH IN THE
INDENTURE REFERRED TO HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL
AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON
THE FACE HEREOF.
ZALE FUNDING TRUST
CLASS B 7.50% ASSET BACKED NOTES
NO. 1
PRINCIPAL AMOUNT: $28,600,000
ISSUANCE DATE: July 15, 1994
SERIES TERMINATION DATE: March 15, 2003
CLASS B NOTE RATE: 7.50% Per Annum
<PAGE> 91
ZALE FUNDING TRUST (the "Issuer"), for value received, hereby
promises to pay to CEDE & CO., or its registered assigns, the principal amount
of Twenty-Eight Million Six Hundred Thousand Dollars (as may be reduced by any
payment of Monthly Principal), on the Series Termination Date. The Issuer
agrees to pay the principal amount, if any, which is the Monthly Principal, on
the fifteenth day of each calendar month or, if such fifteenth day is not a
Business Day, the next succeeding Business Day (each, a "Payment Date"),
commencing with the Amortization Commencement Date, until the outstanding
principal amount hereof is paid or reduced to zero pursuant to the terms of the
Indenture or payment therefor is made available pursuant to the Indenture (as
referred to below). The Issuer further agrees to pay interest at the rate of
7.50% per annum (the "Class B Note Rate"), calculated on the basis of a 360-day
year consisting of twelve 30-day months on each Payment Date, commencing with
August 15, 1994, equal to the interest that accrued during the preceding Fixed
Rate Interest Period on the principal balance of this Note outstanding during
such calendar month after giving effect to payments of principal, if any, made
on the preceding Payment Date. Interest on this Note will accrue from and
including the 15th day of the month preceding the month in which such Payment
Date occurs (or, in the case of the first Payment Date, from and including the
Issuance Date) to and including the 14th day of the month in which such Payment
Date occurs.
Interest for any Payment Date due but not paid on such Payment
Date will be due on the next succeeding Payment Date together with additional
interest on such amount at the Class B Note Rate.
The principal of, premium if any, and interest on this Note
are payable in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts. All
payments made by the Issuer with respect to this Note shall be applied first to
interest due and payable on this Note as provided above and then to the unpaid
principal (and premium, if any) of this Note.
This Note is one of the Notes referred to in the Indenture
dated as of July 1, 1994 (the "Indenture"), between the Issuer and Bankers
Trust Company, as Indenture Trustee which, among other things contains
provisions for the acceleration of the maturity hereof upon the occurrence of
certain events, for the optional redemption of this Note by the Issuer and for
the amendment or waiver of certain provisions of the Indenture, all upon the
terms and conditions therein specified. Capitalized terms which are used
herein that are not defined shall have the meaning assigned to such terms in
the Indenture. Upon written
<PAGE> 92
request, the Indenture Trustee shall provide a copy of such Indenture to the
holder of this Note. This Note shall not be subject to optional prepayment
except as provided in the Indenture.
Any funds deposited with the Indenture Trustee for the payment
of principal of, and premium (if any) or interest on, the Notes, and remaining
unclaimed for two years after the date upon which such principal, premium or
interest became due and payable, shall be repaid to the Issuer by the Indenture
Trustee upon demand, and any Noteholder to which such deposit related
previously entitled to receive payment thereof shall thereafter, as an
unsecured general creditor, look only to the Issuer for the payment thereof,
and all liability of the Indenture Trustee with respect to such funds shall
thereupon cease.
It is the intention of the Issuer to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of
Delaware and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary in any agreement entered into in
connection with this Note, it is agreed as follows: (i) the aggregate of all
consideration that constitutes interest, if any, under applicable law that is
taken, reserved, contracted for, charged or received under this Note or any
other agreement or document executed in connection with this Note shall under
no circumstances exceed the maximum amount of interest allowed by applicable
law, and any excess shall be credited to other amounts due under this Note by
the holder hereof (or if this Note shall have been paid in full, refunded to
the Issuer); and (ii) in the event that maturity of this Note is accelerated by
reason of any election by the holder hereof resulting from any default
hereunder or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest may never include
more than the maximum amount allowed by applicable law, and excess interest, if
any, provided for in this Note or otherwise shall be cancelled automatically as
of the date of such acceleration or prepayment and, if theretofore prepaid,
shall be credited to other amounts due under this Note (or if this Note shall
have been paid in full, refunded to the Issuer). In the event that applicable
law provides for a ceiling on the rate of interest, if any, chargeable
hereunder, that ceiling shall be the indicated rate ceiling.
This Note shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been manually
signed by or on behalf of the Indenture Trustee under the Indenture.
<PAGE> 93
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, ZALE FUNDING TRUST has caused this
instrument to be signed in its name by an Authorized Officer and its seal to be
imprinted, manually or in facsimile, hereon.
Dated: July 15, 1994
ZALE FUNDING TRUST
By: WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee
under the Amended and Restated
Trust Agreement dated as of July
1, 1994
By:
---------------------------------
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This Note is one of the Class B Notes referred to in the within-
mentioned Indenture.
BANKERS TRUST COMPANY,
as Indenture Trustee
By:
---------------------------------
Authorized Officer
Dated: July 15, 1994
<PAGE> 94
EXHIBIT D
Form of Class C Asset Backed Note
THIS CLASS C NOTE IS SUBORDINATED IN RIGHT OF PAYMENT
TO CERTAIN OTHER CLASSES OF NOTES OF THIS SERIES TO
THE EXTENT DESCRIBED IN THE INDENTURE REFERRED TO HEREIN.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY ("DTC"), A NEW YORK CORPORATION, TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC OR TO SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO
CEDE & CO.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE, AND TRANSFERS OF BENEFICIAL INTERESTS IN THIS
NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO HEREIN.
PRINCIPAL PAYMENTS OF THIS NOTE MAY BE MADE PRIOR TO THE
Series Termination Date UNDER CERTAIN CONDITIONS AS SET FORTH IN THE
INDENTURE REFERRED TO HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL
AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON
THE FACE HEREOF.
ZALE FUNDING TRUST
CLASS C 8.15% ASSET BACKED NOTES
NO. 1
PRINCIPAL AMOUNT: $20,440,000
ISSUANCE DATE: July 15, 1994
SERIES TERMINATION DATE: March 15, 2003
CLASS C NOTE RATE: 8.15% Per Annum
<PAGE> 95
ZALE FUNDING TRUST (the "Issuer"), for value received, hereby
promises to pay to CEDE & CO., or its registered assigns, the principal amount
of Twenty Million Four Hundred Forty Thousand Dollars (as may be reduced by any
payment of Monthly Principal), on the Series Termination Date. The Issuer
agrees to pay the principal amount, if any, which is the Monthly Principal, on
the fifteenth day of each calendar month or, if such fifteenth day is not a
Business Day, the next succeeding Business Day (each, a "Payment Date"),
commencing with the Amortization Commencement Date, until the outstanding
principal amount hereof is paid or reduced to zero pursuant to the terms of the
Indenture or payment therefor is made available pursuant to the Indenture (as
referred to below). The Issuer further agrees to pay interest at the rate of
8.15% per annum (the "Class C Note Rate"), calculated on the basis of a 360-day
year consisting of twelve 30-day months on each Payment Date, commencing with
August 15, 1994, equal to the interest that accrued during the preceding Fixed
Rate Interest Period on the principal balance of this Note outstanding during
such calendar month after giving effect to payments of principal, if any, made
on the preceding Payment Date. Interest on this Note will accrue from and
including the 15th day of the month preceding the month in which such Payment
Date occurs (or, in the case of the first Payment Date, from and including the
Issuance Date) to and including the 14th day of the month in which such Payment
Date occurs.
Interest for any Payment Date due but not paid on such Payment
Date will be due on the next succeeding Payment Date together with additional
interest on such amount at the Class C Note Rate.
The principal of, premium if any, and interest on this Note
are payable in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts. All
payments made by the Issuer with respect to this Note shall be applied first to
interest due and payable on this Note as provided above and then to the unpaid
principal (and premium, if any) of this Note.
This Note is one of the Notes referred to in the Indenture
dated as of July 1, 1994 (the "Indenture"), between the Issuer and Bankers
Trust Company, as Indenture Trustee which, among other things contains
provisions for the acceleration of the maturity hereof upon the occurrence of
certain events, for the optional redemption of this Note by the Issuer and for
the amendment or waiver of certain provisions of the Indenture, all upon the
terms and conditions therein specified. Capitalized terms which are used
herein that are not defined shall have the meaning assigned to such terms in
the Indenture. Upon written
<PAGE> 96
request, the Indenture Trustee shall provide a copy of such Indenture to the
holder of this Note. This Note shall not be subject to optional prepayment
except as provided in the Indenture.
Any funds deposited with the Indenture Trustee for the payment
of principal of, and premium (if any) or interest on, the Notes, and remaining
unclaimed for two years after the date upon which such principal, premium or
interest became due and payable, shall be repaid to the Issuer by the Indenture
Trustee upon demand, and any Noteholder to which such deposit related
previously entitled to receive payment thereof shall thereafter, as an
unsecured general creditor, look only to the Issuer for the payment thereof,
and all liability of the Indenture Trustee with respect to such funds shall
thereupon cease.
It is the intention of the Issuer to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of
Delaware and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary in any agreement entered into in
connection with this Note, it is agreed as follows: (i) the aggregate of all
consideration that constitutes interest, if any, under applicable law that is
taken, reserved, contracted for, charged or received under this Note or any
other agreement or document executed in connection with this Note shall under
no circumstances exceed the maximum amount of interest allowed by applicable
law, and any excess shall be credited to other amounts due under this Note by
the holder hereof (or if this Note shall have been paid in full, refunded to
the Issuer); and (ii) in the event that maturity of this Note is accelerated by
reason of any election by the holder hereof resulting from any default
hereunder or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest may never include
more than the maximum amount allowed by applicable law, and excess interest, if
any, provided for in this Note or otherwise shall be cancelled automatically as
of the date of such acceleration or prepayment and, if theretofore prepaid,
shall be credited to other amounts due under this Note (or if this Note shall
have been paid in full, refunded to the Issuer). In the event that applicable
law provides for a ceiling on the rate of interest, if any, chargeable
hereunder, that ceiling shall be the indicated rate ceiling.
This Note shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been manually
signed by or on behalf of the Indenture Trustee under the Indenture.
<PAGE> 97
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE> 98
IN WITNESS WHEREOF, ZALE FUNDING TRUST has caused this
instrument to be signed in its name by an Authorized Officer and its seal to be
imprinted, manually or in facsimile, hereon.
Dated: July 15, 1994
ZALE FUNDING TRUST
By: WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee
under the Amended and Restated
Trust Agreement dated as of July
1, 1994
By:
---------------------------------
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This Note is one of the Class C Notes referred to in the
within-mentioned Indenture.
BANKERS TRUST COMPANY,
as Indenture Trustee
By:
---------------------------------
Authorized Officer
Dated: July 15, 1994
<PAGE> 99
EXECUTION COPY
ANNEX I
[INDENTURE/PURCHASE AND SERVICING AGREEMENT]
Glossary of Terms
As used in the document to which this Annex I is attached,
unless specified to the contrary in such document, the definitions set forth or
referred to below (1) shall apply equally to both the singular and plural forms
of the terms defined; (2) whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms; (3) the words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation"; (4) all terms used in Article 9 of the UCC as in
effect in State of New York that are used but not defined herein shall have the
meaning assigned to such terms therein; and (5) 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 mean "to but
excluding".
"Account" shall mean each individual private label revolving
credit card account that exists on the Cut-Off Date or that is established
after the Cut-Off Date pursuant to a Credit Card Agreement between the Seller,
Zale Puerto Rico or Dobbins (or any of their respective predecessors in
interest) and an Obligor, including without limitation all Accounts which, as
of the Cut-Off Date, are identified in the Account Schedule.
"Account Collateral" shall have the meaning assigned to such
term in Section 3.01(e) of the Indenture.
"Account Payment Instructions" shall have the meaning assigned
to such term in Section 2.11 of the Indenture.
"Account Schedule" shall mean the account schedule listing all
the Accounts and the balances thereof, on the Issuance Date (which may be in
the form of a computer file or microfiche list) in the form of Schedule I to
the Purchase and Servicing Agreement.
<PAGE> 100
"Adjusted Eligible Receivables Balance" shall mean, as of any
date of determination, the product of (i) the aggregate principal balance of
the Eligible Receivables as set forth in the Daily Report delivered on such
day, (ii) the applicable Series Allocation Percentage and (iii) the applicable
Seasonality Factor.
"Adjusted Note Principal Amount" shall mean, with respect to
the Notes for any date, an amount equal to the sum of (a) the Initial Net Note
Principal Amount, minus unreimbursed Noteholder Charge-Offs and (b) the
applicable Available Subordinated Amount (after giving effect to the
allocations, distributions, withdrawals and deposits to be made on the Payment
Date during the Settlement Period in which such date occurs).
"Adjustment Payment" shall have the meaning assigned to such
term in Section 2.06 of the Purchase and Servicing Agreement.
"Advance Rate" shall mean, as of any date of determination,
the percentage equivalent of a fraction, the numerator of which is the sum of
(i) the product of (a) 0.84 minus the Advance Rate Adjustment, if any, and (b)
the Base Amount, and (ii) the product of (a) 0.66 minus the Advance Rate
Adjustment, if any, and (b) the Excess Amount, and the denominator of which is
the sum of the Base Amount and the Excess Amount.
"Advance Rate Adjustment" shall mean, as of any date of
determination, the product of (a) 1.5 and (b) the excess, if any, of (i) the
Base Rate for the Interest Period relating to the immediately preceding Payment
Date (or, with respect to the determination of the Advance Rate Adjustment on
any Payment Date, such Payment Date), over (ii) the sum of (x) the Net Yield
for the Settlement Period related to the Payment Date referred to in clause (i)
and (y) 1.5%.
"Affiliate" shall mean, when used with respect to a specified
Person, another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with
the Person specified.
"Aggregate Available Subordinated Amount" shall mean the sum
of the Available Subordinated Amount and the aggregate available subordinated
amounts for all other outstanding Series.
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"Aggregate Adjusted Note Principal Amount" shall mean, with
respect to any Settlement Period, the sum of the Adjusted Note Principal Amount
and the adjusted note principal amounts for all other outstanding Series.
"Amortization Commencement Date" shall mean the earlier to
occur of (i) the Early Amortization Commencement Date and (ii) the Payment Date
occurring in September 1999.
"Amortization Period" shall be the period commencing on the
earlier of (i) the commencement of an Early Amortization Period or (ii) the
commencement of the August 1999 Cycle Month and ending on the date on which the
outstanding principal amount of the Notes has been reduced to zero or the
Indenture has otherwise terminated.
"Applicable Day" shall mean the day or days covered by a Daily
Report which have not been covered by a previously delivered Daily Report.
"Applicable Rating Agency" shall mean, with respect to any
Eligible Investment, Standard & Poor's and, if such Eligible Investment is
rated by Duff & Phelps, Duff & Phelps.
"Authorized Newspaper" shall mean a newspaper of general
circulation in the Borough of Manhattan, The City of New York, printed in the
English language and customarily published on each Business Day, whether or not
published on Saturdays, Sundays and holidays.
"Authorized Officer" means, with respect to the Issuer or the
Trust, any Co-Trustee or officer or agent of the Owner Trustee who is
authorized to act for the Owner Trustee in matters relating to, and binding
upon, the Issuer, and with respect to the Indenture Trustee, shall mean any
officer within the Corporate Trust Office of the Indenture Trustee including
any Vice President, Assistant Vice President, Assistant Treasurer, Assistant
Secretary or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers
and also, with respect to a particular matter, any other officer to whom such
matter is referred because of such officer's knowledge of and familiarity with
the particular subject.
"Available Final Distribution Amount" means, the amount which
would be available in the Collateral Account on
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the Final Maturity Date of the Notes for distribution to the Noteholders.
"Available Noteholder Finance Charge Collections" shall mean,
for any Payment Date, an amount equal to the product of (a) 100% less the
Excess Trust's Percentage with respect to the related Settlement Period, and
(b) Series Allocable Finance Charge Collections for the related Settlement
Period.
"Available Noteholder Principal Collections" shall mean, for
any Payment Date, the sum of (a) the product of (i) the Principal Allocation
Percentage for the related Settlement Period and (ii) Series Allocable
Principal Collections deposited in the Collateral Account for the related
Settlement Period; (b) the amount, if any, of Available Noteholder Finance
Charge Collections, Available Trust's Principal Collections and Excess Finance
Charge Collections allocated to cover the Noteholder Default Amount or to
reimburse Noteholder Charge-Offs; (c) Series Allocable Miscellaneous Payments
on deposit in the Collateral Account for such Payment Date; and (d) the amount,
if any, of funds withdrawn from the Excess Funding Account in connection with
the Early Amortization Commencement Date.
"Available Subordinated Amount" shall mean (1) with respect to
any date of determination during the Interest-Only Period, the excess of (i)
the Net Note Principal Amount divided by the product of (a) the applicable
Advance Rate and (b) the applicable Seasonality Factor, over (ii) the Net Note
Principal Amount, (2) with respect to the Amortization Commencement Date, the
Available Subordinated Amount as of the end of the Interest-Only Period, and
(3) with respect to any Payment Date following the Amortization Commencement
Date, the Available Subordinated Amount as of the preceding Payment Date less
the sum of (a) the amount of Available Trust's Principal Collections applied
pursuant to Section 5.04(d)(1) of the Indenture for the prior Payment Date and
(b) the lesser of (x) the amount, if any, by which the Deficiency Amount for
the preceding Payment Date exceeded the Available Trust's Principal Collections
for the preceding Payment Date and (y) the sum of the Noteholder Default Amount
for the preceding Payment Date and the amount of Available Trust's Principal
Collections applied pursuant to Section 5.04(d)(2) of the Indenture on the
preceding Payment Date, plus Excess Finance Charge Collections distributed in
respect of the Trust Interest pursuant to Section 5.04(b)(2); provided,
however, that the Available Subordinated Amount for
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any Payment Date on or after the Amortization Commencement Date may not exceed
the Available Subordinated Amount as of the end of the Interest-Only Period.
"Available Trust's Principal Collections" shall mean, for any
Settlement Period, an amount equal to the product of (a) the excess of (i) the
Trust's Percentage for the related Settlement Period over (ii) the Excess
Trust's Percentage for such Settlement Period and (b) the Series Allocable
Principal Collections for such Settlement Period.
"Bankruptcy Code" shall mean the Bankruptcy Reform Act of
1978, as amended from time to time, and as codified at 11 U.S.C. Sections 101
et seq.
"Base Amount" shall mean as of any date of determination, the
lesser of (i) the Adjusted Eligible Receivables Balance as of such date and
(ii) a fraction, the numerator of which is the aggregate outstanding principal
amount of the Class A-2, Class B and Class C Notes and the denominator of which
is 0.84 minus the Advance Rate Adjustment, if any.
"Base Rate" shall mean, with respect to any Interest Period,
the sum of (i) the weighted average of the applicable Note Rates (weighted on
the basis of the unpaid principal amount of each class) and (ii) 2.00%.
"Bear Stearns" shall mean Bear, Stearns & Co. Inc.
"Billing Cycle" shall mean, with respect to any Account, the
monthly billing cycle for such Account as determined in accordance with the
Credit Card Guidelines.
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States.
"Book-Entry Notes" shall mean any Notes, the ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 2.05 of the Indenture; provided, however, that after the
occurrence of a condition whereupon book-entry registration and transfer are no
longer permitted and Definitive Notes are to be issued to the Noteholders, such
notes shall no longer be "Book-Entry Notes".
"Borrowing Base" shall mean, as of any date of determination,
the product of (i) the sum of the Base Amount
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on such date and the Excess Amount and (ii) the applicable Advance Rate.
"Borrowing Base Deficiency" shall mean, on any date, the
excess, if any, of (1) the Net Note Principal Amount (prior to giving effect to
any deposits to the Excess Funding Account, if any, on such day) on such date
over (2) the Borrowing Base on such date.
"Business Day" shall mean any day (other than a day that is a
Saturday, Sunday or legal holiday in the State of New York or the State of
Texas) on which banks are open for business in New York City, New York, Dallas,
Texas and the state in which the Concentration Account is maintained.
"Capital Lease Obligations" shall mean, with respect to any
Person, the obligations of such Person to pay rent or other amounts under any
lease of (or other arrangement conveying the right to use) real or personal
property, or a combination thereof, which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such
Person under GAAP and, for the purposes of the Indenture, the amount of such
obligations at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP.
"Cardholder" shall mean a holder of a Proprietary Label Credit
Card under which the Receivables are originated.
"Certificate of Trust" shall mean the Certificate of Trust of
the Issuer filed with the Secretary of State of the State of Delaware on June
10, 1994.
"Class A-1 Notes" shall have the meaning assigned to such term
in Section 2.01 of the Indenture.
"Class A-1 Note Rate" shall have the meaning assigned to such
term in Section 2.11 of the Indenture.
"Class A-1 Registered Noteholders" shall have the meaning
assigned to such term in Section 2.10 of the Indenture.
"Class A-2 Notes" shall have the meaning assigned to such term
in Section 2.01 of the Indenture.
"Class A-2 Note Rate" shall have the meaning assigned to such
term in Section 2.11 of the Indenture.
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"Class A-2 Registered Noteholders" shall have the meaning
assigned to such term in Section 2.10 of the Indenture.
"Class B Notes" shall have the meaning assigned to such term
in Section 2.01 of the Indenture.
"Class B Note Rate" shall have the meaning assigned to such
term in Section 2.11 of the Indenture.
"Class B Registered Noteholders" shall have the meaning
assigned to such term in Section 2.10 of the Indenture.
"Class C Notes" shall have the meaning assigned to such term
in Section 2.01 of the Indenture.
"Class C Note Rate" shall have the meaning assigned to such
term in Section 2.11 of the Indenture.
"Class C Registered Noteholders" shall have the meaning
assigned to such term in Section 2.10 of the Indenture.
"Clearing Agency" shall mean an organization registered as a
"clearing agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" shall mean a broker, dealer,
bank, other financial institution or other Person for whom from time to time a
Clearing Agency effects book-entry transfers and pledges of securities
deposited with the Clearing Agency.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Collateral" shall have the meaning assigned to such term in
Section 3.01 of the Indenture.
"Collateral Account" shall have the meaning assigned to such
term in Section 4.02(a) of the Indenture.
"Collection Deposit Accounts" shall have the meaning assigned
to such term in Section 4.01(b) of the Indenture.
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"Collection Deposit Account Banks" shall have the meaning
assigned to such term in Section 4.01(b) of the Indenture.
"Collection Deposit Account Banks Fee" shall mean the fees
payable with respect to the maintenance of the Collection Deposit Accounts and
the services of the Collection Deposit Account Banks.
"Collection Deposit Account Letters" shall have the meaning
assigned to such term in Section 4.01(b) of the Indenture.
"Collections" shall mean all payments on Receivables received
from or on behalf of any Obligor including Insurance Proceeds, if any, and
including Recoveries in respect of the Receivables, whether in the form of
cash, checks, wire transfers, automated teller machine transfers or other forms
of payment in accordance with the Credit Card Agreements as in effect on the
date of the Indenture and as amended in accordance with the terms of the
Purchase and Servicing Agreement and the Indenture. Prior to commencement of
the Amortization Period, payments made by the Seller to the Issuer pursuant to
Section 2.05 or Section 2.06 of the Purchase and Servicing Agreement shall
constitute Collections. Any portion of a Collection processed on an Account in
excess of the aggregate amount of Receivables in such Account shall be credited
to such Account or refunded to the Obligor by the Servicer in accordance with
the Credit Card Guidelines and applicable law.
"Comparable U.S. Treasury Security" shall mean the 6 3/8% U.S.
Treasury Security maturing on July 15, 1999.
"Concentration Account" shall have the meaning assigned to
such term in Section 6.04(a) of the Purchase and Servicing Agreement.
"Control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Corporate Trust Office" means the principal office of the
Indenture Trustee in New York City at which at any particular time its
corporate trust business shall be
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principally administered, which office on the Issuance Date is located at Four
Albany Street, Tenth Floor, New York, New York 10006.
"Co-Trustee" means each of the co-trustees appointed by the
Indenture Trustee pursuant to Section 11.15 of the Indenture, and any
successors thereto.
"Credit Adjustment" shall have the meaning assigned to such
term in Section 2.06 of the Purchase and Servicing Agreement.
"Credit Card Agreement" shall mean, with respect to an
Account, the agreement governing such Account.
"Credit Card Guidelines" shall mean the policies and
procedures of the Seller (or its predecessors in interest) and the Servicer
relating to the operation of their credit card business, including without
limitation the policies and procedures for determining Gross Charge-Offs, the
creditworthiness of credit card customers, the extension of credit to credit
card customers, the terms on which repayments are required to be made, and the
terms relating to finance charges and the amounts thereof, to the maintenance
of credit card accounts and collection of credit card receivables and to credit
insurance, as in effect on the Issuance Date and as amended in accordance with
the terms of the Indenture and the Purchase and Servicing Agreement.
"Credit Return" shall have the meaning assigned to such term
in Section 2.06 of the Purchase and Servicing Agreement.
"Cut-Off Date" shall mean, with respect to the initial sale of
Receivables under the Purchase and Servicing Agreement, July 1, 1994.
"Cycle Month" shall mean, initially the period from and after
the Cut-Off Date to the end of the first Cycle Month in effect on the Issuance
Date, and, thereafter, the period from and after the last day of the preceding
Cycle Month to and including the day on which the final billing cycle of the
Servicer opening after the last day of the preceding Cycle Month has closed
(regardless of the calendar month in which any billing cycle contained in such
Cycle Month opens or closes); provided, however, that for any Account, each
Cycle Month will include only activity occurring in such Account during the
billing cycle for such
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Account closing in such Cycle Month, and any activity in an Account after the
close of its billing cycle but prior to the close of the Cycle Month in which
such billing cycle closes shall be attributed to the next succeeding Cycle
Month.
"Daily Report" shall mean a report substantially in the form
of Exhibit A to the Purchase and Servicing Agreement delivered pursuant to the
Purchase and Servicing Agreement.
"Date of Processing" shall mean, with respect to any
transaction, the date on which such transaction is first recorded in the
Servicer's computer files (without regard to the effective date of such
recordation).
"Defaulted Amount" shall mean for any Settlement Period an
amount (which shall not be less than zero) equal to (a) the principal amount of
Receivables that become Defaulted Receivables during the preceding Settlement
Period minus (b) the full amount of any Defaulted Receivables for which the
Seller has made an adjustment to the purchase price for new Receivables for
such Settlement Period.
"Defaulted Receivables" shall mean, on any Determination Date
all Receivables which were charged-off as uncollectible in respect of the
immediately preceding Settlement Period in accordance with the Credit Card
Guidelines.
"Deficiency Amount" shall mean, with respect to any Payment
Date, the amount, if any, by which (a) the sum of (i) Monthly Interest for all
classes of Notes for the following Payment Date, (ii) the Monthly Servicing Fee
for such Payment Date, (iii) the Noteholder Default Amount and (iv) the Series
Allocation Percentage of the amount of any Adjustment Payment required to be
deposited in the Collateral Account pursuant to Section 2.06 of the Purchase
and Servicing Agreement with respect to the related Settlement Period that has
not been so deposited as of the related Determination Date, exceeds (b) the sum
of (i) Available Noteholder Finance Charge Collections for such Payment Date
and (ii) Investment Proceeds with respect to such Payment Date.
"Definitive Notes" shall have the meaning assigned to such
term in Section 2.05 of the Indenture.
"Depositary" shall mean DTC, its nominees, and their respective
successors.
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"Determination Date" shall mean the date two Business Days
prior to the related Payment Date.
"DFC" shall mean Diamond Funding Corp., a Delaware Corporation.
"Disposition" shall have the meaning assigned to such term in
Section 10.03(a)(i) of the Indenture.
"Division" shall mean any one or more of the divisions of the
Seller, as constituted on or after the Issuance Date.
"Division Sale Optional Redemption" shall have the meaning
assigned to such term in Section 9.02 of the Indenture.
"Dobbins" shall mean Dobbins Jewelers, Inc., a Guam
corporation, and its successors and assigns.
"Documents" shall have the meaning assigned to such term in
Section 7.01(b) of the Purchase and Servicing Agreement.
"DTC" shall mean The Depositary Trust Company.
"Draw Amount" shall mean the lesser of the Deficiency Amount
and the Available Subordinated Amount.
"Duff & Phelps" shall mean Duff & Phelps Credit Rating Co.
"Early Amortization Commencement Date" shall mean the Payment
Date occurring in the month following the month in which an Early Amortization
Event occurs.
"Early Amortization Event" shall have the meaning assigned to
such term in Section 10.01 of the Indenture.
"Early Amortization Period" shall mean the period from the
date on which an Early Amortization Event occurs to the date on which the
outstanding principal amount of each class of Notes has been reduced to zero or
the Indenture has otherwise terminated.
"Eligible Account" shall mean each Account owned by an
Originator which, as of the Cut-Off Date (or, with respect to Accounts created
after the Cut-Off Date, as of the
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Purchase Date of the related Receivable) (a) was in existence and maintained
with one of the Originators, as applicable, (b) is payable in United States
dollars, (c) has as a billing address, an address located in the United States
or its territories or possessions or an armed forces post office or foreign
post office military address, (d) is an Account with respect to which the
related Cardholder is not involved in a voluntary or involuntary bankruptcy
proceeding, (e) is not an Account with respect to which the related card has
been reported as stolen, (f) has not been sold or pledged to any other party,
(g) does not have receivables which have been sold or pledged to any other
party, and (h) is an Account the cardholder of which is not deceased.
"Eligible Investments" shall mean (i) obligations fully
guaranteed by the United States, (ii) demand deposits, time deposits or
certificates of deposit of depository institutions or trust companies, the
commercial paper of which has the Highest Rating from each Applicable Rating
Agency, (iii) commercial paper having at the time of the Trust's investment, a
rating in the Highest Rating category from each Applicable Rating Agency, (iv)
demand deposits, time deposits and certificates of deposit which are fully
insured by the FDIC, (v) bankers' acceptances issued by any depository
institution or trust company described in (ii) above, (vi) investments in money
market funds (including funds for which the Indenture Trustee or any of its
affiliates is investment manager or advisor) which have the Highest Rating
from, or have otherwise been approved in writing by, each Applicable Rating
Agency, (vii) certain repurchase obligations which have the Highest Rating
from, or have otherwise been approved in writing by, each Applicable Rating
Agency, and (viii) any other investment approved by the Applicable Rating
Agency.
"Eligible Receivable" shall mean each Receivable (a) which has
arisen under an Eligible Account, (b) which was created in compliance, in all
material respects, with all requirements of law applicable to the Originator,
and pursuant to a credit card agreement which complies in all material respects
with all requirements of law applicable to the Originator, (c) with respect to
which all consents, licenses or authorizations of, or registrations with, any
governmental authority required to be obtained or given by the Originator in
connection with the creation of such Receivable or the execution, delivery,
creation and performance by the Originator or the related credit card agreement
have been duly obtained or given and are in full
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force and effect as of the date of the creation of such Receivable, except
where the failure to obtain or make such consents, licenses, authorizations or
registrations would not have a substantial likelihood of having a Material
Adverse Effect, (d) as to which, as of the Purchase Date for such Receivable,
the Originator or the Trust had good and marketable title free and clear of all
liens and security interests arising under or through the Originator (other
than certain tax liens for taxes not then due or which the Seller is
contesting), (e) which is the legal, valid and binding payment obligation of
the Cardholder thereof, legally enforceable against such Cardholder in
accordance with its terms (with certain bankruptcy-related exceptions), and (f)
which constitutes an "account" or "general intangible" or "chattel paper" under
Article 9 of the UCC as then in effect in the State of Texas. Notwithstanding
the foregoing, Receivables originated by Zale Puerto Rico shall not be Eligible
Receivables until the Trust, Z Del and Zale Puerto Rico have been licensed as
finance companies under Puerto Rico's Retail Installment Sales Act, whereupon
all Receivables originated by Zale Puerto Rico and previously transferred to
the Trust that otherwise qualify as Eligible Receivables will be deemed
Eligible Receivables.
"Enhancement" shall mean, with respect to any Series, any
surety bond, letter of credit, guaranteed rate agreement, maturity guaranty
facility, cash collateral account or guaranty, tax protection agreement,
interest rate swap or other contract or agreement for the benefit of the
noteholders of such Series. The drawing on or payment of any Enhancement for
the benefit of a Series or class of notes will not be available to the
noteholders of any other Series or class.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"Excess Amount" shall mean on any date, the lesser of (i) the
excess, if any, of (a) the Adjusted Eligible Receivables Balance over (b) the
Base Amount, and (ii) a fraction, the numerator of which is the aggregate
outstanding principal amount of the Class A-1 Notes and the denominator of
which is 0.66 minus the Advance Rate Adjustment, if any.
"Excess Finance Charge Collections" shall have the meaning
assigned to such term in Section 5.04(a)(4) of the Indenture.
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"Excess Funding Account" shall have the meaning assigned to
such term in Section 4.03(a) of the Indenture.
"Excess Funding Account Optional Redemption" shall have the
meaning assigned to such term in Section 9.02 of the Indenture.
"Excess Trust's Percentage" shall mean, for any Settlement
Period, a percentage (which percentage shall never be less than 0% or more than
100%) equal to 100% minus, the sum of (i) when used (a) with respect to the
allocation of Finance Charge Collections for such Settlement Period, the
applicable Floating Allocation Percentage; or (b) with respect to the
allocation of Principal Collections for such Settlement Period, the applicable
Principal Allocation Percentage and (ii) the Subordinated Percentage.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Existing Receivables Securitization Facility" shall mean the
receivables securitization facility entered into on November 20, 1992 and
continued in effect from and after the effective date of the plan of
reorganization of Zale Corp. and its affiliated debtors, under which the Issuer
issued approximately $284,700,000 in aggregate principal amount of receivables
backed notes.
"Facilities Documents" shall mean the Transaction Documents.
"Final Maturity Date" shall mean, with respect to the
Subordinated Note, the date that on which the notes of all outstanding Series
have been paid in full in accordance with the Indenture.
"Finance Charges" shall mean, at any date, finance charges,
late charges, other fees and charges and other non- principal charges on the
Receivables.
"Finance Charge Collections" shall mean collections of Finance
Charges.
"Financial Officer" shall mean, with respect to any
corporation, the chief executive officer, the chief operating officer, the
chief financial officer, the chief accounting officer, the president, the
treasurer, any assistant treasurer, or the controller of such corporation.
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"Fixed Rate Interest Period" shall mean, with respect to any
Payment Date for the Class A-2 Notes, the Class B Notes and the Class C Notes,
the period from and including the 15th day of the month preceding the month in
which such Payment Date occurs (or, in the case of the first Payment Date, from
and including the Issuance Date) to and including the 14th day of the month in
which such Payment Date occurs (regardless of whether such dates are Business
Days).
"Floating Allocation Percentage" shall mean, for any
Settlement Period, the percentage equivalent (which shall never exceed 100%) of
a fraction, the numerator of which is the Net Note Principal Amount as of the
last day of the immediately preceding Settlement Period and the denominator of
which is the product of (x) the Pool Balance as of such last day and (y) the
Series Allocation Percentage for such Settlement Period.
"Floating Rate Interest Period" shall mean, with respect to
the Class A-1 Notes and any Payment Date, the period from and including the
previous Payment Date (or, in the case of the first Payment Date, from and
including the Issuance Date) to and including the day preceding such Payment
Date (regardless of whether such day is a Business Day).
"Force Majeure" shall mean any event or circumstances beyond a
Person's control arising from an act of God, flood, fire, riot, accident,
inability to obtain phone lines or government action.
"GAAP" shall mean generally accepted accounting principles in
the United States, applied on a consistent basis.
"General Subaccount" shall have the meaning assigned to such
term in Section 4.02(a) of the Indenture.
"Governmental Authority" shall mean any Federal, state, local
or foreign government or any court, agency, authority, instrumentality or
regulatory body thereof.
"Gross Charge-Offs" shall mean, for any period, the aggregate
balance of Receivables that are written off during such period as uncollectible
in accordance with the Credit Card Guidelines.
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"Guarantee" shall mean, with respect to any Person, any
obligation, contingent or otherwise, of such Person guaranteeing or having the
economic effect of guaranteeing any Indebtedness of any other Person (and
"primary obligor") in any manner, whether directly or indirectly, including any
direct or indirect obligation of the Issuer (1) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Indebtedness, (2) to purchase property, securities or
services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness or (3) to maintain working capital, equity capital
or other financial statement condition or liquidity of the primary obligor so
as to enable the primary obligor to pay such Indebtedness; provided, that, the
term Guarantee shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
"Highest Bid" means the highest cash purchase offer for the
Notes received by the Servicer pursuant to Section 9.05 of the Indenture.
"Highest Rating" means, in the case of Standard & Poor's,
A-1+/AAA and, in the case of Duff & Phelps, Duff-1+/AAA.
"Indebtedness" shall mean, with respect to any Person, without
duplication, (1) all obligations of such Person for borrowed money or with
respect to deposits or advances of any kind, (2) all obligations of such Person
evidenced by bonds, debentures, notes or similar instruments, (3) all
obligations of such Person upon which interest charges are customarily paid,
(4) all obligations of such Person under conditional sale or other title
retention agreements relating to property or assets purchased by such Person,
(5) all obligations of such Person issued or assumed as the deferred purchase
price of property or services, (6) all Indebtedness of others secured by (or
for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the obligations secured thereby have been assumed, (7)
all Guarantees by such Person of Indebtedness of others, (8) all Capital Lease
Obligations of such Person, (9) all obligations of such Person in respect of
interest rate protection agreements, foreign currency exchange agreements or
other interest or exchange rate hedging arrangements and (10) all obligations
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of such Person as an account party in respect of letters of credit and bankers'
acceptances. The Indebtedness of any Person shall include the Indebtedness of
any partnership in which such Person is a general partner.
"Indemnified Amounts" shall have the meaning assigned to such
term in Section 8.01(b) of the Purchase and Servicing Agreement.
"Indenture" shall mean the Indenture governing the Notes,
dated as of July 1, 1994, between the Issuer and the Indenture Trustee, as
amended, supplemented or otherwise modified from time to time thereafter.
"Indenture Trustee" shall mean Bankers Trust Company, a
banking corporation organized under the laws of the state of New York.
"Index Maturity" shall mean deposits in United States dollars
having a maturity of one month.
"Ineligible Receivable" shall mean any Purchased Receivable
that was not an Eligible Receivable as of the Cut-Off Date or on its Purchase
Date, as applicable.
"Initial Net Note Principal Amount" shall mean, the portion of
the initial principal amount of the Notes that is invested in Principal
Receivables on the Issuance Date, which is expected to be approximately
$346,000,000, plus (x) the amount of any withdrawals from the Excess Funding
Account since the Issuance Date other than amounts applied to principal
payments on the Notes, minus (y) the amount of any additions to the Excess
Funding Account since the Issuance Date in respect of Borrowing Base
Deficiencies.
"Insolvency Event" shall mean the events described in Sections
10.01(e) and (f) of the Indenture.
"Insurance Proceeds" shall mean any amounts paid pursuant to
any credit insurance policies covering any Obligor with respect to Receivables
under such Obligor's Account other than proceeds of such insurance policies
used to purchase replacement property in accordance with the Credit Card
Guidelines.
"Interest-Only Period" shall mean the period commencing with
the calendar month in which the Cut-Off Date occurs to and including the
earlier of (i) the last day of
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the July 1999 Settlement Period and (ii) the day preceding the date on which an
Early Amortization Event occurs.
"Interest Period" shall mean either the Fixed Rate Interest
Period or the related Floating Rate Interest Period, as applicable.
"Interest Subaccount" shall have the meaning assigned to such
term in Section 4.02(a) of the Indenture.
"Investment Company Act" shall mean the Investment Company Act
of 1940, as amended.
"Investment Proceeds" shall mean, for any Payment Date, an
amount equal to the sum of (a) the Series Allocation Percentage of investment
earnings on the related Determination Date with respect to funds held in the
Collateral Account and (b) all investment income on amounts in the Excess
Funding Account or Optional Redemption Account since the preceding Payment
Date.
"Issuance Date" shall mean the closing date of the issuance of
the Class A-1 Notes, the Class A-2 Notes, the Class B Notes and the Class C
Notes by the Issuer.
"Issuer" shall mean Zale Funding Trust, a Delaware business
trust, and its successors and assigns.
"Issuer Expenses" shall mean all operating expenses incurred
by the Issuer in the ordinary course of its business (including without
limitation rent, payroll, taxes and administrative and professional expenses).
"JFS" shall mean Jewelers Financial Services, Inc., a Delaware
corporation, and its successors and assigns.
"Late Fees" shall mean charges assessed on past due payments
in certain states in accordance with applicable state law.
"Letter of Representations" shall mean the agreement among the
Issuer, the Indenture Trustee and the applicable Clearing Agency, with respect
to any Book-Entry Notes, as the same may be amended, supplemented, restated or
otherwise modified from time to time.
"LIBOR" means, with respect to any Floating Rate Interest
Period, the offered rates for deposits in United
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States dollars having the Index Maturity commencing on the related LIBOR
Determination Date which appears on the Reuters Screen LIBOR Page as of
approximately 11:00 a.m., London time, on the LIBOR Determination Date. If at
least two such offered rates appear on the Reuters Screen LIBO Page, LIBOR will
be the arithmetic mean (rounded upwards, if necessary, to the nearest
one-sixteenth of a percent) of such offered rates. If fewer than two such
quotations appear, LIBOR with respect to such Floating Rate Interest Period
will be determined at approximately 11:00 a.m., London time, on such LIBOR
Determination Date on the basis of the rate at which deposits in United States
dollars having the Index Maturity are offered to prime banks in the London
interbank market selected by the Indenture Trustee and in a principal amount
equal to an amount of not less than $1,000,000 and that is representative for a
single transaction in such market at such time. The Indenture Trustee will
request the principal London office of each of such banks to provide a
quotation of its rate. If at least two such quotations are provided, LIBOR
will be the arithmetic mean (rounded upwards as aforesaid) of such quotations.
If fewer than two quotations are provided, LIBOR with respect to such Interest
Period will be the arithmetic mean (rounded upwards as aforesaid) of the rates
quoted at approximately 11:00 a.m., New York City time, on such LIBOR
Determination Date by three major banks in New York, New York selected by the
Indenture Trustee for loans in United States dollars to leading European banks
having the Index Maturity and in a principal amount equal to the amount of not
less than $1,000,000 and that is representative for a single transaction in
such market at such time; provided, however, that if the banks selected as
aforesaid are not quoting as mentioned in this sentence, LIBOR in effect for
the applicable Floating Rate Interest Period will be LIBOR in effect for the
immediately preceding Floating Rate Interest Period.
"LIBOR Determination Date" shall mean the day that is two
London Business Days prior to the first day of such Floating Rate Interest
Period (or, in the case of the first Floating Rate Interest Period, on July 13,
1994).
"Licensed Names" shall have the meaning assigned to such term
in Section 10.08 of the Purchase and Servicing Agreement.
"Lien" shall mean, with respect to any asset, (1) any
mortgage, deed of trust, lien, pledge, claim, equity interest, participation
interest, security interest or other
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charge or encumbrance of any kind in or on such asset, (2) the interest of a
vendor or a lessor under any conditional sale agreement, capital lease or title
retention agreement relating to such asset and (3) in the case of securities,
any purchase option, call or similar right of a third party with respect to
such securities.
"Local Store Bank Account" shall mean the bank accounts used
by all retail stores of the Originators and credit centers of the Servicer.
"London Business Day" shall mean any Business Day on which
dealings in deposits in United States dollars are transacted in the London
interbank market.
"Mail Payments" shall have the meaning assigned to such term
in Section 6.04(a) of the Purchase and Servicing Agreement.
"Majority Noteholders" shall mean noteholders of a majority in
principal amount of the Notes and the notes of all other outstanding Series.
"Margin Stock" shall have the meaning assigned to such term
under Regulation U of the Board as from time to time in effect and all official
rulings and interpretations thereunder or thereof.
"Material Adverse Effect" shall mean (1) a material adverse
effect on the ability of the Issuer to perform in all material respects its
obligations under any Transaction Document to which it is a party or (2) a
material adverse effect on the rights and remedies of the Indenture Trustee or
the Noteholders under any Transaction Document.
"Miscellaneous Payments" shall mean, for any Settlement
Period, the sum of (a) Adjustment Payments and Transfer Deposit Amounts
received with respect to such Settlement Period and (b) Unallocated Principal
Collections on such Payment Date available to be treated as Miscellaneous
Payments.
"Monthly Interest" shall mean, for any Payment Date, and with
respect to any class of Notes, the sum of (A) product of (i) the Note Rate in
effect for the related Interest Period, (ii) the sum of (a) the outstanding
principal balance of such class of Notes (after giving effect to distributions
of principal on the preceding Payment Date)
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and (b) the amount of any shortfall in payment of Monthly Interest on the
immediately preceding Payment Date, and (iii) in the case of the Class A-1
Notes, a fraction, the numerator of which is the actual number of days elapsed
in such Interest Period and the denominator of which is 360 and, in the case of
each other class of Notes, 1/12th and (B) the amount specified in clause
(A)(ii)(b).
"Monthly Principal" shall mean with respect to any Payment
Date commencing with the Amortization Commencement Date, an amount equal to the
Available Noteholder Principal Collections for such Payment Date; provided,
however, that Monthly Principal shall not exceed the Net Note Principal Amount.
"Monthly Servicing Fee" means, with respect to any Payment
Date, and amount equal to 1/12th of the product of (a) the Servicing Fee Rate
and (b) the Net Note Principal Amount as of the last day of the second
preceding Settlement Period.
"Monthly Settlement Statement" shall mean a report
substantially in the form of Exhibit C to the Purchase and Servicing Agreement
prepared and delivered by the Servicer pursuant to the Purchase and Servicing
Agreement.
"Net Charge-Offs" shall mean Gross Charge-Offs, including
"repossessions" (i.e., charge-offs where merchandise is returned by the
customer voluntarily) and charge-offs resulting from fraud less Recoveries of
previously charged-off Receivables and sales tax recoveries. Charge-off data
does not include certain Accounts where the Cardholder is in Chapter 13
bankruptcy proceedings, and where a lowering of payments and/or re-aging may
occur as a result.
"Net Note Principal Amount" shall mean for any date, an amount
equal to the Initial Net Note Principal Amount, minus the amount, without
duplication, of principal payments (except principal payments made from the
Excess Funding Account) made to Noteholders prior to such date, minus the
excess, if any, of the aggregate amount of Noteholder Charge-Offs for all
Payment Dates preceding such date, over the aggregate amount of any
reimbursements of Noteholder Charge-Offs for all Payment Dates preceding such
date.
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"Net Yield" shall mean, with respect to any Settlement Period,
the annualized percentage equivalent of a fraction, the numerator of which is
the sum of (i) Available Noteholder Finance Charge Collections for such
Settlement Period and (ii) Investment Proceeds minus the product of (a) the
Default Amount for such Settlement Period and (b) the sum of the Floating
Allocation Percentage and the Subordinated Percentage for such Settlement
Period, and the denominator of which is the sum of, as of the first day of such
Settlement Period, of (x) the Net Note Principal Amount, (y) the Available
Subordinated Amount and (z) the amount of funds on deposit in the Excess
Funding Account, or any other definition as to which the Rating Agencies,
within 3 months after the Issuance Date, shall have furnished a written
confirmation that such other definition will not result in a reduction in the
rating of any class of the Notes or in a removal of the rating of any class of
the Notes.
"New Issuance" shall have the meaning assigned to such term in
Section 2.22 of the Indenture.
"Non-Purchased Receivable" shall mean with respect to any
Account containing a Purchased Receivable, a Receivable in such Account that
has not been purchased by the Issuer.
"Note" shall mean any of the Notes.
"Note Rate" shall mean the Class A-1 Notes Rate, the Class A-2
Notes Rate, the Class B Notes Rate and the Class C Notes Rate, as applicable.
"Note Register" shall have the meaning assigned to such term
in Section 2.10 of the Indenture.
"Noteholder" shall mean a Registered Noteholder.
"Noteholder Charge-Offs" shall mean, with respect to any
Payment Date, the lesser of (a) the Noteholder Default Amount for such Payment
Date, and (b) the excess, if any, of (i) the Deficiency Amount for such Payment
Date over (ii) the Available Subordinated Amount for such Payment Date.
"Noteholder Data Sheet" shall have the meaning assigned to
such term in Section 2.10 of the Indenture.
"Noteholder Default Amount" shall mean, with respect to any
Settlement Period, an amount equal to the
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product of (a) the Defaulted Amount for such Settlement Period, (b) the
applicable Series Allocation Percentage and (c) the Floating Allocation
Percentage for such Settlement Period.
"Note Purchase Agreement" shall mean the Note Purchase
Agreement, dated June 10, 1994, between Zale Delaware, Inc. and Bear Stearns,
as amended, supplemented or otherwise modified from time to time thereafter.
"Notes" shall have the meaning assigned to such term in Section
2.01 of the Indenture.
"Obligor" shall mean the Person or Persons obligated to make
payments with respect to an Account, including without limitation any guarantor
thereof.
"Opinion of Counsel" shall mean a written opinion of counsel
to the Issuer.
"Optional Full Redemption" shall have the meaning assigned to
such term in Section 9.01 of the Indenture.
"Optional Full Redemption Date" shall have the meaning
assigned to such term in Section 9.01 of the Indenture.
"Optional Full Redemption Price" shall have the meaning
assigned to such term in Section 9.01 of the Indenture.
"Optional Redemption Account" shall have the meaning assigned
to such term in Section 4.04 of the Indenture.
"Optional Redemption Announcement Date" shall mean the date
when an Optional Redemption Notice is given to Noteholders by the Owner Trustee
that a portion or all of the outstanding principal amount of their Notes will
be redeemed by the Trust.
"Optional Redemption Notice" shall have the meaning assigned
to such term in Section 9.03(a) of the Indenture.
"Optional Redemption Premium Calculation" shall have the
meaning assigned to such term in Section 9.03(d) of the Indenture.
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"Originator" shall mean any of Zale Delaware, Inc., Zale
Puerto Rico, Inc., or Dobbins Jewelers, Inc., in their capacities as
originators of Accounts.
"Owner Trustee" shall mean Wilmington Trust Company or any
successor thereof under the Trust Agreement.
"Partial Redemption" shall have the meaning assigned to such
term in Section 9.02 of the Indenture.
"Partial Redemption Amount" shall mean, in the case of a
Division Sale Optional Redemption, up to the then current principal balance of
the Receivables originated by such division as of the date which is two
Business Days prior to the closing date of the sale of such division multiplied
by 79.8%, subject to certain limitations or, in the case of an Excess Funding
Account Optional Redemption, the amount designated by the Trust up to the
amount of funds in the Excess Funding Account as of the Optional Redemption
Announcement Date.
"Partial Redemption Date" shall have the meaning assigned to
such term in Section 9.02 of the Indenture.
"Partial Redemption Premium" shall mean, for any Partial
Redemption Date, the amount computed according to the formula set forth in
Annex III to the Indenture.
"Partial Redemption Price" shall have the meaning assigned to
such term in Section 9.02 of the Indenture.
"Payment Date" shall mean, after the occurrence of the
Issuance Date and until and including the occurrence of the Final Maturity Date
with respect to all Notes, the fifteenth (15th) day of each calendar month or,
if any such day is not a Business Day, the next succeeding Business Day.
"Person" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership or government, or any
agency or political subdivision thereof.
"Pool Balance" shall mean the aggregate principal balance of
the Eligible Receivables.
"Post Office Boxes" shall have the meaning assigned to such
term in Section 4.01(a) of the Indenture.
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"Post Office Boxes Fee" shall mean the fees payable with
respect to the maintenance of the Post Office Boxes.
"Potential Early Amortization Event" shall mean any event
which with the passage of time or giving of notice or both would constitute an
Early Amortization Event.
"Preliminary Private Placement Memorandum" shall mean the
Preliminary Private Placement Memorandum dated May 31, 1994.
"Principal Allocation Percentage" shall mean, for any
Settlement Period, the percentage equivalent (which shall never exceed 100%) of
a fraction, the numerator of which is the Net Note Principal Amount as of the
last day of the Interest-Only Period and the denominator of which is the
product of (x) the Pool Balance as of the last day of the immediately preceding
Settlement Period and (y) the Series Allocation Percentage for the Settlement
Period in respect of which the Principal Allocation Percentage is being
calculated.
"Principal Collections" shall mean collections of Principal
Receivables.
"Principal Receivables" shall mean, with respect to the
Receivables, amounts charged by cardholders on the Accounts for the purchase of
merchandise and all amounts due in respect of insurance premiums.
"Principal Terms" shall have the meaning assigned to such term
in Section 2.22 of the Indenture.
"Private Placement Memorandum" shall mean the Private
Placement Memorandum dated July 12, 1994 describing the Transactions.
"Pro Forma Net Yield" shall mean, with respect to any
Settlement Period and any Receivables, the annualized percentage equivalent of
a fraction, the numerator of which is Series Allocable Finance Charge
Collections for such Settlement Period in respect of such Receivables minus the
product of (i) Gross Charge-offs for such Settlement Period in respect of such
Receivables and (ii) the applicable Series Allocation Percentage, and the
denominator of which is the outstanding principal balance of the Notes after
giving effect to any payments of principal on the Payment Date occurring in
such Settlement Period.
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"Proceeding" shall mean any suit in equity, action at law or
other judicial or administrative proceeding.
"Publication Date" shall have the meaning assigned to such
term in Section 10.03(a) of the Indenture.
"Purchase and Servicing Agreement" shall mean the Purchase and
Servicing Agreement dated as of July 2, 1994 among the Issuer, the Seller, DFC
and the Servicer, as it may from time to time be amended, supplemented or
otherwise modified.
"Purchase Date" shall have the meaning assigned to such term
in Section 2.04(a) of the Purchase and Servicing Agreement.
"Purchased Receivable" shall mean any Receivable sold to the
Issuer by the Seller or DFC (or any other Receivable which the Issuer owns or
otherwise has an interest in pursuant to, and in accordance with the terms of,
the Purchase and Servicing Agreement).
"Purchase Price" shall have the meaning assigned to such term
in Section 2.03 of the Purchase and Servicing Agreement.
"Purchase Termination Date" shall have the meaning assigned to
such term in Section 2.02 of the Purchase and Servicing Agreement.
"Rating Agency" shall mean either Standard & Poor's or Duff &
Phelps.
"Rating Agency Condition" shall mean, in the event that any
rated Series or class of Notes is outstanding, that each Rating Agency shall
have notified the Seller, the Servicer and the Indenture Trustee in writing
that the issuance of a new Series will not result in a reduction or withdrawal
of the rating of any outstanding Series or class of Notes.
"Receivable" shall mean all indebtedness of an Obligor on any
Account arising from a sale of merchandise or services (including without
limitation credit insurance services made available to an Obligor) by the
Seller, Zale Puerto Rico or Dobbins, including Finance Charges and all other
obligations of such Obligor with respect thereto.
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"Record Date" shall have the meaning assigned to such term in
Section 2.11 of the Indenture.
"Recoveries" shall mean, with respect to any Settlement
Period, the aggregate amount of all cash received by the Issuer, the Seller,
DFC or the Servicer during such Settlement Period in respect of Purchased
Receivables contained in Accounts written off as uncollectible in accordance
with the Credit Card Guidelines at any time prior to such Settlement Period
(including Accounts written off as uncollectible both before and after the
initial Purchase Date).
"Redemption Discount Rate" shall mean with respect to (i) the
Class A-1 Notes will equal LIBOR (determined as of the LIBOR Determination Date
immediately preceding the Partial Redemption Date) and (ii) the Class A-2
Notes, the Class B Notes and the Class C Notes will equal the yield (adjusted
to a mortgage-equivalent yield), determined as of the day preceding the
Determination Date immediately preceding the Partial Redemption Date, on the
Comparable U.S. Treasury Security as set forth in The Wall Street Journal on
such Determination Date, plus 0.50%.
"Registered Noteholder" shall have the meaning assigned to
such term in Section 2.10 of the Indenture.
"Regulation G" shall mean Regulation G of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation T" shall mean Regulation T of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation U" shall mean Regulation U of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation X" shall mean Regulation X of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Related Contracts" shall have the meaning assigned to such
term in Section 3.01(a) of the Indenture.
"Release" shall have the meaning assigned to such term in
Section 4.03(e) of the Indenture.
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"Requirement of Law" shall mean, for any Person or any of its
property, the certificate of incorporation or articles of association and
bylaws or other organizational or governing documents of such Person or any of
its property, 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 any of its property or to which such Person or any of its
property is subject, whether Federal, state, local or other (including without
limitation usury laws, the Federal Truth in Lending Act and retail installment
sales acts).
"Return Amount" shall have the meaning assigned to such term
in Section 2.06 of the Purchase and Servicing Agreement.
"Reuters Screen LIBO Page" shall mean the display designated
as page "LIBO" on the Reuters Monitor Money Rates Service (or such other page
as may replace the LIBO page on that service for the purpose of displaying
London interbank offered rates of major banks).
"Rule 144" shall mean Rule 144 as promulgated under the
Securities Act by the Securities and Exchange Commission.
"Rule 144A" shall mean Rule 144A as promulgated under the
Securities Act by the Securities and Exchange Commission.
"Rule 904" shall mean Rule 904 as promulgated under the
Securities Act by the Securities and Exchange Commission.
"Seasonality Factor" shall mean initially, 0.94 and thereafter
will be adjusted on the first day of each October, February and May to equal
0.93, 0.95 and 0.94, respectively.
"Scheduled Redemption Date" shall mean the Payment Date
occurring in July 1999.
"Secured Obligations" shall have the meaning assigned to such
term in Section 3.01 of the Indenture.
"Secured Parties" shall mean the Indenture Trustee and the
Noteholders.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
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"Seller" shall mean Z Del or any successor thereto under the
Purchase and Servicing Agreement.
"Seller Division" shall mean any one or more of the divisions
of the Seller as constituted on or after the Issuance Date.
"Series" shall mean Series 1994-1 and any Series of Notes
issued in accordance with Section 2.22 of the Indenture.
"Series Allocable Collections" shall mean, with respect to any
date of determination, the product of (a) Collections on such date and (b) the
applicable Series Allocation Percentage.
"Series Allocable Defaulted Amount" shall mean, with respect
to the Notes for any Settlement Period, the product of the Series Allocation
Percentage for the Notes and the Defaulted Amount with respect to such
Settlement Period.
"Series Allocable Finance Charge Collections" shall mean, with
respect to the Notes for any Settlement Period, the product of the Series
Allocation Percentage for the Notes and the amount of the Finance Charge
Collections with respect to such Settlement Period.
"Series Allocable Miscellaneous Payments" shall mean, with
respect to the Notes for any Settlement Period, the product of the Series
Allocation Percentage for the Notes and the amount of the Miscellaneous
Payments with respect to such Settlement Period.
"Series Allocable Principal Collections" shall mean, with
respect to the Notes for any Settlement Period, the product of the Series
Allocation Percentage for the Notes and the amount of the Principal Collections
with respect to such Settlement Period.
"Series Allocation Percentage" shall mean, with respect to the
Notes for any Settlement Period, the percentage equivalent of a fraction, the
numerator of which is the Adjusted Note Principal Amount as of the last day of
the immediately preceding Settlement Period and the denominator of which is the
Aggregate Adjusted Note Principal Amount as of such last day.
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"Series Supplement" shall mean each supplement to the
Indenture pursuant to which a New Issuance is issued by the Issuer.
"Series Termination Date" shall mean the Payment Date
occurring in March 2003.
"Service Transfer" shall have the meaning set forth in Section
6.10(b) of the Purchase and Servicing Agreement.
"Servicer" shall mean JFS, or its successor in interest, or any
Successor Servicer.
"Servicer Default" shall have the meaning assigned to such
term in Section 6.10(b) of the Purchase and Servicing Agreement.
"Servicing Fee" shall mean the product of (i) 2% per annum and
(ii) the amount of Principal Receivables as of the last day of the second
preceding Settlement Period.
"Servicing Fee Rate" means, during the Interest-Only Period,
0% per annum if JFS is the Servicer and in all other cases, 2% per annum.
"Settlement Period" shall mean, with respect to any
Determination Date, the preceding Cycle Month of the Seller.
"Standard & Poor's" shall mean Standard & Poor's Rating Group,
a division of McGraw Hill.
"Standing Delivery Order" shall mean a duly executed and
delivered standing delivery order to the United States Postal Service in
substantially the form attached as Exhibit M to the Indenture.
"Store Payments" shall have the meaning assigned to such term
in Section 6.04(a) of the Purchase and Servicing Agreement.
"Subordinated Note" shall have the meaning assigned to such
term in Section 9.01(a) of the Purchase and Servicing Agreement.
"Subordinated Percentage" shall mean, with respect to any
Settlement Period, the percentage equivalent of a fraction, the numerator of
which is the excess of (i) the Available Subordinated Amount as of the last day
of the
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immediately preceding Settlement Period over (ii) the aggregate amount of
Excess Finance Charge Collections previously distributed to the Seller to the
extent such distributions increased the Available Subordinated Amount, and the
denominator of which is the product of (x) the Pool Balance as of the last day
of such immediately preceding Settlement Period and (y) the Series Allocation
Percentage for the Settlement Period in respect of which the Excess Trust's
Percentage is being calculated.
"Subordination Provision" shall have the meaning assigned to
such term in Section 9.01(b) of the Purchase and Servicing Agreement.
"Subsidiary" shall mean, with respect to any Person (herein
referred to as the "parent"), any corporation, association or other business
entity (whether now existing or hereafter organized) of which at least a
majority of the securities or other ownership interests having ordinary voting
power for the election of directors is, at the time as of which any
determination is being made, owned or controlled by the parent or one or more
subsidiaries of the parent.
"Successor Servicer" shall have the meaning assigned to such
term in Section 6.10(c) of the Purchase and Servicing Agreement.
"Target Note Amount" shall have the meaning assigned to such
term in Section 9.06 of the Indenture.
"Tax Opinion" shall have the meaning assigned to such term in
Section 2.22 of the Indenture.
"Transaction Documents" shall mean the Indenture, the Notes,
the Note Purchase Agreement and the Purchase and Servicing Agreement.
"Transactions" shall have the meaning assigned to such term in
Section 7.01(b) of the Indenture.
"Transfer Deposit Amount" shall have the meaning assigned to
such term in Section 2.05 of the Purchase and Servicing Agreement.
"Trust" shall mean Zale Funding Trust, a Delaware business
trust.
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"Trust Accounts" shall mean the accounts described in the
Indenture and any accounts required to be established pursuant to any Series
Supplement, that are designated as Trust Accounts in that Series Supplement.
"Trust Agreement" shall mean the Trust Agreement, dated as of
June 10, 1994, between the Seller and Wilmington Trust Company pursuant to
which the Trust was formed, as amended, supplemented or otherwise modified from
time to time thereafter.
"Trust Certificates" shall mean the certificates of beneficial
interest in the Trust which represent the entire equity interest in the Trust.
"Trust Daily Distribution Amount" shall mean, on any date
during the Early Amortization Period on which Collections are deposited in the
Collateral Account, the amount the Servicer will distribute directly to the
Trust equal to the product of (i) 100% minus the sum (not to exceed 100%) of
(x) the Principal Allocation Percentage for the related Settlement Period and
(y) the Subordinated Percentage for the related Settlement Period and (ii)
Series Allocable Collections for such date.
"Trust Indenture Act" shall mean the Trust Indenture Act of
1939, as amended.
"Trust Interest" shall mean the right to the assets of the
Trust not allocated to either the Notes or any notes of any additional Series
and is subordinated to the Notes to the limited extent provided in the
Indenture. The outstanding principal amount of the Trust Interest at any time
will equal the excess of (1) the aggregate dollar amount of Purchased
Receivables that are Eligible Receivables over (2) the sum of the Net Note
Principal Amount and the net note principal amount of all other series.
"Trust's Participation Amount" shall mean, for any date, an
amount equal to the Pool Balance on such date minus the aggregate Net Note
Principal Amount and the net note principal amounts for all other Series
outstanding on such date.
"Trust's Percentage" shall mean 100% minus (a) the Floating
Allocation Percentage, when used with respect to Finance Charge Collections and
Defaulted Receivables, or (b) the Principal Allocation Percentage, when used
with
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respect to Principal Collections during any Early Amortization Period.
"UCC" shall mean the Uniform Commercial Code as in effect from
time to time in the applicable governing jurisdiction.
"Unallocated Principal Collections" shall mean any amount of
remaining Principal Collections not paid to the Seller because the Trust's
Participation Amount does not exceed the Aggregate Available Subordinated
Amount.
"Wire Transfer Payment Recipient" shall have the meaning
assigned to such term in Section 2.11 of the Indenture.
"Working Capital Credit Agreement" shall mean the Revolving
Credit and Gold Consignment Agreement dated as of July 30, 1993, among the
Seller, Zale Corp., and the lending institutions set forth therein,as it may
from time to time be amended, supplemented or modified and any credit facility
that refinances such Revolving Credit and Gold Consignment Agreement in full,
which by its terms requires that an acceleration under such credit facility
constitutes an Early Amortization Event.
"Working Capital Lenders" shall mean the lenders under the
Working Capital Credit Agreement.
"Zale" shall mean, collectively, Zale Corp. and its
Subsidiaries, and their respective successors and assigns.
"Zale Corp." shall mean Zale Corporation, a Delaware
corporation, and its successors and assigns.
"Zale Puerto Rico" shall mean Zale Puerto Rico, Inc., a Puerto
Rico corporation, and its successors and assigns.
"Z Del" shall mean Zale Delaware, Inc., a Delaware
corporation, and its successors and assigns.
33
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Exhibit 4.5
PURCHASE AND SERVICING AGREEMENT
Dated as of July 1, 1994,
Among
ZALE FUNDING TRUST,
DIAMOND FUNDING CORP.,
ZALE DELAWARE, INC.,
And
JEWELERS FINANCIAL SERVICES, INC.
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ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
PURCHASE OF RECEIVABLES;
CONSIDERATION AND PAYMENT . . . . . . . . . . . . . . . . . . . . . 2
Section 2.01. Purchase of Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.02. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.03. Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.04. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.05. Adjustments for Ineligible Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.06. Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.07. Finance Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.08. Allocations Between Purchased and Non-Purchased Receivables. . . . . . . . . . . . . . . . . 6
Section 2.09. Recovery of Sales Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.10. Addition of Sellers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
CONDITIONS TO PURCHASES OF RECEIVABLES . . . . . . . . . . . . . . . . . . 8
Section 3.01. Conditions Precedent to the Issuer's Initial Purchase of Receivables. . . . . . . . . . . . . 8
Section 3.02. Conditions Precedent to All of the Issuer's Purchases of Receivables. . . . . . . . . . . . . 8
Section 3.03. Conditions Precedent to the Seller's and DFC's Obligations on the Initial Purchase Date. . . 9
Section 3.04. Conditions Precedent to the Seller's Obligations on All Purchase Dates. . . . . . . . . . . . 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 10
Section 4.01. Certain Representations and Warranties of the Parties. . . . . . . . . . . . . . . . . . . . 10
Section 4.02. Additional Representations and Warranties of the Seller, DFC and the Servicer. . . . . . . . 11
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Section 4.03. Additional Representations and Warranties of the Seller and DFC. . . . . . . . . . . . . . . 13
Section 4.04. Representations and Warranties of the Issuer. . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.01. Affirmative Covenants of the Seller and Servicer. . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.02. Negative Covenants of the Seller and Servicer. . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VI
ADMINISTRATION AND SERVICING
OF PURCHASED RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.01. Appointment of and Acceptance by the Servicer of Servicing Obligations. . . . . . . . . . . . 25
Section 6.02. Servicing Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.03. Reports and Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.04. Collection Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 6.05. Allocations and Applications of Collections. . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.06. Maintenance of Property; Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.07. Access to Certain Documentation Regarding the Purchased Receivables. . . . . . . . . . . . . 32
Section 6.08. Certain Responsibilities of the Servicer and the Seller. . . . . . . . . . . . . . . . . . . 32
Section 6.09. Limitation on Liability of the Seller, DFC and Others. . . . . . . . . . . . . . . . . . . . 32
Section 6.10. Successor Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.11. Termination of Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VII
ADDITIONAL RIGHTS AND OBLIGATIONS
IN RESPECT OF THE PURCHASED RECEIVABLES . . . . . . . . . . . . . . . . . . 38
Section 7.01. Collection of Receivables; Rights of the Issuer and its Assignees. . . . . . . . . . . . . . 38
ARTICLE VIII
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 8.01. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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ARTICLE IX
SUBORDINATED NOTE; CAPITAL CONTRIBUTION . . . . . . . . . . . . . . . . . . 42
Section 9.01. Subordinated Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.02. Restrictions on Transfer of Subordinated Note. . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.03. Initial Capital Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE X
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.01. Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.02. Notices, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.03. No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 10.04. Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 10.05. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 10.06. Costs, Expenses and Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 10.07. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.08. License. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.09. Merger or Consolidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.10. Acknowledgment of Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.11. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.12. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.13. No Petition in Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.14. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.15. Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.16. Jurisdiction; Consent to Service of Process. . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.17. Confirmation of Intent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.18 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
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Exhibits
Exhibit A Form of Daily Report
Exhibit B Form of Monthly Settlement Statement
Exhibit C Form of Subordinated Note
Schedules
Schedule I Tradenames of the Seller
Schedule II Reserved
Schedule III Account Schedule
Annexes
Annex I Glossary of Terms
Annex II Conditions to Closing
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PURCHASE AND SERVICING AGREEMENT (this "Agreement"), dated as
of July 1, 1994, among ZALE FUNDING TRUST, a Delaware statutory business trust
(the "Issuer"), ZALE DELAWARE, INC., a Delaware corporation (the "Seller"),
DIAMOND FUNDING CORP., a Delaware corporation ("DFC"), and JEWELERS FINANCIAL
SERVICES, INC., a Delaware corporation ("JFS" or the "Servicer").
W I T N E S S E T H :
WHEREAS, the Issuer, the Seller, DFC and the Servicer desire
to enter into a receivables financing facility pursuant to which, inter alia,
(1) the Issuer will purchase from the Seller and, on the Issuance Date only,
DFC, and the Seller and DFC will sell to the Issuer, Receivables, (2) the
Issuer will purchase Receivables with net cash proceeds received by the Issuer
from the issuance and sale of one or more Series of notes and cash collections
on the Purchased Receivables, (3) the repayment of all Series of notes will be
secured by a security interest in substantially all of the assets of the
Issuer, including the Purchased Receivables, and (4) the Servicer will service
the Purchased Receivables, in each case in accordance with the terms and
conditions set forth in the Transaction Documents;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby expressly acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Capitalized terms used but not
otherwise defined in this Agreement are used in this Agreement with the
meanings assigned to such terms in the Glossary of Terms attached as Annex I to
this Agreement.
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ARTICLE II
PURCHASE OF RECEIVABLES;
CONSIDERATION AND PAYMENT
Section 2.01. Purchase of Receivables. (a) The Seller hereby
sells, assigns, transfers and conveys to the Issuer, on the initial Purchase
Date and on each Purchase Date thereafter, on the terms and subject to the
conditions specifically set forth herein, all of its right, title and interest,
in, to and under (a) all Eligible Receivables of the Seller now existing and
hereafter originated by the Seller and all payment and enforcement rights (but
not any obligations) to, in and under the related Credit Card Agreements, (b)
all Collections in respect of such Receivables credited to the related Account
on or after the Cut-Off Date and all monies due or to become due with respect
to the foregoing and all collateral security therefor, (c) all proceeds of the
foregoing, including without limitation Insurance Proceeds relating thereto and
(d) all Recoveries. On the initial Purchase Date, all the Seller's right,
title and interest in and to all of the Seller's existing Receivables and after
the initial Purchase Date, all the Seller's right, title and interest in and to
all Receivables newly originated by the Seller, including, without limitation,
all Receivables set forth in the initial Daily Report in the case of
Receivables sold on the initial Purchase Date and in the most recent Daily
Report in the case of all other Receivables, shall be sold, assigned,
transferred and conveyed to the Issuer by the sale, assignment, transfer and
conveyance set forth in the immediately preceding sentence without any further
action by the Seller.
(b) DFC hereby sells, assigns, transfers and conveys to the
Issuer, on the initial Purchase Date, on the terms and subject to the
conditions specifically set forth herein, all of its right, title and interest,
in, to and under (a) all Eligible Receivables of DFC now existing and all
payment and enforcement rights (but not any obligations) to, in and under the
related Credit Card Agreements, (b) all Collections in respect of such
Receivables credited to the related Account on or after the Cut-Off Date and
all monies due or to become due with respect to the foregoing and all
collateral security therefor, (c) all proceeds of the foregoing, including
without limitation Insurance Proceeds relating thereto and (d) all Recoveries.
On the initial Purchase Date, all DFC's right, title and interest in and to all
such Receivables including, without limitation, all such
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Receivables set forth in the initial Daily Report, shall be sold, assigned,
transferred and conveyed to the Issuer by the sale, assignment, transfer and
conveyance set forth in the immediately preceding sentence without any further
action by DFC.
(c) All sales of Receivables by the Seller or DFC hereunder
shall be without recourse to, or representation or warranty of any kind
(express or implied) by, the Seller or DFC, except as otherwise specifically
provided herein. The foregoing sale, assignment, transfer and conveyance does
not constitute and is not intended to result in a creation or assumption by the
Issuer of any obligation of the Seller, DFC or any other Person in connection
with the Accounts, the Receivables, the Credit Card Agreements or any other
agreement relating thereto, including without limitation any obligation to
Obligors. It is understood and agreed that no purchases of Receivables
hereunder shall occur after the Purchase Termination Date.
Section 2.02. Termination. The Seller's obligation to sell
the Receivables under this Agreement shall terminate on the earlier to occur of
(i) the satisfaction and discharge of the Indenture pursuant to Section 12.01
thereof (notwithstanding the survival of certain obligations as set forth in
such Section 12.01, (ii) an Early Amortization Event or (iii) the first day of
the August 1999 Cycle Month (the "Purchase Termination Date").
Section 2.03. Purchase Price. The amount payable by the
Issuer (the "Purchase Price") shall be equal to (i) on the initial Purchase
Date for Eligible Receivables sold to the Issuer by the Seller or DFC on such
date, the aggregate Principal Receivables of such Eligible Receivables as of
the close of business on the Business Day preceding the Cut-Off Date (other
than Receivables contained in Accounts which were written off as uncollectible
in accordance with the Credit Card Guidelines prior to the initial Purchase
Date) as set forth in the initial Daily Report or (ii) on any Purchase Date
thereafter, for Eligible Receivables sold to the Issuer by the Seller on such
date the aggregate amount of Principal Receivables of such Receivables, in each
case as adjusted pursuant to Sections 2.05 and 2.06 of this Agreement.
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Section 2.04. Payments
(a) Payment of Purchase Price. The Purchase
Price for Receivables shall be paid to the Seller or DFC, as applicable, or
provided for in the manner provided below on the Issuance Date and each day
thereafter that a Daily Report is prepared and delivered to the Issuer in
accordance with Section 6.03(a) of this Agreement (each, a "Purchase Date").
The Issuance Date shall be the initial Purchase Date hereunder. The Purchase
Price shall be paid by the Issuer to the Seller and DFC on the initial Purchase
Date and to the Seller on each Purchase Date thereafter as follows:
(1) on the initial Purchase Date, (A) by making a cash
payment to DFC and (B) by making a cash payment to the Seller and by
issuing the Subordinated Note;
(2) on each Purchase Date after the initial Purchase
Date, (A) by making a cash payment to the Seller up to an amount equal
to funds available therefor on such Purchase Date pursuant to Section
5.01 of the Indenture; provided that, in no event shall cash payments
be made to the extent such payments would cause a Borrowing Base
Deficiency to exist; and (B) by means of an addition to the principal
amount of the Subordinated Note in an aggregate amount equal to the
excess, if any, of the Purchase Price to be paid to the Seller on such
date (as adjusted pursuant to Sections 2.05 and 2.06 of this
Agreement) over the amount of any cash payment made on such day to the
Seller in consideration for the Receivables.
(b) Time; Date; Location. Unless otherwise
specified in this Agreement, all payments under this Agreement shall be made
(1) not later than 1:00 p.m. (New York City time) on the date specified
therefor in lawful money of the United States of America in same day funds, (2)
if to the Seller or DFC, to the bank account designated in writing by the
Seller or DFC to the Issuer and (3) if to the Issuer, to the bank account
designated in writing by the Issuer to the Seller. Amounts not paid by the
Seller when due under this Agreement shall be payable on demand and shall bear
interest at a rate equal at all times to the lesser of (1) the prime rate as
reported in The Wall Street Journal and (2) the maximum rate permitted under
applicable law. Whenever any payment to be made under this Agreement shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day.
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Section 2.05. Adjustments for Ineligible Receivables. In the
event of a breach of the representation and warranty set forth in Section
4.03(a) hereof, then promptly upon the earlier to occur of the discovery of
such breach by the Seller or Servicer or receipt by the Seller of written
notice from the Indenture Trustee of such breach, the Purchase Price for
Receivables to be purchased from the Seller on such day shall be reduced by the
outstanding principal amount of the Receivables with respect to which such
breach occurred and the Servicer shall deduct the outstanding principal amount
of such Receivables from the Pool Balance. In the event such reduction of the
Pool Balance would cause the Trust's Participation Amount to be less than the
Aggregate Available Subordinated Amount, on the date of such reduction the
Seller shall make a deposit (the "Transfer Deposit Amount") to the Collateral
Account in immediately available funds in an amount equal to the amount by
which the Trust's Participation Amount would otherwise be reduced below the
Aggregate Available Subordinated Amount. The obligation of the Seller to
accept adjustment of the Purchase Price as herein provided or to deposit the
Transfer Deposit Amount shall be the sole remedy respecting breach of the
representations and warranties identified in the first sentence of this Section
2.05 available to the noteholders of any Series or the Indenture Trustee on
behalf of the noteholders of any Series.
Section 2.06. Returns. The Seller may accept returns of
goods for full or partial credit (a "Credit Return") or make a daily adjustment
in the principal amount or finance or other charges accrued or payable with
respect to an Account if such adjustment is permitted by and made in accordance
with the Credit Card Guidelines (a "Credit Adjustment"). Each Credit Return
and Credit Adjustment (including any Credit Adjustment required by any
Requirement of Law) shall be made by the Seller on the applicable Date of
Processing. All Credit Returns and Credit Adjustments on any Date of
Processing shall be in an amount equal to the aggregate amount of all such
returns and adjustments made with respect to the Purchased Receivables on such
Date of Processing (the "Return Amount"). The Servicer shall deduct the Return
Amount from the Pool Balance on such Date of Processing. To the extent such
reduction reduces the Trust's Participation Amount below the Aggregate
Available Subordinated Amount for the immediately preceding Determination Date
(after giving effect to the allocations, distributions, withdrawals and
deposits to be made on the Payment Date immediately following such
Determination Date),
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the Seller will deposit a cash amount equal to such deficiency into the
Collateral Account in immediately available funds (an "Adjustment Payment") on
the day on which such adjustment occurs.
Section 2.07. Finance Charges. Finance Charges, whenever
created and whenever received, accrued in respect of Purchased Receivables,
shall be the property of the Issuer and all Collections with respect thereto
shall be allocated and treated as Collections in respect of Purchased
Receivables.
Section 2.08. Allocations Between Purchased and Non-Purchased
Receivables. The Seller, the Issuer and the Servicer agree that the Servicer
shall apply Collections on an Account by Account basis between Purchased
Receivables and Non-Purchased Receivables as set forth below:
(a) Collections. All Collections of Finance
Charges received in respect of an Account containing both Purchased Receivables
and Non-Purchased Receivables shall be allocated for the purposes of this
Agreement on a pro rata basis (based on Purchase Prices) between Purchased
Receivables and Non-Purchased Receivables in the Account. All other
Collections received in respect of an Account containing both Purchased
Receivables and Non-Purchased Receivables shall be allocated for the purposes
of this Agreement (1) first, to pay Purchased Receivables in the Account until
such Purchased Receivables are paid in full and (2) second, to pay
Non-Purchased Receivables in the Account. All Collections in respect of any
Account that contains only Purchased Receivables shall be paid in respect of
Purchased Receivables and all Collections in respect of any Account that
contains only Non-Purchased Receivables shall be paid in respect of
Non-Purchased Receivables.
(b) Credits; Returns. All credits and returns
made after the Purchase Termination Date shall be applied to the Receivable to
which such credit or return relates, whether with respect to a Purchased
Receivable or a Non-Purchased Receivable.
(c) Gross Charge-Offs. Gross Charge-Offs of any
Account shall be made for all Receivables in the Account, with a pro rata
reduction (based on Purchase Prices) in Purchased Receivables and Non-Purchased
Receivables in the Account.
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(d) Recoveries. Recoveries with respect to any
Account shall be applied (1) first, in respect of Gross Charge-Offs of
Purchased Receivables in the Account until such Recoveries equal the amount of
such Gross Charge-Offs of Purchased Receivables in full and (2) second, in
respect of Gross Charge-Offs of Non-Purchased Receivables in the Account.
Section 2.09. Recovery of Sales Tax. The Seller may, at its
option, repurchase any Purchased Receivables from the Issuer that have been
charged off in accordance with the Credit Card Guidelines to the extent
necessary to recover state sales tax related to such Purchased Receivables, at
a price equal to the sum of (a) the amount of Recoveries with respect to such
Purchased Receivables plus (b) the proceeds from such state sales tax. Upon
any such repurchase, the Seller (1) agrees, to the extent not paid at the time
of repurchase, to pay promptly to the Issuer the amount of any Recoveries
received in respect of such repurchased charged-off Purchased Receivables and,
immediately upon crediting of such amount to the Seller by offset or otherwise,
the amount of state sales tax recovered with respect thereto, and (2) shall
grant a security interest to the Issuer in such repurchased Receivables and any
proceeds thereof (including any Recoveries therefrom) to secure the repurchase
price of such Receivables.
Section 2.10. Addition of Sellers. Any Subsidiary of Zale
Corp. may sell its Receivables hereunder to the Issuer if the Rating Agency
Condition is satisfied with respect to such addition. Zale Corp. and its
Subsidiary that is proposed to sell Receivables shall give to the Issuer and
the Rating Agencies not less than thirty days' prior written notice of the
effective date of the addition of such Subsidiary as a seller of Receivables.
Once such notice has been given, any addition of a Subsidiary of Zale Corp. as
a seller of Receivables pursuant to this Section 2.10 shall become effective on
the first Business Day following the expiration of such thirty-day period (or
such later date as may be specified in such notice) on which (i) the Rating
Agency Condition has been satisfied, (ii) such Subsidiary and the parties
hereto shall have executed and delivered such agreements, instruments and other
documents and such amendments or other modifications to the Transaction
Documents, in form and substance reasonably satisfactory to the Issuer and the
Indenture Trustee, that the Issuer and the Indenture Trustee reasonably
determine are necessary or appropriate to effect such addition.
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ARTICLE III
CONDITIONS TO PURCHASES OF RECEIVABLES
Section 3.01. Conditions Precedent to the Issuer's Initial
Purchase of Receivables. The obligation of the Issuer to purchase the
Receivables hereunder on the initial Purchase Date from the Seller and DFC
shall be subject to the satisfaction of each of the conditions precedent
contained in Annex II to this Agreement.
Section 3.02. Conditions Precedent to All of the Issuer's
Purchases of Receivables. The obligation of the Issuer to purchase each
Receivable on each Purchase Date (including the initial Purchase Date) from the
Seller and, on the initial Purchase Date only, DFC shall be subject to the
further conditions precedent that on such Purchase Date:
(a) The following statement shall be true (and delivery
by the Seller, DFC or the Servicer of the Daily Report and the
acceptance by the Seller and DFC of the Purchase Price for any
Receivables on any Purchase Date shall constitute a representation and
warranty by the Seller that on such Purchase Date such statement is
true):
the representations and warranties of the Seller, DFC and the
Servicer contained in Sections 4.01, 4.02 and 4.03 of this
Agreement shall be true and correct in all material respects
on and as of such Purchase Date as though made on and as of
such date (except to the extent that such representations or
warranties expressly relate to an earlier date, in which case
such representations and warranties shall be true and correct
in all material respects as of such earlier date).
(b) No material change shall have occurred after the
initial Purchase Date with respect to the Seller's and the Servicer's
systems, computer programs, related materials, computer tapes, disks
and cassettes, procedures and record keeping relating to and required
for the collection of the Purchased Receivables by the Servicer which
makes them not sufficient and
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satisfactory in order to permit the purchase and administration and
collection of the Purchased Receivables by the Servicer in accordance
with the terms and intent of this Agreement.
(c) The Issuer shall have received payment in full of all
amounts for which payment has been requested by the Issuer pursuant to
Section 10.06 of this Agreement.
(d) The Issuer shall have received such other approvals,
opinions or documents as the Issuer may reasonably request.
(e) The Seller and the Servicer shall have complied in
all material respects with all the covenants and satisfied all their
respective obligations under this Agreement required to be complied
with or satisfied as of such date.
Section 3.03. Conditions Precedent to the Seller's and DFC's
Obligations on the Initial Purchase Date. The obligations of the Seller on the
initial Purchase Date shall be subject to the conditions precedent that the
Seller shall have received on or before such Purchase Date the following, dated
the Purchase Date (unless otherwise indicated) and in form and substance
satisfactory to the Seller:
a duly executed copy of the Trust Agreement, and the names and
true signatures of the officers of the Owner Trustee
authorized on the Issuer's behalf to sign this Agreement and
the other documents to be delivered by it hereunder.
Section 3.04. Conditions Precedent to the Seller's
Obligations on All Purchase Dates. The obligations of the Seller on any
Purchase Date (including the initial Purchase Date) shall be subject to the
further conditions precedent that on such Purchase Date (and the payment by the
Issuer of the Purchase Price shall constitute a representation and warranty by
the Issuer that on such date such statements are true) the representations and
warranties of the Issuer contained in Section 4.04 of this Agreement are true
and correct in all material respects on and as of such Purchase Date as though
made on and as of such date (except to the extent that such representations or
warranties expressly relate to an earlier date, in which case such
representations
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or warranties shall be true and correct in all material respects as of such
earlier date).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Certain Representations and Warranties of the
Parties. Each of the Seller, DFC and the Servicer represents and warrants as
to itself, as follows:
(a) Organization and Good Standing. It (1) is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and is duly qualified as a
foreign corporation and is in good standing in each jurisdiction in which such
qualification is required, except where the failure to so qualify would not
reasonably be expected to have a material adverse effect on its condition
(financial or otherwise), operations or properties, (2) has all the requisite
corporate power and authority to execute, deliver and perform its obligations
under and effect the transactions contemplated by this Agreement and (3) has
all requisite corporate power and authority and the legal right to own, pledge,
mortgage and operate its properties, and to conduct its business as now or
currently proposed to be conducted.
(b) Due Authorization and No Conflict. The
execution, delivery and performance by it of this Agreement, and all
instruments and documents to which it is a party and which are to be delivered
hereunder by it, and the transactions contemplated hereby and thereby, (1) are
within its corporate powers, (2) have been duly authorized by all necessary
corporate action, including the consent of stockholders and shareholders where
required, (3) do not (A) contravene its charter or bylaws, (B) violate any law
or regulation (including without limitation Regulation G, Regulation T,
Regulation U or Regulation X of the Board) or any order or decree of any
Governmental Authority, which violation would have a material adverse effect on
the rights and remedies of the Indenture Trustee and the noteholders of any
Series under any Transaction Document, (C) conflict with or result in the
breach of, or constitute a default under, any indenture, mortgage or deed of
trust enforceable against it or any lease, agreement or other instrument
binding on or affecting it or any of its properties, which conflict, breach or
default would have a material adverse effect on the rights
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and remedies of the Indenture Trustee and the noteholders of any Series under
any Transaction Document, or (D) result in or require the creation or
imposition of any Lien upon any of its property, including without limitation
pursuant to any agreement or instrument referred to in clause (C) above, except
as created, imposed or contemplated by any of the Transaction Documents, (4) do
not require compliance on its part with any bulk sales act or similar law and
(5) do not require the consent, authorization by or approval of or notice to or
filing or registration with, any Governmental Authority or any other Person
other than those that have been obtained.
(c) Enforceability. This Agreement and the other
Transaction Documents to which it is a party have been validly executed and
delivered by it and this Agreement and the other Transaction Documents to which
it is a party constitute its legal, valid and binding obligation, enforceable
against it in accordance with its terms, subject to general principles of
equity and subject to bankruptcy, insolvency, reorganization, moratorium and
similar laws now or hereafter in effect relating to creditors' rights
generally.
(d) No Proceedings. Except as set forth in the
Private Placement Memorandum, there is no unstayed action, suit or proceeding
pending or, to its knowledge, threatened against or affecting it, before any
court, governmental agency or arbitrator that (1) is reasonably likely to be
determined adversely to it and that, if so determined, would have a material
adverse effect on the rights and remedies of the Indenture Trustee and the
noteholders of any Series under any Transaction Document, or (2) that purports
to affect the legality, validity or enforceability of this Agreement, any of
the other Transaction Documents or the transactions contemplated hereby or
thereby.
Section 4.02. Additional Representations and Warranties of
the Seller, DFC and the Servicer. Each of the Seller, DFC and the Servicer
additionally represents and warrants as to itself as follows:
(a) Statements Made. The written statements of
its senior officers that have been or will be furnished to the Indenture
Trustee and the noteholders of all Series in connection with this Agreement and
any other Transaction Document, and any financial statement delivered pursuant
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hereto or thereto (other than to the extent such statements constitute
projections), taken as a whole and in light of the circumstances in which made,
at the time so furnished contained no untrue statement of a material fact and
did not omit to state a material fact necessary to make the statements therein
not misleading; and, to the extent that any such statements constitute
projections, such projections were prepared in good faith on the basis of fully
disclosed assumptions, believed by it to be reasonable at the time such
projections were furnished to the Indenture Trustee or the noteholders of all
Series, as the case may be.
(b) Location of Office and Records. The chief
place of business and chief executive office of (i) the Seller is located at
901 West Walnut Hill Lane, Irving, Texas 75038 and (ii) DFC is located at 901
West Walnut Hill Lane, Irving, Texas 75038; and the offices where the Seller
and DFC keep all their original books, records and documents evidencing
Purchased Receivables or the related Credit Card Agreements are located at such
addresses, except that the Credit Card Agreements and substantially all charge
slips for each Account are located at the Originator's store. The chief place
of business and chief executive office of JFS and the offices where JFS keeps
all its original books, records and documents evidencing the Purchased
Receivables is located at 901 West Walnut Hill Lane, Irving, Texas 75038. The
chief place of business and chief executive office of DFC and the offices where
DFC keeps all its original books, records and documents evidencing the
Purchased Receivables is located at 901 West Walnut Hill Lane, Irving, Texas
75038. The locations set forth in this subsection (b) for the Seller, DFC and
JFS have been the same locations for the four months immediately prior to the
date of this Agreement.
(c) Indenture Trustee Can Perform. Upon the
delivery by it to the Indenture Trustee of the Transaction Documents and
related materials relating to the administration of the Purchased Receivables
pursuant to Section 7.01(b) of this Agreement, the Indenture Trustee shall have
been furnished with all data and materials necessary to permit immediate
collection of the Purchased Receivables by the Indenture Trustee, without the
participation of the Seller, DFC, the Servicer or the Issuer in such
collection; and it is not restricted by agreement, law, regulation or otherwise
from granting the license to the Issuer contained in Section 10.08 of this
Agreement.
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(d) Bank Accounts and Post Office Boxes. Set
forth on Schedule I to the Indenture is a complete and accurate description, as
of the Issuance Date, of each Post Office Box, Collection Deposit Account,
Concentration Account, the Collateral Account and the Excess Funding Account;
each of the Collection Deposit Accounts has been validly and effectively
assigned to the Indenture Trustee pursuant to the Collection Deposit Account
Letters; and all cash and other proceeds of the Collateral are subject to the
terms and conditions of this Agreement and the Indenture.
(e) No Consent. No action, authorization,
qualification, license, permit, consent or approval of, registration or filing
with or any other action by any Governmental Authority is or will be required
in connection with the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated by this Agreement by the
Seller, DFC or the Servicer, except such as have been made or obtained and are
in full force and effect.
(f) Taxes. It has filed or caused to be filed all
tax returns and reports required by law to have been filed by it and has paid
all taxes, assessments and governmental charges thereby shown to be owing,
except any such taxes, assessments or charges (i) which are being diligently
contested in good faith by appropriate proceedings, (ii) for which adequate
reserves in accordance with GAAP shall have been set aside on its books and
(iii) with respect to which no Lien has been imposed upon any Receivables or
related assets.
Section 4.03. Additional Representations and Warranties of
the Seller and DFC. The Seller and DFC additionally represent and warrant as
follows:
(a) Eligible Receivables. As of the Purchase
Date with respect to each Receivable, each such Receivable, unless otherwise
identified to the Issuer by the Servicer in the Daily Report for such date,
will be an Eligible Receivable.
(b) Sale of Receivables. On the initial Purchase
Date, each of DFC and the Seller, and on each Purchase Date thereafter, the
Seller, is and will be the sole legal and beneficial owner of the Receivables
being sold by it; upon the sale of each Receivable by the Seller and DFC to the
Issuer, the Issuer will become the sole legal and
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beneficial owner of the Purchased Receivables and the Collections with respect
thereto, free and clear of any Liens (except for Liens created, imposed or
contemplated by any of the Transaction Documents); and no effective financing
statement or other instrument similar in effect covering all or any part of the
Purchased Receivables or Collections with respect thereto will at such time be
on file in any filing or recording office except such as have been filed
pursuant to or as contemplated by the Transaction Documents or with respect to
which the Indenture Trustee has received effective UCC termination statements.
(c) Tradenames. Schedule I to this Agreement
sets forth, as of the date of this Agreement, a complete and accurate list of
the tradenames of the Originators and DFC (or its predecessors in interest) for
the six-year period preceding the date of this Agreement.
(d) Financial Statements. The Indenture Trustee
has previously been furnished copies of the audited consolidated financial
statements of Zale Corp. and its consolidated subsidiaries for the fiscal year
ended March 31, 1994.
(e) UCC Classification. The Receivables, at the
time of sale thereof by the Seller to the Issuer, are "accounts," "chattel
paper" or "general intangibles" as defined in the UCC and no part of the
Seller's right to payment for goods sold or leased is evidenced by an
"instrument" which is not also a security agreement.
(f) No Material Adverse Change. No material
adverse change in the business, assets, operations or condition (financial or
otherwise) of Zale Corp. and its subsidiaries taken as a whole has occurred
from that set forth in Zale Corp.'s audited consolidated financial statements
for the fiscal year ended March 31, 1994.
(g) Information Provided in Computer Files. All
material information with respect to the Accounts and the Receivables provided
to the Indenture Trustee on the computer file was true and correct in all
material respects as of the Cut-Off Date.
(h) Account Schedule. Schedule III to this
Agreement sets forth all Accounts as of the Cut-Off Date.
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(i) Valid Transfer and Assignment. The transfer
of Receivables by the Seller and DFC to the Issuer under this Agreement
constitutes a valid transfer and assignment to the Issuer of all right, title
and interest of the Seller or DFC, as applicable, in and to the Receivables,
whether now existing or hereafter created, and the proceeds thereof (including
amounts in any of the accounts established for the benefit of noteholders of
all Series).
(j) Return Policy. The Seller currently has a
30-day return policy. The Seller shall notify the Rating Agencies of any
change in such policy within seven Business Days of such change.
(k) It has valid business reasons for selling its
interests in the Receivables rather than obtaining a loan with the Receivables
as collateral.
(l) Each Receivable has not been satisfied,
subordinated or rescinded and no provision of the Receivable has been waived,
altered or modified in any respect.
(m) Each Receivable is not or will not be subject
to any right of rescission, set-off, recoupment, counterclaim or defense,
whether arising out of transactions concerning the Receivable between the
Obligor and the Seller or DFC, or otherwise and no such right has been asserted
with respect thereto.
(n) No purchase of an interest in any Receivable or
related asset by the Issuer from it constitutes a fraudulent transfer or
fraudulent conveyance under the United States Bankruptcy Code or applicable
state bankruptcy or insolvency laws or is otherwise void or voidable or subject
to subordination under similar laws or principles or for any other reason.
(o) The Seller does not have any defined benefit
plans and contributions to its defined contribution plans are made solely at
the discretion of the Seller's board of directors.
Section 4.04. Representations and Warranties of the Issuer.
The Issuer represents and warrants to the Seller, DFC and the Servicer as
follows:
(a) Organization; Powers. The Issuer (1) is a business
trust duly organized, validly existing and in good
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standing under the laws of Delaware, (2) has all requisite power and authority
to own its property and assets and to carry on its business as now conducted
and as proposed to be conducted, (3) is qualified to do business in every
jurisdiction where such qualification is required, except where the failure to
so qualify would not reasonably be expected to have a Material Adverse Effect
and (4) has the power and authority to execute, deliver and perform its
obligations under this Agreement and each other Transaction Document or
instrument contemplated thereby to which it is a party and to issue the Notes.
(b) Authorization. The execution, delivery and
performance by the Issuer of this Agreement and the other Transaction Documents
to which it is a party and the performance by the Issuer of the other
transactions contemplated thereby (1) have been duly authorized by the Owner
Trustee on behalf of the Issuer and (2) will not (A) violate (i) any provision
of law, statute, rule or regulation, which violation would have a Material
Adverse Effect, (ii) any provision of the Trust Agreement, (iii) any order of
any Governmental Authority or (iv) any provision of any indenture, agreement or
other instrument to which the Issuer is a party or by which it or any of its
property is or may be bound, which violation would have a Material Adverse
Effect, (B) be in conflict with, result in a breach of or constitute (alone or
with notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, which conflict, breach or default would have a
Material Adverse Effect or (C) result in the creation or imposition of any Lien
upon or with respect to any property or assets now owned or hereafter acquired
by the Issuer, except the Liens created, imposed or contemplated by any of the
Transaction Documents.
(c) Enforceability. This Agreement has been duly
executed and delivered by the Issuer and constitutes, and each other
Transaction Document when executed and delivered by the Issuer will constitute,
a legal, valid and binding obligation of the Issuer enforceable against the
Issuer in accordance with its terms, subject to general principles of equity
and to bankruptcy, insolvency, reorganization, moratorium and similar laws now
or hereafter in effect relating to creditors' rights generally.
(d) Litigation. There is no action, suit, investigation,
litigation or proceeding at law or in equity or by or before any Governmental
Authority now pending
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against, or, to the knowledge of the Issuer, threatened against, the Issuer or
any of its business, property or rights (1) that involves any of the
Transaction Documents or the Transactions or (2) as to which there is a
reasonable probability of an adverse determination and which, if adversely
determined, would, individually or in the aggregate, have a Material Adverse
Effect.
ARTICLE V
COVENANTS
Section 5.01. Affirmative Covenants of the Seller and
Servicer. So long as the Issuer shall have any interest in any Purchased
Receivable, unless the Issuer and the Majority Noteholders otherwise consent in
writing:
(a) Financial Statements. The Seller shall
deliver or cause to be delivered to the Issuer, the Servicer, and the Indenture
Trustee, and each noteholder of any Series who has provided to the Seller a
written request therefor:
(1) Annual Financial Statements. Within 100 days
after the end of each fiscal year of Zale Corp., the consolidated Balance Sheet
and related Statements of Income and Cash Flows of Zale Corp. and its
consolidated subsidiaries, showing the financial condition of Zale Corp. and
its consolidated subsidiaries as of the close of such fiscal year and the
results of the operations of Zale Corp. and its consolidated subsidiaries
during such year, all audited by Arthur Andersen & Co. or other independent
public accountants of recognized national standing;
(2) Quarterly Financial Statements. Within 50
days after the end of the first three fiscal quarters of Zale Corp., (A) the
unaudited consolidated Balance Sheet and related Statement of Income and Cash
Flows of Zale Corp. and its consolidated subsidiaries, showing the financial
condition of Zale Corp. and its consolidated subsidiaries as of the close of
such fiscal quarter and the results of the operations of Zale Corp. and its
consolidated subsidiaries during such fiscal quarter and the then elapsed
portion of such fiscal year, and (B) a certificate of a Financial Officer of
Zale Corp. certifying that such financial statements fairly present the
financial condition and results of operations of Zale Corp. and its
consolidated subsidiaries
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on a consolidated basis in accordance with GAAP consistently applied, subject
to normal year-end audit adjustments without GAAP footnotes; and
(3) Monthly Financial Statements. Not later than
the last day of the month (or, if such day is not a Business Day, the next
succeeding Business Day) following each fiscal month of Zale Corp. (or,
notwithstanding the foregoing, 50 days in the case of the last month of each
fiscal quarter and 100 days in the case of the last month of each fiscal year),
beginning with the fiscal month ending August 31, 1994, (A) the unaudited
consolidated Balance Sheet and related Statements of Income and Cash Flows of
Zale Corp. and its consolidated subsidiaries, showing the financial condition
of Zale Corp. and its consolidated subsidiaries as of the close of such fiscal
month and the results of the operations of Zale Corp. and its consolidated
subsidiaries during such fiscal month and the then elapsed portion of the
fiscal year of Zale Corp. and (B) a certificate of a Financial Officer of Zale
Corp. certifying that such financial statements fairly present the financial
condition and results of operations of Zale Corp. and its consolidated
subsidiaries on a consolidated basis in accordance with GAAP consistently
applied, subject to normal year-end audit adjustments and without GAAP
footnotes.
(b) Compliance with Laws, etc. Each of the
Seller and the Servicer shall comply in all material respects with all
applicable laws, rules and regulations of any Governmental Authority, including
without limitation rules and regulations relating to truth in lending, fair
credit billing, fair credit reporting, equal credit opportunity and fair debt
collection practices and privacy, except where the failure to so comply would
not have a Material Adverse Effect.
(c) Preservation of Corporate Existence. The
Seller and the Servicer shall do or cause to be done all things necessary (1)
to preserve, renew and keep in full force and effect its legal existence and
(2) to maintain such legal existence separate from that of the Issuer.
(d) Inspection Rights. Each of the Seller and
the Servicer shall, from time to time, at any reasonable time during normal
business hours, upon at least two Business Days' prior notice, permit the
Issuer or any of its agents or representatives or the Indenture Trustee, acting
at the written direction of the Majority Noteholders, (1) to examine
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and make copies of and abstracts from the records, books of account and
documents (including without limitation computer tapes and disks) of the Seller
and the Servicer relating to the Purchased Receivables and the underlying
Credit Card Agreements; and (2) to visit the properties of the Seller and the
Servicer for the purpose of determining compliance under the Transaction
Documents, and to discuss the affairs, finances and accounts of the Seller and
the Servicer relating to the Purchased Receivables or the Seller's or the
Servicer's performance under this Agreement with any of the Seller's or the
Servicer's senior officers, directors, independent certified public accountants
and consultants.
(e) Keeping of Records and Books of Account.
Each of the Seller and the Servicer shall maintain and implement, or cause to
be maintained or implemented, administrative and operating procedures
reasonably necessary or advisable for the transfer, administration, servicing
and collection of amounts owing on all Purchased Receivables, and, unless and
until delivery to the Issuer, keep and maintain, or cause to be kept and
maintained, all documents, books, records and other information reasonably
necessary or advisable for the transfer, administration, servicing and
collection of amounts owing on all such Purchased Receivables.
(f) Location of Records. Each of the Seller and
the Servicer shall (1) keep its chief place of business and chief executive
office and the offices where it keeps its original books, records and documents
evidencing Purchased Receivables or the related Credit Card Agreements (other
than the Credit Card Agreements and substantially all charge slips for each
Account) at the addresses specified in Section 4.02(b) of this Agreement, or
upon 30 days' prior written notice to the Issuer and the Indenture Trustee, at
such other locations in a jurisdiction where all action required by Section
5.01(n) of this Agreement shall have been taken and completed and be in full
force and effect, and (2) cause each retail store to keep all Credit Card
Agreements and substantially all charge slips for each Account of customers of
such store in a centralized, segregated and marked location at such store.
(g) Computer Files. The Seller shall direct the
Servicer to, and the Servicer shall, at its own cost and expense, (1) retain
the electronic ledger used by the Seller and the Servicer as a master record of
the Accounts and copies of all material documents relating to each Account as
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custodian for the Issuer and the Indenture Trustee and other Persons with
interests in the Purchased Receivables and (2) mark, or cause to be marked with
a legend, the computer records pertaining to the Purchased Receivables, and use
its best efforts to mark all records pertaining to the Related Contracts and
all storage facilities where information is maintained pertaining to the
Purchased Receivables, to the effect that interests in the Purchased
Receivables from time to time existing in the Accounts related thereto have
been conveyed to the Issuer and that the Indenture Trustee has a security
interest in such Purchased Receivables for the benefit of the Secured Parties
pursuant to the Indenture.
(h) Credit Card Agreements and Credit Card
Guidelines. Each of the Seller and the Servicer shall comply with and perform
its obligations in accordance with the Credit Card Guidelines, except (1)
insofar as any failure so to comply or perform would not have a material
adverse effect on the rights and remedies of the Indenture Trustee and the
noteholders of any Series under any Transaction Document or (2) if such failure
to comply is necessary under any Requirement of Law. With respect to any
change to the Credit Card Guidelines that is material and that is not necessary
under any Requirement of Law, (1) the Seller and the Servicer shall, prior to
making any such change, give 30 days' written notice to the noteholders of any
Series of any such change, (2) the Majority Noteholders shall have such 30-day
period to notify the Seller and the Servicer that such Majority Noteholders
deem the change to have a material adverse effect on the rights and remedies of
the Indenture Trustee and the noteholders of such Series (any which notice
shall state in reasonable detail the reasons for such opinion) and (3) if such
notice is given in such 30-day period and such change would have such effect,
such change shall not be made; provided that, if no such notice is received by
the Seller and the Servicer within such 30-day period, such change shall be
deemed not to have such effect and the Indenture Trustee and the noteholders of
all Series shall be deemed to have consented to such change.
(i) Daily Reports; Monthly Settlement Statements;
Other Reports. The Servicer shall furnish (or, if JFS is not the Servicer, JFS
shall provide the Servicer with such information as may be required by the
Servicer to furnish) the Seller, the Issuer, the Indenture Trustee with each
Daily Report and Monthly Settlement Statement required by Sections 6.03(a) and
6.03(b) of this Agreement and other records that show the performance of the
Purchased Receiv-
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ables and such other reports as may be reasonably requested by the Issuer and
by the Indenture Trustee, acting at the direction of the Majority Noteholders.
(j) Insurance. Except to the extent failure to
do so would not reasonably be expected to have a material adverse effect on the
rights and remedies of the Indenture Trustee and the noteholders of any Series
under any Transaction Document, each of the Seller and the Servicer shall (1)
keep its insurable properties adequately insured at all times by financially
sound and responsible insurers, and maintain such other insurance, to such
extent and against such risks, including fire and other risks insured against
by extended coverage, as is customary with companies of the same or similar
size in the same or similar businesses; (2) maintain in full force and effect
public liability insurance against claims for personal injury or death or
property damage occurring upon, in, about or in connection with the use of any
properties owned, occupied or controlled by it in such amounts and with such
deductibles as are customary with companies of the same or similar size in the
same or similar businesses and in the same geographic area; and (3) maintain
such other insurance as may be required by law.
(k) Obligations and Taxes. Each of the Seller
and the Servicer shall (1) pay any material obligations enforceable against or
binding on it promptly and in accordance with terms thereof and (2) pay and
discharge promptly when due all sales tax and all material taxes, assessments
and governmental charges or levies imposed upon, and enforceable against or
binding on, it or upon its income or profits or in respect of its property,
before the same shall become in default, as well as all material lawful claims
enforceable against or binding on it for labor, materials and supplies or
otherwise which, if unpaid, might become a Lien or charge upon such properties
or any part thereof; provided that, with respect to both clauses (1) and (2) in
this Section 5.01(k), it shall not be required to pay and discharge or to cause
to be paid and discharged any such obligation, tax, assessment, charge, levy or
claim so long as the validity or amount thereof shall be contested in good
faith by appropriate proceedings and it shall have set aside on its books
adequate reserves with respect thereto.
(l) Furnishing Copies, etc. Each of the Seller
and the Servicer shall furnish to the Issuer and to the Indenture Trustee
promptly following request therefor,
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such information, documents, records or reports with respect to the Purchased
Receivables or the underlying Credit Card Agreements or the operations or
conditions (financial or otherwise) of the Seller or the Servicer as the Issuer
or the Indenture Trustee, acting at the written direction of the Majority
Noteholders, may from time to time reasonably request.
(m) Obligations with Respect to Accounts. Each
of the Seller and the Servicer shall (1) duly fulfill all obligations on its
part to be fulfilled under or in connection with each Account, except where the
failure to so fulfill (A) would not have a material adverse effect on the
rights and remedies of the Indenture Trustee and the noteholders of any Series
or (B) is necessary under any Requirement of Law and (2) not do anything to
impair the rights of the Issuer in the Purchased Receivables or under the
Credit Card Agreements.
(n) Continuing Compliance with the UCC. Each of
the Seller and the Servicer shall, at its expense, preserve, continue and
maintain or cause to be preserved, continued and maintained the Issuer's valid
and properly protected and perfected title to each Purchased Receivable,
including without limitation filing or recording UCC financing statements in
each relevant jurisdiction.
(o) Further Action Evidencing Purchases. Each of
the Seller and the Servicer shall, at its expense, promptly execute and deliver
all further instruments and documents, and take all further action, that may be
necessary or desirable or that the Issuer may reasonably request, in order to
protect or more fully evidence the Issuer's right, title and interest in the
Purchased Receivables and its rights under the Credit Card Agreements with
respect thereto, or to enable the Issuer to exercise or enforce any such
rights, and without limiting the generality of the foregoing, (1) the Seller
shall, upon the request of the Issuer, execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices as may be necessary or, in the opinion of the Issuer, advisable, (2)
the Seller shall provide to the Issuer upon request copies of any records
relating to the Purchased Receivables and any records reasonably related to
determining compliance with the Transaction Documents, (3) the Seller shall
hereby irrevocably authorize the Issuer to file one or more financing or
continuation statements, and amendments thereto, relating to all or any part of
the Purchased Receivables sold
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or to be sold by the Seller, or the underlying Credit Card Agreements with
respect thereto, without the signature of the Seller where permitted by law,
(4) if the Seller or the Servicer fails to perform any of its agreements or
obligations under this Agreement, the Issuer may (but shall not be required to)
perform, or cause the performance of, such agreements or obligations, and the
costs and expenses of the Issuer incurred in connection therewith shall be
payable by the Seller as provided in Section 10.06 of this Agreement and (5)
each of the Seller shall (A) indicate on its books and records that the
Purchased Receivables have been sold and assigned to the Issuer, and provide to
the Issuer and the Indenture Trustee, upon request, copies of such records, (B)
obtain the agreement of any Person having a Lien in and to any Receivable owned
by the Seller (other than any Lien created, imposed or contemplated by any of
the Transaction Documents) to release such Lien upon the sale of any such
Receivable to the Issuer and (C) notify the Issuer promptly after obtaining
knowledge that any Purchased Receivable has become subject to a Lien other than
any Lien created, imposed or contemplated by any of the Transaction Documents.
(p) Receivables Processing Facility; Storage
Facility. JFS shall (1) maintain its facilities from which it services the
Purchased Receivables in its present condition, ordinary wear and tear
excepted, or such other facility of similar quality, security and safety as JFS
may select from time to time, (2) subject to approval of the lenders under the
Working Capital Credit Agreement, if necessary, make all property tax payments,
lease payments and all other payments with respect to such facility, including
any indebtedness secured by such facility, whether JFS shall be the Servicer or
a Successor Servicer shall have been appointed, and (3) (A) ensure that any
Successor Servicer shall have complete and unrestricted access, at JFS's
expense, to such facility and all computers and other systems relating to the
servicing of the Purchased Receivables, (B) use its best efforts to retain the
employees based at such facility to provide assistance to any Successor
Servicer after the appointment of such Successor Servicer and (C) continue to
store on a daily basis all back-up files relating to the Purchased Receivables
and the servicing of the Purchased Receivables at One Safe Place, 3501 North
MacArthur, Suite 304, Irving, Texas 75062, or such other storage facility of
similar quality, security and safety as JFS may select from time to time,
until, in the case of clauses (3)(A), (3)(B) and (3)(C) of this Section
5.01(p), the earlier of (x) the indefeasible payment in full in cash
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of the principal and interest of the Notes payable in accordance with the
Indenture, (y) the receipt by the Indenture Trustee of all Collections in
respect of all Purchased Receivables and (z) the time that a Successor Servicer
is able to perform its obligations under this Agreement without the assistance
of JFS.
(q) Tradenames. The Seller shall promptly notify
the Issuer and the Indenture Trustee of any tradenames of the Originators
additional to those set forth on Schedule I to this Agreement.
(r) Sale Treatment. The Seller and the Servicer
shall perform the transactions contemplated by this Agreement in a manner that
is consistent with the Issuer's ownership interest in the Purchased Receivables
under applicable law.
(s) Non-consolidation with Issuer. The Seller
shall operate its business in such a manner that the Issuer will not be
substantially consolidated with the Seller or any Affiliate of the Seller.
Section 5.02. Negative Covenants of the Seller and Servicer.
So long as the Issuer shall have any interest in any Purchased Receivable,
unless the Issuer and the Majority Noteholders otherwise consent in writing:
(a) Liens. Neither the Seller nor the Servicer
shall, except as otherwise provided in this Agreement, sell, assign (by
operation of law or otherwise) or otherwise dispose of, or create or suffer to
exist any Lien upon or with respect to, any Purchased Receivables, any Accounts
or any Credit Card Agreements with respect thereto, or assign any right to
receive proceeds in respect thereof, except as set forth in or as contemplated
by, and for Liens created, imposed or contemplated by, any of the Transaction
Documents; provided that, nothing in this Section 5.02(a) or in any other
Transaction Document shall prohibit or be deemed to prohibit the Seller or an
Affiliate of the Seller from selling, assigning or otherwise transferring, or
financing, any accounts or chattel paper of the Seller or such Affiliate
pursuant to any factoring or other arrangements.
(b) Change in Business. Neither the Seller nor
the Servicer shall make any material change in the type of business it conducts
on the Issuance Date that would have a material adverse effect on the rights
and remedies of the
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Indenture Trustee and the noteholders of any Series under any Transaction
Document.
(c) Change in Payment Instructions to Obligors.
Neither the Seller nor the Servicer shall instruct the Obligors of any
Purchased Receivables to make any payments with respect to such Purchased
Receivables other than as described in this Agreement or in the Indenture.
ARTICLE VI
ADMINISTRATION AND SERVICING
OF PURCHASED RECEIVABLES
Section 6.01. Appointment of and Acceptance by the Servicer
of Servicing Obligations. The Issuer hereby appoints JFS as Servicer of the
Purchased Receivables. JFS agrees to act as the Servicer under this Agreement,
pursuant to and in accordance with the terms of this Agreement and the
Indenture, on behalf of the Issuer and the Indenture Trustee, it being
understood that the relationship of the Servicer to the Indenture Trustee is
intended by the parties to be that of an independent contractor and not that of
a joint venturer, partner or agent. The Servicer shall (1) service and
administer each Account and collect and enforce the Purchased Receivables due
thereunder, (2) except as otherwise limited by this Agreement, exercise all
discretionary powers involved in such management, administration and collection
and (3) bear all costs and expenses incurred in connection therewith that may
be necessary or advisable and permitted for carrying out the transactions
contemplated by this Agreement and the Indenture. Servicing activities to be
performed by the Servicer include collecting and recording payments,
communicating with Cardholders, investigating payment delinquencies and
maintaining internal records with respect to each Cardholder. Managerial
services performed by the Servicer on behalf of the Issuer include providing
related data processing and reporting services for noteholders of any Series
and on behalf of the Indenture Trustee and performing certain services required
pursuant to Sections 5.07, 9.05 and 9.06 of the Indenture. Although physical
possession of the agreements, documents and files relating to the Receivables
will be held by the respective stores generating the Accounts, the Servicer,
pursuant to the terms of this Agreement, will be responsible for maintaining
custody of such documents relating to the Receivables. In
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the servicing and administration of the Accounts and the collection and
enforcement of the Purchased Receivables due thereunder, the Servicer shall
exercise a degree of skill and care consistent with those of a reasonable and
prudent servicer of retail credit card receivables, but in any event at least
comparable with the policies and procedures and the degree of skill and care
that it has exercised in servicing Receivables of the Seller and Affiliates of
the Seller, and the Servicer shall comply and perform in accordance with the
Credit Card Guidelines, except to the extent that failure to so comply or
perform (1) would not have a material adverse effect on the rights and remedies
of the Indenture Trustee and the noteholders of any Series under any
Transaction Document or (2) is necessary under any Requirement of Law. The
Servicer shall be permitted to subcontract its obligations under this Section
6.01 to any Person satisfactory to the Seller, the Issuer and the Indenture
Trustee who agrees to perform such obligations in accordance with the terms of
this Agreement and the Credit Card Guidelines; provided that, the Servicer
shall remain fully responsible to the Issuer for any and all acts or failures
to act of any such subcontractor to the same extent as if the Servicer were
fully and directly responsible for such subcontractor's duties and
responsibilities. In the ordinary course of business, the Servicer may at any
time delegate any of its duties under this Section 6.01 to any Person who
agrees to conduct such duties in accordance with the terms of this Agreement
and the Credit Card Guidelines; provided that, such delegation shall not
relieve the Servicer of any of its liabilities and responsibilities with
respect to such duties, and shall not constitute a resignation within the
meaning of Section 6.10(a) of this Agreement.
Section 6.02. Servicing Compensation. As compensation for
its servicing activities hereunder and reimbursement for its expenses incurred
as the Servicer, the Servicer shall be entitled to receive on each Payment Date
(i) the Monthly Servicing Fee, pursuant to Section 5.02(iv) of the Indenture
and (ii) from the Issuer, an amount equal to one-twelfth of the Servicing Fee
less the Monthly Servicing Fee. The Servicer shall bear all costs and expenses
(without right of reimbursement other than the Servicing Fee) incurred in
connection with performing its servicing activities under this Agreement,
including, without limitation, fees and disbursements of the Indenture Trustee
(including the reasonable fees and expenses of its counsel) and independent
accountants, fees and expenses incurred in collecting Purchased Receivables and
generating Recoveries, and all
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other expenses incurred by the Servicer in connection with its servicing
activities under this Agreement; provided that, in no event shall the Servicer
be liable for any Federal, state or local income or franchise tax, or any
interest or penalties with respect thereto, assessed on the Indenture Trustee,
any noteholder of any Series or the Issuer. The Servicer shall be required to
pay such costs and expenses for its own account, and shall not be entitled to
any payment therefor other than the Servicing Fee.
Section 6.03. Reports and Statements.
(a) Daily Report. On each Business Day, the
Servicer shall prepare a Daily Report substantially in the form of Exhibit A to
this Agreement, on the basis of the sales and collections figures reported the
previous day or days from the Servicer's central computer processing center.
The Daily Report shall report, among other things, the dollar amount of
Receivables originations reported to the Servicer since the preceding Daily
Report and the dollar amount of Collections and Recoveries received in the
Collateral Account for the Applicable Day or Applicable Days covered by such
Daily Report (or, in the case of a Daily Report delivered on a day following a
Saturday, Sunday or other non-Business Day, the aggregate such activity for the
preceding Business Day and such non-Business Days). The Servicer shall also
determine the Noteholder Default Amount on each Business Day and reflect such
amounts in the Daily Report. By 12:00 Noon (New York City time) on each
Business Day, the Servicer shall deliver the Daily Report to the Issuer, the
Seller and the Indenture Trustee, which Daily Report shall be certified by a
Financial Officer of the Servicer; provided that, if a Force Majeure or a
"system failure" or other similar technical failure in the operations of the
Servicer shall occur that prevents the preparation or delivery of any Daily
Report within such time, the Servicer shall use its best efforts to recreate
Daily Reports for each Applicable Day missed as a result thereof or, if the
Servicer is unable to recreate such Daily Reports, the Servicer shall prepare a
composite Daily Report for each such missed Applicable Day and, in either case,
the Servicer shall deliver such Daily Reports to the Issuer, the Seller and the
Indenture Trustee within three Business Days of the date such Daily Report(s)
were otherwise required to be delivered. Upon the discovery of any error in
any Daily Report by the Issuer, the Seller, the Servicer or the Indenture
Trustee, the Issuer, the Seller, the Servicer and the Indenture Trustee shall
confer and shall agree upon any necessary adjustments to correct any such
error. Unless
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the Issuer and the Indenture Trustee have received actual notice of any such
error, the Issuer and the Indenture Trustee may rely on any Daily Report for
all purposes under this Agreement and the other Transaction Documents.
(b) Monthly Settlement Statement. The Servicer
shall on each Determination Date, by 12:00 Noon (New York City time), prepare
and deliver to the Issuer, the Seller, the Indenture Trustee, each Rating
Agency and Bear Stearns, the Monthly Settlement Statement for the related
Settlement Period substantially in the form of Exhibit B to this Agreement,
certified by a Financial Officer of the Servicer; provided that, with respect
to any Monthly Settlement Statement, if a Force Majeure or a "system failure"
or other similar technical failure in the operations of the Servicer shall
occur that prevents the preparation or delivery of any Monthly Settlement
Statement, a Monthly Settlement Statement containing all information for each
day required to be included therein shall be prepared and delivered to the
Issuer, the Seller and the Indenture Trustee within three Business Days of the
date such Monthly Settlement Statement was otherwise required to be delivered.
(c) Annual Independent Public Accountant's
Servicing Report. The Servicer shall, no later than July 31 of each year
(commencing July 31, 1995), cause either Arthur Andersen & Co., Price
Waterhouse, Coopers & Lybrand, Deloitte & Touche, Ernst & Young or KPMG Peat
Marwick (or any of their successors in interest) (which firm may also render
other services to the Servicer or any Affiliate thereof) to furnish a report,
as of April 30 of such year, to the Issuer, the Seller, each Rating Agency and
the Indenture Trustee, performing certain agreed upon procedures with respect
to certain documents and records relating to the servicing of the Receivables
and that, based upon such agreed-upon procedures, no matters came to their
attention that caused them to believe that such servicing was not conducted in
compliance with certain applicable terms and conditions set forth in this
Agreement except for such exceptions or errors as such firm shall believe to be
immaterial and such other exceptions as shall be set forth in such statement.
Each such accountants' report shall state that the accountants have compared
the amounts contained in one randomly selected Daily Report from each fiscal
quarter and two randomly selected Monthly Settlement Statements delivered by
the Servicer during the period covered by such report with the records from
which such amounts were derived and that, on the basis of such comparison, such
accountants are of the opinion
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that the amounts are in agreement with such records, except for such exceptions
as they believe to be immaterial and such other exceptions as shall be set
forth in such report.
(d) Compliance Statements. The Servicer shall
deliver to the Issuer and to the Indenture Trustee, on or before July 31 of
each year (beginning July 31, 1995) a certificate signed by a Financial Officer
stating that (1) a review of its activities relating to the servicing of the
Accounts during the prior year ending April 30 and performance under this
Agreement and the Indenture has been made under such officer's supervision, and
(2) to the best of such officer's knowledge, based on such review, it has
fulfilled all its obligations under this Agreement throughout the period
covered by such certificate, or, if there has been a default in the fulfillment
of any such obligations, specifying each such default known to such officer and
the nature and status thereof.
Section 6.04. Collection Procedures.
(a) Collection Deposits and Transfers. On or
before the Issuance Date, the Servicer, the Seller and the Issuer shall have
established and shall maintain thereafter the system of collecting and
processing Collections of Purchased Receivables set forth in this Section 6.04.
The Obligors may make payments on Purchased Receivables only (1) by check
mailed to the Post Office Boxes (such payments, upon receipt in the Post Office
Boxes being referred to as "Mail Payments") or (2) by cash or check to the
Servicer or at stores operated by the Originators as the case may be (such
payments, upon receipt by such stores, being referred to as "Store Payments").
With respect to all Mail Payments, the Servicer shall (A) remove such Mail
Payments, or cause such Mail Payments to be removed, from the Post Office Boxes
on each Business Day, and process such payments by recording the amount of the
payment received from each Obligor and the applicable Account number, (B) no
later than one Business Day following the receipt of any Mail Payments in the
Post Office Boxes, deposit such Mail Payments, or cause such Mail Payments to
be deposited, in a Collection Deposit Account and (C) transfer, or cause to be
transferred, such Mail Payments to the Collateral Account (excluding, with
certain exceptions, certain portions thereof allocable to the Seller) on the
same day that such funds become available. With respect to all Store Payments,
the Servicer and the Seller shall (1) cause all Store Payments to be (A)
processed as soon as possible after such payments are received by the
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Seller or the Servicer and (B) deposit in Local Store Bank Accounts no later
than one local (with respect to the location of the applicable Local Store Bank
Account) business day following the day of such receipt, (2) no later than two
local (with respect to the location of the applicable Local Store Bank Account)
business days following such initial receipt, transfer, or cause to be
transferred, such Store Payments to a Concentration Account (such account,
identified as such on Schedule I to the Indenture, or any successor
concentration account, which successor concentration account may be established
solely at the option of the Seller or any Affiliate thereof, referred to as the
"Concentration Account") and (3) transfer, or cause to be transferred, such
Store Payments from such Concentration Account to the Collateral Account
(excluding, with certain exceptions, certain portions thereof allocable to the
Seller) on the same day.
(b) Force Majeure. If any deposits or transfers
prescribed by Section 6.04(a) of this Agreement cannot be made within the time
period specified in such Section 6.04(a) as a result of a Force Majeure or a
depository institution's failure to so deposit or transfer, so long as such
deposits or transfers are made promptly after the cessation of such Force
Majeure or a depository institution's failure to so deposit or transfer, but in
no event later than three Business Days or local business days (with respect to
the location of the applicable Local Store Bank Account), as the case may be,
after such time period specified, the provisions of such Section 6.04(a) shall
be deemed to have been fully complied with.
(c) Deposit of Recoveries. The Servicer shall
deposit, or cause to be deposited, all Recoveries in accordance with Section
6.04(a) of this Agreement.
(d) Funds Held in Trust. Any funds held by the
Seller or the Servicer representing Collections of Purchased Receivables shall,
until deposited in a Collection Deposit Account or the Collateral Account, be
held in trust by the Seller or the Servicer, as the case may be, for and as the
Indenture Trustee's property pursuant to the terms of the Indenture, and,
except as provided in Section 6.04(a) of this Agreement with respect to Store
Payments, shall not be commingled with the Seller's or the Servicer's other
funds or property.
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(e) Waiver of Set-off. The Seller and the
Servicer irrevocably waives any right to set off against, or otherwise deduct
from, any Collections.
(f) Bank Accounts. The Seller agrees that it
shall have no bank account, deposit account or trust account for the collection
of Purchased Receivables other than the Local Store Bank Accounts and the
Concentration Account, and that it shall not make or maintain any deposits from
Collections in any bank account, deposit account or trust account other than
the Local Store Bank Accounts and the Concentration Account and Collection
Deposit Accounts.
Section 6.05. Allocations and Applications of Collections.
Collections deposited into the Collateral Account shall be allocated,
transferred and distributed in accordance with the Indenture.
Section 6.06. Maintenance of Property; Insurance. The
Servicer shall (1) keep all property and assets useful and necessary in its
business as Servicer in good working order and condition (normal wear and tear
excepted), (2) furnish to the Issuer, upon written request, full information as
to the insurance carried, (3) within five days of receipt of notice from any
insurer, furnish the Issuer with a copy of any notice of cancellation or
material change in coverage from that existing on the Issuance Date, (4)
forthwith, furnish the Issuer with notice of any cancellation or nonrenewal of
coverage by the Servicer, (5) maintain disaster recovery systems and back-up
computer and other information management systems that, in the Servicer's
reasonable judgment, are sufficient to protect its business as Servicer against
material interruption or loss in the event of damage to, or loss or destruction
of, its primary computer and information management systems and (6) furnish to
the Issuer and to the Indenture Trustee, acting at the written direction of the
Majority Noteholders, upon written request, full information as to such
disaster recovery systems and back-up computer and information management
systems, except, in the case of clause (1) of this Section 6.06, to the extent
failure to keep or maintain would not have a material adverse effect on the
rights and remedies of the Indenture Trustee and the noteholders of any Series
under the Transaction Documents.
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Section 6.07. Access to Certain Documentation Regarding the
Purchased Receivables. The Servicer shall provide the Issuer and the Indenture
Trustee, and their respective representatives, access to the documentation
regarding the Accounts and the Purchased Receivables in such cases where the
Issuer is required, in connection with the enforcement of the rights of the
Issuer, the Indenture Trustee or any noteholder of any Series, or by applicable
statutes or regulations, to review such documentation, such access being
afforded without charge but only (1) upon two Business Days prior notice
(provided that, no such prior notice shall be required if an Early Amortization
Event has occurred and is continuing), (2) during normal business hours, (3)
subject to the Servicer's normal security and confidentiality procedures and
(4) at offices designated by the Servicer. The obligation of the Servicer to
provide access to such documentation shall survive the Servicer's termination
as Servicer. Nothing in this Section 6.07 shall derogate from any obligation
to observe any applicable law prohibiting disclosure of information regarding
the Obligors, and the failure of the Servicer to provide access as provided in
this Section 6.07 as a result of any such obligation shall not constitute a
breach of this Section 6.07.
Section 6.08. Certain Responsibilities of the Servicer and
the Seller. Notwithstanding anything in this Agreement to the contrary, (1)
the Seller shall perform all its obligations under the Credit Card Guidelines
related to the Purchased Receivables to the same extent as if such Purchased
Receivables had not been transferred to the Issuer hereunder, (2) the exercise
by the Issuer of any of its rights under this Agreement shall not relieve the
Seller or the Servicer from such of its obligations under this Agreement with
respect to such Purchased Receivables (other than the obligations of any
predecessor Servicer under this Agreement with respect to which the Issuer has
terminated the appointment of such Servicer as the Servicer) and (3) except as
provided by law, the Issuer shall not have any obligation or liability with
respect to any Purchased Receivables or the underlying Credit Card Agreements,
nor shall the Issuer be obligated to perform any of the obligations or duties
of the Seller or the Servicer thereunder.
Section 6.09. Limitation on Liability of the Seller, DFC and
Others. No recourse under or upon any obligation or covenant of this
Agreement, or the Purchased Receivables, or for any claim based thereon or
otherwise in respect thereof, shall be had against any incorporator,
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stockholder, shareholder, employee, officer or director, in its capacity as
such, past, present or future, of any party hereto or of any successor party,
either directly or through such party, whether by virtue of any constitution or
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, it being expressly understood that this Agreement and the
obligations issued hereunder are solely corporate obligations, and that no such
personal liability whatever shall attach to, or is or shall be incurred by the
incorporators, stockholders, shareholders, employees, officers or directors, as
such, of any such party or of any successor party, or any of them, because of
the creation of the obligations hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Agreement or in the
Purchased Receivables or implied therefrom, and that any and all such personal
liability, either at common law or in equity or by constitution or statute, of,
and any and all such rights and claims against, every such incorporator,
stockholder, shareholder, employee, officer or director, as such, because of
the creation of the indebtedness hereby authorized, or under or by reason of
the obligations or covenants contained in this Agreement or in the Purchased
Receivables or implied therefrom, are hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement. The
Issuer, the Seller, DFC, the Servicer, the Indenture Trustee and any of their
respective directors, officers or employees may rely in good faith on any
document of any kind prima facie properly executed and submitted by any Person
respecting any matters arising under this Agreement.
Section 6.10. Successor Servicer.
(a) Servicer Resignation. The Servicer shall not
resign from its obligations and duties under this Agreement except upon a
determination that the performance of its duties hereunder is no longer
permissible under applicable law. Any such determination permitting the
resignation of the Servicer shall be evidenced as to the immediately preceding
sentence by an opinion of counsel to such effect delivered to the Issuer, the
Seller and the Indenture Trustee. No such resignation shall become effective
until a Successor Servicer shall have assumed the responsibilities and
obligations of the Servicer in accordance with Section 6.10 of this Agreement.
(b) Servicer Default. Any of the following events
shall constitute a "Servicer Default":
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(i) failure by the Servicer to make any payment, transfer or
deposit, or to give instructions to the Indenture Trustee to make
certain payments, transfers or deposits, on the date the Servicer is
required to do so under this Agreement or any Series Supplement (or
within the applicable grace period, which shall not exceed five
Business Days);
(ii) failure on the part of the Servicer duly to observe or
perform in any respect any other covenants or agreements of the
Servicer which has a material adverse effect on the noteholders of any
Series issued and outstanding and which continues unremedied for a
period of sixty days after written notice and continues to have a
material adverse effect on such noteholders of any Series then
outstanding; or the delegation by the Servicer of its duties under
this Agreement, except as specifically permitted thereunder;
(iii) any representation, warranty or certification made by
the Servicer in this Agreement, or in any certificate delivered
pursuant to this Agreement, proves to have been incorrect when made
which has a material adverse effect on the noteholders of any Series
then outstanding, and which continues to be incorrect in any material
respect for a period of sixty days after written notice and continues
to have a material adverse effect on such noteholders; or
(iv) one of the events set forth in subsections 10.01(e) or
(f) of the Indenture shall have occurred with respect to the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance
referred to in clause (i) above for a period of ten Business Days, or referred
to under clause (ii) or (iii) for a period of sixty Business Days (in addition
to any period provided in (i), (ii) or (iii)), shall not constitute a Servicer
Default until the expiration of such additional ten or sixty Business Days,
respectively, if such delay or failure could not be prevented by the exercise
of reasonable diligence by the Servicer and such delay or failure was caused by
a Force Majeure. Upon the occurrence of any such event, the Servicer shall not
be relieved from using its best efforts to perform its obligations in a timely
manner in accordance with the terms of this Agreement, and the Servicer shall
provide the Indenture Trustee, any provider of Enhancement, the Seller and
noteholders of each Series issued
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and outstanding prompt notice of such failure or delay by it, together with a
description of the cause of such failure or delay and its efforts to perform
its obligations.
In the event of any Servicer Default, either the Indenture Trustee or
the Majority Noteholders, by written notice to the Servicer (and to the
Indenture Trustee if given by the noteholders of each Series), may terminate
all of the rights and obligations of the Servicer as servicer under this
Agreement and in and to the Receivables and the proceeds thereof and the
Indenture Trustee may appoint a new Servicer (a "Service Transfer"), provided
that, notwithstanding any such termination, such terminated Servicer shall
remain responsible for any acts or omissions to act by it as Servicer prior to
such termination. On and after the receipt by the Servicer of a Servicer
Termination Notice, the Servicer shall continue to perform all servicing
functions under this Agreement until the date specified in the Servicer
Termination Notice or, if no such date is specified in the Servicer Termination
Notice, until a date mutually agreed upon by the Servicer and the Issuer.
(c) Appointment of Successor Servicer; Optional
Repurchase of Purchased Receivables. As promptly as possible after the giving
of a notice to the Servicer of the termination of its rights and obligations of
the Servicer as servicer under this Agreement pursuant to Section 6.10(b)
hereof, the Indenture Trustee shall, acting at the written direction of the
Majority Noteholders, appoint a successor servicer (the "Successor Servicer")
and such Successor Servicer shall accept its appointment by a written
assumption in a form acceptable to the Issuer and the Indenture Trustee. On
the date that a Successor Servicer shall have been so appointed and shall have
accepted such appointment, all authority and power of the Servicer under this
Agreement shall pass to and be vested in such Successor Servicer. The
Indenture Trustee, acting at the written direction of the Majority Noteholders,
is hereby authorized and empowered to (1) upon the failure of the predecessor
Servicer to cooperate, to execute and deliver, on behalf of the predecessor
Servicer as attorney-in-fact or otherwise, all documents and other instruments
upon the failure of the predecessor Servicer to execute or deliver such
documents or instruments and (2) do and accomplish all other acts or things
necessary or appropriate, in either case to effect the purposes of such
transfer of servicing rights. If no such Servicer has been appointed and has
accepted such appointment by the time the Servicer ceases to act as Servicer,
all
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authority, power and obligations of the Servicer under this Agreement shall
pass to and be vested in the Indenture Trustee. The Issuer and the Indenture
Trustee may obtain bids from any potential successor servicer. If the Issuer
and the Indenture Trustee are unable to obtain any bids from any potential
successor servicer and the Servicer delivers to the Issuer and the Indenture
Trustee an officer's certificate to the effect that it cannot in good faith
cure the Servicer Default which gave rise to a transfer of servicing, and if
the Indenture Trustee is legally unable to act as successor Servicer, then the
Indenture Trustee shall give the Seller the right of first refusal to purchase
the Purchased Receivables on terms equivalent to the best purchase offer as
determined by the Indenture Trustee.
(d) Agreement to Cooperate; Servicing Transfer.
In connection with any succession of servicing under this Agreement, the
predecessor Servicer agrees to cooperate with the Issuer and the Indenture
Trustee and the Successor Servicer in effecting such succession under this
Agreement, including without limitation (1) the transfer to the Successor
Servicer of all authority of the Servicer to service the Accounts provided for
under this Agreement (including without limitation all authority over all
Collections which shall on the date of transfer be held by the predecessor
Servicer for deposit, or which shall thereafter be received by the predecessor
Servicer with respect to the Accounts) and (2) the prompt transfer by the
predecessor Servicer to the Successor Servicer of (a) the predecessor
Servicer's electronic records relating to the Accounts and the Purchased
Receivables in such electronic form as the Successor Servicer may reasonably
request and (b) all other records, correspondence and documents necessary for
the continued servicing of the Accounts in the manner and at such times as the
Successor Servicer shall reasonably request. To the extent that compliance
with this Section 6.10(d) shall require the predecessor Servicer to disclose to
the Successor Servicer information of any kind which the predecessor Servicer
reasonably deems to be confidential, the Successor Servicer shall be required
to enter into such customary licensing and confidentiality agreements as the
predecessor Servicer shall deem necessary to protect its interests. All costs
and expenses incurred in connection with a transfer of servicing under this
Agreement shall be borne by the predecessor Servicer. The Seller shall, upon
request at all times, provide such information and assistance to the
predecessor Servicer or the Successor Servicer as shall be required for the
predecessor Servicer or the
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Successor Servicer to perform its obligations under this Agreement.
(e) Successor Servicer. Upon its appointment,
any Successor Servicer shall be the successor in all respects to the
predecessor Servicer with respect to all servicing functions under this
Agreement and shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions
of this Agreement, and all references in this Agreement to the Servicer shall
be deemed to refer to the Successor Servicer. The Successor Servicer shall
expressly be authorized to delegate any of its duties under this Agreement to
the predecessor Servicer on and after the date of any transfer of servicing
pursuant to Section 6.01 of this Agreement; provided, however, that the
Successor Servicer, as Servicer hereunder, shall continue to be fully
responsible for the performance of any duties so delegated.
Section 6.11. Termination of Authority. All authority and
power granted to the Servicer under this Agreement shall automatically cease
and terminate upon termination of this Agreement and the Indenture and shall
pass to and be vested in the Seller, and the Seller is hereby authorized and
empowered to execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, all documents and other instruments, and to do
and accomplish all other acts or things necessary or appropriate to effect the
purposes of such transfer of servicing rights. The Servicer agrees to
cooperate with the Seller in effecting the termination of the responsibilities
and rights of the Servicer to conduct servicing of the Purchased Receivables,
including without limitation the transfer by the Servicer to the Seller, in the
manner and at such times as the Seller shall request, of (1) the Servicer's
electronic records relating to the Accounts and the Purchased Receivables
therein in such electronic form as the Seller may request and (2) all other
records, correspondence and documents relating to the Purchased Receivables.
To the extent that compliance with this Section 6.11 shall require the Servicer
to disclose to the Seller information of any kind which the Servicer deems to
be confidential, the Seller shall be required to enter into such customary
licensing and confidentiality agreements as the Servicer shall reasonably deem
necessary to protect its interests.
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ARTICLE VII
ADDITIONAL RIGHTS AND OBLIGATIONS
IN RESPECT OF THE PURCHASED RECEIVABLES
Section 7.01. Collection of Receivables; Rights of the Issuer
and its Assignees.
(a) The Issuer (and its assignees) may at any
time (1) notify the Obligors of the Issuer's ownership of the Purchased
Receivables and direct that payment of all amounts due or to become due under
the Purchased Receivables be made directly to the Issuer or its designee and
(2) give notice, or require that the Seller, at the Seller's expense, give
notice of such ownership to each such Obligor and direct that all payments of
such amounts be made directly to the Issuer or its designee;
(b) Each of the Seller and the Servicer shall (1)
upon the Issuer's (or its assignee's) request, and at the Seller's or the
Servicer's expense, (A) assemble all the Seller's or the Servicer's documents,
instruments and other records (including without limitation credit files and
computer tapes or disks) that evidence or will evidence or record Purchased
Receivables or the underlying Credit Card Agreements relating to the Purchased
Receivables and that are otherwise necessary or desirable to effect Collections
of such Purchased Receivables (collectively, the "Documents") and (B) deliver
the Documents to the Issuer or its designee at a place designated by the
Issuer; (2) deliver to the Issuer, its designees or assignees all computer
programs, material and data necessary to the immediate collection of the
Purchased Receivables by the Issuer, or a party designated by the Issuer, with
or without the participation of the Seller or the Servicer; and (3) make such
arrangements with respect to the collection of the Purchased Receivables as may
be reasonably required by the Indenture Trustee; and
(c) Each of the Seller and DFC hereby irrevocably
authorizes the Issuer and its designee or assignees to take any and all steps
in such Seller's or DFC's name and on the Seller's or DFC's behalf necessary or
desirable, in the reasonable opinion of the Issuer and any such designee or
assignee, to collect all amounts due under the Purchased Receivables,
including, without limitation, opening mail received at the Post Office Boxes,
endorsing the Seller's name on checks and other instruments representing
Collections, enforcing the Purchased Receivables and the
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underlying Credit Card Agreements and exercising all rights and remedies in
respect thereof.
ARTICLE VIII
INDEMNIFICATION
Section 8.01.
(a) The Servicer shall indemnify the Issuer, the
Owner Trustee, the noteholders of each Series and the Indenture Trustee and
each of their respective directors, officers, employees and agents, from and
against any loss, liability, expense, damage or injury suffered or sustained
arising out of the activities of the Servicer pursuant to this Agreement,
including those arising from acts or omissions of the Servicer; provided,
however, that the Servicer shall not indemnify (i) the Issuer or the
noteholders of any Series for any liabilities, costs and expenses with respect
to Federal, state or local income or franchise taxes required to be paid by the
Issuer or the noteholders of any Series or (ii) the Issuer, the noteholders of
any Series or the Indenture Trustee for liabilities imposed by reason of any
gross negligence, willful misconduct or bad faith of the Indenture Trustee.
(b) Without limiting or being limited by the
foregoing, each of the Seller and the Servicer shall pay on demand to the
Issuer or the Indenture Trustee, as the case may be, any and all amounts
necessary to indemnify the Issuer or the Indenture Trustee, as the case may be,
from and against any loss, liability, expense, damage or injury (any such
amount or any amounts payable pursuant to subsection (a) hereof collectively
referred to as "Indemnified Amounts") and all Indemnified Amounts relating to
or resulting from:
(i) the sale of any Receivable of the Seller or DFC that
is not at the date of such sale an Eligible Receivable;
(ii) reliance on any written representation or warranty
made or deemed made by the Seller, DFC or the Servicer under or in
connection with this Agreement that shall prove to have been false or
misleading in any material respect when made or deemed made;
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(iii) the failure by the Seller, DFC or the Servicer to
comply with any applicable law, rule or regulation with respect to any
Purchased Receivable or the related Credit Card Agreement, or the
nonconformity of any Purchased Receivable or the related Credit Card
Agreement with any such applicable law, rule or regulation;
(iv) the failure by the Seller, DFC or the Servicer to
have filed, or any delay by the Seller, DFC or the Servicer in filing,
financing statements or other similar instruments or documents under
the UCC of any applicable jurisdiction or other applicable laws with
respect to the Issuer's interest in any Purchased Receivables;
(v) any dispute, claim, offset or defense (other than
discharge in bankruptcy of the Obligor) of the Obligor to the payment
of any Purchased Receivable (including without limitation a defense
based on such Purchased Receivable or the related Credit Card
Agreement not being a legal, valid and binding obligation of such
Obligor enforceable against it in accordance with its terms) or any
other claim of the Obligor resulting from the sale of the merchandise
or services related to any such Purchased Receivable or the furnishing
or failure to furnish such merchandise or services;
(vi) any failure of the Seller, DFC or the Servicer to
perform its duties or obligations in all material respects under this
Agreement, the Indenture and each Credit Card Agreement;
(vii) any products liability claim arising out of or in
connection with merchandise, insurance or services that are the
subject of any charge pursuant to any Credit Card Agreement;
(viii) except as provided in Section 6.04 of this Agreement
with respect to Store Payments, the commingling of Collections of
Purchased Receivables at any time with other funds other than funds of
the Issuer;
(ix) any investigation, litigation or proceeding in
respect of this Agreement, any Purchased Receivable or any Credit Card
Agreement;
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(x) the payment by the Issuer of any taxes owed by the
Seller, DFC or the Servicer, including without limitation Federal,
state or local income taxes, excise taxes or business taxes, or any
tax liens of the Pension Benefit Guaranty Corporation, or any
successor thereto, asserted under the Employee Retirement Income
Security Act of 1974, as amended from time to time, to which the
Purchased Receivables are made subject as a result of the Issuer being
an Affiliate of the Seller;
(xi) any claim arising under any patent, trademark or
license or any interest therein (including without limitation any
software license) owned by the Issuer, the Seller, DFC or the Servicer
or used by the Issuer, the Seller, DFC or the Servicer in connection
with the Purchased Receivables; or
(xii) any amounts required to be paid by the Issuer pursuant
to Section 11.04 of the Indenture.
Notwithstanding the foregoing, none of the Seller, DFC or the Servicer shall
under any circumstances indemnify the Issuer (or its designees or assignees)
for any Indemnified Amounts that result from any default by any Obligor with
respect to any Purchased Receivables, other than resulting from the
circumstances described in clause (i), (iii) or (vi) above.
(c) In the event of a Service Transfer, the
Successor Servicer shall indemnify the Seller for any losses, claims, damages
and liabilities of the Seller as described in this paragraph arising from the
actions or omissions of such Successor Servicer.
(d) None of the Seller, DFC, the Servicer or any
of their directors, officers, employees or agents shall be under any other
liability to the Indenture Trustee, the noteholders of any Series or any other
person for any action taken, or for refraining from taking any action, in good
faith pursuant to this Agreement. However, none of the Seller, DFC, the
Servicer or any of their directors, officers, employees or agents shall be
protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence of any such person in the
performance of their duties or by reason of reckless disregard of their
obligations and duties thereunder.
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(e) In addition, the Servicer is not under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its servicing responsibilities under this Agreement, nor is any
Successor Servicer liable for any acts of any of its predecessor Servicers.
The Servicer may, in its sole discretion, undertake any such legal action which
it may deem necessary or desirable for the benefit of noteholders of any Series
with respect to this Agreement and the rights and duties of the parties thereto
and the interest of the noteholders of any Series thereunder.
ARTICLE IX
SUBORDINATED NOTE; CAPITAL CONTRIBUTION
Section 9.01. Subordinated Note.
(a) Issuance and Principal Amount. On the
Issuance Date, the Issuer shall issue a subordinated note (the "Subordinated
Note") to the Seller in substantially the form of Exhibit C to this Agreement.
The principal amount of the Subordinated Note shall be calculated pursuant to
the Daily Report. In no event shall the principal amount of the Subordinated
Note calculated pursuant to the Daily Report at any date of determination
exceed the excess of (a) the amount of Eligible Receivables at such time less
(b) the Net Note Principal Amount at such date. If the principal amount of the
Subordinated Note decreases as a result of the preceding sentence, no cash
shall be paid to the Seller as a result of such decrease. Other than with
respect to any payments by the Seller to the Issuer expressly required herein,
the Issuer shall have the right (but not the obligation) to offset or adjust
the Subordinated Note by any amounts owed by the Seller to the Issuer under
this Agreement.
(b) Payments of Interest and Principal;
Subordination. Interest on the principal amount of the Subordinated Note shall
accrue at the rate of 8.15% per annum, computed on the basis of the actual
number of days elapsed and a 360-day year from and including the initial
Purchase Date to but excluding the date, after reduction of the outstanding
principal amount of the Notes and the notes of each other outstanding Series to
zero, immediately preceding the date on which the remaining outstanding
principal amount of the Subordinated Note is paid in full. Subject to the
subordination provisions set forth in
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subsection (c) below (the "Subordination Provisions"), the Issuer may pay
accrued interest on the Subordinated Note on any Business Day and on the Final
Maturity Date. Subject to the Subordination Provisions, the Issuer shall also
pay accrued interest on the principal amount of each prepayment of the
Subordinated Note on the date of each such prepayment. Subject to the
Subordination Provisions, any unpaid principal of the Subordinated Note shall
be paid on the Final Maturity Date. Subject to the Subordination Provisions,
the principal amount of the Subordinated Note may be prepaid on any Business
Day without premium or penalty.
(c) Upon any distribution of all or any of the
assets of the Issuer to creditors of the Issuer upon the dissolution, winding
up, total or partial liquidation, arrangement, reorganization, adjustment,
protection, relief, or composition of the Issuer or its debts, any payment or
distribution of any kind (including without limitation cash, property,
securities and any payment or distribution which may be payable or deliverable
by reason of the payment of any other Indebtedness of the Issuer being
subordinated to the payment of the Subordinated Note) in respect of the
Subordinated Note that otherwise would be payable or deliverable upon or with
respect to the Subordinated Note, directly or indirectly, by set-off or in any
other manner (including without limitation from or by way of Collateral) shall
be paid or delivered directly to the Indenture Trustee for application (in the
case of cash) to, or as Collateral (in the case of non-cash property or
securities) for the payment or prepayment in full of, the Notes until all
principal of (as such principal amount may have been reduced by the allocation
thereto of noteholder charge-offs in accordance with the applicable Indenture)
and interest on the Notes and the notes of each other outstanding Series shall
have been indefeasibly paid in full in cash. The Indenture Trustee is
irrevocably authorized and empowered (in its own name or in the name of the
Seller or otherwise), but shall have no obligation, to demand, sue for, collect
and receive every payment or distribution referred to in the immediately
preceding sentence to give acquittance therefor, to file claims and proofs of
claim with respect thereto and to take such other action (including without
limitation voting the Subordinated Note and enforcing any security interest or
other lien securing payment of the Subordinated Note) as the Indenture Trustee
may deem necessary or advisable for the exercise or enforcement of any of the
rights or interest of the noteholders of any Series pursuant to and in
accordance with the Transaction Documents. The Seller shall duly and
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promptly take such action as the Indenture Trustee, acting at the written
direction of the Majority Noteholders, may request, consistent with the terms
of this Agreement and the other Transaction Documents, to (1) collect the
Subordinated Note for the account of the noteholders of any Series and to file
appropriate claims or proofs of claim in respect of the Subordinated Note, (2)
execute and deliver to the Indenture Trustee such powers of attorney,
assignments or other instruments as the Indenture Trustee may reasonably
request in order to enable the Indenture Trustee to enforce any and all claims
with respect to, and any security interests and other liens securing payment
of, the Subordinated Note and (3) collect and receive any and all payments or
distributions which may be payable or deliverable upon or with respect to the
Subordinated Note. All payments or distributions upon or with respect to the
Subordinated Note that are received by the Seller contrary to the provisions of
this Agreement and the other Transaction Documents shall be received in trust
for the benefit of the noteholders of all Series, shall be segregated from
other funds and property held by the Seller and shall be forthwith paid over to
the Indenture Trustee in the same form as so received (with any necessary
endorsement), to be applied (in the case of cash) to, or held as collateral (in
the case of non-cash property or securities) for the payment or prepayment in
full of, the Notes until the Notes shall have been indefeasibly paid in full in
cash. The Seller agrees that no payment or distribution to the noteholders of
any Series with respect to the Subordinated Note pursuant to the provisions of
the Agreement and the other Transaction Documents shall entitle the Seller to
exercise any rights or subrogation in respect thereof against the Issuer until
all principal of (as such principal amount may have been reduced by the
allocation of noteholder charge-offs in accordance with the applicable
Indenture) and interest on the Notes and the notes of each other outstanding
Series shall have been indefeasibly paid in full in cash. Each of the Seller
and the Issuer hereby waives promptness, diligence, notice of acceptance and
any other notice with respect to the Subordinated Note and any requirement that
the Indenture Trustee protect, secure, perfect or insure any security interest
or lien on any property subject thereto or exhaust any right or take any action
against the Issuer or any other Person with respect thereto.
(d) Unsecured Obligations. The Subordinated Note
represents solely an obligation of the Issuer to make certain payments to the
extent, in the manner and at the
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times set forth in this Agreement, and does not represent a security interest
in the Purchased Receivables or the proceeds thereof.
Section 9.02. Restrictions on Transfer of Subordinated Note.
Without the prior written consent of the Majority Noteholders, the Subordinated
Note or any right of the Seller to receive payments thereunder may not be
assigned, transferred, exchanged, pledged, hypothecated, participated or
otherwise conveyed, except (1) to the Working Capital Lenders or (2) to an
Affiliate of the Seller other than the Issuer. Upon such transfer, the
Indenture Trustee will receive written notice of the new holder of the
Subordinated Note and shall provide notice of such transfer to each Rating
Agency.
Section 9.03. Initial Capital Contribution. On the initial
Purchase Date, the Seller shall contribute as capital to the Issuer, cash in an
amount equal to $[40,000,000]. The Issuer shall use such capital contribution
to pay the Seller and DFC, as applicable, for the Purchased Receivables
purchased on the initial Purchase Date.
ARTICLE X
MISCELLANEOUS
Section 10.01. Amendments, etc. No amendment or waiver of
any provision of this Agreement, or consent to any departure therefrom by the
Issuer, the Seller or the Servicer shall in any event be effective unless (a)
the same shall be in writing and signed by the Issuer, the Seller and the
Servicer and (b) if required pursuant to Article XIII of the Indenture, the
Majority Noteholders have consented or agreed to consent thereto and Standard &
Poor's and Duff & Phelps have each provided or agreed to provide written
confirmation to the Issuer and the Indenture Trustee that such amendment,
waiver or consent shall not result in a reduction in the rating of any of the
Notes. Any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it is given.
Section 10.02. Notices, etc. All notices and other
communications provided under this Agreement shall be in writing (including
telegraphic, telex, facsimile or cable communication) and shall be delivered in
hand, mailed by United States certified or registered first class mail, sent
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by overnight courier, telegraphed, telexed, transmitted, telecopied or cabled:
(a) If to the Issuer, to it at:
Zale Funding Trust
c/o Wilmington Trust Company, as Trustee
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telephone (302) 651-1000
with separate copies to:
General Counsel and Secretary
and
Treasurer, Finance Department
Zale Corporation
901 West Walnut Hill Lane
Irving, Texas 75038
Telephone (214) 580-4576
Telecopy (214) 580-5336
(b) If to the Seller, to it at:
901 West Walnut Hill Lane
Irving, Texas 75038
Attention: General Counsel and Secretary
and
Treasurer, Finance Department
Telephone (214) 580-4576
Telecopy (214) 580-5336
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(c) If to JFS, to it at:
901 West Walnut Hill Lane
Irving, Texas 75038
Attention: President
Telephone (214) 580-5241
Telecopy (214) 580-4011
with separate copies to:
General Counsel and Secretary
and
Treasurer, Finance Department
Zale Corporation
901 West Walnut Hill Lane
Irving, Texas 75038
Telephone (214) 580-4576
Telecopy (214) 580-5336
or, as to each such party, at such other address as shall be designated by such
party in a written notice to all other parties. All notices and other
communications given under this Agreement in accordance with the provisions of
this Agreement shall be deemed to have been given (1) on the date of receipt if
delivered by hand or overnight courier service or cabled or sent by telex,
telecopy or other telegraphic communications equipment of the sender or (2) on
the date five Business Days after dispatch by certified or registered mail if
mailed, in each case delivered, sent or mailed (properly addressed) to such
party as provided in this Section 10.02.
Section 10.03. No Waiver; Cumulative Remedies. No failure on
the part of any party to this Agreement to exercise, and no delay by any such
party in exercising, any right under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right preclude
any other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
Section 10.04. Binding Effect. This Agreement shall become
effective, as of the date first above written, when it shall have been executed
by the Issuer, the Seller,
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DFC and the Servicer. From and after the date this Agreement shall have so
become effective, this Agreement shall be binding upon and inure to the benefit
of the Issuer, the Seller, DFC and the Servicer, and their respective
successors and assigns (including without limitation the Indenture Trustee),
except that neither the Seller, DFC nor the Servicer shall have the right to
assign its rights under this Agreement or any interest in this Agreement
without the prior written consent of the Issuer. This Agreement shall create
and constitute the continuing obligations of the parties hereto in accordance
with its terms, and shall remain in full force and effect until the earlier of
(1) the time at which all outstanding amounts with respect to the Notes and the
Subordinated Note have been paid in full in cash and (2) the time of final
application of all remaining Collateral to the repayment of all outstanding
amounts with respect to the Notes and the Subordinated Note; provided that, the
indemnification provisions of Article VIII of this Agreement shall be
continuing and shall survive any termination of this Agreement.
SECTION 10.05. GOVERNING LAW. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT
TO THE EXTENT THAT THE VALIDITY OR PROTECTION OF THE ISSUER'S INTEREST IN THE
PURCHASED RECEIVABLES, OR REMEDIES HEREUNDER IN RESPECT THEREOF, ARE GOVERNED
BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
Section 10.06. Costs, Expenses and Taxes. In addition to the
rights of indemnification granted to the Issuer under Article VIII of this
Agreement, the Seller agrees to pay on demand (1) all reasonable costs and
expenses of the Issuer in connection with the preparation, execution and
delivery of this Agreement and the documents to be delivered hereunder,
including without limitation the reasonable fees and out-of-pocket expenses of
counsel for the Issuer with respect thereto and with respect to advising the
Issuer as to its rights and remedies under this Agreement, (2) all reasonable
costs and expenses of the Issuer (including without limitation the reasonable
fees and out-of-pocket expenses of counsel for the Issuer) in connection with
the enforcement (whether through negotiations, legal proceedings or otherwise)
of this Agreement and the documents to be delivered hereunder and (3) any and
all stamp and other taxes and fees payable or determined to be payable in
connection with the execution, delivery, filing and recording
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of this Agreement or the other documents to be delivered hereunder (and the
Seller agrees to hold the Issuer harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omitting
to pay such taxes and fees).
Section 10.07. Headings. All section and subsection headings
and the Table of Contents used in this Agreement are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement.
Section 10.08. License. Upon the occurrence and during the
continuance of an Early Amortization Event, each of the Seller, DFC and the
Servicer shall be deemed to have granted to the Issuer a non-exclusive and,
except to the extent provided below, non-transferable, license to use the
various tradenames (the "Licensed Names") listed in Schedule II to this
Agreement, which license to use (1) may be transferred by the Issuer to the
Indenture Trustee and by the Indenture Trustee pursuant to the Indenture to the
extent necessary to collect the Purchased Receivables in a commercially
reasonable manner, (2) is limited to (a) such uses of the Licensed Names as are
reasonably necessary to the collection by the Issuer or the Indenture Trustee
in a commercially reasonable manner of the Purchased Receivables and (b)
actions taken in accordance with the terms of this Agreement and the Indenture
and (3) shall expire on the expiration of a reasonable time for the collection
of all Purchased Receivables. Notwithstanding anything to the contrary in this
Agreement or in any other agreement between the parties, no other use or
display of the Licensed Names shall be made by the Indenture Trustee except as
granted in this Section 10.08.
Section 10.09. Merger or Consolidation. Any person into
which the Seller or the Servicer may be merged or consolidated or any person
resulting from any merger or consolidation to which the Seller or the Servicer
is a party, or any person succeeding to the business of the Seller or the
Servicer, upon execution of a supplement to this Agreement (notice of which
shall promptly be provided to each Rating Agency) and delivery of an opinion of
counsel with respect to the compliance of the transaction with the applicable
provisions of this Agreement, will be the successor to the Seller or the
Servicer, as the case may be, under this Agreement.
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SECTION 10.10. ACKNOWLEDGMENT OF ASSIGNMENT. EACH OF THE
SELLER, DFC AND THE SERVICER HEREBY ACKNOWLEDGES AND CONSENTS TO THE SECURITY
INTEREST GRANTED BY THE ISSUER IN THE PURCHASED RECEIVABLES AND THE RIGHTS OF
THE ISSUER UNDER THIS AGREEMENT PURSUANT TO THE INDENTURE AND EACH OF THE
SELLER, DFC AND THE SERVICER HEREBY ACKNOWLEDGES THAT THE INDENTURE TRUSTEE
SHALL ENFORCE THE RIGHTS OF THE ISSUER.
SECTION 10.11. WAIVER OF JURY TRIAL. EACH PARTY TO THIS
AGREEMENT WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH
PARTY TO THIS AGREEMENT (1) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY
OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER
PARTY WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (2) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION 10.11.
Section 10.12. Severability. In the event any one or more of
the provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby, and the parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid, legal and enforceable provisions, the economic effect of which comes as
close as possible to that of the invalid, illegal or unenforceable provisions.
Section 10.13. No Petition in Bankruptcy. Each of the
Seller, DFC and the Servicer, severally and not jointly, covenants and agrees
that, prior to the date which is one year and one day after the payment in full
of all outstanding Notes it shall not (notwithstanding that the Seller, DFC or
the Servicer may at such time be holder of record or beneficial owner of any
Notes) institute against, or join any other Person in instituting against, the
Issuer 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 10.14. Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall
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constitute an original but all of which when taken together shall constitute
but one contract.
Section 10.15. Third Party Beneficiaries. Each of the
Secured Parties shall be a third-party beneficiary of this Agreement. In
addition, the Seller hereby agrees to be liable for any and all liability
imposed upon the Trust other than liabilities to any person holding an interest
in the Trust which is characterized as equity for federal income tax purposes
and any liability which pursuant to its terms is recourse only to the assets of
the Trust.
Section 10.16. Jurisdiction; Consent to Service of Process.
Each party to this Agreement hereby irrevocably and unconditionally (1)
submits, for itself and its property, to the nonexclusive jurisdiction of any
New York State court or Federal court of the United States of America for the
Southern District of New York, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement, or for
recognition or enforcement of any judgment arising out of or relating to this
Agreement; (2) agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, Federal court; (3) agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law;
(4) consents that any such action or proceeding may be brought in such courts
and waives any objection it may now or hereafter have to the laying of venue of
any such action or proceeding in any such court and any objection it may now or
hereafter have that such action or proceeding was brought in an inconvenient
court, and agrees not to plead or claim the same; (5) consents to service of
process in the manner provided for notices in Section 10.02 of this Agreement
(provided that, nothing in this Agreement shall affect the right of any such
party to serve process in any other manner permitted by law); and (6) waives,
to the maximum extent not prohibited by law, any right it may have to claim or
recover in any such action or proceeding any special, exemplary, punitive or
consequential damages.
Section 10.17. Confirmation of Intent. It is the express
intent of the parties to this Agreement that the sale, assignment, transfer and
conveyance, from the Seller to the Issuer pursuant to Section 2.01 of this
Agreement, of all of the Seller's and DFC's right, title and interest in, to
and under the property set forth in such Section 2.01, in
51
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each case and at all times shall be treated under applicable law as a sale by
the Seller and DFC to the Issuer of such property. If, at any time, it is
determined that all or any portion of such property continues to be property of
the Seller or DFC, then the Seller or DFC shall hereby grant and shall be
deemed to have granted to the Issuer a security interest in all of such
property and this Agreement shall constitute a security agreement under
applicable law.
Section 10.18 Limitation of Liability. It is expressly
understood and agreed by the parties hereto that (a) this Agreement is executed
and delivered by Wilmington Trust Company, not individually or personally but
solely as the Owner Trustee of the Issuer under the Trust Agreement, in the
exercise of the powers and authority conferred and vested in it, (b) each of
the representations, undertakings and agreements herein made on the part of the
Issuer is made and intended not as personal representations, undertakings and
agreements by Wilmington Trust Company but is made and intended for the purpose
of binding only the Issuer, (c) nothing herein contained shall be construed as
creating any liability on Wilmington Trust Company, individually or personally,
to perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the Seller, DFC or the Servicer
and by any Person claiming by through or under the Seller, DFC or the Servicer
and (d) under no circumstances shall Wilmington Trust Company be personally
liable for the payment of any indebtedness or expenses of the Issuer or be
liable for the breach or failure of any obligation, representation, warranty or
covenant made or undertaken by the Issuer under this Agreement or the other
Transaction Documents.
52
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IN WITNESS WHEREOF, each of the parties to this Agreement has
caused this Agreement to be duly executed and delivered in New York City, New
York by its proper and duly authorized officers as of the date first above
written.
ZALE FUNDING TRUST
By: WILMINGTON TRUST COMPANY, not in
its individual capacity but
solely as Owner Trustee under
the Amended and Restated Trust
Agreement dated as of July 15, 1994
By: /s/ Emmett R. Harmon
_________________________________________
Name: Emmett R. Harmon
Title: Vice President
ZALE DELAWARE, INC.
By: /s/ Thomas E. Whiddon
_________________________________________
Name: Thomas E. Whiddon
Title: Senior Vice President-Treasurer
DIAMOND FUNDING CORP.
By: /s/ Thomas E. Whiddon
_________________________________________
Name: Thomas E. Whiddon
Title: Senior Vice President-Treasurer
JEWELERS FINANCIAL SERVICES, INC.
By: /s/ Thomas E. Whiddon
_________________________________________
Name: Thomas E. Whiddon
Title: Senior Vice President-Treasurer
53
<PAGE> 59
Agreed to and accepted:
BANKERS TRUST COMPANY, not in its
individual capacity but solely as
Indenture Trustee
By: /s/ Louis Bodi
_________________________________
Name: Louis Bodi
Title: Assistant Vice President
54
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EXHIBIT 4.6
REVOLVING CREDIT AGREEMENT
DATED as of August 11, 1995
among
ZALE CORPORATION,
ZALE DELAWARE, INC.,
the LENDERS listed on Schedule 1 hereto,
and
THE FIRST NATIONAL BANK OF BOSTON,
as Agent for such Lenders
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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1. DEFINITIONS AND RULES OF INTERPRETATION.............................................. 1
1.1. Definitions............................................................... 1
1.2. Rules of Interpretation................................................... 22
2. THE REVOLVING CREDIT FACILITY........................................................ 23
2.1. Commitment to Lend........................................................ 23
2.2. Commitment Fee............................................................ 23
2.3. Reduction of Total Commitment............................................. 24
2.4. The Notes................................................................. 24
2.5. Interest on Loans......................................................... 25
2.6. Requests for Loans........................................................ 25
2.7. Conversion Options........................................................ 26
2.7.1. Conversion to Different Type of Loan........................... 26
2.7.2. Continuation of Type of Loan................................... 26
2.7.3. Eurodollar Rate Loans.......................................... 27
2.8. Funds for Loans........................................................... 27
2.8.1. Funding Procedures............................................. 27
2.8.2. Advances by Agent.............................................. 27
2.9. Settlements; Failure to Make Funds Available.............................. 28
2.10. Change in Borrowing Base.................................................. 29
3. REPAYMENT OF THE LOANS............................................................... 29
3.1. Maturity.................................................................. 29
3.2. Mandatory Repayments of Loans............................................. 30
3.3. Optional Repayments of Loans.............................................. 30
4. LETTERS OF CREDIT.................................................................... 30
4.1. Letter of Credit Commitments.............................................. 31
4.1.1. Commitment to Issue Letters of Credit.......................... 31
4.1.2. Letter of Credit Applications.................................. 31
4.1.3. Terms of Letters of Credit..................................... 31
4.1.4. Reimbursement Obligations of Lenders........................... 31
4.1.5. Participations of Lenders...................................... 32
4.2. Reimbursement Obligation of the Borrowers................................. 32
4.3. Letter of Credit Payments................................................. 33
4.4. Obligations Absolute...................................................... 33
4.5. Reliance by Issuer........................................................ 34
4.6. Letter of Credit Fees..................................................... 34
4.7. Cash Collateral for Letters of Credit..................................... 34
5. CERTAIN GENERAL PROVISIONS........................................................... 35
5.1. Fee Letters............................................................... 35
5.2. Agent's Fee............................................................... 35
5.3. Funds for Payments........................................................ 35
5.3.1. Payments to Agent.............................................. 35
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5.3.2. No Offset, etc................................................. 35
5.3.3. Foreign Lenders................................................ 37
5.3.4. Applicable Lending Office...................................... 38
5.4. Computations.............................................................. 38
5.5. Inability to Determine Eurodollar Rate.................................... 38
5.6. Illegality................................................................ 39
5.7. Additional Costs, etc..................................................... 39
5.8. Capital Adequacy.......................................................... 41
5.9. Certificate............................................................... 42
5.10. Indemnity................................................................ 42
5.11. Interest After Default................................................... 42
5.12. Interest Limitation...................................................... 42
5.13. Performance Adjustments.................................................. 43
5.14. Concerning Joint and Several Liability of the Borrowers.................. 44
6. COLLATERAL SECURITY.................................................................. 48
6.1. Security of Borrowers..................................................... 48
6.2. ZFT Receivables........................................................... 48
6.3. Releases of Security...................................................... 49
7. REPRESENTATIONS AND WARRANTIES....................................................... 50
7.1. Corporate Authority....................................................... 50
7.1.1. Incorporation; Good Standing................................... 50
7.1.2. Authorization.................................................. 51
7.1.3. Enforceability................................................. 51
7.2. Governmental Approvals.................................................... 51
7.3. Title to Properties; Leases............................................... 51
7.4. Financial Statements and Projections...................................... 52
7.4.1. Financial Statements........................................... 52
7.4.2. Projections.................................................... 52
7.5. No Material Changes, etc.................................................. 52
7.6. Franchises, Patents, Copyrights, etc...................................... 53
7.7. Litigation................................................................ 53
7.8. No Materially Adverse Contracts, etc...................................... 53
7.9. Compliance with Other Instruments, Laws, etc.............................. 53
7.10. Tax Status............................................................... 54
7.11. No Event of Default...................................................... 54
7.12. Holding Company and Investment Company Acts.............................. 54
7.13. Absence of Financing Statements, etc..................................... 54
7.14. Perfection of Security Interest.......................................... 54
7.15. Certain Transactions..................................................... 55
7.16. Employee Benefit Plans................................................... 55
7.16.1. In General.................................................... 55
7.16.2. Terminability of Welfare Plans................................ 55
7.16.3. Guaranteed Pension Plans...................................... 56
7.16.4. Multiemployer Plans........................................... 56
</TABLE>
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7.17. Regulations U and X...................................................... 56
7.18. Environmental Compliance................................................. 57
7.19. Subsidiaries, etc........................................................ 59
7.20. Bank Accounts............................................................ 59
7.21. Asset Locations.......................................................... 59
8. AFFIRMATIVE COVENANTS OF THE BORROWERS............................................... 59
8.1. Punctual Payment.......................................................... 59
8.2. Maintenance of Office..................................................... 59
8.3. Records and Accounts...................................................... 60
8.4. Financial Statements, Certificates and Information........................ 60
8.5. Notices................................................................... 62
8.5.1. Defaults....................................................... 62
8.5.2. Environmental Events........................................... 62
8.5.3. Notification of Claims against Collateral...................... 63
8.5.4. Notice of Litigation and Judgments............................. 63
8.5.5. Permitted Inventory Locations.................................. 64
8.6. Corporate Existence; Maintenance of Properties............................ 64
8.7. Insurance................................................................. 64
8.7.1. Insurance...................................................... 64
8.7.2. Evidence of Insurance.......................................... 65
8.8. Taxes..................................................................... 65
8.9. Inspection of Properties and Books, etc................................... 65
8.9.1. General........................................................ 65
8.9.2. Collateral Reports............................................. 66
8.9.3. Communications with Accountants................................ 66
8.10. Compliance with Laws, Contracts, Licenses, and Permits................... 66
8.11. Employee Benefit Plans................................................... 67
8.12. Use of Proceeds.......................................................... 67
8.13. Bank Accounts............................................................ 67
8.14. Inventory Restrictions................................................... 69
8.15. Further Assurances....................................................... 69
8.16. Cleandown................................................................ 69
9. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS.......................................... 69
9.1. Restrictions on Indebtedness.............................................. 69
9.2. Restrictions on Liens..................................................... 72
9.3. Restrictions on Investments............................................... 75
9.4. Distributions............................................................. 77
9.5. Merger, Consolidation and Disposition of Assets........................... 78
9.5.1. Mergers and Acquisitions....................................... 78
9.5.2. Disposition of Assets.......................................... 78
9.6. Sale and Leaseback........................................................ 79
9.7. Compliance with Environmental Laws........................................ 79
9.8. Employee Benefit Plans.................................................... 79
9.9. Bank Accounts............................................................. 80
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9.10. Transactions with Affiliates............................................. 80
9.11. Receivables Securitization Facility Documents............................ 81
9.12. Zale Puerto Rico; JFS.................................................... 81
9.13. Negative Pledges......................................................... 82
9.14. Indenture................................................................ 82
10. FINANCIAL COVENANTS OF THE BORROWERS................................................ 82
10.1. Consolidated EBITDA...................................................... 82
10.2. Consolidated Funded Debt to Consolidated Adjusted EBITDA................. 82
10.3. Debt Service............................................................. 83
10.4. Consolidated Tangible Net Worth.......................................... 83
10.5. Consolidated Capital Expenditures........................................ 84
10.6. Receivables Advance Rate under Receivables Purchase Agreement............ 84
11. CLOSING CONDITIONS.................................................................. 84
11.1. Loan Documents........................................................... 84
11.2. Certified Copies of Charter Documents and Other Documents................ 84
11.3. Corporate Action......................................................... 85
11.4. Incumbency Certificate................................................... 85
11.5. Validity of Liens........................................................ 85
11.6. Perfection Certificates; UCC Search Results; Form of Other
Financing Statements............................................................ 85
11.7. Certificates of Insurance................................................ 85
11.8. Bank Agency Agreements................................................... 86
11.9. Borrowing Base Report.................................................... 86
11.10. Receivables Purchase Report............................................. 86
11.11. Opinion of Counsel...................................................... 86
11.12. Payment of Fees......................................................... 86
11.13. Financial Statements, Etc............................................... 86
11.14. Receivables Securitization Facility Documents;.......................... 86
11.15. Materially Adverse Changes.............................................. 87
11.16. Payoff and Termination of Prior Credit Agreement........................ 87
11.17. Proceedings and Documents............................................... 87
11.18. Further Assurances...................................................... 87
12. CONDITIONS TO ALL BORROWINGS........................................................ 87
12.1. Representations True; No Event of Default................................ 88
12.2. No Legal Impediment...................................................... 88
12.3. Governmental Regulation.................................................. 88
12.4. Borrowing Base Report.................................................... 88
12.5. Payment of Fees.......................................................... 88
13. EVENTS OF DEFAULT; ACCELERATION; ETC................................................ 88
13.1. Events of Default and Acceleration....................................... 88
13.2. Termination of Commitments............................................... 93
13.3. Remedies................................................................. 93
13.4. Cash Collateral to Secure Outstanding Letters of Credit.................. 93
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13.5. Repayments of Loans and Distribution of Collateral Proceeds After
Event of Default................................................................ 94
14. SETOFF.............................................................................. 95
15. THE AGENT........................................................................... 95
15.1. Authorization............................................................ 95
15.2. Employees and Agents..................................................... 96
15.3. No Liability............................................................. 96
15.4. No Representations....................................................... 96
15.5. Payments................................................................. 97
15.5.1. Payments to Agent............................................. 97
15.5.2. Distribution by Agent......................................... 97
15.5.3. Delinquent Lenders............................................ 97
15.6. Holders of Notes......................................................... 98
15.7. Indemnity................................................................ 98
15.8. Agent as Lender.......................................................... 98
15.9. Resignation; Removal..................................................... 99
15.10. Notification of Defaults and Events of Default.......................... 99
15.11. Duties in the Case of Enforcement....................................... 99
16. EXPENSES............................................................................ 100
17. INDEMNIFICATION..................................................................... 101
18. SURVIVAL OF COVENANTS, ETC.......................................................... 102
19. ASSIGNMENT AND PARTICIPATION........................................................ 102
19.1. Conditions to Assignment by Lenders...................................... 102
19.2. Certain Representations and Warranties; Limitations; Covenants........... 103
19.3. Register................................................................. 104
19.4. New Notes................................................................ 105
19.5. Participations........................................................... 105
19.6. Confidentiality.......................................................... 105
19.7. Assignee or Participant Affiliated with the Borrowers.................... 106
19.8. Miscellaneous Assignment Provisions...................................... 106
19.9. Assignment by Borrowers.................................................. 107
19.10. Additional Commitment Amounts. (a)..................................... 107
20. NOTICES, ETC........................................................................ 108
21. GOVERNING LAW....................................................................... 109
22. HEADINGS............................................................................ 109
23. COUNTERPARTS........................................................................ 109
24. ENTIRE AGREEMENT, ETC............................................................... 110
25. WAIVER OF JURY TRIAL................................................................ 110
26. CONSENTS, AMENDMENTS, WAIVERS, ETC.................................................. 110
27. SEVERABILITY........................................................................ 111
</TABLE>
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REVOLVING CREDIT AGREEMENT
This REVOLVING CREDIT AGREEMENT is made as of August 11, 1995 by and
among ZALE CORPORATION, a Delaware corporation having its principal place of
business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 ("Zale"), ZALE
DELAWARE, INC., a Delaware corporation having its principal place of business at
901 W. Walnut Hill Lane, Irving, Texas 75038-1003 ("Zale Delaware" and together
with Zale, the "Borrowers"), THE FIRST NATIONAL BANK OF BOSTON, a national
banking association, and the other lending institutions listed on Schedule 1 and
THE FIRST NATIONAL BANK OF BOSTON as agent for itself and such other lending
institutions.
1. DEFINITIONS AND RULES OF INTERPRETATION.
1.1. DEFINITIONS. The following terms shall have the meanings set
forth in this Section 1 or elsewhere in the provisions of this Credit
Agreement referred to below:
Acceleration. See Section 13.1.
Additional Commitment Amount. See Section 19.10.
Advance Rate Percentage. Forty-five percent (45%).
Affiliate. Any Person directly or indirectly controlling, controlled by
or under direct or indirect common control with Zale (or another specified
Person) and shall include (a) any Person who is an officer, director or
beneficial holder of at least ten percent (10%) of the outstanding capital stock
of Zale (or another specified Person) and the mother, father, spouse or child
("Family Members") of any such officer, director or holder, (b) any Person of
which Zale (or another specified Person) or an Affiliate (as defined in clause
(a) above) of Zale (or another specified Person) shall, directly or indirectly
beneficially own at least ten percent (10%) of the outstanding equity securities
or constitute at least a ten percent (10%) equity participant, and (c) in the
case of a specified Person who is an individual, Family Members of such Person.
Agent. The First National Bank of Boston acting as agent for the
Lenders.
Agent's Head Office. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location in the Boston
Massachusetts area as the Agent may designate from time to time.
<PAGE> 8
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Agent's Special Counsel. Bingham, Dana & Gould or such other counsel as
may be approved by the Agent.
Amortization Commencement Date. As defined in the Receivables
Securitization Facility Documents as in effect on the Closing Date or as such
term is defined in any replacement, successor or additional Receivables
Securitization Facility Document.
Applicable Lending Office. With respect to each Lender, its Domestic
Lending Office in the case of a Base Rate Loan, and its Eurodollar Lending
Office in the case of a Eurodollar Rate Loan.
Assignment and Acceptance. See Section 19.1.
Balance Sheet Date. March 31, 1994.
Bankruptcy Court. The United States Bankruptcy Court for the Northern
District of Texas, Dallas Division.
Base Rate. The higher of (i) the annual rate of interest announced from
time to time by FNBB at its head office in Boston, Massachusetts, as its "base
rate" and (ii) one-half of one percent (1/2%) above the Federal Funds Effective
Rate. For the purposes of this definition, "Federal Funds Effective Rate" shall
mean for any day, the rate per annum 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 Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that
is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three funds brokers of recognized
standing selected by the Agent.
Base Rate Applicable Margin. At all times from the Closing through the
first Performance Adjustment Date, 0.75%, and thereafter, the percentage
determined by reference to the provisions of Section 5.13.
Base Rate Loans. Loans bearing interest calculated by reference to the
Base Rate.
Borrower(s). As defined in the preamble hereto.
Borrowing Base. At the relevant time of reference thereto, an amount
determined by the Agent by reference to the most recent Borrowing Base Report
delivered to the Lenders and the Agent pursuant to Section 8.4, which is equal
to:
I. at any time prior to the Collateral Release Date:
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(a) the Advance Rate Percentage of the result of:
(i) Eligible Inventory minus the Generic SKU
Reserve; minus
(ii) (A)(1) Eligible Inventory minus (2) the Generic
SKU Reserve multiplied by (B) the Inventory Shrink Reserve
Percentage calculated with respect to ongoing operations;
minus
(b) all amounts received by the Borrowers on account of
Eligible Inventory which has been sold under any installment sale or
"lay away" plan (other than pursuant to the Borrowers' proprietary
credit cards); minus
(c) $1,000,000 representing a reserve for landlord liens as
such amount may by adjusted by the Agent based upon its reasonable
determination.
II. after the Collateral Release Date, the Advance Rate Percentage of
the aggregate book value of finished goods and inventory (excluding any
reduction resulting from the Borrowers' general valuation reserves)
owned by the Borrowers and the Designated Subsidiaries (determined in
accordance with generally accepted accounting principles at the lesser
of cost or fair market value on a first-in-first-out basis).
For purposes of this Credit Agreement and the other Loan Documents, the
Agent may assume, subject to adjustment based upon the provisions of this Credit
Agreement, that the Borrowing Base in effect on any given date is the Borrowing
Base as indicated on the most recent Borrowing Base Report delivered on a timely
basis to the Lenders and the Agent in accordance with the provisions of Section
8.4 hereof.
Borrowing Base Report. A Borrowing Base Report signed by a Financial
Officer of each of the Borrowers and in substantially the form of Exhibit A
hereto.
Business Day. Any day on which banking institutions in Boston,
Massachusetts, Dallas, Texas, Philadelphia, Pennsylvania and New York, New York
are open for the transaction of banking business and, in the case of Eurodollar
Rate Loans, also a day which is a Eurodollar Business Day.
Capital Assets. Fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and good will); provided that Capital Assets shall not
include any item customarily charged directly to expense or depreciated over a
useful life of twelve (12) months or less in accordance with generally accepted
accounting principles.
Cash Collateral Agreement. See Section 4.7.
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CERCLA. See Section 7.18.
Closing Date. The first date on which the conditions set forth in
Section 11 have been satisfied.
Code. The Internal Revenue Code of 1986, as amended.
Collateral. All of the property, rights and interests of the Borrowers
and the Designated Subsidiaries that are or are intended to be subject to the
security interests created by the Security Documents.
Collateral Agency Agreement. The Collateral Agency Agreement dated as
of July 30, 1993, among the Collateral Agent, the Agent, the Trustee, and the
Borrowers, as the same has been or may be amended, restated or otherwise
modified and in effect from time to time.
Collateral Agent. FNBB, in its capacity as collateral agent for the
benefit of (a) (i) the Lenders and the Agent, and (ii) the holders of Debentures
and the Trustee, under and with respect to any of the Security Documents other
than the Lender Security Agreement, and (b) the Agent, and the Lenders under and
with respect to the Lender Security Agreement.
Collateral Release Date. See Section 6.3.
Commitment. With respect to each Lender, (a) the amount set forth on
Schedule 1 hereto as the amount of such Lender's commitment to make Loans to,
and to participate in the issuance, extension and renewal of Letters of Credit
for the account of, the Borrowers, as the same may be reduced from time to time
in accordance with the provisions of this Credit Agreement; or if such
commitment is terminated pursuant to the provisions hereof, zero, or, (b) if
such Lender has entered into one or more Assignment and Acceptances, or if such
Lender has become a party to this Credit Agreement pursuant to Section 19.10
or has increased its Commitment pursuant to such Section 19.10, then the
amount set forth for such Lender in the Register maintained by the Agent as
the amount of such Lender's commitment to make Loans to, and to participate in
the issuance, extension and renewal of Letters of Credit for the account of,
the Borrowers, as the same may be reduced from time to time; or if such
commitment is terminated pursuant to the provisions hereof, zero.
Commitment Fee Rate. At all times from the Closing through the first
Performance Adjustment Date, 0.375%, and thereafter, the percentage determined
by reference to the provisions of Section 5.13.
Commitment Percentage. With respect to each Lender, the percentage set
forth on Schedule 1, as the same may be amended from time to time as set forth
in
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the Register maintained by the Agent, as such Lender's percentage of the
aggregate Commitments of all of the Lenders.
Concentration Account Agreement. The Second Amended and Restated
Concentration Account Agreement, dated or to be dated on or prior to the Closing
Date, among CoreStates Bank, N.A., the Borrowers, the Receivables Purchase
Agent, and the Agent, or any other concentration account agreement in form and
substance reasonably satisfactory to the Agent, entered into by the Borrowers,
the Receivables Purchase Agent, the Agent and a depository institution
reasonably satisfactory to the Agent.
Confirmation Order. The order, entered on May 20, 1993, pursuant to
which the Bankruptcy Court confirmed the Consolidated Plan of Reorganization of
Zale Corporation and Its Affiliated Debtors dated March 24, 1993, as
subsequently modified by order, entered May 19, 1993, and confirmed by order,
entered May 20, 1993, as further amended by two (2) orders, entered July 27,
1993.
Consolidated or consolidated. With reference to any term defined
herein, shall mean that term as applied to the accounts of Zale and its
Subsidiaries, consolidated in accordance with generally accepted accounting
principles.
Consolidated Adjusted EBITDA. Consolidated EBITDA for any period, but
excluding the "net credit income" (consisting of income from proprietary credit
cards net of all expenses associated with the management of such proprietary
credit cards (which expenses shall exclude the bad debt reserve provision) of
Zale and its Subsidiaries, as determined in a manner consistent with that used
for the audited consolidated statement of income for the fiscal year ended as of
the Balance Sheet Date.
Consolidated Capital Expenditures. Amounts paid or indebtedness
incurred by Zale or any of its Subsidiaries in connection with the purchase or
lease by Zale or any of its Subsidiaries of Capital Assets that would be
required to be capitalized and shown on the balance sheet of such Person in
accordance with generally accepted accounting principles, but excluding, to the
extent otherwise applicable, the Master Equipment Lease Number 03725, dated as
of December 6, 1989, between Zale and AT&T Credit Corporation, as amended and/or
supplemented, as of December 6, 1989, July 1, 1990, and February 1, 1993, and as
in effect as of July 30, 1993.
Consolidated Capitalized Leases. Leases under which Zale or any of its
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in accordance with generally accepted accounting
principles.
Consolidated EBITDA. Consolidated Net Income for any period in
accordance with generally accepted accounting principles plus (a) without
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duplication, the sum of the following expenses of Zale and its Subsidiaries for
such period, in each case to the extent included in determining said
Consolidated Net Income, and, in each case without duplication, (i) depreciation
expenses, (ii) amortization expense, (iii) interest expense, (iv) total federal,
state and local income tax expense, and (v) charges during such period relating
to the valuation of inventory by the application of the LIFO (last in/first out)
method of inventory valuation less (b) without duplication, the sum of (i)
amortization of fresh start credit, (ii) income earned during such period
relating to the valuation of inventory by the application of the LIFO method of
inventory valuation, (iii) interest income, and (iv) total federal, state and
local income tax benefits provided during such period.
Consolidated Funded Debt. As at any date of determination, an amount
(without duplication) equal to the aggregate amount of all Indebtedness relating
to the borrowing of money of Zale and its Subsidiaries, on a consolidated basis,
whether absolute or contingent, including, to the extent not included in such
Indebtedness, all Consolidated Capitalized Leases and all Indebtedness
guaranteed by any of Zale or its Subsidiaries, but excluding, to the extent
otherwise included in such Indebtedness, all Indebtedness incurred in respect of
the Receivables Securitization Facility Documents.
Consolidated Net Income. The consolidated net income (or loss) of Zale
and its Subsidiaries, after deduction of all expenses, taxes, and other proper
charges, determined in accordance with generally accepted accounting principles,
after eliminating therefrom all extraordinary items of income or loss.
Consolidated Rental Obligations. All present or future obligations of
Zale or any of its Subsidiaries under any rental agreements or leases of real or
personal property, other than (a) obligations that can be terminated by the
giving of notice without liability to Zale or such Subsidiary in excess of the
liability for rent due as of the date on which such notice is given and under
which no penalty or premium is paid as a result of any such termination, and (b)
obligations of Zale or such Subsidiary in respect of Consolidated Capitalized
Leases.
Consolidated Tangible Net Worth. The excess of Consolidated Total
Assets over Consolidated Total Liabilities, and less the sum of:
(a) the total book value of all assets of Zale and its
Subsidiaries properly classified as intangible assets under generally
accepted accounting principles, including such items as good will, the
purchase price of acquired assets in excess of the fair market value
thereof, trademarks, trade names, service marks, brand names,
copyrights, patents and licenses, and rights with respect to the
foregoing; plus
<PAGE> 13
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(b) all amounts representing any write-up in the book value of
any assets of Zale or its Subsidiaries resulting from a revaluation
thereof subsequent to the Balance Sheet Date; plus
(c) all amounts representing the deferred fresh start credit
as of the date of determination.
Consolidated Total Assets. All assets of Zale and its Subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles.
Consolidated Total Debt Service. With respect to any period, an amount
equal to the sum of all payments on Indebtedness that were required to be paid
or accrued during such period (including interest but excluding any amounts
accrued during a prior period) pursuant to any agreement or instrument to which
Zale or any of its Subsidiaries is a party relating to the borrowing of money or
the obtaining of credit or in respect of Consolidated Capitalized Leases. Demand
obligations shall be deemed to be due and payable during any fiscal year during
which such obligations are outstanding; provided, however, that the promissory
note from Zale to the corporate general partner of the Litigation Entity in the
original principal amount of $500,000 shall be deemed to be due in the fiscal
period during which demand is made.
Consolidated Total Liabilities. All liabilities of Zale and its
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles, including without duplication, all liabilities
of Zale and its Subsidiaries, whether or not so classified, under the
Receivables Securitization Facility Documents; provided, however, that any
deferred fresh start credit as of the date of determination shall not be
considered to be a liability.
Conversion Request. A notice given by the Borrowers to the Agent of the
Borrowers' election to convert or continue a Loan in accordance with Section
2.7.
Corporate Depository Accounts. See Section 8.13(a).
Credit Agreement. This Revolving Credit Agreement, including the
Schedules and Exhibits hereto.
Debenture Debt. As defined in the Collateral Agency Agreement.
Debentures. The 11% Second Priority Senior Secured Notes Due 2000
previously issued by Zale Delaware pursuant to the Indenture.
Default. See Section 13.1.
Delinquent Lender. See Section 15.5.3.
<PAGE> 14
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Designated Subsidiaries. Zale Puerto Rico, Dobbins and JFS.
Director Indemnity Agreement. Those Indemnification Agreements dated as
of July 21, 1993, between Zale and/or Zale Delaware and their directors, as in
effect on July 30, 1993, and renewals or extensions thereof and similar
agreements entered into by the Borrowers with other directors from time to time
in substantially similar form.
Disclosure Statement. The Disclosure Statement of Zale and of its
affiliated debtors, dated March 24, 1993, as filed with the Bankruptcy Court and
as amended through the conclusion of the hearing which resulted in the entry of
the Confirmation Order.
Distribution. The declaration or payment of any dividend on or in
respect of any shares of any class of capital stock of Zale (or other specified
Person), other than dividends payable solely in shares of common stock of Zale
(or other specified Person); the purchase, redemption, or other retirement of
any shares of any class of capital stock of Zale (or other specified Person),
directly or indirectly through a Subsidiary of Zale (or other specified Person)
or otherwise; the return of capital by Zale (or other specified Person) to its
shareholders as such; or any other distribution on or in respect of any shares
of any class of capital stock of Zale (or other specified Person).
Dobbins. Dobbins Jewelers, Inc., a Guam corporation.
Dollars or $. Dollars in lawful currency of the United States of
America.
Domestic Lending Office. Initially, the office of each Lender
designated as such in Schedule 1 hereto; thereafter, such other office of such
Lender, if any, located within the United States that will be making or
maintaining Base Rate Loans.
Drawdown Date. The date on which any Loan (other than pursuant to
Section 2.6(b)) is made or is to be made, and the date on which any Loan is
converted or continued in accordance with Section 2.7.
Effective Date. As defined in the Plan.
Eligible Assignee. Any of the following which has an office or branch
located in the United States of America: (a) a commercial bank or commercial
finance company organized under the laws of the United States, or any state
thereof or the District of Columbia, and having total assets in excess of
$1,000,000,000; (b) a savings and loan association or savings bank organized
under the laws of the United States, or any State thereof or the District of
Columbia, and having a net worth of at least $100,000,000, calculated in
accordance with generally accepted accounting principles; (c) a commercial bank
organized under the laws of any other country
<PAGE> 15
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which is a member of the Organization for Economic Cooperation and Development
(the "OECD"), or a political subdivision of any such country, and having total
assets in excess of $1,000,000,000, provided that such bank is acting through a
branch or agency located in the country in which it is organized or another
country which is also a member of the OECD; (d) the central bank of any country
which is a member of the OECD; and (e) if, but only if, any Event of Default has
occurred and is continuing, any other bank, insurance company, commercial
finance company or other financial institution or other Person which other
Person is not a competitor of the Borrowers and the Designated Subsidiaries, or
any of them, in each case approved by the Agent, such approval not to be
unreasonably withheld or delayed.
Eligible Inventory. With respect to the Borrowers and the Designated
Subsidiaries, the aggregate book value of finished goods and inventory owned by
the Borrowers and the Designated Subsidiaries (determined in accordance with
generally accepted accounting principles at the lesser of cost or fair market
value on a first-in-first-out basis but excluding any reduction resulting from
the Borrowers' general valuation reserves); provided that Eligible Inventory
shall not include any inventory (a) held on consignment, or not otherwise owned
by the Borrowers or the Designated Subsidiaries, or of a type no longer sold by
the Borrowers or the Designated Subsidiaries, (b) which is damaged, refurbished,
not first quality saleable or subject to any legal encumbrance other than
Permitted Liens securing obligations which, together with such legal
encumbrance, are expressly subordinate as to liens and in right of payment to
the Obligations and are subject to an intercreditor arrangement entered into by,
and acceptable to, the Agent, (c) which is not in the possession of the
Borrowers or the Designated Subsidiaries unless the Agent has received a waiver
from the party in possession of such inventory in form and substance
satisfactory to the Agent, (d) as to which appropriate Uniform Commercial Code
financing statements or other applicable documents showing the Borrowers or the
Designated Subsidiaries as debtor and the Collateral Agent as secured party have
not been filed or continued in the proper filing office or offices in a manner
and form sufficient to perfect the Collateral Agent's first priority (other than
as to statutory landlord's liens) security interest therein, (e) which has been
shipped to a customer of any of the Borrowers or the Designated Subsidiaries
regardless of whether such shipment is on a consignment basis, (f) which is not
located at a Permitted Inventory Location within the United States of America,
Puerto Rico or Guam, or (g) which has been segregated and is no longer offered
for sale by the Borrowers or the Designated Subsidiaries to be returned to the
applicable vendor for credit.
Employee Benefit and Compensation Accounts. See Section 9.9.
Employee Benefit Plan. Any employee benefit plan within the meaning of
Section 3(3) of ERISA maintained of contributed to by either of the Borrowers
or any ERISA Affiliate, other than a Multiemployer Plan.
<PAGE> 16
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Environmental Laws. See Section 7.18(a).
ERISA. The Employee Retirement Income Security Act of 1974, as amended.
ERISA Affiliate. Any Person which is treated as a single employer with
either of the Borrowers under Section 414 of the Code.
ERISA Reportable Event. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of Section 4043 of ERISA and the regulations
promulgated thereunder as to which the requirement of notice has not been
waived.
Eurocurrency Reserve Rate. For any day with respect to a Eurodollar
Rate Loan, the maximum rate (expressed as a decimal) at which any lender subject
thereto would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulations relating to such reserve requirements) against "Eurocurrency
Liabilities" (as that term is used in Regulation D), if such liabilities were
outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on
and as of the effective date of any change in the Eurocurrency Reserve Rate.
Eurodollar Applicable Margin. At all times from the Closing through the
first Performance Adjustment Date, 2.00%, and thereafter, the percentage
determined by reference to the provisions of Section 5.13.
Eurodollar Business Day. Any day on which commercial banks are open for
international business (including dealings in Dollar deposits) in such
eurodollar interbank market as may be selected by the Agent in its sole
discretion acting in good faith.
Eurodollar Lending Office. Initially, the office of each Lender
designated as such in Schedule 1 hereto; thereafter, such other office of such
Lender, if any, that shall be making or maintaining Eurodollar Rate Loans.
Eurodollar Rate. For any Interest Period with respect to a Eurodollar
Rate Loan, the rate of interest equal to (i) the rate per annum for FNBB
(rounded upwards to the nearest 1/16 of one percent) of the rate at which FNBB's
Eurodollar Lending Office is offered Dollar deposits two Eurodollar Business
Days prior to the beginning of such Interest Period in the interbank eurodollar
market where the eurodollar and foreign currency and exchange operations of such
Eurodollar Lending Office are customarily conducted, for delivery on the first
day of such Interest Period for the number of days comprised therein and in an
amount comparable to the amount of the Eurodollar Rate Loan of FNBB to which
such Interest Period applies, divided by (ii) a number equal to 1.00 minus the
Eurocurrency Reserve Rate, if applicable.
<PAGE> 17
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Eurodollar Rate Loans. Loans bearing interest calculated by reference to
the Eurodollar Rate.
Event of Default. See Section 13.1.
Excluded Assignee. Any otherwise Eligible Assignee which at the time of
any proposed assignment is:
(i) subject to any unrescinded finding of any court, agency or
supervisory authority of competent jurisdiction, or has made any
unrevoked admission in writing, that any of the following conditions
exist: (A) such institution's assets are less than its obligations to
others, (B) such institution's assets or earnings are substantially
dissipated due to violations of law, rules or regulations or to unsafe or
unsound practices, (C) such institution is in an unsafe or unsound
condition to transact business, (D) such institution has concealed its
records or assets or refuses to submit its records or affairs for
inspection to an examiner or lawful agent of any agency of supervisory
authority of competent jurisdiction, or (E) such institution is
insolvent;
(ii) under or in conservatorship, receivership, trusteeship or
similar supervision by a Person appointed by a court, agency or
supervisory authority of competent jurisdiction in connection with any
insolvency, readjustment of debt, marshalling of assets, bankruptcy,
reorganization or similar proceeding of or relating to all, or
substantially all, of its property, or for the winding-up or liquidation
of its affairs;
(iii) the subject of proceedings under any law relating to
bankruptcy, insolvency or the reorganization or relief of debtors;
(iv) subject to a plan for dissolution authorized or ratified
(and not revoked) by a majority vote of its Board of Directors; or
(v) if such otherwise Eligible Assignee is of a type described
in clause (c) of the definition of Eligible Assignee, without a license
to conduct banking business from the applicable foreign agency or
supervisory authority of competent jurisdiction.
Excluded Proceeds. Proceeds of consigned inventory (up to the cost
thereof to either of the Borrowers or to a Designated Subsidiary), and ZFT
Receivables.
Excluded Subsidiaries. Zale Life Insurance Company, Zale Indemnity
Company, Diamond Guaranty Insurance Company, Jewel Re-Insurance, Ltd., Zale
Acquisition Corporation, JHC Holding Corporation, Zale Holding Corporation, ZHCL
Corp. Zale Employees' Child Care Association, Inc., ZFT, Diamond Funding Corp.,
Jewel Recovery, Inc. and Jewel Recovery, L.P.
<PAGE> 18
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Fee Letters. See Section 5.1.
Financial Officer. The chief administrative officer, Executive Vice
President-Finance and Administration, chief financial officer, controller or
treasurer.
FNBB. The First National Bank of Boston, a national banking association,
in its individual capacity.
FNBB Fee Letter. See Section 5.1.
FNBB Concentration Accounts. See Section 8.13.
generally accepted accounting principles. (a) When used in Section 10,
whether directly or indirectly through reference to a capitalized term used
therein, means (i) principles that are consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board ("FASB") and
its predecessors or, to the extent not inconsistent with the principles
promulgated by FASB, by the American Institute of Certified Public Accountants
("AICPA") or other nationally recognized organization composed of expert
accountants, in effect for the fiscal year ended on the Balance Sheet Date, and
(ii) to the extent consistent with such principles, the accounting practice of
Zale reflected in its financial statements for the period ended on the Balance
Sheet Date, and (b) when used in general, other than as provided above, means
principles that (i) are consistent with the principles promulgated or adopted by
FASB and its predecessors or, to the extent not inconsistent with the principles
promulgated by FASB, by the AICPA or other nationally recognized organization
composed of expert accountants, as in effect from time to time, and (ii) are
consistently applied with past financial statements of Zale and its consolidated
Subsidiaries adopting the same principles, provided that in each case referred
to in this definition of "generally accepted accounting principles" a certified
public accountant would, insofar as the use of such accounting principles is
pertinent, be in a position to deliver an unqualified opinion (other than a
qualification regarding changes in generally accepted accounting principles) as
to financial statements in which such principles have been properly applied.
Generic SKU Inventory. Any units of inventory as to which the Borrowers
have assigned (or would have assigned using criteria existing as of the date
hereof) any "SKU" number starting with the number nine (9).
Generic SKU Reserve. At any time of determination, a reserve based upon
Generic SKU Inventory which shall initially be equal to $6,500,000 and shall be
subject to review and reasonable modification by the Agent based upon future
examinations of the Borrowers' and the Designated Subsidiaries' Generic SKU
Inventory.
<PAGE> 19
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Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of Section 3(2) of ERISA maintained or contributed to by either of the
Borrowers or any ERISA Affiliate the benefits of which are guaranteed on
termination in full or in part by the PBGC pursuant to Title IV of ERISA, other
than a Multiemployer Plan.
Hazardous Substances. See Section 7.18(b).
Increasing Lender. See Section 19.10.
Indebtedness. All monetary and other financial obligations, contingent
and otherwise, that in accordance with generally accepted accounting principles
should be classified upon the obligor's balance sheet as liabilities, excluding
any deferred fresh start credit as of the date of determination, or to which
reference should be made by footnotes thereto, including in any event and
whether or not so classified: (a) all debt and similar monetary obligations,
whether direct or indirect; (b) all liabilities secured by any mortgage, pledge,
security interest, lien, charge or other encumbrance existing on property owned
or acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (c) all guarantees, endorsements and other contingent
obligations whether direct or indirect in respect of indebtedness of others,
including any obligation to supply funds to or in any manner to invest in,
directly or indirectly, the debtor, to purchase indebtedness, or to assure the
owner of indebtedness against loss, through an agreement to purchase goods,
supplies, or services for the purpose of enabling the debtor to make payment of
the indebtedness held by such owner or otherwise, and the obligations to
reimburse the issuer in respect of any letters of credit.
Indenture. The Indenture dated as of July 30, 1993 among the Borrowers
and the Trustee, under which the Trustee acts for the holders of the Debentures
in the form delivered to the Agent on the date hereof.
Instrument of Adherence. See Section 19.10.
Interest Payment Date. (i) As to any Base Rate Loan, the first Business
Day of the calendar month following the calendar month which includes the
Drawdown Date thereof; and (ii) as to any Eurodollar Rate Loan in respect of
which the Interest Period is (A) three (3) months or less, the last day of such
Interest Period and (B) more than three (3) months, the date that is three (3)
months from the first day of such Interest Period, and, in addition, the last
day of such Interest Period.
Interest Period. With respect to each Loan, (i) initially, the period
commencing on the Drawdown Date of such Loan and ending on the last day of one
of the periods set forth below, as selected by the Borrowers in a Loan Request
(A) for any Base Rate Loan, the last day of the calendar month; and (B) for any
Eurodollar Rate Loan, 1, 2, 3 or 6 months; and (ii) thereafter, each period
commencing on the last day of the next preceding Interest Period applicable to
such Loan and ending on
<PAGE> 20
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the last day of one of the periods set forth above, as selected by the Borrowers
in a Conversion Request; provided that all of the foregoing provisions relating
to Interest Periods are subject to the following:
(a) if any Interest Period with respect to a Eurodollar Rate Loan
would otherwise end on a day that is not a Eurodollar Business Day, that
Interest Period shall be extended to the next succeeding Eurodollar
Business Day unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Eurodollar Business Day;
(b) if any Interest Period with respect to a Base Rate Loan would
end on a day that is not a Business Day, that Interest Period shall end
on the next succeeding Business Day;
(c) if the Borrowers shall fail to give notice as provided in
Section 2.7, the Borrowers shall be deemed to have requested a conversion
of the affected Eurodollar Rate Loan to a Base Rate Loan and the
continuance of all Base Rate Loans as Base Rate Loans on the last day of
the then current Interest Period with respect thereto;
(d) any Interest Period relating to any Eurodollar Rate Loan that
begins on the last Eurodollar Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last
Eurodollar Business Day of a calendar month; and
(e) any Interest Period relating to any Eurodollar Rate Loan that
would otherwise extend beyond the Maturity Date shall end on the Maturity
Date.
Inventory Shrink Reserve Percentage. At the time of reference thereto,
one percent (1.0%) or such other percentage reasonably determined by the Agent
from time to time based upon future examinations of the Borrowers and their
inventory.
Investments. All expenditures made and all liabilities incurred
(contingent or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect of any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (i) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (ii) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(iii) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment,
<PAGE> 21
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liquidating dividend or liquidating distribution); (iv) there shall not be
deducted in respect of any Investment any amounts received as earnings on such
Investment, whether as dividends, interest or otherwise, except that accrued
interest included as provided in the foregoing clause (ii) may be deducted when
paid; and (v) there shall not be deducted from the aggregate amount of
Investments any decrease in the value thereof.
JFS. Jewelers Financial Services, Inc., a Delaware corporation.
Joint Collateral Security Agreement. The Joint Collateral Security
Agreement dated as of July 30, 1993, among Zale, Zale Delaware and certain of
their Subsidiaries and the Collateral Agent, as the same has been or may be from
time to time amended, restated or otherwise modified and in effect.
Lenders. FNBB and the other lending institutions listed on Schedule 1
hereto and any other Person who becomes a New Lender or an assignee of any
rights and obligations of a Lender pursuant to Section 19.
Lender Security Agreement. The Amended and Restated Lender Security
Agreement, dated or to be dated on or prior to the Closing Date, among the
Borrowers and the Collateral Agent, in form and substance satisfactory to the
Borrowers, the Lenders, the Collateral Agent and the Agent.
Letter of Credit. See Section 4.1.1.
Letter of Credit Application. See Section 4.1.1.
Letter of Credit Cash Collateral Account. See Section 4.7.
Letter of Credit Fee. See Section 4.6.
Letter of Credit Fee Rate. At all times from the Closing through the
first Performance Adjustment Date, 1.25%, and thereafter, the percentage
determined by reference to the provisions of Section 5.13.
Letter of Credit Participation. See Section 4.1.4.
Litigation Entity. As defined in the Plan.
Loan Documents. This Credit Agreement, the Notes, the Fee Letters, the
Letter of Credit Applications, the Letters of Credit and the Security Documents.
Loan Request. See Section 2.6(a).
Loans. Revolving credit loans made or to be made by the Lenders to the
Borrowers pursuant to Section 2.
<PAGE> 22
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Local Depository Accounts. See Section 8.13.
Majority Lenders. As of any date, the Lenders holding at least fifty-one
percent (51%) of the outstanding principal amount of the Notes on such date; and
if no such principal is outstanding, the Lenders whose aggregate Commitments
constitutes at least fifty-one percent (51%) of the Total Commitment. For
purposes of this definition, the aggregate principal amount of each Lender shall
be determined by assuming that a Settlement has occurred.
Maturity Date. August 11, 1998.
Maximum Drawing Amount. The maximum aggregate amount that the
beneficiaries may at any time draw under outstanding Letters of Credit, as such
aggregate amount may be reduced from time to time pursuant to the terms of the
Letters of Credit.
Maximum Rate. See Section 5.12.
Mortgages. The several mortgages and deeds of trust, dated as of July 30,
1993, from the Borrowers and their Subsidiaries to the Collateral Agent with
respect to the fee and leasehold interests of the Borrowers and their
Subsidiaries in the Real Estate (other than Zale Delaware's leasehold interest
with respect to retail stores).
Multiemployer Plan. Any multiemployer plan within the meaning of Section
3(37) of ERISA maintained or contributed to by either of the Borrowers or any
ERISA Affiliate.
New Lender. See Section 19.10.
Notes. See Section 2.4.
Obligations. All indebtedness, obligations and liabilities of either of
the Borrowers to any of the Lenders, the Collateral Agent and the Agent,
individually or collectively, existing on the date of this Credit Agreement or
arising thereafter, direct or indirect, joint or several, absolute or
contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, arising or
incurred under this Credit Agreement or any of the other Loan Documents or in
respect of any of the Loans made or Reimbursement Obligations incurred or any of
the Notes, Letter of Credit Applications, Letters of Credit or other instruments
at any time evidencing any thereof.
Operating Accounts. See Section 2.6(b).
outstanding. With respect to the Loans, the aggregate unpaid principal
thereof as of any date of determination.
<PAGE> 23
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PBGC. The Pension Benefit Guaranty Corporation created by Section 4002 of
ERISA and any successor entity or entities having similar responsibilities.
Perfection Certificates. The Perfection Certificates as defined in the
Lender Security Agreement.
Performance Adjustment. See Section 5.13.
Performance Adjustment Date. See Section 5.13.
Permitted Inventory Locations. The retail stores and distribution centers
of Zale Delaware and the Designated Subsidiaries located in the United States of
America, Puerto Rico and Guam and listed on Schedule 2 hereto, as well as any
location used by Zale Delaware or any Designated Subsidiary for trade shows or
similar purposes so long as appropriate Uniform Commercial Code financing
statements or other applicable documents showing Zale Delaware or such
Designated Subsidiary as debtor and the Collateral Agent as secured party have
been filed or continued in the proper filing office or offices in a manner and
form sufficient to perfect the Collateral Agent's first priority (other than as
to statutory landlord liens) security interest in inventory of Zale Delaware and
the Designated Subsidiaries located at such stores, distribution centers and
other locations.
Permitted Liens. Liens, security interests and other encumbrances
permitted by Section 9.2.
Person. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
Plan. The Consolidated Plan of Reorganization of certain affiliates of
Zale Delaware attached as Exhibit A to the Disclosure Statement dated March 24,
1993, as amended through the conclusion of the hearing which resulted in the
entry of the Confirmation Order, as further amended and/or modified through and
including the Effective Date.
Prior Agents. See Section 11.16.
Prior Credit Agreement. The Revolving Credit and Gold Consignment
Agreement dated as of July 30, 1993 among (a) the Borrowers, (b) FNBB, Rhode
Island Hospital Trust National Bank ("RIHT"), ABN AMRO Bank, N.V., New York
Branch and Societe Generale, New York Branch, as Co-Agents, (c) FNBB and RIHT,
as Administrative Agents, and (d) FNBB and certain other financial institutions
party thereto (collectively with FNBB, the "Prior Lenders"), as the same has
been amended or modified prior to the date hereof.
<PAGE> 24
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Prior Lenders. As defined in the definition of Prior Credit Agreement.
Puerto Rican Security Documents. The separate Assignments of Accounts
Receivable from each of Zale Delaware and Zale Puerto Rico to the Collateral
Agent, the separate Statements of Assignment of Accounts Receivable from each of
Zale Delaware and Zale Puerto Rico to the Collateral Agent, the separate
Factor's Lien Agreements from each of Zale Delaware and Zale Puerto Rico to the
Collateral Agent and the separate Personal Property Mortgages from each of Zale
Delaware and Zale Puerto Rico to the Collateral Agent, each dated as of July 30,
1993, as amended or otherwise modified and in effect from time to time.
Purchase Termination Date. As defined in the Receivables Securitization
Facility Documents as in the form delivered to the Agent on the date hereof.
Rabbi Trust. Any trust established for the satisfaction of obligations of
any of Zale or its Subsidiaries for deferred compensation, the terms of which
trust will not, at any time, result in such obligations being treated as funded
under applicable Department of Labor and Internal Revenue Service guidelines as
of the date hereof.
Real Estate. All real property owned or leased (as lessee or sublessee)
by Zale or any of its Subsidiaries.
Receivables Advance Rate. The Advance Rate as defined in the Receivables
Securitization Facility Documents as in the form delivered to the Agent on the
date hereof.
Receivables Purchase Agent. The Indenture Trustee, as defined in the
Receivables Securitization Facility Documents as in the form delivered to the
Agent on the date hereof.
Receivables Purchase Agreement. The Purchase and Servicing Agreement
dated as of July 1, 1994 among ZFT, Zale Delaware, Diamond Funding Corp., and
JFS, and their respective successors and assigns, as the same may be from time
to time amended or modified.
Receivables Purchase Payment Instructions. The written instructions from
each of Zale Delaware and Zale (and acknowledged by Zale Puerto Rico and
Dobbins) to ZFT, or any subsequent Receivables Securitization Subsidiary, JFS
and the Receivables Purchase Agent, in form and substance satisfactory to the
Agent, directing that payment of all amounts to which Zale Delaware may be
entitled pursuant to the terms of the Receivables Securitization Facility
Documents be made directly into the FNBB Concentration Accounts.
Receivables Purchase Report. See Section 8.4(g).
<PAGE> 25
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Receivables Release Termination Date. The earlier to occur of (a) the
Purchase Termination Date and (b) one day following receipt by the Receivables
Purchase Agent of notice from the Agent of an Acceleration or the Borrower's
failure to pay at the Maturity Date all of the Obligations outstanding.
Receivables Securitization Facility Documents. (a)(i) The Receivables
Purchase Agreement and (ii) the Facilities Documents, as defined therein, as any
of the same may be from time to time amended and/or modified; (b) (i) any other
agreement or agreements governing Indebtedness incurred by any Receivables
Securitization Subsidiary to facilitate the provision of funds for working
capital or other general corporate purposes through the sale or pledge of
receivables created by Zale, Zale Delaware or their Subsidiaries (or of
instruments received in consideration of receivables transferred pursuant to the
Receivables Securitization Facility Documents), and (ii) any agreement or
agreements governing Indebtedness incurred to refund, refinance, replace,
supplement or increase all or any portion of the Indebtedness incurred under
clauses (a) or (b)(i).
Receivables Securitization Subsidiary. Any Subsidiary of Zale, the
principal purpose of which is to provide funds for working capital or other
general corporate purposes to Zale Delaware and its Subsidiaries through the
transfer of receivables created by Zale, Zale Delaware or their Subsidiaries (or
of instruments received in consideration of receivables transferred pursuant to
the Receivables Securitization Facility Documents).
Record. The grid attached to a Note, or the continuation of such grid, or
any other similar record, including computer records, maintained by any Lender
with respect to any Loan referred to in such Note.
Reference Date. See Section 5.3.2.
Register. See Section 19.3.
Reimbursement Obligation. The Borrowers' obligation to reimburse the
Agent and the Lenders on account of any drawing under any Letter of Credit as
provided in Section 4.2.
Security Documents. (a) At all times prior to the payment in full in cash
of the Debenture Debt, the Joint Collateral Security Agreement, the Lender
Security Agreement, the Mortgages, the Trademark Assignments, the Trademark
Security Agreement, the Stock Pledge Agreements, the Puerto Rican Security
Documents, the Receivables Purchase Payment Instructions and the Concentration
Account Agreement, and (b) following the payment in full in cash of the
Debenture Debt and prior to the Collateral Release Date, the Lender Security
Agreement, the Receivables Purchase Payment Instructions and the Concentration
Account Agreement.
<PAGE> 26
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Settlement. The making of, or receiving of payments, in immediately
available funds, by the Lenders, to the extent necessary to cause each Lender's
actual share of the outstanding amount of Loans (after giving effect to any Loan
Request) to be equal to such Lender's Commitment Percentage of the outstanding
amount of such Loans (after giving effect to any Loan Request), in any case
where, prior to such event or action, the actual share is not so equal.
Settlement Amount. See Section 2.9(a).
Settlement Date. (a) the Business Day immediately following the Agent's
becoming aware of the existence of an Event of Default, (b) any Business Day on
which the amount of Loans outstanding from FNBB plus FNBB's Commitment
Percentage of the sum of the Maximum Drawing Amount and any Unpaid Reimbursement
Obligations is equal to or greater than FNBB's Commitment Percentage of the
Total Commitment, (c) any Business Day on which the amount of Loans outstanding
from FNBB plus FNBB's Commitment Percentage of the sum of the Maximum Drawing
Amount and any Unpaid Reimbursement Obligations exceeds FNBB's Commitment
Percentage of the amount of Loans outstanding plus FNBB's Commitment Percentage
of the sum of the Maximum Drawing Amount and any Unpaid Reimbursement
Obligations by more than $10,000,000, (d) the Business Day immediately following
written notice given by the Agent to the Lenders of the Agent's desire to effect
a Settlement, or (e) any Business Day on which (i) the amount of outstanding
Loans decreases and (ii) the amount of the Agent's Loans outstanding equals Zero
Dollars ($0).
Settling Lender. See Section 2.9(a).
Stock Pledge Agreements. The several Stock Pledge Agreements, dated as of
July 30, 1993, between Zale, JHC Holding Corporation or Zale Delaware and the
Collateral Agent.
Store Concentration Accounts. See Section 8.13.
Subordinated Notes. As defined in the Receivables Securitization Facility
Documents as in the form delivered to the Agent on the date hereof.
Subsidiary. Any corporation, association, trust, or other business entity
of which the designated parent shall at any time own directly or indirectly
through a Subsidiary or Subsidiaries at least a majority (by number of votes) of
the outstanding Voting Stock.
Taxes. See Section 5.3.2.
Tax Sharing Agreements. The tax sharing agreements set forth on Schedule
3 hereto.
<PAGE> 27
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Total Commitment. The sum of the Commitments of the Lenders, as in effect
from time to time which as of the Closing Date shall be $150,000,000 and which
may be increased from time to time to an amount not to exceed $180,000,000 in
accordance with the provisions of Section 19.10.
Trademark Assignments. The several Trademark Assignments, dated as of
July 30, 1993, made by the Borrowers and the Designated Subsidiaries in favor of
the Collateral Agent.
Trademark Security Agreement. The Trademark Collateral Security and
Pledge Agreement dated as of July 30, 1993, among the Borrowers and certain of
their Subsidiaries and the Collateral Agent, pursuant to which security
interests are granted for the benefit of the Lenders and the Agent and the
holders of the Debentures and the Trustee.
Trust Certificates. As defined in the Receivables Securitization Facility
Documents as in the form delivered to the Agent on the date hereof.
Trustee. IBJ Schroder Bank & Trust Company, as trustee under the
Indenture, and any successor thereto.
Trust Interest. As defined in the Receivables Securitization Facility
Documents as in the form delivered to the Agent on the date hereof.
Type. As to any Loan, its nature as a Base Rate Loan or a Eurodollar Rate
Loan.
Uniform Customs. With respect to any Letter of Credit, the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 or any successor version thereto adopted
by the Agent in the ordinary course of its business as a letter of credit issuer
and in effect at the time of issuance of such Letter of Credit.
Unpaid Reimbursement Obligation. Any Reimbursement Obligation for which
the Borrowers do not reimburse the Agent and the Lenders in accordance with
Section 4.2.
Vendor Memo Accounts. Deposit accounts of the Borrowers, Zale Puerto Rico
and/or Dobbins into which the proceeds of consignment inventory may be deposited
following deposit into the FNBB Concentration Accounts.
Voting Stock. Stock or similar interests, of any class or classes
(however designated), the holders of which are at the time entitled, as such
holders, to vote for the election of a majority of the directors (or persons
performing similar functions) of
<PAGE> 28
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the corporation, association, trust or other business entity involved, whether
or not the right so to vote exists by reason of the happening of a contingency.
Zale. As defined in the preamble hereto.
Zale Delaware. As defined in the preamble hereto.
Zale Puerto Rico. Zale Puerto Rico, Inc., a Puerto Rican corporation.
ZFT. Zale Funding Trust, a Delaware business trust.
ZFT Receivables. Any Receivables (as defined in the Receivables
Securitization Facility Documents), all monies due or to become due thereon and
all collateral security therefor, all proceeds of the foregoing, including
Insurance Proceeds (as defined in the Receivables Securitization Facility
Documents) relating thereto, all Recoveries (as defined in the Receivables
Securitization Facility Documents) and all other interests, rights and assets
that have been transferred by either of the Borrowers or any Subsidiary of Zale
to ZFT or any other Receivables Securitization Subsidiary pursuant to the
Receivables Securitization Facility Documents; provided, however, that "ZFT
Receivables" shall not include (a) any account transferred after the occurrence
of any Receivables Release Termination Date, or (b) any of Zale's, Zale
Delaware's or any other Subsidiary of Zale's rights under the Receivables
Securitization Facility Documents; and provided, further, that nothing contained
herein or in the Security Documents shall be deemed to constitute a release of
or in any way negate the security interest of the Agent, for the benefit of the
Lenders, in any accounts, or any proceeds or products thereof, transferred to
ZFT following the occurrence of any Receivables Release Termination Date.
1.2. RULES OF INTERPRETATION.
(a) Unless otherwise indicated, reference to any document or
agreement shall include such document or agreement as amended, modified
or supplemented from time to time in accordance with its terms and the
terms of this Credit Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification
to such law.
(d) A reference to any Person includes its permitted successors
and permitted assigns.
<PAGE> 29
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(e) Accounting terms not otherwise defined herein have the
meanings assigned to them by generally accepted accounting principles
applied on a consistent basis by the accounting entity to which they
refer.
(f) The words "include", "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by generally
accepted accounting principles, which terms are defined in the Uniform
Commercial Code as in effect in the Commonwealth of Massachusetts, have
the meanings assigned to them therein, with the term "instrument" being
that defined under Article 9 of the Uniform Commercial Code.
(h) Reference to a particular "Section " refers to that section of
this Credit Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like
import shall refer to this Credit Agreement as a whole and not to any
particular section or subdivision of this Credit Agreement.
2. THE REVOLVING CREDIT FACILITY.
2.1. COMMITMENT TO LEND. Subject to the terms and conditions set forth in
this Credit Agreement, each of the Lenders severally agrees to lend to the
Borrowers, or either of them, and the Borrowers, or either of them, may borrow,
repay, and reborrow from time to time between the Closing Date and the Maturity
Date upon notice by the Borrowers, or either of them, to the Agent given in
accordance with Section 2.6, such sums as are requested by the Borrowers, or
either of them, up to a maximum aggregate amount outstanding (after giving
effect to all amounts requested) at any one time equal to such Lender's
Commitment minus such Lender's Commitment Percentage of the sum of the Maximum
Drawing Amount and all Unpaid Reimbursement Obligations, provided that the sum
of the outstanding amount of the Loans (after giving effect to all amounts
requested) plus the Maximum Drawing Amount and all Unpaid Reimbursement
Obligations shall not at any time exceed the lesser of (i) the Total Commitment
and (ii) the Borrowing Base. The Loans shall be made pro rata in accordance with
each Lender's Commitment Percentage. Each request for a Loan hereunder shall
constitute a representation and warranty by the Borrowers that the conditions
set forth in Section 11 and Section 12, in the case of the initial Loans to be
made on the Closing Date, and Section 12, in the case of all other Loans, have
been satisfied on the date of such request.
2.2. COMMITMENT FEE. The Borrowers jointly and severally agree to pay to
the Agent for the accounts of the Lenders in accordance with their respective
Commitment Percentages a commitment fee calculated at the Commitment Fee Rate
per annum on the average daily amount during each calendar quarter or portion
thereof from the Closing Date to the Maturity Date by which the Total Commitment
<PAGE> 30
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exceeds the sum of the Maximum Drawing Amount and all Unpaid Reimbursement
Obligations plus the outstanding amount of Loans during such calendar quarter.
The commitment fee shall be payable quarterly in arrears on the first day of
each calendar quarter for the immediately preceding calendar quarter commencing
on the first such date following the date hereof, and on the date of any
reduction in the Commitments pursuant to Section 2.3, and with a final payment
on the Maturity Date or any earlier date on which the Commitments shall
terminate.
2.3. REDUCTION OF TOTAL COMMITMENT. The Borrowers shall have the right at
any time and from time to time upon three (3) Business Days prior written notice
to the Agent to reduce by $5,000,000 or an integral multiple of $1,000,000 in
excess thereof or terminate entirely the Total Commitment whereupon the
Commitments of the Lenders shall be reduced pro rata in accordance with their
respective Commitment Percentages of the amount specified in such notice or, as
the case may be, terminated. Promptly after receiving any notice of the
Borrowers delivered pursuant to this Section 2.3, the Agent will notify the
Lenders of the substance thereof. Upon the effective date of any such reduction
or termination, the Borrowers shall pay to the Agent for the respective accounts
of the Lenders the full amount of any commitment fee then accrued on the amount
of the reduction. No reduction or termination of the Commitments may be
reinstated, provided, that the foregoing shall not restrict the ability of the
Borrowers to obtain any Additional Commitment Amount from a New Lender or, as
the case may be, an Increasing Lender in accordance with the provisions of
Section 19.10 hereof.
2.4. THE NOTES. The Loans shall be evidenced by separate promissory notes
of the Borrowers in substantially the form of Exhibit B hereto (each a "Note"),
dated as of the Closing Date and completed with appropriate insertions. A Note
shall be payable to the order of each Lender in a principal amount equal to such
Lender's Commitment or, if less, the outstanding amount of all Loans made by
such Lender, plus interest accrued thereon, as set forth below. Each of the
Borrowers irrevocably authorizes each Lender to make or cause to be made, at or
about the time of the Drawdown Date of any Loan or at the time of receipt of any
payment of principal on such Lender's Note, an appropriate notation on such
Lender's Record reflecting the making of such Loan or (as the case may be) the
receipt of such payment. The outstanding amount of the Loans set forth on such
Lender's Record shall be prima facie evidence of the principal amount thereof
owing and unpaid to such Lender, but the failure to record, or any error in so
recording, any such amount on such Lender's Record shall not limit or otherwise
affect the obligations of the Borrowers hereunder or under any Note to make
payments of principal of or interest on any Note when due.
<PAGE> 31
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2.5. INTEREST ON LOANS. Except as otherwise provided in Section 5.11,
(a) Each Base Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of
the Interest Period with respect thereto at a rate per annum equal to the
Base Rate Applicable Margin plus the Base Rate.
(b) Each Eurodollar Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of
the Interest Period with respect thereto at a rate per annum equal to the
Eurodollar Applicable Margin plus the Eurodollar Rate determined for such
Interest Period.
(c) The Borrowers jointly and severally promise to pay interest on
each Loan in arrears on each Interest Payment Date with respect thereto.
2.6. REQUESTS FOR LOANS.
(a) The Borrowers, or either of them, shall give to the Agent
written notice in the form of Exhibit C hereto (or telephonic notice
confirmed in a writing in the form of Exhibit C hereto) of each Loan
requested hereunder (a "Loan Request") no later than (i) 11:30 a.m.
(Boston time) on the proposed Drawdown Date of any Base Rate Loan and
(ii) 10:00 a.m. (Boston time) at least three (3) Eurodollar Business Days
prior to the proposed Drawdown Date of any Eurodollar Rate Loan. Each
such notice shall specify (A) the principal amount of the Loan requested,
(B) the proposed Drawdown Date of such Loan, (C) the Interest Period for
such Loan and (D) the Type of such Loan. Promptly upon receipt of any
such notice, the Agent shall notify each of the Lenders thereof. Each
Loan Request shall be irrevocable and binding on the Borrowers and shall
obligate the Borrower requesting the Loan to accept the Loan requested
from the Lenders on the proposed Drawdown Date. Each Loan Request for a
Base Rate Loan shall be in a minimum aggregate amount of $100,000, and
each Loan Request for a Eurodollar Rate Loan shall be in a minimum
aggregate amount of $1,000,000 or an integral multiple of $500,000 in
excess thereof.
(b) Notwithstanding the notice and minimum amount requirements set
forth in Section 2.6(a) but otherwise in accordance with the terms and
conditions of this Credit Agreement, the Agent may, in its sole
discretion and without conferring with the Lenders, make Loans hereunder
(i) by entry of credits to Zale Delaware's operating account (No.
551-49011) or other account(s) with the Agent (the "Operating Accounts")
to cover checks or other charges which Zale Delaware has drawn or made
against such account or (ii) in an amount as otherwise requested by the
Borrowers. Each of the Borrowers hereby requests and authorizes the Agent
to make from time to time such Loans by means of
<PAGE> 32
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appropriate entries of such credits sufficient to cover checks and other
charges then presented. Each of the Borrowers acknowledges and agrees
that the making of such Loans shall, in each case, be subject in all
respects to the provisions of this Credit Agreement as if they were Loans
covered by a Loan Request including, without limitation, the limitations
set forth in Section 2.1 and the requirements that the applicable
provisions of Sections 11 and 12, in the case of Loans made on the
Closing Date, and Section 12, in the case of all Loans, be satisfied. All
actions taken by the Agent pursuant to the provisions of this Section
2.6(b) shall be conclusive and binding on the Borrowers absent the
Agent's gross negligence or willful misconduct. Loans made pursuant to
this Section 2.6(b) shall be Base Rate Loans until converted in
accordance with the provisions of the Credit Agreement and, prior to a
Settlement, such interest shall be for the account of the Agent.
2.7. CONVERSION OPTIONS.
2.7.1. CONVERSION TO DIFFERENT TYPE OF LOAN. The Borrowers may
elect from time to time to convert any outstanding Loan to a Loan of
another Type, provided that (i) with respect to any such conversion of a
Loan to a Base Rate Loan, the Borrowers shall give the Agent, no later
than 2:00 p.m. (Boston time) on the proposed date of such conversion,
prior written notice of such election; (ii) with respect to any such
conversion of a Base Rate Loan to a Eurodollar Rate Loan, the Borrowers
shall give the Agent, no later than 10:00 a.m. (Boston time) at least
three (3) Eurodollar Business Days prior to the proposed date of such
conversion, written notice of such election; (iii) with respect to any
such conversion of a Eurodollar Rate Loan into a Loan of another Type,
such conversion shall only be made on the last day of the Interest Period
with respect thereto and (iv) no Loan may be converted into a Eurodollar
Rate Loan when any Default or Event of Default has occurred and is
continuing. On the date on which such conversion is being made each
Lender shall take such action as is necessary to transfer its Commitment
Percentage of such Loans to its Domestic Lending Office or its Eurodollar
Lending Office, as the case may be. All or any part of outstanding Loans
of any Type may be converted into a Loan of another Type as provided
herein, provided that any partial conversion of a Eurodollar Rate Loan to
a Base Rate Loan shall be in an aggregate principal amount of at least
$100,000, and any partial conversion of a Base Rate Loan to a Eurodollar
Rate Loan shall be in an aggregate principal amount of at least
$1,000,000 or an integral multiple of $500,000 in excess thereof. Each
Conversion Request relating to the conversion of a Loan to a Eurodollar
Rate Loan shall be irrevocable by the Borrowers.
2.7.2. CONTINUATION OF TYPE OF LOAN. Any Loan of any Type may be
continued as a Loan of the same Type upon the expiration of an Interest
<PAGE> 33
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Period with respect thereto by compliance by the Borrowers with the
notice provisions contained in Section 2.7.1; provided that no Eurodollar
Rate Loan may be continued as such when any Default or Event of Default
has occurred and is continuing, but shall be automatically converted to a
Base Rate Loan on the last day of the first Interest Period relating
thereto ending during the continuance of any Default or Event of Default
of which officers of the Agent active upon the Borrowers' account have
actual knowledge. In the event that the Borrowers fail to provide any
such notice with respect to the continuation of any Eurodollar Rate Loan
as such, then such Eurodollar Rate Loan shall be automatically converted
to a Base Rate Loan on the last day of the first Interest Period relating
thereto. The Agent shall notify the Lenders promptly when any such
automatic conversion contemplated by this Section 2.7 is scheduled to
occur.
2.7.3. EURODOLLAR RATE LOANS. Any conversion to or from Eurodollar
Rate Loans shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal
amount of all Eurodollar Rate Loans having the same Interest Period shall
not be less than $1,000,000 or a whole multiple of $500,000 in excess
thereof. The Borrower may not have more than five (5) Eurodollar Rate
Loans outstanding at any time.
2.8. FUNDS FOR LOANS.
2.8.1. FUNDING PROCEDURES. Not later than 1:30 p.m. (Boston time)
on the proposed Drawdown Date of any Loan, each of the Lenders will make
available to the Agent, at the Agent's Head Office, in immediately
available funds, the amount of such Lender's Commitment Percentage of the
amount of the requested Loans. Upon receipt from each Lender of such
amount, and upon receipt of the documents required by Sections 11
and 12 and the satisfaction of the other conditions set forth therein, to
the extent applicable, the Agent will make available to the Borrowers the
aggregate amount of such Loans made available to the Agent by the
Lenders. The failure or refusal of any Lender to make available to the
Agent at the aforesaid time and place on any Drawdown Date the amount of
its Commitment Percentage of the requested Loans shall not relieve any
other Lender from its several obligation hereunder to make available to
the Agent the amount of such other Lender's Commitment Percentage of any
requested Loans.
2.8.2. ADVANCES BY AGENT. The Agent may, unless notified to the
contrary by any Lender on or prior to a Drawdown Date, assume that such
Lender has made available to the Agent on such Drawdown Date the amount
of such Lender's Commitment Percentage of the Loans to be made on such
Drawdown Date, and the Agent may (but it shall not be required to), in
<PAGE> 34
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reliance upon such assumption, make available to the Borrowers a
corresponding amount. If any Lender makes available to the Agent such
amount on a date after such Drawdown Date, such Lender shall pay to the
Agent on demand an amount equal to the product of (i) the average
computed for the period referred to in clause (iii) below, of the
weighted average interest rate paid by the Agent for federal funds
acquired by the Agent during each day included in such period, times (ii)
the amount of such Lender's Commitment Percentage of such Loans, times
(iii) a fraction, the numerator of which is the number of days that
elapse from and including such Drawdown Date to the date on which the
amount of such Lender's Commitment Percentage of such Loans shall become
immediately available to the Agent, and the denominator of which is 360.
A statement of the Agent submitted to such Lender with respect to any
amounts owing under this paragraph shall be prima facie evidence of the
amount due and owing to the Agent by such Lender. If the amount of such
Lender's Commitment Percentage of such Loans is not made available to the
Agent by such Lender within three (3) Business Days following such
Drawdown Date, the Agent shall be entitled to recover such amount from
the Borrowers on demand, with interest thereon at the rate per annum
applicable to the Loans made on such Drawdown Date.
2.9. SETTLEMENTS; FAILURE TO MAKE FUNDS AVAILABLE.
(a) On each Settlement Date, the Agent shall, not later than 10:00
a.m. (Boston time), give telephonic or facsimile notice (i) to the
Lenders and the Borrowers of the respective outstanding amount of Loans
made by the Agent on behalf of the Lenders from the immediately preceding
Settlement Date through the close of business on the prior day and the
amount of any Eurodollar Rate Loans to be made (following the giving of
notice pursuant to Section 2.6(a)(ii)) on such date pursuant to a Loan
Request and (ii) to the Lenders of the amount (a "Settlement Amount")
that each Lender (the "Settling Lender") shall pay to effect a Settlement
of any Loan. A statement of the Agent submitted to the Lenders and the
Borrowers with respect to any amounts owing under this Section 2.9 shall
be prima facie evidence of the amount due and owing. The Settling Lender
shall, not later than 3:00 p.m. (Boston time) on such Settlement Date,
effect a wire transfer of immediately available funds to the Agent in the
amount of the Settlement Amount. All funds advanced by any Lender as a
Settling Lender pursuant to this Section 2.9 shall for all purposes be
treated as a Loan made by such Settling Lender to the Borrowers and all
funds received by any Lender pursuant to this Section 2.9 shall for all
purposes be treated as repayment of amounts owed with respect to Loans
made by such Lender. In the event that any bankruptcy, reorganization,
liquidation, receivership or similar cases or proceedings in which either
of the Borrowers is a debtor prevent a Settling Lender from making any
Loan to effect a Settlement as contemplated hereby, such Settling Lender
will make such disposition and
<PAGE> 35
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arrangements with the other Lenders with respect to such Loans, either by
way of purchase of participations, distribution, pro tanto assignment of
claims, subrogation or otherwise as shall result in each Lender's share
of the outstanding Loans being equal, as nearly as may be, to such
Lender's Commitment Percentage of the outstanding amount of the Loans.
(b) The Agent may, unless notified to the contrary by any Lender
prior to a Settlement Date, assume that such Lender has made or will make
available to the Agent on such Settlement Date the amount of such
Lender's Settlement Amount, and the Agent may (but it shall not be
required to), in reliance upon such assumption, make available to the
Borrowers a corresponding amount. If any Lender makes available to the
Agent such amount on a date after such Settlement Date, such Lender shall
pay to the Agent on demand an amount equal to the product of (i) the
average computed for the period referred to in clause (iii) below, of the
weighted average interest rate paid by the Agent for federal funds
acquired by such Agent during each day included in such period, times
(ii) the amount of such Settlement Amount, times (iii) a fraction, the
numerator of which is the number of days that elapse from and including
such Settlement Date to the date on which the amount of such Settlement
Amount shall become immediately available to such Agent, and the
denominator of which is 360. A statement of the Agent submitted to such
Lender with respect to any amounts owing under this paragraph shall be
prima facie evidence of the amount due and owing to the Agent by such
Lender. If such Lender's Settlement Amount is not made available to the
Agent by such Lender within three (3) Business Days following such
Settlement Date, the Agent shall be entitled to recover such amount from
the Borrowers on demand, with interest thereon at the rate per annum
applicable to the Loans as of such Settlement Date.
(c) The failure or refusal of any Lender to make available to the
Agent at the aforesaid time and place on any Settlement Date the amount
of its Settlement Amount (i) shall not relieve any other Lender from its
several obligations hereunder to make available to the Agent the amount
of such other Lender's Settlement Amount and (ii) shall not impose upon
such other Lender any liability with respect to such failure or refusal
or otherwise increase the Commitment of such other Lender.
2.10. CHANGE IN BORROWING BASE. The Borrowing Base shall be determined
monthly by the Agent by reference to the Borrowing Base Report delivered to the
Lenders and the Agent pursuant to Section 8.4(f).
3. REPAYMENT OF THE LOANS.
3.1. MATURITY. The Borrowers jointly and severally promise to pay on the
Maturity
<PAGE> 36
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Date, and there shall become absolutely due and payable on the Maturity Date,
all of the Loans outstanding on such date, together with any and all accrued and
unpaid interest thereon.
3.2. MANDATORY REPAYMENTS OF LOANS. If at any time the sum of the
outstanding amount of the Loans, the Maximum Drawing Amount and all Unpaid
Reimbursement Obligations exceeds the lesser of (i) the Total Commitment and
(ii) the Borrowing Base, then the Borrowers shall immediately pay the amount of
such excess to the Agent for the respective accounts of the Lenders for
application: first, to any Unpaid Reimbursement Obligations; second, to the
Loans; and third, to provide to the Agent cash collateral for Reimbursement
Obligations as contemplated by Section 4.2(b) and (c). Each payment of any
Unpaid Reimbursement Obligations or prepayment of Loans shall be allocated among
the Lenders, in proportion to each Reimbursement Obligation or (as the case may
be) the respective unpaid principal amount of each Lender's Note, with
adjustments to the extent practicable to equalize any prior payments or
repayments not exactly in proportion.
3.3. OPTIONAL REPAYMENTS OF LOANS. The Borrowers shall have the right, at
their election, to repay the outstanding amount of the Loans, as a whole or in
part, at any time and from time to time without penalty or premium, provided
that any full or partial prepayment of the outstanding amount of any Eurodollar
Rate Loans pursuant to this Section 3.3 may be made only on the last day of the
Interest Period relating thereto. The Borrowers shall give the Agent written
notice of any proposed prepayment no later than (i) 2:00 p.m., Boston time, on
the date of any proposed prepayment pursuant to this Section 3.3 of Base Rate
Loans, and (ii) 10:00 a.m., Boston time, at least three (3) Eurodollar Business
Days prior to any proposed prepayment pursuant to this Section 3.3 of Eurodollar
Rate Loans, in each case specifying the proposed date of prepayment of Loans and
the principal amount to be prepaid. Each such partial prepayment of Base Rate
Loans shall be in a minimum amount of $100,000, and each such partial prepayment
of Eurodollar Rate Loans shall be in a minimum amount of $1,000,000 or an
integral multiple of $500,000 in excess thereof and shall be accompanied by the
payment of accrued interest on the principal prepaid to the date of prepayment.
In the absence of instruction by the Borrowers, each such partial prepayment of
the Loans shall be applied first to the principal of Base Rate Loans and then to
the principal of Eurodollar Rate Loans. Each partial prepayment shall be
allocated among the Lenders, in proportion to the respective unpaid principal
amount of each Lender's Note, with adjustments to the extent practicable to
equalize any prior repayments not exactly in proportion. Notwithstanding the
notice and minimum requirements set forth in this Section 3.3, the Agent may, in
its sole discretion, allow the Borrowers to repay Base Rate Loans made by the
Agent in amounts as otherwise requested by the Borrowers.
4. LETTERS OF CREDIT.
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4.1. LETTER OF CREDIT COMMITMENTS.
4.1.1. COMMITMENT TO ISSUE LETTERS OF CREDIT. Subject to the terms
and conditions hereof and the execution and delivery by the Borrowers, or
either of them, of a letter of credit application on the Agent's
customary form (a "Letter of Credit Application"), the Agent on behalf of
the Lenders and in reliance upon the agreement of the Lenders set forth
in Section 4.1.4 and upon the representations and warranties of the
Borrowers contained herein, agrees, in its individual capacity, to issue,
extend and renew from time to time from the date hereof until but not
including the then scheduled Maturity Date, for the account of the
Borrowers, one or more standby or documentary letters of credit
(individually, a "Letter of Credit"), in such form as may be requested
from time to time by the Borrowers and agreed to by the Agent; provided,
however, that, after giving effect to such request, (a) the sum of the
aggregate Maximum Drawing Amount and all Unpaid Reimbursement Obligations
shall not exceed $30,000,000 at any one time and (b) the sum of (i) the
Maximum Drawing Amount on all Letters of Credit, (ii) all Unpaid
Reimbursement Obligations, and (iii) the amount of all Loans outstanding
shall not exceed the lesser of (A) the Total Commitment and (B) the
Borrowing Base. The letters of credit, if any, issued by the Agent for
the account of the Borrowers pursuant to the Prior Agreement and listed
on Schedule 4.1.1 hereto, shall, from and after the Closing Date,
constitute a Letter of Credit for all purposes of this Credit Agreement.
No Letter of Credit shall be issued, extended or renewed with an
expiration date occurring after the date which is 180 days following the
then scheduled Maturity Date or which provides for drafts which may be
paid after the date which is 180 days following the then scheduled
Maturity Date.
4.1.2. LETTER OF CREDIT APPLICATIONS. Each Letter of Credit
Application shall be completed to the reasonable satisfaction of the
Agent. In the event that any provision of any Letter of Credit
Application shall be inconsistent with any provision of this Credit
Agreement, then the provisions of this Credit Agreement shall, to the
extent of any such inconsistency, govern.
4.1.3. TERMS OF LETTERS OF CREDIT. Each Letter of Credit issued,
extended or renewed hereunder shall, among other things, be denominated
in Dollars and shall provide for the payment of sight drafts for honor
thereunder when presented in accordance with the terms thereof and when
accompanied by the documents described therein. Each Letter of Credit so
issued, extended or renewed shall be subject to the Uniform Customs.
4.1.4. REIMBURSEMENT OBLIGATIONS OF LENDERS. Each Lender severally
agrees that it shall be absolutely liable, without regard to the
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occurrence of any Default or Event of Default or any other condition
precedent whatsoever, to the extent of such Lender's Commitment
Percentage, to reimburse the Agent on demand for the amount of each draft
paid by the Agent under each Letter of Credit to the extent that such
amount is not reimbursed by the Borrowers pursuant to Section 4.2 (such
agreement for a Lender being called herein the "Letter of Credit
Participation" of such Lender).
4.1.5. PARTICIPATIONS OF LENDERS. Each such payment made by a
Lender shall be treated as the purchase by such Lender of a participating
interest in the Borrowers' Reimbursement Obligation under Section 4.2 in
an amount equal to such payment. Each Lender shall share in accordance
with its participating interest in any interest which accrues pursuant to
Section 4.2.
4.2. REIMBURSEMENT OBLIGATION OF THE BORROWERS. In order to induce the
Agent to issue, extend and renew each Letter of Credit and the Lenders to
participate therein, each of the Borrowers hereby jointly and severally agrees
to reimburse or pay to the Agent, for the account of the Agent or (as the case
may be) the Lenders, with respect to each Letter of Credit issued, extended or
renewed by the Agent hereunder,
(a) except as otherwise expressly provided in Section 4.2(b) and
(c), no later than the Business Day following each date that any draft
presented under such Letter of Credit is honored by the Agent (or, if
later, one day after the Agent has notified the Borrowers of its
intention to honor such draft), or the Agent otherwise makes a payment
with respect thereto, (i) the amount paid by the Agent under or with
respect to such Letter of Credit, and (ii) the amount of any taxes, fees,
charges or other reasonable costs and expenses whatsoever incurred by the
Agent or any Lender in connection with any payment made by the Agent or
any Lender under, or with respect to, such Letter of Credit,
(b) upon the reduction (but not termination) of the Total
Commitment to an amount less than the Maximum Drawing Amount, an amount
equal to such difference, which amount shall be held by the Agent for the
benefit of the Lenders and the Agent as cash collateral for all
Reimbursement Obligations, and
(c) upon the termination of the Total Commitment, or the
acceleration of the Reimbursement Obligations with respect to all Letters
of Credit in accordance with Section 13, an amount equal to the then
Maximum Drawing Amount on all Letters of Credit, which amount shall be
held by the Agent for the benefit of the Lenders and the Agent as cash
collateral for all Reimbursement Obligations.
Each such payment shall be made to the Agent at the Agent's Head Office in
immediately available funds. Interest on any and all amounts remaining unpaid by
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the Borrowers under this Section 4.2 at any time from the date such amounts
become due and payable (whether as stated in this Section 4.2, by acceleration
or otherwise) until payment in full (whether before or after judgment) shall be
payable to the Agent on demand at the rate specified in Section 5.11 for overdue
principal on the Loans.
4.3. LETTER OF CREDIT PAYMENTS. If any draft shall be presented or other
demand for payment shall be made under any Letter of Credit, the Agent shall
notify the Borrowers of the date and amount of the draft presented or demand for
payment and of the date and time when it expects to pay such draft or honor such
demand for payment. If the Borrowers fail to reimburse the Agent as provided in
Section 4.2 on or before the Business Day following the date that such draft is
paid or other payment is made by the Agent, the Agent may at any time thereafter
notify the Lenders of the amount of any such Unpaid Reimbursement Obligation. No
later than 3:00 p.m. (Boston time) on the Business Day next following the
receipt of such notice, each Lender shall make available to the Agent, at the
Agent's Head Office, in immediately available funds, such Lender's Commitment
Percentage of such Unpaid Reimbursement Obligation, together with an amount
equal to the product of (i) the average, computed for the period referred to in
clause (iii) below, of the weighted average interest rate paid by the Agent for
federal funds acquired by the Agent during each day included in such period,
times (ii) the amount equal to such Lender's Commitment Percentage of such
Unpaid Reimbursement Obligation, times (iii) a fraction, the numerator of which
is the number of days that elapse from and including the date the Agent paid the
draft presented for honor or otherwise made payment to the date on which such
Lender's Commitment Percentage of such Unpaid Reimbursement obligation shall
become immediately available to the Agent, and the denominator of which is 360.
The responsibility of the Agent to the Borrowers and the Lenders shall be only
to determine that the documents (including each draft) delivered under each
Letter of Credit in connection with such presentment shall be in conformity in
all material respects with such Letter of Credit.
4.4. OBLIGATIONS ABSOLUTE. The Borrowers' obligations under this Section
4 shall be absolute and unconditional under any and all circumstances and
irrespective of the occurrence of any Default or Event of Default or any
condition precedent whatsoever or any setoff, counterclaim or defense to payment
which the Borrowers may have or have had against the Agent, any Lender or any
beneficiary of a Letter of Credit. Each of the Borrowers further agrees with the
Agent and the Lenders that the Agent and the Lenders shall not be responsible
for, and the Borrowers' Reimbursement Obligations under Section 4.2 shall not be
affected by, among other things, the validity or genuineness of documents or of
any endorsements thereon, even if such documents should in fact prove to be in
any or all respects invalid, fraudulent or forged, or any dispute between or
among the Borrowers, the beneficiary of any Letter of Credit or any financing
institution or other party to which any Letter of Credit may be transferred or
any claims or defenses whatsoever of the Borrowers against the beneficiary of
any Letter of Credit or any such transferee. The Agent and the
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Lenders shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit. Each of the Borrowers
agrees that any action taken or omitted by the Agent or any Lender under or in
connection with each Letter of Credit and the related drafts and documents, if
done in good faith and without gross negligence, shall be binding upon the
Borrowers and shall not result in any liability on the part of the Agent or any
Lender to the Borrowers.
4.5. RELIANCE BY ISSUER. To the extent not inconsistent with Section 4.4,
the Agent shall be entitled to rely, and shall be fully protected in relying
upon, any Letter of Credit, draft, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document believed by it in good faith to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Agreement unless
it shall first have received such advice or concurrence of the Majority Lenders
as it reasonably deems appropriate or it shall first be indemnified to its
reasonable satisfaction by the Lenders against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement in accordance with a request of the
Majority Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon the Lenders and all future holders of the
Notes or of a Letter of Credit Participation.
4.6. LETTER OF CREDIT FEES. The Borrowers shall pay to the Agent (in each
case, a "Letter of Credit Fee") (a) for the accounts of the Lenders in
accordance with their respective Commitment Percentages, a commission on the
average daily aggregate Maximum Drawing Amount of all Letters of Credit then
outstanding at the Letter of Credit Fee Rate per annum payable quarterly in
arrears on the first Business Day of each quarter in which any Letters of Credit
shall have been or remain outstanding, and on the Maturity Date (including
Letter of Credit Fees relating to Letters of Credit expiring after the Maturity
Date), and (b) for the Agent's own account, such customary commissions, issuance
fees, transfer fees and other fees and charges in connection with the issuance
or administration of each Letter of Credit as the Borrowers and the Agent shall
agree.
4.7. CASH COLLATERAL FOR LETTERS OF CREDIT. Thirty days prior to the then
scheduled Maturity Date, the Borrowers shall, with respect to each Letter of
Credit then outstanding and pursuant to a cash collateral agreement (the "Cash
Collateral Agreement") in substantially the form of Exhibit D, (a) pay to the
Agent in cash for deposit into an interest bearing cash collateral account
established with the Agent (the "Letter of Credit Cash Collateral Account") an
amount equal to one hundred and
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two percent (102%) of the Maximum Drawing Amount of such Letter of Credit as of
such date, which amount shall be held by the Agent as cash collateral for any
Reimbursement Obligations or other obligations incurred with respect to such
Letter of Credit, or (b) deliver to the Agent a "back-to-back" letter of credit,
in form and substance reasonably satisfactory to the Agent, issued by a
financial institution reasonably satisfactory to the Agent and naming the Agent
as beneficiary in an amount equal to one hundred and two percent (102%) of the
Maximum Drawing Amount of such Letter of Credit as of such date. Any cash sums
deposited into the Letter of Credit Cash Collateral Account pursuant to clause
(a) and naming the Agent as beneficiary of this Section 4.7 shall be reduced or
released, and any back-to-back letter of credit issued pursuant to clause (b)
and naming the Agent as beneficiary of this Section 4.7 shall be reduced in
amount or returned, if and to the extent that the Maximum Drawing Amount with
respect to the applicable Letter of Credit has been reduced or such Letter of
Credit has expired or been cancelled and all Unpaid Reimbursement Obligations
and other amounts due or to become due with respect thereto have been paid.
5. CERTAIN GENERAL PROVISIONS.
5.1. FEE LETTERS. The Borrowers jointly and severally agree to pay (a)
all fees in accordance with the terms of the fee letter dated as of August 11,
1995 (the "FNBB Fee Letter"), among the Borrowers and FNBB, and (b) all fees in
accordance with the terms of each of the other fee letters entered into
separately by each of the other Lenders and the Borrowers on or about the
Closing Date (such other fee letters, together with the FNBB Fee Letter, the
"Fee Letters").
5.2. AGENT'S FEE. The Borrowers shall pay to the Agent annually in
advance, for the Agent's own account, on the Closing Date and on each
anniversary of the Closing Date, the Agent's fee in accordance with the terms of
the FNBB Fee Letter.
5.3. FUNDS FOR PAYMENTS.
5.3.1. PAYMENTS TO AGENT. All payments of principal, interest,
Reimbursement Obligations, commitment fees, Letter of Credit Fees and any
other amounts due hereunder or under any of the other Loan Documents
shall be made to the Agent, for the respective accounts of the Lenders
and the Agent, at the Agent's Head Office or at such other location in
the Boston, Massachusetts, area that the Agent may from time to time
designate, in each case in immediately available funds in Dollars.
5.3.2. NO OFFSET, ETC. All payments by the Borrowers hereunder and
under any of the other Loan Documents shall be made without setoff or
counterclaim and free and clear of and without deduction for any taxes,
levies, imposts, duties, charges, fees, deductions, withholdings,
compulsory loans, restrictions or conditions of any nature now or
hereafter imposed or levied by
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any jurisdiction or any political subdivision thereof or taxing or other
authority therein unless the Borrowers are compelled by law to make such
deduction or withholding, excluding, (i) in the case of each Lender and
the Agent, taxes imposed on its gross or net income, and franchise taxes
imposed on it by the jurisdiction under the laws of which such Lender or
the Agent (as the case may be) is organized or by any political
subdivision thereof or, in the case of each Lender, taxes imposed on its
gross or net income, and franchise taxes imposed on it by the
jurisdiction of such Lender's Applicable Lending Office, or any political
subdivision thereof and (ii) in the case of each Lender, United States
income tax or withholding (a "withholding tax") payable with respect to
payments hereunder or under the other Loan Documents under laws
(including, without limitation, any statute, treaty, ruling, court
decision, determination or regulation) in effect and being applied on the
Reference Date (as hereinafter defined); provided, however, that any
United States withholding tax payable as a result of any change in such
laws occurring after the Reference Date shall not be so excluded; and
provided further that if any payment by the Borrowers to the Agent or the
Lenders is charged with any United States withholding tax not in effect
on the Reference Date or if such withholding tax is increased subsequent
to the Reference Date, such withholding tax or increased withholding tax
shall not be deemed to result from a change in law within the meaning of
the preceding proviso if such payment is effectively connected with a
United States trade or business of the recipient subject to United States
income taxes thereon (all such non-excluded taxes, levies, imposts,
duties, charges, fees, deductions, withholdings and liabilities being
hereinafter referred to as "Taxes"). For purposes of this Section 5.3.2,
the term "Reference Date" shall mean, in the case of each Lender on the
Closing Date, the Closing Date and, in the case of each party who
subsequently becomes a Lender, the effective date of the Assignment and
Acceptance pursuant to which it became a Lender and, in the case of any
Lender that at any time changes its Applicable Lending Office for Base
Rate Loans or Eurodollar Rate Loans to a different nation from the nation
in which the Applicable Lending Office from which such Loans were made
prior to such time is located, the date of such change. If any Taxes
shall be required by law to be deducted from any amount payable hereunder
or under any other Loan Document, the Borrowers will pay to the Agent for
the account of the Lenders, on the date on which such amount is due and
payable hereunder or under such other Loan Document, such additional
amount in Dollars as shall be necessary to enable such Lenders or the
Agent to receive the same net amount which such Lenders or the Agent
would have received on such due date had no such deduction been imposed
upon the Borrowers; provided, however, that the Borrowers shall not be
required to pay any amounts pursuant to the preceding sentence to the
Agent with respect to any Lender organized under the laws of a
jurisdiction outside of the United States, if such deductions are caused
by the failure of such Lender to execute and deliver to
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the Borrowers any certificates, forms or other documents reasonably
requested by the Borrowers, which can be furnished consistent with the
facts and which are reasonably necessary to assist the Borrowers in
applying for refunds of taxes remitted hereunder or determining amounts
payable by the Borrowers under this Section 5.3.2. If the Borrowers have
paid any increased amounts to any Lender pursuant to this Section 5.3.2,
each Lender agrees that to the extent such Lender receives a refund
attributed to the taxes remitted by the Borrowers hereunder, such Lender
shall forward such refund to the Borrowers within thirty (30) days after
receipt by the Lender. The Borrowers will deliver promptly to the Agent
certificates or other valid vouchers for all taxes or other charges
deducted from or paid with respect to payments made by the Borrowers
hereunder or under such other Loan Document.
5.3.3. FOREIGN LENDERS. (a) Each Lender that is a party to this
Credit Agreement on the date hereof and that is not incorporated under
the laws of the United States of America or a state thereof agrees that
it will deliver to each of the Borrowers and the Agent, within seven (7)
Business Days after the Closing Date or, in the case of each Lender which
becomes a Lender pursuant to an Assignment and Acceptance, on the date
which such Assignment and Acceptance becomes effective, and only if it
can do so consistent with the facts, two duly completed copies of United
States Internal Revenue Service form 1001 or 4224 (or other applicable
form prescribed by the United States Internal Revenue Service), in each
case certifying whether such Lender is entitled to receive payments under
this Credit Agreement and the Notes without deduction or withholding of
any United States federal income taxes or at reduced withholding rates,
as applicable. Each such Lender which so delivers a Form 1001 or 4224 (or
other applicable form prescribed by the United States Internal Revenue
Service), and any lender that hereafter becomes a party to this Credit
Agreement, further undertakes to deliver to each of the Borrowers and the
Agent two additional copies of such form (or a successor form) on or
before the date that such form expires or becomes obsolete or as soon as
practicable after the occurrence of any event requiring a change in the
most recent form so delivered by it, and such amendments thereto or
extensions or renewals thereof as may be reasonably requested by the
Borrowers or the Agent, in each case certifying whether such Lender is
entitled to receive payments under this Credit Agreement and the Notes
without deduction or withholding of any United States federal income
taxes, unless an event (including without limitation any change in
treaty, law or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Lender from duly completing and
delivering any such form with respect to it and such Lender advises the
Borrowers and the Agent that it is not capable of receiving payments
without any deduction or withholding of United States federal income tax.
Unless the Borrowers and
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the Agent have received forms or other documents satisfactory to them
indicating that payments hereunder or under any of the other Loan
Documents are not subject to United States withholding tax or are subject
to such tax at a rate reduced by an applicable tax treaty, the Borrowers
or the Agent shall withhold taxes from such payments at the applicable
statutory rate in the case of payments to or for any Lender organized
under the laws of a jurisdiction outside the United States. If the
Borrowers or the Agent have received such forms or other documents
satisfactory to the Borrowers and the Agent, the Borrowers or the Agent
shall withhold United States withholding taxes from such payments to such
Lender only to the extent appropriate.
(b) Each Lender which is not incorporated under the laws of the
United States of America or a state thereof shall deliver to the
Borrowers on the Closing Date and prior to the last day of each calendar
year thereafter a duly executed Internal Revenue Service Form W-8 or W-9
or other appropriate Internal Revenue Service form, effective for the
succeeding calendar year.
5.3.4. APPLICABLE LENDING OFFICE. Any Lender claiming any
additional amounts payable pursuant to this Section 5.3 shall, to the
extent it can do so without incurring material additional costs, endeavor
(consistent with legal and regulatory restrictions) to change the
jurisdiction of its Applicable Lending Office if the making of such a
change would avoid the need for, or reduce the amount of, any such
additional amounts which may thereafter accrue.
5.4. COMPUTATIONS. All computations of interest on the Loans and of
commitment fees, Letter of Credit Fees or other fees shall, unless otherwise
expressly provided herein, be based on a 365 day year and paid for the actual
number of days elapsed; provided, however, that computations of interest on
Eurodollar Rate Loans shall be based on a 360 day year and paid for the actual
number of days elapsed. Except as otherwise provided in the definition of the
term "Interest Period" with respect to Eurodollar Rate Loans, whenever a payment
hereunder or under any of the other Loan Documents becomes due on a day that is
not a Business Day, the due date for such payment shall be extended to the next
succeeding Business Day, and interest shall accrue during such extension. The
outstanding amount of the Loans as reflected on the records of the Agent from
time to time shall be considered prima facie evidence of the outstanding amount
of the Loans owing by the Borrowers to the Lenders.
5.5. INABILITY TO DETERMINE EURODOLLAR RATE. In the event, prior to the
commencement of any Interest Period relating to any Eurodollar Rate Loan, the
Agent shall determine that adequate and reasonable methods do not exist for
ascertaining the Eurodollar Rate that would otherwise determine the rate of
interest
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to be applicable to any Eurodollar Rate Loan during any Interest Period, the
Agent shall forthwith give notice of such determination (which shall be
conclusive and binding on the Borrowers and the Lenders) to the Borrowers and
the Lenders. In such event (i) any Loan Request or Conversion Request with
respect to Eurodollar Rate Loans shall be automatically withdrawn and shall be
deemed a request for Base Rate Loans, (ii) each Eurodollar Rate Loan will
automatically, on the last day of the then current Interest Period relating
thereto, become a Base Rate Loan, and (iii) the obligations of the Lenders to
make Eurodollar Rate Loans shall be suspended until the Agent determines that
the circumstances giving rise to such suspension no longer exist, whereupon the
Agent shall so notify the Borrowers and the Lenders.
5.6. ILLEGALITY. Notwithstanding any other provisions herein, if any
present or future law, regulation, treaty or directive or in the interpretation
or application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Rate Loans, such Lender shall forthwith give notice of such
circumstances to the Borrowers and the other Lenders and thereupon (i) the
commitment of such Lender to make Eurodollar Rate Loans or convert Loans of
another Type to Eurodollar Rate Loans shall forthwith be suspended and (ii) such
Lender's Loans then outstanding as Eurodollar Rate Loans, if any, shall be
converted automatically to Base Rate Loans on the last day of each Interest
Period applicable to such Eurodollar Rate Loans or within such earlier period as
may be required by law. Each of the Borrowers hereby agrees promptly to pay the
Agent for the account of such Lender, upon demand by such Lender, any additional
amounts necessary to compensate such Lender for any costs reasonably incurred by
such Lender in making any conversion in accordance with this Section 5.6,
including any interest or fees payable by such Lender to lenders of funds
obtained by it in order to make or maintain its Eurodollar Rate Loans hereunder;
provided, however, that the Borrowers shall have no obligation to pay any
portion of such costs incurred by the Agent or (as the case may be) such Lender
more than sixty (60) days prior to any notice, given by the Agent or (as the
case may be) such Lender to the Borrowers, of the incurrence of such costs.
5.7. ADDITIONAL COSTS, ETC. If any present or future applicable law,
which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Lender or the Agent by any central bank or other fiscal,
monetary or other authority (whether or not having the force of law), shall:
(a) subject any Lender or the Agent to any tax, levy, impost,
duty, charge, fee, deduction or withholding of any nature with respect to
this Credit Agreement, any Letters of Credit, the other Loan Documents,
such Lender's
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Commitment or the Loans (other than taxes based upon or measured by the
income or profits of such Lender or the Agent), or
(b) materially change the basis of taxation (except for changes in
taxes on income or profits) of payments to any Lender of the principal of
or the interest on any Loans or any other amounts payable to any Lender
or the Agent under this Credit Agreement or any of the other Loan
Documents, or
(c) impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Credit Agreement) any
special deposit, reserve, assessment, liquidity, capital adequacy or
other similar requirements (whether or not having the force of law)
against assets held by, or deposits in or for the account of, or loans
by, or letters of credit issued by, or commitments of an office of any
Lender, or
(d) impose on any Lender or the Agent any other conditions or
requirements with respect to this Credit Agreement, any Letters of
Credit, the other Loan Documents, the Loans, such Lender's Commitment, or
any class of loans, letters of credit or commitments of which any of the
Loans or such Lender's Commitment forms a part, and the result of any of
the foregoing is
(i) to increase the cost to any Lender of making,
funding, issuing, renewing, extending or maintaining any of the
Loans or such Lender's Commitment or any Letter of Credit, or
(ii) to reduce the amount of principal, interest,
Reimbursement Obligation or other amounts payable to such Lender
or the Agent hereunder on account of such Lender's Commitment, any
Letter of Credit or any of the Loans, or
(iii) to require such Lender or the Agent to make any
payment or to forego any interest or Reimbursement Obligation or
other sum payable hereunder, the amount of which payment or
foregone interest or Reimbursement Obligation or other sum is
calculated by reference to the gross amount of any sum receivable
or deemed received by such Lender or the Agent from the Borrowers
hereunder,
then such Lender or the Agent (as the case may be) shall so notify the Borrowers
(which notice shall include a brief statement of the basis for the determination
thereof), and, to the extent that the costs of such change are not reflected in
the Base Rate, or other amounts charged to the Borrowers hereunder, the
Borrowers and such Lender or the Agent shall thereafter attempt to negotiate an
adjustment to the compensation payable hereunder which will adequately
compensate such Lender or the Agent for such additional cost, reduction, payment
or foregone interest or Reimbursement Obligation or other sum. If the Borrowers
and such Lender or the
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Agent (as the case may be) are unable to agree to such adjustment within
forty-five (45) days following the day on which the Borrowers receive such
notice (but not earlier than the effective date of any such change), then
commencing on the date of such notice, the amounts payable by the Borrowers
hereunder shall increase by an amount which will, in such Lender's or (as the
case may be) the Agent's reasonable determination, provide adequate compensation
for such additional cost, reduction, payment or foregone interest or
Reimbursement Obligation or other sum. In making any determinations contemplated
by this Section 5.7, any Lender or the Agent may make such reasonable estimates,
assumptions, allocations and the like as such Lender or the Agent in good faith
determines to be appropriate, and such Lender's or the Agent's selection thereof
and the determination made by it on the basis thereof, shall be final, binding
and conclusive on the Borrowers except, in the case of such determination, for
manifest errors in computations or transmission.
5.8. CAPITAL ADEQUACY. If after the date hereof any Lender or the Agent
determines that (i) the adoption of or change in any law, governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law) regarding capital requirements for banks or bank holding companies or any
change in the interpretation or application thereof by a court or governmental
authority with appropriate jurisdiction, or (ii) compliance by such Lender or
the Agent or any corporation controlling such Lender or the Agent with any law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) of any such entity regarding capital adequacy, has the
effect of reducing the return on such Lender's or the Agent's commitment with
respect to any Loans to a level below that which such Lender or the Agent could
have achieved but for such adoption, change or compliance (taking into
consideration such Lender's or the Agent's then existing policies with respect
to capital adequacy and assuming full utilization of such entity's capital) by
any amount deemed by such Lender or (as the case may be) the Agent to be
material, then such Lender or the Agent may notify the Borrowers of such fact.
To the extent that the amount of such reduction in the return on capital is not
reflected in the Base Rate or in other amounts payable hereunder, the Borrowers
agree to pay such Lender or (as the case may be) the Agent for the amount of
such reduction in the return on capital as and when such reduction is determined
upon presentation by such Lender or (as the case may be) the Agent of a
certificate in accordance with Section 5.9 hereof (but not earlier than the
effective date of any reduction). Nothing contained in this Section 5.8 shall be
deemed to require the Borrowers to pay the amount of any reduction in the return
on capital to the extent that the Borrowers have compensated such Lender or the
Agent for such reduction by paying additional costs pursuant to Section 5.7;
provided, further, that the Borrowers shall have no obligation to pay any
portion of the amount of any reduction in the return on capital incurred by such
Lender or (as the case may be) the Agent more than sixty (60) days prior to any
notice, given by such Lender or (as the case may be) the Agent to the Borrowers,
of the incurrence of such reduction in the return on capital.
<PAGE> 48
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5.9. CERTIFICATE. A certificate setting forth any additional amounts
payable pursuant to Section Section 5.7 or 5.8 and a brief explanation of such
amounts which are due, submitted by any Lender or the Agent to the Borrowers,
shall be conclusive, absent manifest error, that such amounts are due and owing.
5.10. INDEMNITY. The Borrowers jointly and severally agree to indemnify
each Lender and to hold each Lender harmless from and against any loss, cost or
expense (including loss of anticipated profits) that such Lender may sustain or
incur as a consequence of (i) default by the Borrowers in payment of the
principal amount of or any interest on any Eurodollar Rate Loans as and when due
and payable, including any such loss or expense arising from interest or fees
payable by such Lender to lenders of funds obtained by it in order to maintain
its Eurodollar Rate Loans, (ii) default by the Borrowers in making a borrowing
or conversion after the Borrowers have given (or are deemed to have given) a
Loan Request or a Conversion Request relating thereto in accordance with Section
2.6 or Section 2.7 or (iii) the making of any payment of a Eurodollar Rate Loan
or the making of any conversion of any such Loan to a Base Rate Loan on a day
that is not the last day of the applicable Interest Period with respect thereto,
including interest or fees payable by such Lender to lenders of funds obtained
by it in order to maintain any such Loans.
5.11. INTEREST AFTER DEFAULT. During the continuance of an Event of
Default, overdue principal on the Loans, (to the extent permitted by applicable
law) interest on the Loans, other overdue amounts payable hereunder, and
principal of the Loans not overdue shall, until such Event of Default has been
cured or remedied or such Event of Default has been waived by the Majority
Lenders pursuant to Section 26, bear interest at a rate per annum equal to two
percent (2%) above the Base Rate.
5.12. INTEREST LIMITATION. Notwithstanding any other term of this Credit
Agreement, any Note or any other Loan Documents, the maximum amount of interest
which may be charged to or collected from any Person liable hereunder or under
any Note by the Lenders, shall be absolutely limited to, and shall in no event
exceed, the maximum amount of interest (the "Maximum Rate") which could lawfully
be charged or collected under applicable law (including, to the extent
applicable, the provisions of Section 5197 of the Revised Statutes of the United
States of America, as amended, 12 U.S.C. Section 85, as amended), so that the
maximum of all amounts constituting interest under applicable law, howsoever
computed, shall never exceed as to any Person liable therefor the Maximum Rate,
and any term of this Credit Agreement, any Note or any other Loan Document which
could be construed as providing for interest in excess of such lawful maximum
shall be and hereby is made expressly subject to and modified by the provisions
of this paragraph. If, in any month, the effective interest rate on any amounts
owing pursuant to this Credit Agreement, the Notes or any of the other Loan
Documents, absent the Maximum Rate limitation contained herein, would have
exceeded the Maximum Rate, and if in any future month, such effective interest
rate would otherwise be less than the Maximum Rate,
<PAGE> 49
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then the effective interest rate for such month shall be increased to the
Maximum Rate until such time as the amount of interest paid hereunder equals the
amount of interest which would have been paid if the same had not been limited
by the Maximum Rate. In the event that a court of competent jurisdiction shall,
notwithstanding the provisions of this Section 5.12, determine that the Lenders
have received interest hereunder or under any of the Loan Documents in excess of
the Maximum Rate, such excess shall, to the extent permitted by applicable law,
be applied first to any interest not in excess of the Maximum Rate then due and
not yet paid, then to the outstanding principal of the Loans (without premium or
penalty), then to fees and any other unpaid Obligations and thereafter shall be
refunded to the Borrowers or as a court of competent jurisdiction may otherwise
order. In the event that, upon payment in full of the Obligations, the total
amount of interest paid or accrued under the terms of this Credit Agreement is
less than the total amount of interest which would have been paid or accrued had
the interest not been limited hereby to the Maximum Rate, then the Borrowers
shall, to the extent permitted by such applicable federal, state or other law,
pay to the Lenders hereunder or under the Notes an amount equal to the excess,
if any, of (a) the lesser of (i) the amount of interest which would have been
charged if the Maximum Rate had, at all times, been in effect with respect to
the Obligations hereunder or under the Notes and (ii) the amount of interest
which would have accrued had the applicable effective interest rate not been
limited hereunder by the Maximum Rate over (b) the amount of interest actually
paid or accrued under this Credit Agreement.
5.13. PERFORMANCE ADJUSTMENTS. Based upon, and following receipt by the
Lenders of (a) beginning with the Borrowers' financial statements as hereafter
described for the fiscal quarter of the Borrowers ending closest to July 31,
1996, (i) with respect to the first three fiscal quarters of each fiscal year,
the Borrowers' quarterly unaudited consolidated financial statements pursuant to
Section 8.4(b) and (ii) with respect to the last fiscal quarter of each fiscal
year, the Borrowers' annual audited consolidated financial statements pursuant
to Section 8.4(a), and (b) a certificate of the Borrowers setting forth
calculations of the financial information set forth below, (the Borrowers also
hereby agreeing to provide to the Agent, simultaneously with the delivery of
such certificate, telephonic notice of any Performance Adjustments based upon
such calculations), the Base Rate Applicable Margin, the Eurodollar Applicable
Margin, the Letter of Credit Fee Rate and the Commitment Fee Rate shall be
subject to possible adjustment in accordance with the provisions of this
paragraph (each such adjustment, a "Performance Adjustment"). Performance
Adjustments shall be effective (the date of the effectiveness of any Performance
Adjustment, a "Performance Adjustment Date") with respect to adjustments to the
Base Rate Applicable Margin, the Eurodollar Applicable Margin, the Letter of
Credit Fee Rate and the Commitment Fee Rate, three (3) Business Days following
receipt by the Agent of (x) (i) with respect to the first three fiscal quarters
of each fiscal year, the Borrowers'
<PAGE> 50
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quarterly unaudited consolidated financial statements pursuant to Section 8.4(b)
and (ii) with respect to the last fiscal quarter of each fiscal year, the
Borrowers' annual audited consolidated financial statements pursuant to Section
8.4(a), and (y) a certificate of the Borrowers setting forth calculations of the
financial information set forth below (the Borrowers also hereby agreeing to
provide to the Agent, simultaneously with the delivery of such certificate,
telephonic notice of any Performance Adjustments based upon such calculations).
The Base Rate Applicable Margin, the Eurodollar Applicable Margin, the Letter of
Credit Fee Rate and the Commitment Fee Rate with respect to any period following
any Performance Adjustment Date until the next succeeding Performance Adjustment
Date shall be as set forth in the table below on the line furthest down in such
table with respect to which the Borrowers shall have equaled or exceeded, for
the period of four consecutive fiscal quarters most recently ended, both the
minimum amount of Consolidated EBITDA and the minimum ratio of Consolidated
EBITDA to Consolidated Total Debt Service, set forth on such line in such table:
<TABLE>
<CAPTION>
CONSOLIDATED
EBITDA TO
CONSOLIDATED BASE RATE EURODOLLAR LETTER OF
CONSOLIDATED TOTAL DEBT APPLICABLE APPLICABLE CREDIT FEE COMMITMENT
EBITDA SERVICE RATIO MARGIN MARGIN RATE FEE RATE
- ------------ ------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$70MM 2.0:1.0 1.00% 2.25% 1.50% 0.50%
$90MM 3.0:1.0 0.75% 2.00% 1.25% 0.375%
$100MM 3.5:1.0 0.25% 1.75% 1.00% 0.375%
$120MM 4.5:1.0 0.00% 1.50% 0.75% 0.250%
</TABLE>
5.14. CONCERNING JOINT AND SEVERAL LIABILITY OF THE BORROWERS.
(a) Each of the Borrowers is accepting joint and several liability
hereunder and under the other Loan Documents in consideration of the
financial accommodations to be provided by the Lenders and the Agent
under this Credit Agreement, for the mutual benefit, directly and
indirectly, of each of the Borrowers and in consideration of the
undertakings of the other Borrower to accept joint and several liability
for the Obligations.
(b) Each of the Borrowers, jointly and severally, hereby
irrevocably and unconditionally accepts, not merely as a surety but also
as a co-debtor, joint and several liability with the other Borrower, with
respect to the payment and performance of all of the Obligations
(including, without limitation, any Obligations arising under this
Section 5.14), it being the intention of the parties hereto that all the
Obligations shall be the joint and several obligations of each of the
Borrowers without preferences or distinction among them.
(c) If and to the extent that either of the Borrowers shall fail
to make any payment with respect to any of the Obligations as and when
due or to perform any of the Obligations in accordance with the terms
thereof, then in each such event the other Borrower will make such
payment with respect to, or perform, such Obligation.
<PAGE> 51
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(d) The Obligations of each of the Borrowers under the provisions
of this Section 5.14 constitute the full recourse Obligations of each of
the Borrowers enforceable against each such corporation to the full
extent of its properties and assets, irrespective of the validity,
regularity or enforceability of this Credit Agreement or the other Loan
Documents or any other circumstance whatsoever as to the other Borrower.
(e) Except as otherwise expressly provided herein, each Borrower
hereby waives promptness, diligence, presentment, demand, protest, notice
of acceptance of its joint and several liability, notice of any and all
advances of the Loans made under this Credit Agreement and the Notes,
notice of occurrence of any Default or Event of Default (except to the
extent notice is expressly required to be given pursuant to the terms of
this Credit Agreement or any of the other Loan Documents), or of any
demand for any payment under this Credit Agreement, and notice of any
action at any time taken or omitted by the Agent or the Lenders under or
in respect of any of the Obligations hereunder. Each Borrower hereby
waives all defenses which may be available by virtue of any valuation,
stay, moratorium law or other similar law now or hereafter in effect, any
right to require the marshaling of assets of the Borrowers and any other
entity or Person primarily or secondarily liable with respect to any of
the Obligations, and all suretyship defenses generally. Each Borrower
hereby assents to, and waives notice of, any extension or postponement of
the time for the payment, or place or manner for payment, compromise,
refinancing, consolidation or renewals of any of the Obligations
hereunder, the acceptance of any partial payment thereon, any waiver,
consent or other action or acquiescence by the Agent and the Lenders at
any time or times in respect of any default by either Borrower in the
performance or satisfaction of any term, covenant, condition or provision
of this Credit Agreement and the other Loan Documents, any and all other
indulgences whatsoever by the Agent and the Lenders in respect of any of
the Obligations hereunder, and the taking, addition, substitution or
release, in whole or in part, at any time or times, of any security for
any of such Obligations or the addition, substitution or release, in
whole or in part, of either Borrower or any other entity or Person
primarily or secondarily liable for any Obligation. Such Borrower further
agrees that its Obligations shall not be released or discharged, in whole
or in part, or otherwise affected by the adequacy of any rights which the
Agent or any Lender may have against any collateral security or other
means of obtaining repayment of any of the Obligations, the impairment of
any collateral security securing the Obligations, including, without
limitation, the failure to protect or preserve any rights which the Agent
or any Lender may have in such collateral security or the substitution,
exchange, surrender, release, loss or destruction of any such collateral
security, any other act or omission which might in any manner or to any
extent vary the risk of such Borrower, or otherwise operate as a release
or
<PAGE> 52
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discharge of such Borrower, all of which may be done without notice to
such Borrower; provided, however, that the foregoing shall in no way be
deemed to create commercially unreasonable standards as to the Agent's
duties as secured party under the Loan Documents (as such rights and
duties are set forth therein). If for any reason either of the Borrowers
has no legal existence or is under no legal obligation to discharge any
of the Obligations, or if any of the Obligations have become
irrecoverable from either of the Borrowers by reason of such Borrower's
insolvency, bankruptcy or reorganization or by other operation of law or
for any reason, this Credit Agreement and the other Loan Documents to
which it is a party shall nevertheless be binding on the other Borrower
to the same extent as if such Borrower at all times had been the sole
obligor on such Obligations. Without limiting the generality of the
foregoing, each Borrower assents to any other action or delay in acting
or failure to act on the part of the Agent and the Lenders, including,
without limitation, any failure strictly or diligently to assert any
right or to pursue any remedy or to comply fully with applicable laws or
regulations thereunder which might, but for the provisions of this
Section 5.14, afford grounds for terminating, discharging or relieving
such Borrower, in whole or in part, from any of its obligations under
this Section 5.14, it being the intention of each Borrower that, so long
as any of the Obligations hereunder remain unsatisfied, the obligations
of such Borrower under this Section 5.14 shall not be discharged except
by performance and then only to the extent of such performance. The
Obligations of each Borrower under this Section 5.14 shall not be
diminished or rendered unenforceable by any winding up, reorganization,
arrangement, liquidation, reconstruction or similar proceeding with
respect to either Borrower, or any of the Lenders. The joint and several
liability of the Borrowers hereunder shall continue in full force and
effect notwithstanding any absorption, merger, amalgamation or any other
change whatsoever in the name, ownership, membership, constitution or
place of formation of either Borrower or the Lenders. Each of the
Borrowers acknowledges and confirms that it has itself established its
own adequate means of obtaining from the other Borrower on a continuing
basis all information desired by such Borrower concerning the financial
condition of the other Borrower and that each such Borrower will look to
the other Borrower and not to the Agent or any Lender in order for such
Borrower to keep adequately informed of changes in the other Borrower's
financial condition.
(f) The provisions of this Section 5.14 are made for the benefit
of the Lenders and the Agent and their respective successors and assigns,
and may be enforced by it or them from time to time against either or
both of the Borrowers as often as occasion therefor may arise and without
requirement on the part of the Lenders or the Agent or such successor or
assign first to marshall any of its or their claims or to exercise any of
its or their rights against the other Borrower or to exhaust any remedies
available to it or them
<PAGE> 53
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against the other Borrower or to resort to any other source or means of
obtaining payment of any of the Obligations hereunder or to elect any
other remedy. The provisions of this Section 5.14 shall remain in effect
until all of the Obligations shall have been paid in full or otherwise
fully satisfied. If at any time, any payment, or any part thereof, made
in respect of any of the Obligations, is rescinded or must otherwise be
restored or returned by any Lender or the Agent upon the insolvency,
bankruptcy or reorganization of either of the Borrowers, or otherwise,
the provisions of this Section 5.14 will forthwith be reinstated in
effect, as though such payment had not been made.
(g) Each of the Borrowers hereby agrees that it will not enforce
any of its rights of reimbursement, contribution, subrogation or the like
against the other Borrower with respect to any liability incurred by it
hereunder or under any of the other Loan Documents, any payments made by
it to any of the Lenders or the Agent with respect to any of the
Obligations or any collateral security therefor until such time as all of
the Obligations have been irrevocably paid in full in cash. Any claim
which either Borrower may have against the other Borrower with respect to
any payments to the Lenders or the Agent hereunder or under any other
Loan Documents are hereby expressly made subordinate and junior in right
of payment, without limitation as to any increases in the Obligations
arising hereunder or thereunder, to the prior payment in full of the
Obligations and, in the event of any insolvency, bankruptcy,
receivership, liquidation, reorganization or other similar proceeding
under the laws of any jurisdiction relating to either Borrower, its debts
or its assets, whether voluntary or involuntary, all such Obligations
shall be paid in full before any payment or distribution of any
character, whether in cash, securities or other property, shall be made
to the other Borrower therefor.
(h) Each of the Borrowers hereby agrees that the payment of any
amounts due with respect to the indebtedness owing by either Borrower to
the other Borrower is hereby subordinated to the prior payment in full in
cash of the Obligations. Each Borrower hereby agrees that after the
occurrence and during the continuance of any Default or Event of Default,
such Borrower will not demand, sue for or otherwise attempt to collect
any indebtedness of the other Borrower owing to such Borrower until the
Obligations shall have been paid in full in cash. If, notwithstanding the
foregoing sentence, such Borrower shall collect, enforce or receive any
amounts in respect of such indebtedness, such amounts shall be collected,
enforced and received by such Borrower as trustee for the Agent and be
paid over to the Agent for the pro rata accounts of the Lenders to be
applied to repay the Obligations.
<PAGE> 54
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6. COLLATERAL SECURITY.
6.1. SECURITY OF BORROWERS. The Obligations shall be secured by a
perfected first priority security interest (subject only to Permitted Liens
entitled to priority under applicable law) in the following assets, whether now
owned or hereafter acquired, pursuant to the terms of the Security Documents:
(a) at all times prior to the payment in full in cash of all of the Debenture
Debt, substantially all of the assets of the Borrowers and the Designated
Subsidiaries, whether now owned or hereafter acquired, but excluding (i)
inventory on consignment from trade vendors and proceeds of such inventory in
which such trade vendors have a perfected security interest, up to the cost
thereof to such Borrower or such Designated Subsidiary, (ii) subject to the
requirements of Section 6.2 below, all ZFT Receivables transferred by such
Borrower or such Designated Subsidiary to ZFT pursuant to the Receivables
Securitization Facility Documents, and (iii) retail store leases, and (b) at all
times following the payment in full in cash of all of the Debenture Debt, (i)
all inventory of the Borrowers (but excluding inventory on consignment from
trade vendors and proceeds of such inventory in which such trade vendors have a
perfected security interest, up to the cost thereof to the Borrowers), (ii) all
accounts, including accounts receivable, of the Borrowers (but excluding,
subject to the requirements of Section 6.2 below, all ZFT Receivables
transferred by the Borrowers to ZFT pursuant to the Receivables Securitization
Facility Documents) and (iii) all Indebtedness of the Designated Subsidiaries to
the Borrowers. In addition, without in any way limiting the foregoing, the
Borrowers may elect to have the Obligations secured, following the payment in
full in cash of the Debenture Debt, by first priority (subject only to Permitted
Liens entitled to priority under applicable law) perfected security interests in
the inventory of Zale Puerto Rico and/or Dobbins pursuant to collateral security
arrangements and documents reasonably satisfactory in form and substance to the
Agent, including without limitation, such documents which the Agent shall deem
necessary or advisable to obtain or perfect such security interests under the
laws of Puerto Rico and/or Guam, and the Agent agrees to take all reasonable
steps to cooperate with the Borrowers in establishing such collateral security
arrangements.
6.2. ZFT RECEIVABLES. As more fully described in the Security Documents,
the Lenders shall have no right, title or interest in or to any ZFT Receivables
which, prior to the occurrence of a Receivables Release Termination Date, have
been transferred to ZFT or any Receivables Securitization Subsidiary; provided,
however, that nothing contained herein or in the Security Documents shall be
deemed to constitute a release of or in any way negate the security interest of
the Agent, for the benefit of the Lenders, in (a) any rights which the Borrowers
may have under the Receivables Securitization Facility Documents, and (b) any
accounts, or any proceeds or products thereof, transferred to ZFT following the
occurrence of any Receivables Release Termination Date; and provided, further,
that the foregoing shall in no way limit the Agent's rights to, and the Agent
shall have a security interest in, all proceeds from the sale of ZFT Receivables
to ZFT or any other Receivables Securitization
<PAGE> 55
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Subsidiary to which the Borrowers are entitled under the Receivables
Securitization Facility Documents.
6.3. RELEASES OF SECURITY.
(a) Upon the payment in full in cash of the Debenture Debt, so
long as no Default or Event of Default shall have occurred and be
continuing, the Joint Collateral Security Agreement, the Mortgages, the
Trademark Assignments, the Trademark Security Agreement, the Stock Pledge
Agreements, and the Puerto Rican Security Documents shall automatically,
and without the requirement for any action on the part of any party
thereto, terminate and thereafter be of no force or effect whatsoever,
and, within thirty (30) days following a request by the Borrowers to the
Collateral Agent following the payment in full in cash of the Debenture
Debt, so long as no Default or Event of Default shall have occurred and
be continuing, the Collateral Agent shall execute and deliver to the
Borrowers all such documents, agreements, instruments and releases and
take such other and further action as the Borrowers, or either of them,
may reasonably request and as are necessary to evidence the full and
final release of all liens, claims, charges, security interests,
mortgages and encumbrances which the Collateral Agent has in any property
of any of the Borrowers or the Designated Subsidiaries other than the
property which is intended to constitute security following the payment
in full of the Debenture Debt as provided by Section 6.1 hereof and by
the Lender Security Agreement, including, without limitation, execution,
delivery and filing of partial releases or amendments of Uniform
Commercial Code financing statements; redelivery of all certificates
representing pledged stock or trust certificates, notes and any other
instruments delivered to the Collateral Agent; execution, delivery and
filing of the appropriate document or documents to release the security
interest under the Trademark Assignments and the Trademark Security
Agreement; and execution, delivery and filing of mortgage discharges or
other documents sufficient to evidence the release of the Mortgages.
(b) The Agent, the Collateral Agent and the Lenders hereby agree,
so long as no Default or Event of Default shall have occurred and be
continuing, to release their security interests in any and all of the
agreed upon collateral described in Section 6.1 above within thirty days
after the Agent, the Collateral Agent and the Lenders shall have received
from the Borrowers evidence reasonably satisfactory to the Agent, the
Collateral Agent and the Lenders in all respects (the "Collateral Release
Date") of the occurrence of either of the following events:
<PAGE> 56
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(i) the Borrowers shall have an implied Senior Debt Rating
of either BBB-, if rated by Standard & Poor's Corporation, or
Baa3, if rated by Moody's Investors Services, Inc.; or
(ii) as of two consecutive fiscal quarter ending dates,
with respect to the respective periods of four consecutive fiscal
quarters of Zale and its Subsidiaries ending on such fiscal
quarter ending dates, Zale and its Subsidiaries, on a consolidated
basis, shall have both (i) Consolidated EBITDA of at least
$100,000,000 for each of such two periods of four consecutive
fiscal quarters, and (ii) a ratio of Consolidated EBITDA to
Consolidated Total Debt Service of at least 3.5 to 1.0 for each of
such two periods of four consecutive fiscal quarters.
Following the occurrence of the Collateral Release Date, within thirty
(30) days of any request therefor of the Borrowers, or either of them,
the Collateral Agent shall execute and deliver to the Borrowers all such
documents, agreements, instruments and releases and take such other and
further action as the Borrowers, or either of them, may reasonably
request and as are necessary to evidence the full and final release of
all liens, claims, charges, security interests, mortgages and
encumbrances which the Collateral Agent has in any property of any of the
Borrowers or the Designated Subsidiaries, including, without limitation,
execution, delivery and filing of termination statements with respect to
Uniform Commercial Code financing statements.
Notwithstanding the foregoing provisions of this Section 6.3, following any such
releases of collateral security pursuant to this Section 6.3, the prohibition on
the Borrowers' and the Designated Subsidiaries' ability to grant liens or
encumbrances on any of their assets, as set forth more fully in Section 9.2
below, shall continue to apply.
7. REPRESENTATIONS AND WARRANTIES.
The Borrowers represent and warrant to the Lenders and the Agent as
follows:
7.1. CORPORATE AUTHORITY.
7.1.1. INCORPORATION; GOOD STANDING. Each of the Borrowers and the
Designated Subsidiaries (i) is a corporation duly organized, validly
existing and in good standing under the laws of its state or jurisdiction
of incorporation, (ii) has all requisite corporate power to own its
property and conduct its business as now conducted and as presently
contemplated, and (iii) is in good standing as a foreign corporation and
is duly authorized to do business in each jurisdiction where such
qualification is necessary except where a failure to be so qualified
would not have a materially adverse effect
<PAGE> 57
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on the business, assets or financial condition of the Borrowers and the
Designated Subsidiaries considered as a whole.
7.1.2. AUTHORIZATION. The execution, delivery and performance of
this Credit Agreement and the other Loan Documents to which either of the
Borrowers is or is to become a party and the transactions contemplated
hereby and thereby (i) are within the corporate authority of such Person,
(ii) have been duly authorized by all necessary corporate proceedings,
(iii) do not violate or result in any breach or contravention of any
provision of law, statute, rule or regulation to which either of the
Borrowers is subject or any judgment, order, writ, injunction, license or
permit applicable to either of the Borrowers, in each case where such
violation, breach or contravention would reasonably be expected to have a
materially adverse effect on the business or financial condition of the
Borrowers and the Designated Subsidiaries, considered as a whole, or on
the ability of either of the Borrowers to perform its obligations
hereunder or under any of the other Loan Documents, and (iv) do not
violate any provision of the corporate charter or bylaws of, or any
agreement or other instrument binding upon, either of the Borrowers.
7.1.3. ENFORCEABILITY. The execution and delivery of this Credit
Agreement and the other Loan Documents to which either of the Borrowers
is or is to become a party will result in valid and legally binding
obligations of such Person enforceable against it in accordance with the
respective terms and provisions hereof and thereof, except as
enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the
enforcement of creditors' rights and except to the extent that
availability of the remedy of specific performance or injunctive relief
is subject to the discretion of the court before which any proceeding
therefor may be brought.
7.2. GOVERNMENTAL APPROVALS. The execution, delivery and performance by
the Borrowers of this Credit Agreement and the other Loan Documents to which
either of the Borrowers is or is to become a party and the transactions
contemplated hereby and thereby do not require the approval or consent of, or
filing with, any governmental agency or authority other than those already
obtained.
7.3. TITLE TO PROPERTIES; LEASES. Except as indicated on Schedule 7.3
hereto, the Borrowers and the Designated Subsidiaries own all of the assets
reflected in the consolidated balance sheet of Zale and its Subsidiaries as at
the Balance Sheet Date or acquired since that date (except property and assets
sold or otherwise disposed of in the ordinary course of business and other
property sold as permitted by Section 9.5.2 hereof since that date), subject to
no rights of others, including any mortgages, leases, conditional sales
agreements, title retention agreements, liens or other encumbrances except
Permitted Liens.
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7.4. FINANCIAL STATEMENTS AND PROJECTIONS.
7.4.1. FINANCIAL STATEMENTS. There have been furnished to each of
the Lenders (a) a consolidated balance sheet of Zale and its Subsidiaries
as at the Balance Sheet Date, and a consolidated statement of income and
consolidated statement of cash flow of Zale and its Subsidiaries for the
fiscal year then ended, certified by Arthur Andersen & Co. and (b) an
unaudited consolidated balance sheet of Zale and its Subsidiaries as at
April 30, 1995, and an unaudited consolidated statement of income and
consolidated statement of cash flow of Zale and its Subsidiaries for the
period of three fiscal quarters then ended. Such balance sheets,
statements of income and statements of cash flow have been prepared in
accordance with generally accepted accounting principles and fairly
present the financial condition of Zale and its Subsidiaries as at the
close of business on the dates thereof and the results of operations for
the periods then ended, subject, in the case of such unaudited
consolidated balance sheet, unaudited consolidated statement of income
and unaudited consolidated statement of cash flow, to year-end
adjustments, and except that there are no notes to such financial
statements. There are no contingent liabilities of Zale or any of its
Subsidiaries as of such dates involving material amounts, known to the
officers of either of the Borrowers, which were not disclosed in such
balance sheets and the notes related thereto.
7.4.2. PROJECTIONS. The projections of the annual operating
budgets of Zale and its Subsidiaries on a consolidated basis, balance
sheets and cash flow statements for the 1996 to 1998 fiscal years, copies
of which have been delivered to each Lender, have been prepared in good
faith, are based upon estimates and assumptions which the Borrowers deem
reasonable as of the date hereof, have been prepared on the basis of the
assumptions stated therein and reflect the reasonable estimates of Zale
and its Subsidiaries of the results of operations and other information
projected therein.
7.5. NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date there has
occurred no materially adverse change in the financial condition or business of
the Borrowers and the Designated Subsidiaries as shown on or reflected in the
consolidated balance sheet of Zale and its Subsidiaries as at the Balance Sheet
Date, or the consolidated statement of income for the fiscal year then ended,
other than changes in the ordinary course of business that have not had any
materially adverse effect on the business or financial condition of the
Borrowers and the Designated Subsidiaries considered as a whole. Except as
contemplated by the Plan and with respect to the Litigation Entity, since the
Balance Sheet Date, none of the Borrowers or the Designated Subsidiaries has
made any Distribution other than Distributions permitted by the Prior Credit
Agreement or by Section 9.4 hereof.
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7.6. FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each of the Borrowers and the
Designated Subsidiaries possesses all franchises, patents, copyrights,
trademarks, trade names, licenses and permits, and rights in respect of the
foregoing, adequate for the conduct of its business substantially as now
conducted without known conflict with any rights of others except where the
failure to possess any such franchise, patent, copyright, trademark, trade name,
license, permit or right, or where such conflict, would not reasonably be
expected to have a materially adverse effect on the business or financial
condition of the Borrowers and the Designated Subsidiaries considered as a
whole.
7.7. LITIGATION. Except as set forth in Schedule 7.7 hereto or as
otherwise disclosed in writing by the Borrowers to the Agent and the Lenders,
there are no actions, suits, proceedings or investigations of any kind pending
or threatened against any of the Borrowers or the Designated Subsidiaries before
any court, tribunal or administrative agency or board that, if adversely
determined, (i) would reasonably be expected to, either in any case or in the
aggregate, materially adversely affect the properties, assets, financial
condition or business of the Borrowers and the Designated Subsidiaries,
considered as a whole, or materially impair the right of the Borrowers and the
Designated Subsidiaries, considered as a whole, to carry on business
substantially as now conducted by them, or (ii) would reasonably be expected to
result in the making of any cash payments by any of the Borrowers or the
Designated Subsidiaries or any combination of any of the Borrowers or the
Designated Subsidiaries in excess of $1,000,000 in any single case or $5,000,000
in the aggregate, which payment or payments is or are (A) not adequately covered
by insurance, (B) not adequately reserved against on the consolidated balance
sheet of Zale and its Subsidiaries, or (C) not able to be discharged in any
manner other than through the making of a cash payment, or (iii) which question
the validity of this Credit Agreement or any of the other Loan Documents, or any
action taken or to be taken pursuant hereto or thereto.
7.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. None of the Borrowers or any
Designated Subsidiary is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that has or is
expected in the future to have a materially adverse effect on the business,
assets or financial condition of the Borrowers and the Designated Subsidiaries,
considered as a whole. None of the Borrowers or any Designated Subsidiary is a
party to any contract or agreement that has or is expected, in the judgment of
the Borrowers' officers, to have any materially adverse effect on the business
of the Borrowers and the Designated Subsidiaries considered as a whole.
7.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. None of the Borrowers
or any Designated Subsidiary is in violation of any provision of its charter
documents, bylaws, or any agreement or instrument to which it may be subject or
by which it or any of its properties may be bound or any decree, order,
judgment,
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statute, license, rule or regulation, in any of the foregoing cases in a manner
that would reasonably be expected to materially and adversely affect the
financial condition, properties or business of the Borrowers and the Designated
Subsidiaries considered as a whole.
7.10. TAX STATUS. Except as set forth on Schedule 7.10 hereto, each of
the Borrowers and the Designated Subsidiaries (i) have made or filed all federal
and state income and all other tax returns, reports and declarations required by
any jurisdiction to which any of them is subject, except where the failure to so
file would not reasonably be expected to have a materially adverse effect on the
business or financial condition of the Borrowers and the Designated Subsidiaries
considered as a whole, (ii) have paid all taxes and other governmental
assessments and charges shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith and by appropriate
proceedings and (iii) have set aside on their books provisions reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. Except as set forth on
Schedule 7.10 hereto, and except for those being contested in good faith by
appropriate proceedings for which adequate reserves have been taken, there are
no unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Borrowers know of no basis for any
such claim.
7.11. NO EVENT OF DEFAULT. No Default or Event of Default has occurred
and is continuing.
7.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. None of the Borrowers
or any Designated Subsidiary is a "holding company", or a "subsidiary company"
of a "holding company", or an affiliate" of a "holding company", as such terms
are defined in the Public Utility Holding Company Act of 1935; nor is it an
"investment company", or an "affiliated company" or a "principal underwriter" of
an "investment company", as such terms are defined in the Investment Company Act
of 1940.
7.13. ABSENCE OF FINANCING STATEMENTS, ETC. Except with respect to
Permitted Liens, there is no financing statement signed by any of the Borrowers
or the Designated Subsidiaries, security agreement, chattel mortgage, real
estate mortgage or other document filed or to be filed following the Closing
Date or recorded with any filing records, registry or other public office, that
purports to cover, affect or give notice of any present or possible future lien
on, or security interest in, any assets or property of any of the Borrowers or
the Designated Subsidiaries or any rights relating thereto.
7.14. PERFECTION OF SECURITY INTEREST. Other than filings, notices or
other actions which may be required to perfect the security interests granted by
the Security Documents in deposit accounts which are not Store Concentration
Accounts,
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all filings, assignments, pledges and deposits of documents or instruments have
been made and all other actions have been taken that are necessary, under
applicable law, to establish and perfect the Collateral Agent's security
interest in the Collateral. The Collateral and the Collateral Agent's rights
with respect to the Collateral are not subject to any setoff, claims,
withholdings or other defenses, except, with respect to Collateral consisting of
accounts or "layaway inventory", for setoffs, claims, withholdings or other
defenses in the ordinary course of the Borrowers' business. The Borrowers and/or
the Designated Subsidiaries are the owners of the Collateral free from any lien,
security interest, encumbrance and any other claim or demand, except for
Permitted Liens.
7.15. CERTAIN TRANSACTIONS. Except for transactions set forth on Schedule
7.15 hereto and other arm's length transactions pursuant to which any of the
Borrowers or the Designated Subsidiaries makes payments in the ordinary course
of business upon terms no less favorable than such Borrower or such Designated
Subsidiary could obtain from third parties, none of the officers, directors, or
employees of any of the Borrowers or the Designated Subsidiaries is presently a
party to any transaction with any of the Borrowers or the Designated
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Borrowers, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
7.16. EMPLOYEE BENEFIT PLANS.
7.16.1. IN GENERAL. Each Employee Benefit Plan has been maintained
and operated in compliance in all material respects with the provisions
of ERISA and, to the extent applicable, the Code, including but not
limited to the provisions thereunder respecting prohibited transactions.
The Borrowers have heretofore delivered to the Agent the most recently
completed, prior to the date hereof, annual report, Form 5500, with all
required attachments, and actuarial statement required to be submitted
under Section 103(d) of ERISA, with respect to each Guaranteed Pension
Plan.
7.16.2. TERMINABILITY OF WELFARE PLANS. Under each Employee
Benefit Plan which is an employee welfare benefit plan within the meaning
of Section 3(1) or Section 3(2)(B) of ERISA, no benefits are due unless
the event giving rise to the benefit entitlement occurs prior to plan
termination (except as required by Title I, Part 6 of ERISA). One of the
Borrowers or an ERISA Affiliate, as appropriate, may terminate each such
Employee Benefit Plan at any time (or at any time subsequent to the
expiration of any applicable bargaining
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agreement) in the discretion of such Borrower or such ERISA Affiliate
without liability to any Person, except for benefit entitlements which
have occurred prior to such termination.
7.16.3. GUARANTEED PENSION PLANS. Each contribution required to be
made to a Guaranteed Pension Plan to avoid the incurrence of an
accumulated funding deficiency or the notice or lien provisions of
Section 302(f) of ERISA, and each other material contribution required to
be made to a Guaranteed Pension Plan, has been timely made. No waiver of
an accumulated funding deficiency or extension of amortization periods
has been received with respect to any Guaranteed Pension Plan. No
liability to the PBGC (other than required insurance premiums, all of
which have been paid) has been incurred by either of the Borrowers or any
ERISA Affiliate with respect to any Guaranteed Pension Plan and there has
not been any ERISA Reportable Event, or any other event or condition
which presents a material risk of termination of any Guaranteed Pension
Plan by the PBGC. Based on the latest valuation of each Guaranteed
Pension Plan (which in each case occurred within twelve months of the
date of this representation), and on the actuarial methods and
assumptions employed for that valuation, the aggregate benefit
liabilities of all such Guaranteed Pension Plans within the meaning of
Section 4001 of ERISA did not exceed the aggregate value of the assets of
all such Guaranteed Pension Plans, disregarding for this purpose the
benefit liabilities and assets of any Guaranteed Pension Plan with assets
in excess of benefit liabilities, by more than $1,000,000.
7.16.4. MULTIEMPLOYER PLANS. Neither the Borrowers nor any ERISA
Affiliate has incurred any material liability (including secondary
liability) to any Multiemployer Plan as a result of a complete or partial
withdrawal from such Multiemployer Plan under Section 4201 of ERISA or as
a result of a sale of assets described in Section 4204 of ERISA. Neither
the Borrowers nor any ERISA Affiliate has been notified that any
Multiemployer Plan is in reorganization or insolvent under and within the
meaning of Section 4241 or Section 4245 of ERISA or that any
Multiemployer Plan intends to terminate or has been terminated under
Section 4041A of ERISA.
7.17. REGULATIONS U AND X. The proceeds of the Loans shall be used to
refinance the Borrowers' obligations under the Prior Credit Agreement, for
repurchasing certain warrants with respect to the capital stock of Zale as
permitted hereby, for working capital and general corporate purposes, and, to
the extent necessary, to pay all or a portion of the outstanding amounts due in
respect of the Debentures (including prepayment premiums). The Borrowers will
obtain Letters of Credit solely for working capital and general corporate
purposes. Except with respect to repurchases by Zale of certain warrants with
respect to its capital stock as permitted by Section 9.4(b) hereof, no portion
of
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any Letter of Credit is to be obtained, for the purpose of purchasing or
carrying any "margin security" or "margin stock" as such terms are used in
Regulations U and X of the Board of Governors of the Federal Reserve System, 12
C.F.R. Parts 221 and 224.
7.18. ENVIRONMENTAL COMPLIANCE.
The Borrowers have taken all reasonable steps to investigate the past
and present condition and usage of the Real Estate and the operations conducted
thereon and, based upon such diligent investigation, has determined that:
(a) none of the Borrowers, the Designated Subsidiaries or any
operator of the Real Estate or any operations thereon is in violation,
or alleged violation, of any judgment, decree, order, law, license,
rule or regulation pertaining to environmental matters, including
without limitation, those arising under the Resource Conservation and
Recovery Act ("RCRA"), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the
Federal Clean Water Act, the Federal Clean Air Act, the Toxic
Substances Control Act, or any state or local statute, regulation,
ordinance, order or decree relating to health, safety or the
environment (hereinafter "Environmental Laws"), which violation would
reasonably be expected to have a materially adverse effect on the
business or financial condition of the Borrowers and the Designated
Subsidiaries considered as a whole;
(b) except as set forth on Schedule 7.18 attached hereto or in
the financial reports delivered to the Securities and Exchange
Commission and also provided to the Agent and the Lenders pursuant to
Section 8.4 or as otherwise disclosed in writing to the Agent and the
Lenders, none of the Borrowers or the Designated Subsidiaries has
received notice from any third party including, without limitation, any
federal, state or local governmental authority, (i) that any one of
them has been identified by the United States Environmental Protection
Agency ("EPA") as a potentially responsible party under CERCLA with
respect to a site listed on the National Priorities List, 40 C.F.R.
Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42
U.S.C. Section 6903(5), any hazardous substances as defined by 42
U.S.C. Section 9601(14), any pollutant or contaminant as defined by 42
U.S.C. Section 9601(33) and any toxic substances, oil or hazardous
materials or other chemicals or substances regulated by any
Environmental Laws ("Hazardous Substances") which any one of them has
generated, transported or disposed of has been found at any site at
which a federal, state or local agency or other third party has
conducted or has ordered that any of the Borrowers or the Designated
Subsidiaries conduct a remedial investigation, removal or other
response action pursuant to any Environmental Law; or (iii) that it is
or shall be a
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named party to any claim, action, cause of action, complaint, or legal
or administrative proceeding (in each case, contingent or otherwise)
arising out of any third party's incurrence of costs, expenses, losses
or damages of any kind whatsoever in connection with the release of
Hazardous Substances;
(c) except as set forth on Schedule 7.18 attached hereto or in
the financial reports delivered to the Securities and Exchange
Commission and also provided to the Agent and the Lenders pursuant to
Section 8.4: (i) no portion of the Real Estate has been used, by either
Borrower or any Designated Subsidiary, or, to the Best of the
Borrowers' knowledge, any other Person, for the handling, processing,
storage or disposal of Hazardous Substances in violation of applicable
Environmental Laws which violation would reasonably be expected to have
a materially adverse effect on the business or financial condition of
the Borrowers and the Designated Subsidiaries considered as a whole;
and no underground tank or other underground storage receptacle for
Hazardous Substances is located on any portion of the Real Estate; (ii)
in the course of any activities conducted by the Borrowers, the
Designated Subsidiaries or operators of any of the Borrowers or the
Designated Subsidiaries' properties, no Hazardous Substances have been
generated or are being used on the Real Estate in violation of
applicable Environmental Laws which violation would reasonably be
expected to have a materially adverse effect on the business or
financial condition of the Borrowers and the Designated Subsidiaries
considered as a whole; (iii) there have been no releases (i.e. any past
or present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, disposing or dumping) or
threatened releases of Hazardous Substances on, upon, into or from the
properties of any of the Borrowers or the Designated Subsidiaries,
which releases would reasonably be expected to have a materially
adverse effect on the business or financial condition of the Borrowers
and the Designated Subsidiaries considered as a whole; (iv) to the best
of the Borrowers' knowledge, there have been no releases on, upon, from
or into any real property in the vicinity of any of the Real Estate
which, through soil or groundwater contamination, may have come to be
located on, and which would reasonably be expected to have a materially
adverse effect on the business or financial condition of the Borrowers
and the Designated Subsidiaries considered as a whole; and (v) in
addition, any Hazardous Substances that have been generated on any of
the Real Estate have, to the extent required by applicable law, been
transported offsite only by carriers having an identification number
issued by the EPA, treated or disposed of only by treatment or disposal
facilities maintaining valid permits as required under applicable
Environmental Laws, which transporters and facilities have been and
are, to the best of the Borrowers' knowledge, operating in compliance
with such permits and applicable Environmental Laws; and
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(d) Based upon current or currently anticipated use of any
Real Estate, none of the Borrowers or the Designated Subsidiaries is
required under any applicable environmental law to perform Hazardous
Substances site assessments, or to undertake the removal or remediation
of Hazardous Substances at the Real Estate, or to give notice to any
governmental agency or undertake the recording or delivery to other
Persons of an environmental disclosure document or statement by virtue
of the transactions set forth herein and contemplated hereby, or as a
condition to the effectiveness of any other transactions contemplated
hereby.
7.19. SUBSIDIARIES, ETC. Schedule 7.19 hereto sets forth a true and
accurate description of the corporate structure and ownership of Zale and its
Subsidiaries. The Subsidiaries set forth on Schedule 7.19 hereto are the only
Subsidiaries of Zale and Zale Delaware. Except as set forth on Schedule 7.19
hereto, neither of the Borrowers nor any Subsidiary of either of the Borrowers
is engaged in any joint venture or partnership with any other Person.
7.20. BANK ACCOUNTS. Schedule 7.20 sets forth the Store
Concentration Accounts of each of the Borrowers and the Designated Subsidiaries.
7.21. ASSET LOCATIONS. Schedule 7.21 sets forth all locations other
than Permitted Inventory Locations at which assets, including inventory, of each
of the Borrowers and the Designated Subsidiaries are located. The aggregate book
value as of the Closing Date of all of the assets of Zale Puerto Rico and
Dobbins does not exceed $15,000,000.
8. AFFIRMATIVE COVENANTS OF THE BORROWERS.
Each of the Borrowers covenants and agrees that, so long as any Loan,
Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding or any
Lender has any obligation to make any Loans or the Agent has any obligation to
issue, extend or renew any Letters of Credit:
8.1. PUNCTUAL PAYMENT. The Borrowers will duly and punctually pay,
within any applicable grace periods, or cause to be paid the principal and
interest on the Loans, all Reimbursement Obligations, the Letter of Credit Fees,
the commitment fees, the Agent's fee and all other amounts provided for in this
Credit Agreement and the other Loan Documents to which either of the Borrowers
is a party, all in accordance with the terms of this Credit Agreement and such
other Loan Documents.
8.2. MAINTENANCE OF OFFICE. Each of the Borrowers will maintain its
chief executive office at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003, or
at such other place in the United States of America as the Borrowers shall
designate upon 30 days' prior written notice to the Agent, where notices,
presentations and demands to
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or upon the Borrowers in respect of the Loan Documents to which either of the
Borrowers is a party may be given or made.
8.3. RECORDS AND ACCOUNTS. Each of the Borrowers will (i) keep, and
cause each of the Designated Subsidiaries to keep, true and accurate records and
books of account in which full, true and correct entries will be made in
accordance with generally accepted accounting principles and (ii) maintain
adequate accounts and reserves for all taxes (including income taxes),
depreciation, depletion, obsolescence and amortization of its properties and the
properties of the Designated Subsidiaries, and contingencies.
8.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. Each of the
Borrowers will deliver to each of the Agent and the Lenders:
(a) as soon as practicable, but in any event not later than
one hundred (100) days after the end of each fiscal year of Zale, (i)
the consolidated balance sheet of Zale and its Subsidiaries as at the
end of such year, and the related consolidated statement of income and
consolidated statement of cash flow for such year, each setting forth
in comparative form the figures for the previous fiscal year and all
such consolidated statements to be in reasonable detail, prepared in
accordance with generally accepted accounting principles, and each of
such financial statements certified without qualification by Arthur
Andersen LLP or by another "big six" accounting firm or by other
independent certified public accountants reasonably satisfactory to the
Agent, and (ii) the annual 10-K reports of Zale filed with the
Securities and Exchange Commission;
(b) as soon as practicable, but in any event not later than
fifty (50) days after the end of each of the first three fiscal
quarters of each fiscal year of Zale, (i) copies of the unaudited
consolidated balance sheet of Zale and its Subsidiaries as at the end
of such quarter, and the related consolidated statement of income for
such quarter and for the portion of Zale's fiscal year then elapsed,
and the related consolidated statement of cash flow for the portion of
Zale's fiscal year then elapsed, all in reasonable detail and prepared
in accordance with generally accepted accounting principles, (ii) a
certification by such Financial Officer of each of the Borrowers that
the information contained in such management financial statements
fairly presents the financial position of Zale and its Subsidiaries on
the date thereof (subject to year-end adjustments), (iii) a narrative
discussion of the operating results of the Borrowers and each of their
divisions for the fiscal quarter most recently ended and the year to
date, as compared with the comparable period of the previous year, and
of the Borrowers' liquidity and capital resources at the end of such
period, and (iv) the quarterly 10-Q reports of Zale filed with the
Securities and Exchange Commission;
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(c) as soon as practicable, but in any event within thirty
(30) days after the end of each fiscal month which is not the last
month of a fiscal quarter of Zale, (i) unaudited monthly consolidated
balance sheet of Zale and its Subsidiaries as at the end of such fiscal
month, the related consolidated statement of income for such fiscal
month and for the portion of Zale's fiscal year then elapsed, and the
related consolidated statement of cash flow for the portion of Zale's
fiscal year then elapsed, each prepared by management of Zale on a
basis consistent with its method (existing as of the Closing Date) of
preparing management financial statements, and (ii) a certification by
a Financial Officer of each of the Borrowers that the information
contained in such management financial statements fairly presents the
financial condition of Zale and its Subsidiaries on the date thereof
(subject to year-end adjustments);
(d) (i) simultaneously with the delivery of the management
prepared financial statements referred to in subsections (b) and (c)
above, a variance report comparing, for each period (including the
portion of the fiscal year to date) covered by such financial
statements, such financial statements with (A) the annual budget of the
Borrowers, and (B) the financial statements of the Borrowers for the
comparable period during the prior fiscal year of the Borrowers, and
(ii) simultaneously with the delivery of the financial statements
referred to in subsections (a) and (b) above, a statement certified by
a Financial Officer of each of the Borrowers in substantially the form
of Exhibit E hereto and setting forth in reasonable detail computations
evidencing compliance with the covenants contained in Section 10 (and
including calculations with respect to the financial information
required by Section 5.13 in connection with possible Performance
Adjustments) and (if applicable) reconciliations to reflect changes in
generally accepted accounting principles since the Balance Sheet Date;
(e) within ten (10) Business Days after the filing or mailing
thereof, copies of all material reports of a financial nature filed by
either of the Borrowers with the Securities and Exchange Commission or
sent to the stockholders of Zale (other than the annual 10-K reports
and the quarterly 10-Q reports of Zale delivered pursuant to Sections
8.4(a) and (b), respectively);
(f) monthly within thirty (30) days after the end of each
fiscal month, a Borrowing Base Report, in the form of Exhibit A hereto,
setting forth (i) the amount of Eligible Inventory and (ii) the
Borrowing Base, each as at the end of the fiscal month most recently
ended, together with supporting schedules and documentation, with each
such Borrowing Base Report to be accompanied by a certification by a
Financial Officer of each of the Borrowers that the information
contained in such Borrowing Base Report is true and accurate in all
material respects;
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(g) within thirty (30) days after the end of each fiscal
month, the monthly "Settlement Statement" of ZFT (the "Receivables
Purchase Report") for the immediately preceding fiscal month, prepared
in accordance with the requirements of the Receivables Securitization
Facility Documents and such other information with respect to purchase
and sale of ZFT Receivables pursuant to the Receivables Securitization
Facility Documents as the Agent shall request in the exercise of its
reasonable discretion;
(h) as soon as practicable and in any event by the fiftieth
(50th) day following the end of each fiscal quarter, the quarterly
performance package of JFS describing yields, delinquencies and such
other information relating to the performance of all accounts
receivable of Zale and its Subsidiaries, including ZFT Receivables, as
the Agent shall request;
(i) as soon as is practicable and in no event less frequently
than on an annual basis no later than sixty (60) days following the end
of each fiscal year of the Borrowers, the Borrowers shall deliver their
business plan, including the assumptions used in the preparation of
such business plan; and
(j) from time to time such other financial data and
information (including accountants and management letters) as the Agent
or any Lender may reasonably request.
8.5. NOTICES.
8.5.1. DEFAULTS. Each of the Borrowers will promptly notify
the Agent and each of the Lenders in writing of the occurrence of any
Default or Event of Default of which an officer of either of the
Borrowers has knowledge. If any Person shall give any notice or take
any other action in respect of a claimed default (whether or not
constituting an Event of Default) under this Credit Agreement or under
any other note, evidence of indebtedness, indenture or other obligation
to which or with respect to which either of the Borrowers or any of the
Designated Subsidiaries is a party or obligor, whether as principal,
guarantor, surety or otherwise, and, in the case of any such other
note, evidence of indebtedness, indenture or other obligation, such
claimed default involves the payment of $250,000 or more, the Borrowers
shall forthwith give written notice thereof to the Agent and each of
the Lenders, describing the notice or action and the nature of the
claimed default.
8.5.2. ENVIRONMENTAL EVENTS. Each of the Borrowers will
give notice to the Collateral Agent, the Agent and each of the Lenders,
within thirty (30) days (i) of any violation of any Environmental Law
that any of the Borrowers or the Designated Subsidiaries reports in
writing or is reportable by such Person in writing (or for which any
written report supplemental to any oral report is made) to any federal,
state or local environmental agency which
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violation would reasonably be expected to have a materially adverse
effect on the business or financial condition of the Borrowers and the
Designated Subsidiaries considered as a whole and (ii) after an officer
of either of the Borrowers becomes or should have become aware thereof,
of any inquiry, proceeding, investigation, or other action, including a
notice from any agency of potential environmental liability, of any
federal, state or local environmental agency or board, that would
reasonably be expected to have a materially adverse effect on the
business or financial condition of the Borrowers and the Designated
Subsidiaries considered as a whole.
8.5.3. NOTIFICATION OF CLAIMS AGAINST COLLATERAL. Each of
the Borrowers will, within fifteen (15) days after an officer of either
of the Borrowers becomes or should have become aware thereof, notify
the Collateral Agent, the Agent and each of the Lenders in writing of
any setoff, claims (including, with respect to the Real Estate,
environmental claims), withholdings or other defenses to which any of
the Collateral, or the Collateral Agent's rights with respect to the
Collateral, are subject other than any setoff, claim or other defense
in the ordinary course of the Borrowers' business with respect to the
Collateral which would not have a materially adverse effect on the
business or financial condition of the Borrowers and the Designated
Subsidiaries considered as a whole. Each of the Borrowers will,
promptly after an officer of either of the Borrowers becomes or should
have become aware thereof, notify each of the Collateral Agent, the
Agent and the Lenders in writing of any proposed sale or transfer of
any Permitted Inventory Location by the owner thereof.
8.5.4. NOTICE OF LITIGATION AND JUDGMENTS. Each of the
Borrowers will, and will cause each of the Designated Subsidiaries to,
give notice to the Agent and each of the Lenders in writing within
fifteen (15) days after an officer of either of the Borrowers becomes
aware of any litigation or proceedings threatened in writing or any
pending litigation and proceedings affecting any of the Borrowers or
the Designated Subsidiaries or to which any of the Borrowers or the
Designated Subsidiaries is or becomes a party involving an uninsured
claim against any of the Borrowers or the Designated Subsidiaries that
could reasonably be expected to have a materially adverse effect on the
Borrowers and the Designated Subsidiaries, considered as a whole, and
stating the nature and status of such litigation or proceedings. Each
of the Borrowers will, and will cause each of the Designated
Subsidiaries to, give notice to the Agent and each of the Lenders, in
writing, in form and detail reasonably satisfactory to the Agent,
within ten (10) days of any judgment not covered by insurance, final or
otherwise, against any of the Borrowers or the Designated Subsidiaries
in an amount in excess of $1,000,000.
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8.5.5. PERMITTED INVENTORY LOCATIONS. The Borrowers will
deliver to the Agent, within thirty (30) days following the end of each
fiscal month of the Borrowers, a supplement to Schedule 2 hereto,
updating the list of retail stores and distribution centers of Zale
Delaware and the Designated Subsidiaries located in the United States,
Puerto Rico and Guam, which supplement, together with Schedule 2 hereto
and any prior supplements, shall be deemed to constitute Schedule 2 for
all purposes of this Credit Agreement.
8.6. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. Each of the
Borrowers will do or cause to be done all things necessary to preserve and keep
in full force and effect its (except as otherwise permitted by Section 9.5
hereof) corporate existence, and its rights and franchises and those of the
Designated Subsidiaries and will not, and will not cause or permit any of the
Designated Subsidiaries to, convert to a limited liability company. Each of the
Borrowers (i) will cause all of its material properties and those of the
Designated Subsidiaries used or useful in the conduct of its business or the
business of its Subsidiaries to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment, (ii) will, within
thirty (30) days of any need therefor, cause to be made or, if not practicable
to be completed within such thirty (30) day period, commenced (so long as such
Borrower or Designated Subsidiary diligently causes and continues to cause to be
made) all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Borrowers may be necessary
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times, and (iii) will, and will cause each of
the Designated Subsidiaries to, continue to engage primarily in the businesses
now conducted by them and in related businesses; provided that nothing in this
Section 8.6 shall prevent the Borrowers from discontinuing the operation and
maintenance of any of its properties or any of those of the Designated
Subsidiaries if such discontinuance is, in the judgment of either of the boards
of directors of the Borrowers, desirable in the conduct of its or their business
and that do not in the aggregate materially adversely affect the business of the
Borrowers and the Designated Subsidiaries on a consolidated basis.
8.7. INSURANCE.
8.7.1. INSURANCE. Each of the Borrowers will, and will
cause each of the Designated Subsidiaries to, maintain with
financially sound and reputable insurers insurance with respect to
its properties and business against such casualties and contingencies
as shall be in accordance with the general practices of businesses
engaged in similar activities in similar geographic areas and in
amounts, containing such terms, in such forms and for such periods as
may be reasonable and prudent and in accordance with the terms of the
Security Documents.
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8.7.2. EVIDENCE OF INSURANCE. Contemporaneously with the
execution of this Credit Agreement, and within fifteen (15) days of any
date when any additional or replacement insurance coverage is obtained
to the extent provided in the Lender Security Agreement, each of the
Borrowers and each of the Designated Subsidiaries, as the case may be,
shall deliver to the Collateral Agent true copies of certificates of
insurance with respect to such additional insurance or replacement
policies and, upon request and to the extent not previously delivered
to the Collateral Agent, copies of the original insurance policies
evidencing such additional or replacement insurance, which certificates
and policies (i) in the case of property and casualty policies, shall
contain an endorsement or rider naming the Collateral Agent, for the
benefit of the Lenders and the Agent, as a loss payee and additional
insured, and (ii) in the case of liability policies, shall contain an
endorsement or rider naming the Collateral Agent, for the benefit of
the Lenders and the Agent, as an additional insured, with each such
policy providing that such insurance shall not be canceled or amended
without thirty (30) days prior written notice to the Collateral Agent.
8.8. TAXES. Except as to amounts which, in the aggregate, are not
material in amount, each of the Borrowers will, and will cause each of the
Designated Subsidiaries to, duly pay and discharge, or cause to be paid and
discharged, before the same shall become overdue, all federal, state, local and
foreign taxes, levies, assessments and other governmental charges imposed upon
it and its real properties, sales and activities, or any part thereof, or upon
the income or profits therefrom, as well as all claims for labor, materials, or
supplies that if unpaid might by law become a lien or charge upon any of its
property; provided that any such tax, assessment, charge, levy or claim need not
be paid if the validity or amount thereof shall currently be contested in good
faith by appropriate proceedings and if such Borrower or such Designated
Subsidiary shall have set aside on its books adequate reserves with respect
thereto; and provided further that, unless a stay is in effect, each of the
Borrowers and each Designated Subsidiary will pay all such taxes, assessments,
charges, levies or claims forthwith upon the commencement of proceedings to
foreclose any lien that may have attached as security therefor.
8.9. INSPECTION OF PROPERTIES AND BOOKS, ETC.
8.9.1. GENERAL. Each of the Borrowers will permit the Agent
and its agents (including consultants), during regular business hours,
to visit the premises of any of the Borrowers or the Designated
Subsidiaries, confer with officers of any of the Borrowers or the
Designated Subsidiaries and representatives of any of the Borrowers or
the Designated Subsidiaries, review all of the books and records of any
of the Borrowers or the Designated Subsidiaries (to the extent not
privileged, and if any materials are privileged, subject to the Agent's
ability to discuss with any of the Borrowers or the
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Designated Subsidiaries and their professional advisors the matters
covered by such privileged materials) and conduct examinations and
verifications of the components of the Borrowing Base, the other assets
of any of the Borrowers or the Designated Subsidiaries and all systems
and procedures of any of the Borrowers or the Designated Subsidiaries,
including those relating to cash management.
8.9.2. COLLATERAL REPORTS. No more frequently than once
each calendar year, or more frequently as reasonably determined by the
Agent if an Event of Default shall have occurred and be continuing,
upon the request of the Agent, the Borrowers will obtain and deliver
to the Agent a report of an independent collateral auditor or appraiser
satisfactory to the Agent (which auditor or appraiser may be affiliated
with one of the Lenders) with respect to the inventory components
included in the Borrowing Base, which report shall indicate (i) whether
or not the information set forth in the Borrowing Base Report most
recently delivered is accurate and complete in all material respects
based upon a review by such auditor of the inventory (including
verification as to the value, location and respective types) or (ii) in
the case of an appraisal report by a collateral appraiser, shall state
the then current fair market, orderly liquidation and forced
liquidation values of all or any portion of the inventory owned by the
Borrowers. All such collateral value reports shall be conducted and
made at the expense of the Borrowers.
8.9.3. COMMUNICATIONS WITH ACCOUNTANTS. Each of the
Borrowers authorizes the Agent and, if accompanied by the Agent, the
Lenders to communicate directly with the Borrowers' independent
certified public accountants and authorizes such accountants to
disclose to the Agent and the Lenders any and all financial statements
and other supporting financial documents and schedules including copies
of any management letter with respect to the business and financial
condition of any of the Borrowers or the Designated Subsidiaries. At
the request of the Agent, the Borrowers shall deliver a letter
addressed to such accountants instructing them to comply with the
provisions of this Section 8.9.3.
8.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS.
Each of the Borrowers will, and will cause each of the Designated Subsidiaries
to, (a) comply with (unless failure to so comply would not have a materially
adverse effect on the business or financial condition of the Borrowers and the
Designated Subsidiaries considered as a whole) (i) the applicable laws and
regulations wherever its business is conducted, including all Environmental
Laws, (ii) all agreements and instruments by which it or any of its properties
may be bound and (iii) all applicable decrees, orders, and judgments, and (b)
comply with the provisions of its charter documents and by-laws. If any
authorization, consent, approval, permit or license from any officer, agency or
instrumentality of any government shall become necessary or
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required in order that either of the Borrowers may fulfill any of its
obligations hereunder or under any of the other Loan Documents to which either
of the Borrowers is a party, the Borrowers will promptly take or cause to be
taken all reasonable steps within the power of the Borrowers to obtain such
authorization, consent, approval, permit or license and furnish the Agent and
the Lenders with evidence thereof.
8.11. EMPLOYEE BENEFIT PLANS. The Borrowers will (i) promptly upon
any request of the Agent therefor, furnish to the Agent a copy of the most
recent actuarial statement required to be submitted under Section 103(d) of
ERISA and Annual Report, Form 5500, with all required attachments, in respect of
each Guaranteed Pension Plan and (ii) within ten (10) days of receipt or
dispatch, furnish to the Agent any notice, report or demand sent or received in
respect of a Guaranteed Pension Plan under Sections 302, 4041, 4042, 4043, 4063,
4065, 4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under
Sections 4041A, 4202, 4219, 4242, or 4245 of ERISA.
8.12. USE OF PROCEEDS. The Borrowers will use the proceeds of the
Loans solely for refinancing the Borrowers' obligations under the Prior Credit
Agreement, for repurchasing certain warrants with respect to the capital stock
of Zale as permitted hereby, for working capital and general corporate purposes,
and, to the extent necessary, to pay all or a portion of the outstanding amounts
due in respect of the Debentures (including prepayment premiums). The Borrowers
will obtain Letters of Credit solely for working capital and general corporate
purposes.
8.13. BANK ACCOUNTS.
(a) The Borrowers will (i) maintain in place their existing
concentration accounts established in connection with the Prior Credit
Agreement (such accounts, other than existing concentration accounts
for the receipt of proceeds of ZFT Receivables, the "FNBB Concentration
Accounts") under the control of the Agent for the benefit of the
Lenders, in the name of Zale Delaware, (ii) direct Corestates Bank,
N.A. or another depository institution satisfactory to the Agent,
pursuant to the Concentration Account Agreement (whereby CoreStates
Bank, N.A. or such other depository institution shall, among other
things, waive any right of set off, other than for service charges and
returns incurred in connection therewith), following written notice
given by the Agent to such depository institution of the occurrence of
an Event of Default (with a copy of such notice being given to the
Borrowers), to cause all funds (other than proceeds of ZFT Receivables
which constitute Store Payments (as defined in the Receivables
Securitization Facility Documents)) held by Corestates Bank, N.A. or
such other depository institution in accounts for, or on behalf of,
either of the Borrowers (the "Store Concentration Accounts") in excess
of (A) during each period beginning on November 15 of each calendar
year and ending on (and including) January 15
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of the immediately following calendar year, $150,000, and (B) during
each period beginning on January 16 of each calendar year and ending on
(and including) November 14 of such calendar year, $75,000, to be
transferred daily to, and only to, the FNBB Concentration Accounts,
(iii) cause all proceeds from the sale of inventory and other amounts
obtained by either of the Borrowers to be deposited into the local
depository accounts of the Borrowers and the Designated Subsidiaries
(the "Local Depository Accounts") or into the corporate depository
accounts of the Borrowers (the "Corporate Depository Accounts"), (iv)
cause all funds in the Local Depository Accounts to be transferred, at
least every three (3) Business Days, to the Store Concentration
Accounts (excluding nominal amounts not in excess of $1,000 in any such
Local Depository Account and funds representing returned ACH
transfers), (v) cause all funds in (A) each Corporate Depository
Account with respect to which the depository institution shall have
entered into an agency agreement reasonably satisfactory in all
respects to the Agent and the Lenders, to be transferred, on each
Business Day following any written notice given by the Agent to such
depository institution of the occurrence of an Event of Default (with a
copy of such notice being given to the Borrowers), to the FNBB
Concentration Accounts (excluding funds up to an aggregate of $100,000
which were not transferred to the FNBB Concentration Accounts at the
close of business on such Business Day as a result of human or
mechanical error), and (B) each Corporate Depository Account not
subject to such an agency agreement described in clause (A) above, to
be transferred on each Business Day to the FNBB Concentration Accounts
(excluding funds up to an aggregate of $100,000 which were not
transferred to the FNBB Concentration Accounts at the close of business
on such Business Day as a result of human or mechanical error), (vi)
direct the Receivables Purchase Agent to comply with the Receivables
Purchase Payment Instructions, and (vii) at all times ensure that,
within eight (8) days following either Borrower's receipt of any cash
or cash equivalents or any other proceeds of Collateral, (A) following
notice given by the Agent to Corestates Bank, N.A. or another
depository institution of the occurrence of an Event of Default as
described in clause (ii) above, all amounts (other than proceeds of ZFT
Receivables) shall have been deposited in the FNBB Concentration
Accounts and (B) proceeds of ZFT Receivables shall have been
transferred to accounts other than the FNBB Concentration Accounts, the
Store Concentration Account or the Local Depository Accounts.
(b) Each of the Borrowers hereby agrees that all amounts
belonging to the Borrowers and received by the Agent in the FNBB
Concentration Accounts, other than proceeds of consigned inventory, may
be applied, following the occurrence and during the continuance of an
Event of Default, in accordance with Section 13.5.
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8.14. INVENTORY RESTRICTIONS. Each of the Borrowers shall cause all
Eligible Inventory to be located at all times solely at Permitted Inventory
Locations, and to be sold or otherwise disposed of in the ordinary course of
such Borrower's business, consistent with past practices or as required pursuant
to the terms of this Credit Agreement.
8.15. FURTHER ASSURANCES. Each of the Borrowers will cooperate with
the Collateral Agent, the Lenders and the Agent and execute such further
instruments and documents as the Collateral Agent, the Lenders or the Agent
shall reasonably request to carry out to their reasonable satisfaction the
transactions contemplated by this Credit Agreement and the other Loan Documents
(a) promptly following request therefor with respect to instruments and
documents reasonably deemed necessary or appropriate by the Collateral Agent to
cause or maintain the perfection or priority of the Collateral Agent's lien or
security interest in the Collateral, and (b) within fifteen (15) days following
request therefor with respect to any other documents or instruments reasonably
deemed necessary or appropriate by the Collateral Agent or the Agent to carry
out the transactions contemplated by this Credit Agreement and the other Loan
Documents.
8.16. CLEANDOWN. Following a Collateral Release Date, the Borrowers
shall, for a period of forty-five consecutive days between November 1 and
February 28 of each fiscal year of the Borrowers following such release, reduce
the outstanding Loans to an amount not in excess of $50,000,000.
9. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS.
Each of the Borrowers covenants and agrees that, so long as any Loan,
Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding or any
Lender has any obligation to make any Loans or the Agent has any obligations to
issue, extend or renew any Letters of Credit:
9.1. RESTRICTIONS ON INDEBTEDNESS. The Borrowers will not, and will
not permit any of the Designated Subsidiaries to, create, incur, assume,
guarantee or be or remain liable, contingently or otherwise, with respect to any
Indebtedness other than:
(a) Indebtedness to the Lenders, the Agent and the
Collateral Agent arising under any of the Loan Documents;
(b) current liabilities of such Borrower or such Designated
Subsidiary incurred in the ordinary course of business, including,
without limitation, obligations owed to customers arising out of
layaway transactions, not incurred through (i) the borrowing of money,
or (ii) the obtaining of credit except for credit on an open account
basis customarily extended and in fact extended in connection with
normal purchases of goods and services;
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(c) with the consent of the Agent, upon consultation with the
Lenders, such consent not to be unreasonably withheld, Indebtedness in
respect of swap agreements, futures contracts, derivatives and the
like;
(d) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and
supplies to the extent that payment therefor shall not at the time be
required to be made in accordance with the provisions of Section 8.8;
(e) Indebtedness in respect of judgments or awards that have
been in force for less than the applicable period for taking an appeal
so long as execution is not levied thereunder or in respect of which
any of the Borrowers or the Designated Subsidiaries shall at the time
in good faith be prosecuting an appeal or proceedings for review and in
respect of which a stay of execution shall have been obtained pending
such appeal or review;
(f) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
(g) obligations under Consolidated Capitalized Leases and
guaranties thereof by the Borrowers, or either of them;
(h) Consolidated Rental Obligations and guaranties by the
Borrowers, or either of them, of any of the foregoing or of any other
operating leases;
(i) Indebtedness incurred in connection with the acquisition
after the date hereof of any personal property by any of the Borrowers
or the Designated Subsidiaries, provided that (i) such Indebtedness
shall be without recourse to any of the Borrowers or the Designated
Subsidiaries, (ii) the aggregate principal amount of such Indebtedness
of the Borrowers and the Designated Subsidiaries shall not exceed one
hundred percent (100%) of the cost to such Borrower or such Designated
Subsidiary of the personal property so acquired, and (iii) the
aggregate principal amount of the cost to the Borrowers and the
Designated Subsidiaries of the personal property so acquired during any
period set forth in the table in Section 10.5 hereof together with
(without duplication) the amount of Consolidated Capital Expenditures
made during such period, shall not, during such period, exceed the
amount of Consolidated Capital Expenditures set forth in such table for
such period;
(j) Indebtedness, consistent with the past practices of
either of the Borrowers owing to the other Borrower;
(k) Indebtedness, consistent with the past practices of (i)
any of the Borrowers to the Designated Subsidiaries in an aggregate
amount not to
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exceed $10,000,000, (ii) any of the Designated Subsidiaries to the
Borrowers in an aggregate amount not to exceed $10,000,000 and (iii)
any of the Borrowers or the Designated Subsidiaries, owing by any of
the Borrowers or the Designated Subsidiaries to any of the Excluded
Subsidiaries in an aggregate amount not to exceed $5,000,000;
(l) Indebtedness incurred in connection with the Receivables
Securitization Facility Documents;
(m) Indebtedness owed by any of the Borrowers or the
Designated Subsidiaries to trade vendors, in the amount of the cost to
such Borrower or such Designated Subsidiary of inventory on consignment
from such trade vendors;
(n) Indebtedness constituting any funded or unfunded pension
fund or other employee benefit plan obligations or liabilities, whether
insured or otherwise, but only to the extent that they are permitted to
remain unfunded pursuant to applicable law and to Section 9.8 hereof;
(o) other Indebtedness existing as of the Closing Date and
described on Schedule 9.1(o);
(p) Indebtedness, consistent with the Plan, owing by any of
the Borrowers or the Designated Subsidiaries (i) to the Litigation
Entity, in an aggregate amount not to exceed $3,500,000 minus the
aggregate amount of Investments made by the Borrowers and the
Designated Subsidiaries in the Litigation Entity or any corporate
general partner of the Litigation Entity as permitted by Section 9.3(n)
hereof or (ii) in respect of settlement agreements relating to
litigation claims arising prior to the date of the Plan and either
approved by the Bankruptcy Court prior to the Effective Date or
consented to by the Agent and the Lenders or disclosed on Schedule
9.1(p) hereto;
(q) the Debenture Debt;
(r) Indebtedness in respect of the Tax Sharing Agreements;
(s) Indebtedness incurred pursuant to the Director Indemnity
Agreement, not to exceed $1,000,000;
(t) other Indebtedness, to the extent not otherwise included
in subparagraphs (a) through (s) of this Section 9.1, in an aggregate
amount not to exceed $100,000,000 minus any aggregate outstanding
principal amount of the Debentures, which Indebtedness is subordinated
to the Obligations pursuant to subordination terms substantially
similar to those contained in the
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Collateral Agency Agreement or pursuant to subordination terms which
are otherwise acceptable to the Agent in all respects; and
(u) other Indebtedness, to the extent not otherwise included
in subparagraphs (a) through (t) of this Section 9.1, in an aggregate
amount not to exceed $1,000,000.
9.2. RESTRICTIONS ON LIENS. The Borrowers will not, and will not
permit any of the Designated Subsidiaries to, (i) create or incur or suffer to
be created or incurred or to exist any lien, encumbrance, mortgage, pledge,
charge, restriction or other security interest of any kind upon any of its
property or assets of any character whether now owned or hereafter acquired, or
upon the income or profits therefrom; (ii) transfer any of such property or
assets or the income or profits therefrom for the purpose of subjecting the same
to the payment of Indebtedness or performance of any other obligation in
priority to payment of its general creditors; (iii) acquire, or agree or have an
option to acquire, any property or assets upon conditional sale or other title
retention or purchase money security agreement, device or arrangement; (iv)
suffer to exist for a period of more than thirty (30) days after the same shall
have been incurred any Indebtedness or claim or demand against it that if unpaid
might by law or upon bankruptcy or insolvency, or otherwise, be given any
priority whatsoever over its general creditors; or (v) sell, assign, pledge or
otherwise transfer any accounts, contract rights, general intangibles, chattel
paper or instruments, with or without recourse; provided that any of the
Borrowers and the Designated Subsidiaries may create or incur or suffer to be
created or incurred or to exist:
(a) liens in favor of either Borrower on all or part of the
assets of any of the Designated Subsidiaries securing Indebtedness
owing by any of the Designated Subsidiaries to either Borrower;
(b) liens to secure taxes, assessments and other government
charges, or liens to secure claims for labor, material or supplies, in
each case in respect of obligations (i) not overdue or (ii) contested
in good faith, and with respect to which adequate reserves (in
accordance with generally accepted accounting principles) have been set
aside for the payment thereof on the books and records of such Borrower
or such Designated Subsidiary, so long as proceedings to enforce such
liens have not been commenced and are unstayed;
(c) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(d) liens on properties in respect of judgments or awards,
the Indebtedness with respect to which is permitted by Section 9.1(e);
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(e) liens of carriers, warehousemen, mechanics and
materialmen, and other like liens on properties, in existence less than
120 days from the date of creation thereof in respect of obligations
not overdue or contested in good faith, and with respect to which
adequate reserves (in accordance with generally accepted accounting
principles) have been set aside for the payment thereof on the books
and records of such Borrower or such Designated Subsidiary, so long as
proceedings to enforce such liens have not been commenced and are
unstayed;
(f) encumbrances on Real Estate consisting of easements,
rights of way, zoning restrictions, restrictions on the use of real
property and defects and irregularities in the title thereto, statutory
and contractual landlord's or lessor's liens under leases to which such
Borrower or such Designated Subsidiary is a party, and other liens or
encumbrances none of which in the reasonable opinion of the Borrowers
interferes materially with the use of the property affected in the
ordinary conduct of the business of any of the Borrowers and the
Designated Subsidiaries, which defects do not individually or in the
aggregate have a materially adverse effect on the business of the
Borrowers and the Designated Subsidiaries considered as a whole;
(g) liens and encumbrances existing on the date hereof and
listed on Schedule 9.2 hereto;
(h) purchase money security interests in or purchase money
mortgages on real or personal property, other than inventory, acquired
after the date hereof to secure purchase money Indebtedness of the type
permitted by Section 9.1(i), incurred in connection with the
acquisition of such property, which security interests or mortgages
cover only the real or personal property so acquired, and which
security interests or mortgages secure Indebtedness not in excess of
$60,000,000 in the aggregate at any time outstanding;
(i) liens in favor of the Collateral Agent, for the benefit
of the Lenders and the Agent, under the Loan Documents;
(j) liens on inventory and proceeds thereof (up to the cost to
such Borrower or such Designated Subsidiary of such inventory) held on
consignment from trade vendors securing obligations to return or pay
the purchase price of such inventory;
(k) deposits to secure the performance, by any of the
Borrowers and the Designated Subsidiaries, of tenders, bids and other
contracts, other than for the payment of borrowed money, arising in the
ordinary course of such Borrower's or such Designated Subsidiary's
business (including, without limitation, deposits made in connection
with any promotions, contests, sweepstakes or similar games or
competitions conducted by or on behalf of
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any of the Borrowers and the Designated Subsidiaries or any of their
respective Subsidiaries, which deposits described in this
parenthetical, but not those other deposits contemplated by this clause
(k), do not exceed $2,000,000 in the aggregate);
(l) (1) liens on ZFT Receivables and (2) liens on ZFT
Receivables following repurchase thereof for the recovery of state
sales taxes by any of the Borrowers and the Designated Subsidiaries,
which liens secure an interest in such repurchased ZFT Receivables, the
proceeds therefrom and any recoveries therefrom pursuant to Section
2.09 of the Receivables Purchase Agreement;
(m) voluntary options in favor of any of the Borrowers and
the Designated Subsidiaries to purchase real property subject to
operating leases;
(n) subject to the provisions of the Collateral Agency
Agreement, liens in favor of the Collateral Agent, for the benefit of
the Lenders, the Agent, the Trustee and the holders of the Debentures;
(o) liens on cash or one or more letters of credit securing
Zale's obligations pursuant to the Director Indemnity Agreement in an
aggregate amount not in excess of $1,000,000; and
(p) liens in favor of AT&T solely on equipment owned by AT&T
and leased to Zale and/or Zale Delaware to the extent permitted by
Section 9.1(g);
(q) transfers to any Rabbi Trust, or other similar trust or
similar arrangement or to any account, established for the benefit of
the employees of any of Zale and its Subsidiaries solely to the extent
that Zale's or, as the case may be, such Subsidiary's obligations in
respect thereof are permitted by Section 9.1(n);
(r) solely to the extent consented to in advance in writing by
the Agent, liens on assets existing at the time of acquisition from
another Person (provided that such acquisition is permitted by Section
9.5.1 hereof) and not incurred in anticipation of such acquisition;
(s) sales, assignments or transfers of assets to the extent
permitted by Section 9.5.2 hereof; and
(t) other liens on assets of the Borrowers and the Designated
Subsidiaries which are not Collateral, to the extent not otherwise
included in subparagraphs (a) through (s) of this Section 9.2, securing
Indebtedness in an aggregate amount not to exceed $500,000.
<PAGE> 81
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9.3. RESTRICTIONS ON INVESTMENTS. The Borrowers will not, and will
not permit any of the Designated Subsidiaries to, make or permit to exist or to
remain outstanding any Investment except Investments in:
(a) marketable direct or guaranteed obligations of the United
States of America that mature within one (1) year from the date of
purchase by such Borrower or such Designated Subsidiary;
(b) demand deposits, certificates of deposit, bankers
acceptances and time deposits of United States banks having total
assets in excess of $1,000,000,000;
(c) securities commonly known as "commercial paper" issued by
the Agent, or a corporation organized and existing under the laws of
the United States of America or any state thereof that at the time of
purchase have been rated and the ratings for which are not less than "P
1" if rated by Moody's Investors Services, Inc. or any successor
service thereto having a substantially similar rating system, or not
less than "A 1" if rated by Standard & Poor's Corporation or any
successor service thereto having a substantially similar rating system;
(d) demand notes issued by a corporation organized and
existing under the laws of the United States of America or any state
thereof that at the time of purchase have been rated and the ratings
for which are not less than "P 1" if rated by Moody's Investors
Services, Inc. or any successor service thereto having a substantially
similar rating system, or not less than "A 1" if rated by Standard &
Poor's Corporation or any successor service thereto having a
substantially similar rating system;
(e) repurchase agreements, purchased through the Agent, or a
corporation organized and existing under the laws of the United States
of America or any state thereof that at the time of purchase have been
rated and the ratings for which are not less than "P 1" if rated by
Moody's Investors Services, Inc. or any successor service thereto
having a substantially similar rating system, or not less than "A 1" if
rated by Standard & Poor's Corporation or any successor service thereto
having a substantially similar rating system, which repurchase
agreements are collateralized by securities of the United States of
America or any agency thereof in an amount equal to at least 102% of
the amount of such Investment;
(f) shares of any so-called "money market fund" advised,
serviced or sold by any of the Lenders or by any other financial
institution provided that such fund is registered under the Investment
Company Act of 1940, has net assets of at least $250,000,000, has an
investment portfolio with an average maturity of 365 days or less and
is not considered to be a "high-yield" fund;
<PAGE> 82
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(g) Investments existing on the date hereof and listed on
Schedule 9.3 hereto;
(h) Investments by either Borrower in any Designated
Subsidiary or the other Borrower or by any Designated Subsidiary in
either Borrower or any other Designated Subsidiary, existing as of the
Closing Date;
(i) Investments after the date hereof by (i) any of the
Borrowers and the Designated Subsidiaries in (A) any of the Excluded
Subsidiaries other than Zale Acquisition Corp., JHC Holding
Corporation, Zale Holding Corporation or ZHCL Corp., not to exceed
$2,500,000 in the aggregate, and (B) Zale Acquisition Corp., JHC
Holding Corporation, Zale Holding Corporation or ZHCL Corp. in order to
enable such Subsidiaries to maintain their corporate existence and good
standing or for other similar purposes, in an aggregate amount not to
exceed $100,000, (ii) either of the Borrowers in any of the Designated
Subsidiaries (other than JFS) in an aggregate amount not to exceed
$12,000,000, (iii) any of the Designated Subsidiaries in either of the
Borrowers in an aggregate amount not to exceed $12,000,000, and (iii)
either of the Borrowers in JFS, solely in respect of operating expenses
of JFS and capital expenditures of JFS, in an aggregate amount not to
exceed $35,000,000 during any fiscal year of the Borrowers;
(j) Investments existing on the Closing Date by Zale in
Subsidiaries of Zale;
(k) Investments consisting of promissory notes received as
proceeds of asset dispositions permitted by Section 9.5.2;
(l) Investments consisting of loans and advances to employees
for moving, entertainment, travel and other similar expenses in the
ordinary course of business not to exceed $2,000,000 in the aggregate
at any time outstanding;
(m) Investments in the Trust Certificates, the Trust Interest
or similar Investments in any other Receivables Securitization
Subsidiary and Investments in the Subordinated Note;
(n) Investments in the corporate general partner of the
Litigation Entity in an aggregate amount not to exceed $3,500,000;
(o) Investments in a new Subsidiary of either of the
Borrowers constituting a credit card bank in an aggregate amount not
to exceed $10,000,000;
<PAGE> 83
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(p) Investments in registered investment companies which
invest solely in Investments otherwise permitted by this Section 9.3;
(q) Investments consisting of the repurchase by Zale of
warrants in respect of its capital stock to the extent permitted by
Section 9.4;
(r) Investments consisting of acquisitions of stock or
assets to the extent permitted by Section 9.5.1;
(s) Investments in an amount up to the amount of funds under
any Rabbi Trust, similar trust arrangement or account established or
maintained by any of Zale and its Subsidiaries as permitted by Section
9.2(q), but in no event in excess of $5,000,000 in the aggregate;
(t) Investments in Zale stock, whether or not permitted under
Section 9.4, in connection with the satisfaction of the Borrowers'
obligations under the 401(k) plan and/or the Zale Omnibus Stock
Incentive Plan or similar employee benefit plans maintained by the
Borrowers, or either of them; and
(u) Investments consisting of guaranties of Indebtedness
permitted by Sections 9.1(f), (g), (h), (l), (q) and (s).
9.4. DISTRIBUTIONS. The Borrowers will not, and will not permit any
of the Designated Subsidiaries to, make any Distributions; provided, however,
that so long as no Default or Event of Default shall exist and be continuing,
and none would exist after giving effect thereto (a) the Designated Subsidiaries
may make Distributions to either of the Borrowers and either Borrower may make
Distributions to the other Borrower, (b) the Borrowers and the Designated
Subsidiaries may make Distributions of up to $11,000,000 in the aggregate solely
in respect of repurchases by the Borrowers and the Designated Subsidiaries of
certain equity instruments which will immediately be cancelled, (c)
Distributions permitted pursuant to Section 9.3(t), and (d) the Borrowers and
the Designated Subsidiaries may make Distributions in an aggregate amount during
any fiscal quarter not to exceed the sum of (i) 50% of the Consolidated Net
Income of Zale and its Subsidiaries for the fiscal year of Zale ending as of
July 31, 1995 plus (ii) 50% of the aggregate cumulative Consolidated Net Income
of Zale and its Subsidiaries for each fiscal quarter of Zale ending on or after
October 31, 1995 and prior to the date of such Distribution; provided, however,
that the aggregate amount of such Distributions pursuant to this clause (d)
during any fiscal year of Zale shall not exceed (A) for the fiscal year of Zale
ending prior to the first anniversary of the Closing Date, $20,000,000, (B) for
the fiscal year of Zale ending after the first anniversary but prior to the
second anniversary of the Closing Date, $30,000,000, and (C) for the fiscal year
of Zale ending after the second anniversary of the Closing Date, $40,000,000;
provided, further, that if the aggregate amount of Distributions made pursuant
to this clause (d) during any fiscal year of Zale shall be less than the
applicable permitted amount set forth in the foregoing
<PAGE> 84
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proviso for such fiscal year, then up to $5,000,000 of such unutilized amount
may be utlilized in the next succeeding fiscal year (but not any other
succeeding fiscal year) so long as the limitations set forth in the foregoing
clauses (i) and (ii) of this paragraph are not exceeded.
9.5. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS.
9.5.1. MERGERS AND ACQUISITIONS. The Borrowers will not,
and will not permit or suffer any of the Designated Subsidiaries to,
become a party to any merger or consolidation, or agree to or effect
any asset acquisition or stock acquisition (other than the
acquisition of assets in the ordinary course of business consistent
with past practices) except (a) so long as no Default or Event of
Default would result therefrom, the merger or consolidation of (i) one
or more of the Designated Subsidiaries with and into one of the
Borrowers, (ii) one or more of the other Subsidiaries of either of the
Borrowers with and into one of the Borrowers, (iii) two or more of the
Designated Subsidiaries or (iv) a Borrower with and into the other
Borrower; provided, that the surviving entity in any such merger
permitted by this clause (a) shall be a Borrower or a Designated
Subsidiary, (b) acquisitions (exclusive of Consolidated Capital
Expenditures permitted by Section 10.5) of assets or stock not to
exceed $20,000,000 of consideration for any such single acquisition
and not to exceed $40,000,000 of consideration in the aggregate for
all such acquisitions so long as the Borrowers, or either of them,
take title to such assets, and (c) the repurchase of warrants with
respect to the capital stock of Zale referred to in Section 8.12,
acquisitions of Zale stock permitted by Section 9.3(t) or repurchases
of Zale stock otherwise permitted by Section 9.4.
9.5.2. DISPOSITION OF ASSETS. The Borrowers will not, nor
will the Borrowers permit or suffer any of the Designated Subsidiaries
to, become a party to or agree to or effect any disposition of assets,
except for (a) sales of inventory (including in connection with the
closing of stores) in the ordinary course of such Borrower's or such
Designated Subsidiary's business, consistent with past practices, (b)
sales of fixtures and equipment no longer used or useful in such
Borrower's or such Designated Subsidiary's business, (c) transfers of
ZFT Receivables to ZFT pursuant to the Receivables Securitization
Facility Documents prior to the occurrence of any Receivables Release
Termination Date, (d) the natural expiration of intellectual property
licenses in accordance with the terms thereof, (e) so long as no Event
of Default has occurred or is continuing, sales of surplus assets
listed on Schedule 9.5 hereto; (f) so long as no Event of Default has
occurred and is continuing, other sales or dispositions of assets not
exceeding $5,000,000 in the aggregate during any fiscal year minus the
aggregate amount of any sale and leaseback transactions entered into
during such fiscal year in accordance with Section 9.6.
<PAGE> 85
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9.6. SALE AND LEASEBACK. Except for transactions not to exceed
$5,000,000 in the aggregate, the Borrowers will not, and will not permit any of
the Designated Subsidiaries to, enter into any arrangement, directly or
indirectly, whereby any of the Borrowers or the Designated Subsidiaries shall
sell or transfer any property owned by it in order then or thereafter to lease
such property or lease other property that such Borrower or such Designated
Subsidiary intends to use for substantially the same purpose as the property
being sold or transferred.
9.7. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Borrowers will not, and
will not permit any of the Designated Subsidiaries to, (i) use any of the Real
Estate or any portion thereof for the handling, processing, storage or disposal
of Hazardous Substances in violation of any applicable Environmental Law, (ii)
cause or permit to be located on any of the Real Estate any underground tank or
other underground storage receptacle for Hazardous Substances which is not
listed on Schedule 7.18 or which is in violation of any applicable Environmental
Law, (iii) generate any Hazardous Substances on any of the Real Estate in
violation of any applicable Environmental Law, (iv) conduct any activity at any
Real Estate or use any Real Estate in any manner so as to cause a release (i.e.
releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, disposing or dumping) or threatened release of
Hazardous Substances on, upon or into the Real Estate or (v) otherwise conduct
any activity at any Real Estate or use any Real Estate in any manner that would
violate any Environmental Law or bring such Real Estate in violation of any
Environmental Law, which, in the case of any of clauses (i) through (v), would
reasonably be expected to have a materially adverse effect on the business,
financial condition or assets of the Borrowers and the Designated Subsidiaries
taken as a whole.
9.8. EMPLOYEE BENEFIT PLANS. Neither the Borrowers nor any ERISA
Affiliate will:
(a) engage in any "prohibited transaction" within the meaning
of Section 406 of ERISA or Section 4975 of the Code which could
reasonably be expected to result in a material liability for the
Borrowers and the Designated Subsidiaries taken as a whole; or
(b) permit any Guaranteed Pension Plan to incur an
"accumulated funding deficiency", as such term is defined in Section
302 of ERISA, whether or not such deficiency is or may be waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an
extent which, or terminate any Guaranteed Pension Plan in a manner
which, could reasonably be expected to result in the imposition of a
lien or encumbrance on the assets of any of the Borrowers or the
Designated Subsidiaries pursuant to Section 302(f) or Section 4068 of
ERISA; or
<PAGE> 86
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(d) permit or take any action which would result in the
aggregate benefit liabilities (within the meaning of Section 4001 of
ERISA) of all Guaranteed Pension Plans exceeding the value of the
aggregate assets of such Guaranteed Pension Plans, disregarding for
this purpose the benefit liabilities and assets of any such Guaranteed
Pension Plan with assets in excess of benefit liabilities, by more than
the amount set forth in Section 7.16.3.
9.9. BANK ACCOUNTS. The Borrowers will not, nor will the Borrowers
permit or suffer any of the Designated Subsidiaries to, (a) establish, without
the Agent's prior written consent, any bank accounts not listed on Schedule 7.20
except for (i) additional Local Depository Accounts opened in the ordinary
course of business from which all funds are transferred at least every three (3)
Business Days to the Store Concentration Accounts pursuant to arrangements
reasonably satisfactory to the Agent, (ii) additional Vendor Memo Accounts, and
(iii) bank accounts established for the purpose of depositing funds pertaining
to any Rabbi Trust or other similar trust or similar arrangement or account
established by any of Zale and its Subsidiaries solely to the extent that
Investments in respect thereof are permitted by Section 9.3(s) hereof; provided,
however, that such account shall be considered an Employee Benefit and
Compensation Account and shall be subject to the restrictions set forth in
clause (c) of this Section 9.9, (b) violate directly or indirectly the
Concentration Account Agreement or any other bank agency or lock box agreement
in favor of the Collateral Agent or the Agent, for the benefit of the Lenders
and the Agent, with respect to any such account, (c) deposit into any employee
benefit and compensation accounts (the "Employee Benefit and Compensation
Accounts") any amounts in excess of amounts which the Borrowers deem necessary
to pay current payroll, medical, dental or other employee benefit obligations
(whether current or not) from such Employee Benefit and Compensation Accounts,
provided that the Borrowers may permit up to $150,000 in excess of current
payroll obligations to be maintained in any Employee Benefit and Compensation
Account established primarily for the payment of payroll obligations for
employees of Dobbins, (d) allow any funds (other than nominal amounts not in
excess of $1,000 in any Local Depository Account and funds representing returned
ACH transfers) to remain in any Local Depository Account for over three (3)
Business Days, (e) except as permitted by Section 8.13(a), allow any funds to
remain in any Corporate Depository Account (excluding funds up to an aggregate
amount not to exceed $100,000 which were not transferred to the FNBB
Concentration Accounts at the close of any Business Day as a result of human or
mechanical error), or (f) allow the aggregate amount of any of the Operating
Accounts to exceed $100,000 on any day on which an Event of Default has occurred
and is continuing.
9.10. TRANSACTIONS WITH AFFILIATES. The Borrowers will not, nor will
the Borrowers permit or suffer any of the Designated Subsidiaries to, conduct
any transactions among themselves or with any Affiliates of the Borrowers, other
than (a) transactions in the ordinary course of such Borrower's or such
Designated
<PAGE> 87
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Subsidiary's business, consistent with past practices, and upon terms not
materially less favorable to such Borrower or Designated Subsidiary than it
could obtain in a comparable arm's-length transaction with a party other than
such Borrower, such Designated Subsidiary or such Affiliate, (b) transactions
pursuant to documents and agreements contemplated by the Plan, (c) transactions
with ZFT or any other Receivables Securitization Subsidiary pursuant to the
Receivables Securitization Facility Documents, (d) transactions described on
Schedule 7.15; provided, however that such transactions shall in no event
include any Investments which are not permitted by Section 9.3, and (e)
Distributions made by the Borrowers and the Designated Subsidiaries to the
extent otherwise permitted by Section 9.4 hereof.
9.11. RECEIVABLES SECURITIZATION FACILITY DOCUMENTS. The Borrowers
will not, nor will the Borrowers permit or suffer any of the Designated
Subsidiaries to, amend, supplement, restate or otherwise modify, or renew or
extend, the terms of any of the Receivables Securitization Facility Documents as
in effect as of the Closing Date without the prior written consent (which
consent shall not be unreasonably withheld) of, and in form and substance
reasonably satisfactory to, the Agent; provided, however, that nothing herein
shall restrict or be deemed to restrict the issuance by the Borrowers or the
Designated Subsidiaries, or any of them, of additional tranches of Indebtedness
under the Receivables Securitization Facility Documents as in the form delivered
to the Agent on the date hereof; and provided, further, that so long as no
Default or Event of Default shall exist and be continuing, and so long as none
would result therefrom, with prior written notice given to the Agent, the
Borrowers and the Designated Subsidiaries may enter into such amendments,
supplements or other modifications to the Receivables Securitization Facility
Documents which do not have any adverse effect on the Agent and the Lenders'
collateral security and which are otherwise no less favorable to the Borrowers
and the Designated Subsidiaries. The parties to this Credit Agreement intend it
to refinance the obligations under the Prior Credit Agreement and agree that an
acceleration of the Obligations pursuant to the terms hereof shall constitute an
Early Amortization Event (as defined in the Receivables Purchase Agreement).
9.12. ZALE PUERTO RICO; JFS. Notwithstanding anything contained
herein to the contrary, the Borrowers will not permit the aggregate amount of
Indebtedness owed by Zale Puerto Rico to Persons other than the Lenders, the
Agent, or the Borrowers at any time to exceed $250,000; provided, however, that
Zale Puerto Rico may incur Indebtedness permitted by Section 9.1(d) and (g) in
respect of obligations owed to customers arising out of layaway transactions.
All obligations of Zale Puerto Rico to either of the Borrowers shall be
evidenced by promissory notes which shall be pledged to the Lenders and
delivered to the Collateral Agent in accordance with the terms of the Security
Documents. The Borrowers will not permit JFS to have assets with an aggregate
book value in excess of $300,000 in Puerto Rico.
<PAGE> 88
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9.13. NEGATIVE PLEDGES. The Borrowers will not, and will not permit
any of the Designated Subsidiaries to, enter into any agreement or instrument
which shall prohibit any of the Borrowers or the Designated Subsidiaries from
granting security interests, mortgages, pledges or liens on, or otherwise
encumbering, any of its property or assets to secure the Borrowers' obligations
under this Credit Agreement or any refinancing, replacement, restatement,
modification, supplement or amendment of this Credit Agreement.
9.14. INDENTURE. Neither of the Borrowers will amend, supplement or
otherwise modify the terms of the Indenture or any of the Debentures; provided,
that the foregoing shall not prohibit the Borrowers, so long as no Default or
Event of Default shall have occurred and be continuing, from redeeming, in whole
or in part, the Debentures and terminating the Indenture.
10. FINANCIAL COVENANTS OF THE BORROWERS.
Each of the Borrowers covenants and agrees that, so long as any Loan,
Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding or any
Lender has any obligation to make any Loans or the Agent has any obligation to
issue, extend or renew any Letters of Credit:
10.1. CONSOLIDATED EBITDA. As of the end of each period of four
consecutive fiscal quarters ending closest to the dates set forth in the table
below, the Borrowers shall cause the Consolidated EBITDA for such period of four
consecutive fiscal quarters to be equal to or greater than the amount set forth
opposite such period in such table:
<TABLE>
<CAPTION>
DATE: AMOUNT:
---- ------
<S> <C>
10/31/95 $60,000,000
01/31/96 $63,500,000
04/30/96 $65,500,000
07/31/96 $67,500,000
10/31/96 $68,250,000
01/31/97 $78,250,000
04/30/97 $80,000,000
07/31/97 $86,250,000
10/31/97 $90,000,000
01/31/98 $94,750,000
04/30/98 $98,250,000
07/31/98 $104,000,000
</TABLE>
10.2. CONSOLIDATED FUNDED DEBT TO CONSOLIDATED ADJUSTED EBITDA. As
of the end of each period of four consecutive fiscal quarters ending closest to
the dates set forth in the table below, the Borrowers will not permit the
ratio of (a) Consolidated Funded Debt as of each fiscal quarter ending date
occurring closest to such dates set forth in the table below to (b)
Consolidated Adjusted EBITDA for such
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period of four consecutive fiscal quarters ending on such fiscal quarter ending
date, to be greater than the ratio set forth opposite such date in such table:
<TABLE>
<CAPTION>
DATE: RATIO:
---- -----
<S> <C>
10/31/95 2.0:1.0
01/31/96 2.0:1.0
04/30/96 2.0:1.0
07/31/96 2.0:1.0
10/31/96 2.0:1.0
01/31/97 2.0:1.0
04/30/97 2.0:1.0
07/31/97 2.0:1.0
10/31/97 2.0:1.0
01/31/98 2.0:1.0
04/30/98 2.0:1.0
07/31/98 2.0:1.0
</TABLE>
10.3. DEBT SERVICE. As of the end of each period of four consecutive
fiscal quarters ending closest to the dates set forth in the table below, the
Borrowers will not permit the ratio of (a) the difference of (i) Consolidated
EBITDA for such period of four consecutive fiscal quarters ending closest to the
dates set forth in the table below minus (ii) the aggregate amount of all
federal income taxes paid in cash by Zale and its Subsidiaries during such
period of four consecutive fiscal quarters to (b) Consolidated Total Debt
Service for such period of four consecutive fiscal quarters, to be less than the
ratio set forth opposite such date in such table:
<TABLE>
<CAPTION>
DATE: RATIO:
---- -----
<S> <C>
10/31/95 1.40:1.0
01/31/96 1.55:1.0
04/30/96 1.65:1.0
07/31/96 1.80:1.0
10/31/96 1.95:1.0
01/31/97 2.30:1.0
04/30/97 2.40:1.0
07/31/97 2.50:1.0
10/31/97 2.60:1.0
01/31/98 2.70:1.0
04/30/98 2.70:1.0
07/31/98 2.80:1.0
</TABLE>
10.4. CONSOLIDATED TANGIBLE NET WORTH. The Borrowers will not permit
Consolidated Tangible Net Worth, as of each fiscal quarter ending date occurring
closest to the dates set forth in the table below, to be less than the amount
set forth opposite such date in such table:
<TABLE>
<CAPTION>
DATE: AMOUNT:
---- ------
<S> <C>
10/31/95 $365,000,000
01/31/96 $400,000,000
04/30/96 $400,000,000
07/31/96 $400,000,000
</TABLE>
<PAGE> 90
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<TABLE>
<S> <C>
10/31/96 $390,000,000
01/31/97 $445,000,000
04/30/97 $445,000,000
07/31/97 $445,000,000
10/31/97 $445,000,000
01/31/98 $500,000,000
04/30/98 $500,000,000
07/31/98 $500,000,000
</TABLE>
10.5. CONSOLIDATED CAPITAL EXPENDITURES. The Borrowers will not
make, or permit any Subsidiary of either of the Borrowers to make, Consolidated
Capital Expenditures (excluding Consolidated Capital Expenditures incurred in
connection with acquisitions of stock or assets permitted by Section 9.5.1
hereof) in any fiscal year covering the period closest to the periods set forth
in the table below that exceed, in the aggregate, the amount set forth opposite
such period in such table; provided, however, that, if during any fiscal year
the amount of Consolidated Capital Expenditures permitted for that fiscal year
is not so utilized, up to $10,000,000 of such unutilized amount may be utilized
in the next succeeding fiscal year but not in any subsequent fiscal year;
provided, further, that in any fiscal year, any unutilized amounts carried
forward from the immediately preceding fiscal year shall be available as
permitted Consolidated Capital Expenditures first, prior to counting the actual
Consolidated Capital Expenditures for such fiscal year against the permitted
amount for such fiscal year set forth in the table below.
<TABLE>
<CAPTION>
PERIOD: AMOUNT:
------ ------
<S> <C>
08/01/95 - 07/31/96 $55,000,000
08/01/96 - 07/31/97 $60,000,000
08/01/97 - 07/31/98 $65,000,000
</TABLE>
10.6. RECEIVABLES ADVANCE RATE UNDER RECEIVABLES PURCHASE AGREEMENT.
The Borrowers will not permit or suffer the Receivables Advance Rate to at any
time be less than sixty-five percent (65%).
11. CLOSING CONDITIONS.
The obligations of the Lenders to make the initial Loans and of the
Agent to issue any initial Letters of Credit shall be subject to the
satisfaction of the following conditions precedent on or prior to August 31,
1995:
11.1. LOAN DOCUMENTS. Each of the Loan Documents shall have been
duly executed and delivered by the respective parties thereto, shall be in
full force and effect and shall be in form and substance satisfactory to each
of the Lenders. Each Lender shall have received a fully executed copy of each
such document and the original Note payable to such Lender.
11.2. CERTIFIED COPIES OF CHARTER DOCUMENTS AND OTHER DOCUMENTS.
Each of the Lenders shall have received from each of the Borrowers a
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copy, certified by a duly authorized officer of such Person to be true and
complete on the Closing Date, of each of (i) its charter or other incorporation
documents as in effect on such date of certification, (ii) its by-laws as in
effect on such date, (iii) the Receivables Securitization Facility Documents as
in effect on the Closing Date, and (iv) the Indenture and the Debentures as in
effect on the Closing Date.
11.3. CORPORATE ACTION. All corporate action necessary for the valid
execution, delivery and performance by each of the Borrowers of this Credit
Agreement and the other Loan Documents to which each is or is to become a party
shall have been duly and effectively taken, and evidence thereof satisfactory to
the Lenders shall have been provided to each of the Lenders.
11.4. INCUMBENCY CERTIFICATE. Each of the Lenders shall have
received from each of the Borrowers an incumbency certificate, dated as of the
Closing Date, signed by a duly authorized officer of such Borrower, and giving
the name and bearing a specimen signature of each individual who shall be
authorized: (i) to sign, in the name and on behalf of such Borrower, each of
the Loan Documents to which such Borrower is or is to become a party; (ii) to
make Loan Requests and Conversion Requests and to apply for Letters of Credit;
and (iii) to give notices and to take other action on its behalf under the Loan
Documents.
11.5. VALIDITY OF LIENS. The Security Documents shall be effective
to create in favor of the Collateral Agent, for the benefit of the Lenders and
the Agent, a legal, valid and enforceable first (except for Permitted Liens
entitled to priority under applicable law) security interest in and lien upon
the Collateral. All filings, recordings, deliveries of instruments and other
actions necessary or desirable in the opinion of the Collateral Agent to
protect and preserve such security interests and its priority as a first lien
and security interest shall have been duly effected. The Collateral Agent shall
have received evidence thereof in form and substance satisfactory to the
Collateral Agent and the Lenders.
11.6. PERFECTION CERTIFICATES; UCC SEARCH RESULTS; FORM OF OTHER
FINANCING STATEMENTS. The Collateral Agent shall have received from each of
the Borrowers a completed and fully executed Perfection Certificate and the
results of UCC searches with respect to the Collateral, indicating no liens
other than Permitted Liens and otherwise in form and substance satisfactory to
the Collateral Agent and the Lenders. The Collateral Agent shall have received
and shall be satisfied with the form and substance of (a) all consignment
financing statements filed or to be filed on behalf of trade vendors as
consignors and (b) all UCC-1 financing statements filed or to be filed pursuant
to the Receivables Securitization Facility Documents.
11.7. CERTIFICATES OF INSURANCE. The Agent shall have received
certificates of insurance from an independent insurance broker dated as of the
Closing Date, identifying insurers, types of insurance, insurance limits, and
policy terms, and
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otherwise describing the insurance obtained in accordance with the provisions of
the Security Documents.
11.8. BANK AGENCY AGREEMENTS. The Agent shall have received the
Concentration Account Agreement and the Receivables Purchase Payment
Instructions, each duly executed and delivered by the respective parties
thereto, and such agreements shall be in full force and effect and in form and
substance satisfactory to the Agent and the Borrowers.
11.9. BORROWING BASE REPORT. The Agent and each of the Lenders shall
have received from the Borrowers the initial Borrowing Base Report dated as of
the last day of the calendar month immediately preceding the Closing Date, or,
if the Closing Date occurs within the first twenty-five (25) days of a calendar
month, the last day of the calendar month immediately preceding the calendar
month immediately preceding the Closing Date.
11.10. RECEIVABLES PURCHASE REPORT. The Agent shall have received
from the Borrowers the most recent Receivables Purchase Report.
11.11. OPINION OF COUNSEL. Each of the Lenders and the Agent shall
have received a favorable legal opinion addressed to the Lenders and the Agent,
dated as of the Closing Date, in form and substance satisfactory to the Lenders
and the Agent, from Troutman Sanders, counsel to the Borrowers and their
Subsidiaries
11.12. PAYMENT OF FEES. The Borrowers shall have paid to the Lenders
or the Agent, as appropriate, all fees, including the Agent's fee, due pursuant
to Sections 5.1 and 5.2 and the terms of the Fee Letters, and the fees of
counsel to the Agent incurred through and including the Closing Date.
11.13. FINANCIAL STATEMENTS, ETC. The Agent shall have received (a)
the consolidated balance sheet of Zale and its Subsidiaries as of the Balance
Sheet Date, (b) the unaudited consolidated statement of income and consolidated
statement of cash flow for Zale and its Subsidiaries, each for the fiscal
quarter ending April 30, 1995, and (c) such other financial and other
information as may be reasonably requested by the Agent.
11.14. RECEIVABLES SECURITIZATION FACILITY DOCUMENTS;. Each of the
Agent and the Lenders shall be satisfied that the Amortization Commencement Date
shall not have occurred. The Borrower shall have sent a notice to the
Receivables Purchase Agent, pursuant to a letter satisfactory to the Agent and
the Lenders in all respects, with respect to the effect of any notice given by
the Agent to the Receivables Purchase Agent of an Acceleration or of the failure
of the Borrowers to pay at the Maturity Date all of the Obligations outstanding.
The Agent shall have received from the Receivables Purchase Agent an
acknowledgment, satisfactory to the Agent and the Lenders in all respects, that
this Credit Agreement replaces, as of
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the Closing Date, the Prior Credit Agreement, and shall constitute for all
purposes the Working Capital Credit Agreement, as such term is defined in the
Receivables Securitization Facility Documents.
11.15. MATERIALLY ADVERSE CHANGES. There shall not have occurred or
become known to any of the Lenders or the Agent any materially adverse change in
the financial condition, operations or assets of the Borrowers and the
Designated Subsidiaries, taken as a whole, since the Balance Sheet Date.
11.16. PAYOFF AND TERMINATION OF PRIOR CREDIT AGREEMENT. The Agent
shall have received a payoff letter from the agents under the Prior Credit
Agreement (the "Prior Agents") indicating the amount of the loan obligations of
the Borrowers to the Prior Agents and the Prior Lenders to be discharged on the
Closing Date and an acknowledgment by such Prior Agents that upon receipt of
such funds such Prior Credit Agreement shall be terminated in its entirety.
11.17. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with
the transactions contemplated by this Credit Agreement, the other Loan Documents
and all other documents incident thereto shall be satisfactory in substance and
in form to the Lenders and to the Agent and the Agent's Special Counsel, and the
Lenders, the Agent and such counsel shall have received all information and such
counterpart originals or certified or other copies of such documents as the
Agent may reasonably request.
11.18. FURTHER ASSURANCES. All corporate and judicial proceedings
and all instruments and agreements to be executed and/or delivered in connection
with the transactions among the Borrowers, the Agent and the Lenders
contemplated by the Loan Documents shall be reasonably satisfactory in form and
substance to the Agent and the Lenders, and the Agent and the Lenders shall
have received all such information and documents or papers reasonably requested
by the Agent and the Lenders (it being understood that certain accountants'
work papers and certain litigation-related materials may be privileged and not
disclosable to the Agent and the Lenders, but that the Agent and the Lenders
and their professional advisors shall be able to discuss with the Borrowers and
their professional advisors the matters covered by such privileged materials in
a manner sufficient to enable the Lenders to complete their due diligence).
12. CONDITIONS TO ALL BORROWINGS.
The obligations of the Lenders to make any Loan, including the initial
Loan, and of the Agent to issue, extend or renew any Letter of Credit, in each
case whether on or after the Closing Date, shall also be subject to the
satisfaction of the following conditions precedent:
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12.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of any of the Borrowers and the Designated
Subsidiaries contained in this Credit Agreement, the other Loan Documents or in
any document or instrument required to be delivered pursuant to or in connection
with this Credit Agreement shall be true as of the date as of which they were
made and shall also be true at and as of the time of the making of such Loan or
the issuance, extension or renewal of such Letter of Credit, with the same
effect as if made at and as of that time (except to the extent of changes
resulting from transactions contemplated or permitted by this Credit Agreement
and the other Loan Documents and changes occurring in the ordinary course of
business that singly or in the aggregate are not materially adverse, and to the
extent that such representations and warranties relate expressly to an earlier
date) and no Default or Event of Default shall have occurred and be continuing.
12.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any law
or regulations thereunder or interpretations thereof that in the reasonable
opinion of any Lender would make it illegal for such Lender to make such Loan or
to participate in the issuance, extension or renewal of such Letter of Credit or
in the reasonable opinion of the Agent would make it illegal for the Agent to
issue, extend or renew such Letter of Credit.
12.3. GOVERNMENTAL REGULATION. Each Lender shall have received such
statements in substance and form reasonably satisfactory to such Lender as such
Lender shall require for the purpose of compliance with any applicable
regulations of the Comptroller of the Currency or the Board of Governors of the
Federal Reserve System.
12.4. BORROWING BASE REPORT. The Agent shall have received the most
recent Borrowing Base Report required to be delivered to the Agent in accordance
with Section 8.4(f) and the most recent Receivables Purchase Report required to
be delivered to the Agent in accordance with Section 8.4(g), in each case
including all supporting schedules and documentation reasonably required by the
Agent.
12.5. PAYMENT OF FEES. The Borrowers shall have paid all fees then
due and payable by them under this Credit Agreement, the Fee Letters or any
other Loan Document including the Agent's fees, the Letter of Credit Fees, and
the commitment fees.
13. EVENTS OF DEFAULT; ACCELERATION; ETC.
13.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the following
events ("Events of Default" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice or lapse of time, "Defaults") shall
occur:
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(a) the Borrowers shall fail to pay any principal of the Loans
or any Reimbursement Obligation when the same shall become due and
payable, whether at the stated date of maturity or any accelerated date
of maturity or at any other date fixed for payment;
(b) the Borrowers shall fail to pay any interest on the Loans,
the commitment fee, any Letter of Credit Fees, the Agent's fee, or
other sums due hereunder or under any of the other Loan Documents,
within two (2) days of the date when the same shall become due and
payable, whether at the stated date of maturity or any accelerated date
of maturity or at any other date fixed for payment;
(c) the Borrowers shall fail to comply with (i) any of their
covenants contained in Sections 8, 9 (other than Sections 9.1, 9.3,
9.4(d), 9.7, 9.8, 9.9) or 10 or any of the covenants contained in the
Security Documents; or (ii) any of their covenants contained in
Sections 9.1, 9.3, 9,7, 9.8 or 9.9 for more than five (5) days after
the occurrence of such failure to comply;
(d) the Borrowers shall fail to perform any term, covenant or
agreement contained herein or in any of the other Loan Documents (other
than those specified elsewhere in this Section 13.1) for thirty (30)
days after written notice of such failure has been given to the
Borrowers by the Agent;
(e) any representation or warranty of the Borrowers in this
Credit Agreement or any of the other Loan Documents or in any other
document or instrument delivered pursuant to or in connection with this
Credit Agreement shall prove to have been false in any material respect
upon the date when made or deemed to have been made or repeated;
(f) any of the Borrowers or the Designated Subsidiaries shall
fail to pay at maturity, or within any applicable period of grace, any
obligation for borrowed money or credit received in excess of
$5,000,000 in the aggregate, including, without limitation, the
Indenture and Debentures, or in respect of any Consolidated Capitalized
Leases, or fail to observe or perform any material term, covenant or
agreement contained in any agreement by which it is bound, evidencing
or securing borrowed money or credit received in excess of $5,000,000
in the aggregate, including, without limitation, the Indenture and
Debentures, or in respect of any Consolidated Capitalized Leases for
such period of time as would permit (assuming the giving of appropriate
notice if required) the holder or holders thereof or of any obligations
issued thereunder to accelerate the maturity thereof;
(g) either of the Borrowers or any Subsidiary of Zale shall
make an assignment for the benefit of creditors, or admit in writing
its inability to pay or generally fail to pay its debts as they mature
or become due, or shall
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petition or apply for the appointment of a trustee or other custodian,
liquidator or receiver of such Borrower, or such Subsidiary of Zale or
of any substantial part of the assets of such Borrower, or such
Subsidiary of Zale or shall commence any case or other proceeding
relating to such Borrower, or such Subsidiary of Zale under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation or similar law of any jurisdiction,
now or hereafter in effect, or shall take any action to authorize or in
furtherance of any of the foregoing, or if any such petition or
application shall be filed or any such case or other proceeding shall
be commenced against such Borrower, or such Subsidiary of Zale and such
Borrower, or such Subsidiary of Zale shall indicate its written
approval thereof, written consent thereto or formal acquiescence
therein;
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating either of the
Borrowers or any Subsidiary of Zale bankrupt or insolvent, or approving
a petition in any such case or other proceeding, or a decree or order
for relief is entered in respect of either of the Borrowers or any
Subsidiary of Zale in any involuntary case under federal bankruptcy
laws as now or hereafter constituted or, if earlier, sixty (60) days
shall pass from the date of filing of such involuntary case without the
dismissal thereof;
(i) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than sixty (60) days, whether or not consecutive,
any final judgment against either of the Borrowers or any Subsidiary of
Zale that, with other outstanding final judgments, undischarged,
against either of the Borrowers or any Subsidiary of Zale exceeds in
the aggregate $1,000,000;
(j) if any of the Loan Documents shall be canceled,
terminated, revoked or rescinded otherwise than in accordance with the
terms thereof or Section 6.3 hereof or with the express prior written
agreement, consent or approval of the requisite Lenders in accordance
with Section 26, or any action at law, suit or in equity or other legal
proceeding to cancel, revoke or rescind any of the Loan Documents shall
be commenced by or on behalf of either of the Borrowers party thereto
or any of their respective stockholders, or any court or any other
governmental or regulatory authority or agency of competent
jurisdiction shall make a determination that, or issue a judgment,
order, decree or ruling to the effect that, any material provision of
one or more of the Loan Documents is illegal, invalid or unenforceable
in accordance with the terms thereof;
(k) with respect to any Guaranteed Pension Plan, an ERISA
Reportable Event shall have occurred and such event would reasonably be
expected to result in liability of either Borrower or any Designated
Subsidiary
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to the PBGC or such Guaranteed Pension Plan in an aggregate amount
exceeding $1,000,000 and such event in the circumstances occurring
reasonably would constitute grounds for the termination of such
Guaranteed Pension Plan by the PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer
such Guaranteed Pension Plan; or a trustee shall have been appointed by
the United States District Court to administer such Guaranteed Pension
Plan; or the PBGC shall have instituted proceedings to terminate such
Guaranteed Pension Plan;
(l) either of the Borrowers or any Designated Subsidiary shall
be enjoined, restrained or in any way prevented by the order of any
court or any administrative or regulatory agency from conducting any
significant part of its domestic business in the continental United
States and such order shall continue in effect for more than thirty
(30) days;
(m) there shall occur any material damage to, or loss, theft
or destruction of, any Collateral, whether or not insured, or any
strike, lockout, labor dispute, embargo, condemnation, act of God or
public enemy, or other casualty, which in any such case causes, for
more than fifteen (15) consecutive days, the cessation or substantial
curtailment of revenue producing activities at any facility of either
of the Borrowers or any Designated Subsidiary if such event or
circumstance is not covered by business interruption insurance and
would have a materially adverse effect on the business or financial
condition of the Borrowers and the Designated Subsidiaries taken as a
whole;
(n) there shall occur the loss, suspension or revocation of,
or failure to renew, any license or permit now held or hereafter
acquired by either of the Borrowers or any Designated Subsidiary if
such loss, suspension, revocation or failure to renew would have a
materially adverse effect on the business or financial condition of the
Borrowers and the Designated Subsidiaries taken as a whole;
(o) either of the Borrowers or any Designated Subsidiary shall
be indicted for a federal crime, a punishment for which, assuming a
conviction, would reasonably be expected to include the forfeiture of
any assets of Zale Delaware included in the Borrowing Base or any
assets of either Borrower or any Designated Subsidiary not included in
the Borrowing Base but having a fair market value in excess of
$5,000,000;
(p) Zale shall, at any time, legally or beneficially own less
than one hundred percent (100%) of the issued and outstanding shares of
the capital stock of Zale Delaware (unless Zale and Zale Delaware are
merged or consolidated as permitted by Section 9.5.1 hereof);
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(q) there shall occur, with respect to any of the Receivables
Securitization Facility Documents, any Purchase Termination Date, or
Amortization Commencement Date;
(r) any and all payments and other amounts to which any of the
Borrowers or the Designated Subsidiaries is entitled pursuant to the
Receivables Securitization Facility Documents (which shall not include
proceeds of ZFT Receivables not due to the Borrowers or the Designated
Subsidiaries), including amounts in respect of Zale Delaware's interest
in ZFT or any other Receivables Securitization Subsidiary or amounts
under the Subordinated Notes, shall not have been paid directly into
the FNBB Concentration Accounts or other depository accounts maintained
by the Borrowers, or either of them, and subject to agency agreements
reasonably satisfactory in all respects to the Agent, in accordance
with the terms and conditions of the Receivables Purchase Payment
Instructions; provided however, that no Event of Default shall occur
under this Section 13.1(r) if, within one (1) Business Day following
any unintended failure to pay such payments or other amounts into the
FNBB Concentration Accounts or such other accounts subject to such
agency agreements, all such amounts have been deposited into the FNBB
Concentration Accounts or such other accounts subject to such agency
agreements; or
(s) Any of the Borrowers or the Designated Subsidiaries shall
make Distributions during any fiscal year in excess of the limitations
set forth in Section 9.4(d), whether or not such Distributions were
permitted by the terms of such clause at the time when made; provided,
however, that any Distribution with respect to any fiscal year shall
not be an Event of Default because of losses occurring after the end of
the fiscal year in which such Distribution was made.
then, in any such event, so long as the same may be continuing, the Agent may,
and upon the request of the Majority Lenders shall, by notice in writing to the
Borrowers, declare all amounts owing with respect to this Credit Agreement, the
Notes and the other Loan Documents and all Reimbursement Obligations to be, and
they shall thereupon forthwith become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by each of the Borrowers; provided that in the event of
any Event of Default specified in Sections 13.1(g) or 13.1(h), or if any of the
obligations of the Borrowers under the Debentures shall be declared due and
payable before the stated maturity thereof (other than pursuant to a voluntary
redemption thereof by the Borrowers, or either of them), all such amounts shall
become immediately due and payable automatically and without any requirement of
notice from the Agent or any Lender (any such requirement for payment pursuant
to this Section 13.1 being an "Acceleration").
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13.2. TERMINATION OF COMMITMENTS. If any one or more of the Events
of Default specified in Section 13.1(g) or Section 13.1(h) shall occur, or if
any of the obligations of the Borrowers under the Debentures shall be declared
due and payable before the stated maturity thereof (other than pursuant to a
voluntary redemption thereof by the Borrowers, or either of them), any unused
portion of the credit hereunder shall forthwith terminate and each of the
Lenders shall be relieved of all further obligations to make Loans to the
Borrowers and the Agent shall be relieved of all further obligations to issue,
extend or renew Letters of Credit. If any other Event of Default shall have
occurred and be continuing, the Agent may and, upon the request of the Majority
Lenders shall, by notice to the Borrowers specifying the applicable Event of
Default or Events of Default, terminate the unused portion of the credit
hereunder, and upon such notice being given such unused portion of the credit
hereunder shall terminate immediately and each of the Lenders shall be relieved
of all further obligations to make Loans and the Agent shall be relieved of all
further obligations to issue, extend or renew Letters of Credit. No termination
of the credit hereunder shall relieve the Borrowers of any of the Obligations
or, without in any way limiting any rights of any of the Agent or the Lenders
to exercise any remedies available to them hereunder or under any of the other
Loan Documents or at law or in equity, any Lender of common law, if any, or
contractual confidentiality obligations to the Borrowers.
13.3. REMEDIES. In case any one or more of the Events of Default
shall have occurred and be continuing, and whether or not the Lenders shall have
accelerated the maturity of the Loans pursuant to Section 13.1, each Lender, if
owed any amount with respect to the Loans or the Reimbursement Obligations, may,
with the consent of the Majority Lenders but not otherwise, proceed to protect
and enforce its rights by suit in equity, action at law or other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Credit Agreement and the other Loan Documents or any
instrument pursuant to which the Obligations to such Lender are evidenced,
including as permitted by applicable law the obtaining of the ex parte
appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of such Lender. No remedy herein conferred upon any
Lender or the Agent or the holder of any Note or the purchaser of any Letter of
Credit Participation is intended to be exclusive of any other remedy, and each
and every 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 or by
statute or any other provision of law.
13.4. CASH COLLATERAL TO SECURE OUTSTANDING LETTERS OF CREDIT. In
case any one or more Events of Default shall have occurred and be continuing,
and whether or not the Lenders shall have accelerated the maturity of the Loans
pursuant to Section 13.1, the Agent may, or at the request of the Majority
Lenders shall, require the Borrowers to furnish upon one day's notice cash
collateral to secure the Borrowers'
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Obligations with respect to any Letters of Credit at the time outstanding in an
amount equal to one hundred and two percent (102%) of the Maximum Drawing Amount
of each such Letter of Credit as of such date and according to a Cash Collateral
Agreement and such other terms as the Agent shall reasonably require.
13.5. REPAYMENTS OF LOANS AND DISTRIBUTION OF COLLATERAL PROCEEDS
AFTER EVENT OF DEFAULT. In the event that following the occurrence and during
the continuance of an Event of Default, the Agent, the Collateral Agent or any
Lender, as the case may be, receives any monies (other than Excluded Proceeds),
whether pursuant to Section 8.13 or Section 13.4 or otherwise with respect to
the realization upon any of the Collateral, such monies shall be distributed for
application as follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of the Agent and the Collateral Agent for or in respect
of all reasonable costs, expenses, disbursements and losses which shall
have been incurred or sustained by the Agent and the Collateral Agent
in connection with the collection of such monies by the Agent and the
Collateral Agent, for the exercise, protection or enforcement by the
Agent and the Collateral Agent of all or any of the rights, remedies,
powers and privileges of the Agent and the Collateral Agent, for the
benefit of the Lenders, under this Credit Agreement or any of the other
Loan Documents or in respect of the Collateral or in support of any
provision of adequate indemnity to the Agent and the Collateral Agent
against any taxes or liens which by law shall have, or may have,
priority over the rights of the Agent and the Collateral Agent to such
monies;
(b) Second, to all other Obligations in such order or
preference as the Majority Lenders may determine; provided, however,
that distributions in respect of such obligations shall be made (i)
pari passu among Obligations with respect to the Agents' fees payable
pursuant to Section 5.2 and all other Obligations and (ii) Obligations
owing to the Lenders with respect to each type of Obligation such as
interest, principal, fees and expenses, shall be made among the Lenders
pro rata; and provided, further, that the Agent may in its discretion
make proper allowance to take into account any Obligations not then due
and payable;
(c) Third, upon payment and satisfaction in full or other
provisions for payment in full satisfactory to each of the Lenders, the
Collateral Agent and the Agent of all of the Obligations, to the
payment of any obligations required to be paid pursuant to Section
9-504(1)(c) of the Uniform Commercial Code of the Commonwealth of
Massachusetts, including, so long as the Debentures are outstanding,
obligations to the Trustee for the benefit of the holders of
Debentures; and
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(d) Fourth, the excess, if any, shall be returned to the
Borrowers or to such other Persons as are entitled thereto.
14. SETOFF.
Regardless of the adequacy of any collateral, during the continuance of
any Event of Default, any deposits or other sums credited by or due from any of
the Lender or the Agent to the Borrowers (but specifically excluding any
Excluded Proceeds which may come into the possession of any Lender or the Agent)
may be applied to or set off by such Lender against the payment of Obligations
and any and all other liabilities, direct, or indirect, absolute or contingent,
due or to become due, now existing or hereafter arising, of the Borrowers to
such Lender. Each of the Lenders agrees with each other Lender that (a) if an
amount to be set off is to be applied to Indebtedness of the Borrowers to such
Lender, other than Indebtedness evidenced by the Notes held by such Lender or,
as the case may be, constituting Reimbursement Obligations owed to, such Lender,
such amount shall be applied ratably to such other Indebtedness and to the
Indebtedness evidenced by all such Notes held by such Lender or, as the case may
be, constituting Reimbursement Obligations owed to such Lender, and (b) if such
Lender shall receive from either of the Borrowers, whether by voluntary payment,
exercise of the right of setoff, counterclaim, cross action, enforcement of the
claim evidenced by the Notes held by, or, as the case may be, constituting
Reimbursement Obligations owed to, such Lender, by proceedings against the
Borrowers at law or in equity in accordance with the terms of this Credit
Agreement, or by proof thereof in bankruptcy, reorganization, liquidation,
receivership or similar proceedings, or otherwise, and shall retain and apply to
the payment of the Note or Notes held by or, as the case may be, Reimbursement
Obligations owed to, such Lender any amount in excess of its ratable portion of
the payments received by all of the Lenders with respect to the Notes held by
or, as the case may be, Reimbursement Obligations owed to, all of the Lenders,
such Lender will make such disposition and arrangements with the other Lenders
with respect to such excess, either by way of distribution, pro tanto assignment
of claims, subrogation or otherwise as shall result in each Lender receiving in
respect of the Notes held by it or, as the case may be, Reimbursement
Obligations owed it, its proportionate payment as contemplated by this Credit
Agreement; provided that if all or any part of such excess payment is thereafter
recovered from such Lender, such disposition and arrangements shall be rescinded
and the amount restored to the extent of such recovery, but without interest.
15. THE AGENT.
15.1. AUTHORIZATION.
(a) The Agent is authorized to take such action on behalf of
each of the Lenders and to exercise all such powers as are hereunder
and under any of the other Loan Documents and any related documents
delegated to the Agent,
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together with such powers as are reasonably incident thereto, provided
that no duties or responsibilities not expressly assumed herein or
therein shall be implied to have been assumed by the Agent.
(b) The relationship between the Agent and each of the Lenders
is that of an independent contractor. The use of the term "Agent" is
for convenience only and is used to describe, as a form of convention,
the independent contractual relationship between the Agent and each of
the Lenders. Nothing contained in this Credit Agreement nor the other
Loan Documents shall be construed to create an agency, trust or other
fiduciary relationship between the Agent and any of the Lenders.
(c) As an independent contractor empowered by the Lenders to
exercise certain rights and perform certain duties and responsibilities
hereunder and under the other Loan Documents, the Agent is nevertheless
a "representative" of the Lenders, as that term is defined in Article 1
of the Uniform Commercial Code, for purposes of actions for the benefit
of the Lenders and the Agent with respect to all collateral security
and guaranties contemplated by the Loan Documents. Such actions include
the designation of the Agent as "secured party", "mortgagee" or the
like on all financing statements and other documents and instruments,
whether recorded or otherwise, relating to the attachment, perfection,
priority or enforcement of any security interests, mortgages or deeds
of trust in collateral security intended to secure the payment or
performance of any of the Obligations, all for the benefit of the
Lenders and the Agent.
15.2. EMPLOYEES AND AGENTS. The Agent may exercise its powers and
execute its duties by or through employees or agents and shall be entitled to
take, and to rely on, advice of counsel concerning all matters pertaining to its
rights and duties under this Credit Agreement and the other Loan Documents. The
Agent may utilize the services of such Persons as the Agent in its sole
discretion may reasonably determine, and all reasonable fees and expenses of any
such Persons shall be paid by the Borrowers.
15.3. NO LIABILITY. Neither the Agent nor any of its shareholders,
directors, officers or employees nor any other Person assisting them in their
duties nor any agent or employee thereof, shall be liable for any waiver,
consent or approval given or any action taken, or omitted to be taken, in good
faith by it or them hereunder or under any of the other Loan Documents, or in
connection herewith or therewith, or be responsible for the consequences of any
oversight or error of judgment whatsoever, except that the Agent or such other
Person, as the case may be, may be liable for losses due to its willful
misconduct or gross negligence.
15.4. NO REPRESENTATIONS. The Agent shall not be responsible for the
execution or validity or enforceability of this Credit Agreement, the Notes, the
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Letters of Credit, any of the other Loan Documents or any instrument at any time
constituting, or intended to constitute, collateral security for the Notes, or
for the value of any such collateral security or for the validity,
enforceability or collectability of any such amounts owing with respect to the
Notes, or for any recitals or statements, warranties or representations made
herein or in any of the other Loan Documents or in any certificate or instrument
hereafter furnished to it by or on behalf of the Borrowers, or be bound to
ascertain or inquire as to the performance or observance of any of the terms,
conditions, covenants or agreements herein or in any instrument at any time
constituting, or intended to constitute, collateral security for the Notes or to
inspect any of the properties, books or records of the Borrowers or any of their
Subsidiaries. The Agent shall not be bound to ascertain whether any notice,
consent, waiver or request delivered to it by the Borrowers or any holder of any
of the Notes shall have been duly authorized or is true, accurate and complete.
The Agent has not made nor does it now make any representations or warranties,
express or implied, nor does it assume any liability to the Lenders, with
respect to the credit worthiness or financial conditions of the Borrowers or any
of their Subsidiaries. Each Lender acknowledges that it has, independently and
without reliance upon the Agent or any other Lender, and based upon such
information and documents as it has deemed appropriate, made its own credit
analysis and decision to enter into this Credit Agreement.
15.5. PAYMENTS.
15.5.1. PAYMENTS TO AGENT. A payment by the Borrowers to
the Agent hereunder or any of the other Loan Documents for the
account of any Lender shall constitute a payment to such Lender. The
Agent agrees promptly to distribute to each Lender such Lender's pro
rata share of payments received by the Agent for the account of the
Lenders except as otherwise expressly provided herein or in any of the
other Loan Documents.
15.5.2. DISTRIBUTION BY AGENT. If in the opinion of the
Agent the distribution of any amount received by it in such capacity
hereunder, under the Notes or under any of the other Loan Documents
might involve it in liability, it may refrain from making distribution
until its right to make distribution shall have been adjudicated by a
court of competent jurisdiction. If a court of competent jurisdiction
shall adjudge that any amount received and distributed by the Agent is
to be repaid, each Person to whom any such distribution shall have been
made shall either repay to the Agent its proportionate share of the
amount so adjudged to be repaid or shall pay over the same in such
manner and to such Persons as shall be determined by such court.
15.5.3. DELINQUENT LENDERS. Notwithstanding anything to the
contrary contained in this Credit Agreement or any of the other Loan
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Documents, any Lender that fails (i) to make available to the Agent its
pro rata share of any Loan or to purchase any Letter of Credit
Participation or (ii) to comply with the provisions of Section 14 with
respect to making dispositions and arrangements with the other Lenders,
where such Lender's share of any payment received, whether by setoff or
otherwise, is in excess of its pro rata share of such payments due and
payable to all of the Lenders, in each case as, when and to the full
extent required by the provisions of this Credit Agreement, shall be
deemed delinquent (a "Delinquent Lender") and shall be deemed a
Delinquent Lender until such time as such delinquency is satisfied. A
Delinquent Lender shall be deemed to have assigned any and all payments
due to it from the Borrowers, whether on account of outstanding Loans,
Unpaid Reimbursement Obligations, interest, fees or otherwise, to the
remaining nondelinquent Lenders for application to, and reduction of,
their respective pro rata shares of all outstanding Loans and Unpaid
Reimbursement Obligations. The Delinquent Lender hereby authorizes the
Agent to distribute such payments to the nondelinquent Lenders in
proportion to their respective pro rata shares of all outstanding Loans
and Unpaid Reimbursement Obligations. A Delinquent Lender shall be
deemed to have satisfied in full a delinquency when and if, as a result
of application of the assigned payments to all outstanding Loans and
Unpaid Reimbursement Obligations of the nondelinquent Lenders, the
Lenders' respective pro rata shares of all outstanding Loans and Unpaid
Reimbursement Obligations have returned to those in effect immediately
prior to such delinquency and without giving effect to the nonpayment
causing such delinquency.
15.6. HOLDERS OF NOTES. The Agent may deem and treat the payee of
any Note or the purchaser of any Letter of Credit Participation as the absolute
owner or purchaser thereof for all purposes hereof until it shall have been
furnished in writing with a different name by such payee or by a subsequent
holder, assignee or transferee.
15.7. INDEMNITY. The Lenders ratably agree hereby to indemnify and
hold harmless the Agent and the Collateral Agent from and against any and all
claims, actions and suits (whether groundless or otherwise), losses, damages,
costs, expenses (including any expenses for which the Agent or the Collateral
Agent has not been reimbursed by the Borrowers as required by Section 16), and
liabilities of every nature and character arising out of or related to this
Credit Agreement, the Notes, or any of the other Loan Documents or the
transactions contemplated or evidenced hereby or thereby, or the Agent's or the
Collateral Agent's actions taken hereunder or thereunder, except to the extent
that any of the same shall be directly caused by the Agent's willful misconduct
or gross negligence.
15.8. AGENT AS LENDER. In its individual capacity, FNBB shall have
the same obligations and the same rights, powers and privileges in respect to
its Commitment
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and the Loans made by it, and as the holder of any of the Notes and as the
purchaser of any Letter of Credit Participations, as it would have were it not
also the Agent and the Collateral Agent.
15.9. RESIGNATION; REMOVAL. The Agent may resign at any time by
giving sixty (60) days prior written notice thereof to the Lenders and the
Borrowers. Upon any such resignation, the Majority Lenders shall have the right
to appoint a successor Agent. Unless an Event of Default shall have occurred and
be continuing, such successor Agent shall be reasonably acceptable to the
Borrowers. If no successor Agent shall have been so appointed by the Majority
Lenders 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 Lenders, appoint a successor Agent, which shall be a
financial institution having a rating of not less than A or its equivalent by
Standard & Poor's Corporation and which, unless an Event of Default shall have
occurred and be continuing, shall be reasonably acceptable to the Borrowers.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, 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, the provisions of this Credit Agreement and the
other Loan Documents 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. The
Agent may be removed by a vote of the Majority Lenders for cause or in the event
that FNBB shall have entered into assignments of its interest under this Credit
Agreement resulting in its Commitment being reduced to an amount less than
$10,000,000. In the event of any such removal of the Agent pursuant to the
foregoing sentence, the provisions of this Section 15.9 shall apply to the
appointment of a successor.
15.10. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT. Each Lender
hereby agrees that, upon learning of the existence of a Default or an Event of
Default, it shall promptly notify the Agent thereof, but it shall have no
liability for failure to do so. The Agent hereby agrees that upon receipt of any
notice under this Section 15.10 it shall promptly notify the other Lenders of
the existence of such Default or Event of Default.
15.11. DUTIES IN THE CASE OF ENFORCEMENT. In case one of more Events
of Default have occurred and shall be continuing, and whether or not
acceleration of the Obligations shall have occurred, the Agent shall, if (i) so
requested by the Majority Lenders and (ii) the Lenders have provided to the
Agent such additional indemnities and assurances against expenses and
liabilities as the Agent may reasonably request, proceed to enforce the
provisions of the Security Documents authorizing the sale or other disposition
of all or any part of the Collateral and exercise all or any such other legal
and equitable and other rights or remedies as it may have in respect of such
Collateral. The Majority Lenders may direct the Agent in writing as to the
method
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and the extent of any such sale or other disposition, the Lenders hereby
agreeing to indemnify and hold the Agent harmless from all liabilities incurred
in respect of all actions taken or omitted in accordance with such directions,
provided that the Agent need not comply with any such direction to the extent
that the Agent reasonably believes the Agent's compliance with such direction to
be unlawful or commercially unreasonable in any applicable jurisdiction.
16. EXPENSES.
The Borrowers jointly and severally agree to pay (i) the reasonable
costs of producing and reproducing this Credit Agreement, the other Loan
Documents and the other agreements and instruments mentioned herein, (ii) any
taxes (including any interest and penalties in respect thereto) payable by the
Agent or any of the Lenders (other than taxes based upon the Agent's or any
Lender's net income) on or with respect to the transactions contemplated by this
Credit Agreement (the Borrowers hereby agreeing to indemnify the Agent and each
Lender with respect thereto), (iii) the reasonable fees, expenses and
disbursements of the Agent's Special Counsel or any local counsel to the Agent
incurred in connection with the preparation, administration or interpretation of
the Loan Documents and other instruments mentioned herein, each closing
hereunder, and amendments, modifications, approvals, consents or waivers hereto
or hereunder, (iv) the reasonable fees, expenses and disbursements of the Agent
and the Collateral Agent incurred by the Agent and the Collateral Agent in
connection with the preparation, administration or interpretation of the Loan
Documents and other instruments mentioned herein, (v) any reasonable fees,
costs, expenses and bank charges, including bank charges for returned checks,
incurred by the Agent or the Collateral Agent in establishing, maintaining or
handling the FNBB Concentration Accounts and any agency accounts, lock box
accounts and other accounts for the collection of any of the Collateral; (vi)
all reasonable out-of-pocket expenses incurred by the Agent or the Collateral
Agent or any Lender in connection with periodic field examinations, monitoring
of Collateral and other assets, and otherwise in maintaining and monitoring the
transactions contemplated hereby, in each case in accordance with the terms of
this Credit Agreement; (vii) all reasonable out-of-pocket expenses (including
without limitation reasonable attorneys' fees and costs, which attorneys may be
employees of any Lender or the Agent or the Collateral Agent, and reasonable
consulting, accounting, appraisal, investment banking and similar professional
fees and charges) incurred by the Agent or the Collateral Agent in connection
with (A) the enforcement of or preservation of rights under any of the Loan
Documents against the Borrowers or the administration thereof after the
occurrence of a Default or Event of Default and (B) any litigation, proceeding
or dispute whether arising hereunder or otherwise, in any way related to the
Agent's or the Collateral Agent's relationship with the Borrowers or any of
their Subsidiaries and (viii) all reasonable fees, expenses and disbursements of
the Agent and the Collateral Agent incurred in connection with
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UCC searches or UCC filings. The covenants of this Section 16 shall survive
payment or satisfaction of all other Obligations.
17. INDEMNIFICATION.
The Borrowers jointly and severally agree to indemnify and hold
harmless the Agent, the Collateral Agent and the Lenders from and against any
and all claims, actions and suits whether groundless or otherwise, and from and
against any and all liabilities, losses, damages and expenses of every nature
and character arising out of (a) this Credit Agreement or any of the other Loan
Documents or the transactions contemplated hereby or any actual or proposed use
by the Borrowers of the proceeds of any of the Loans or Letters of Credit, (b)
the reversal or withdrawal of any provisional credits granted by the Agent upon
the transfer of funds to the FNBB Concentration Accounts from Corestates Bank,
N.A. or any other depository institution satisfactory to the Agent or in
connection with the provisional honoring of checks or other items, (c) the
Borrowers entering into or performing this Credit Agreement or any of the other
Loan Documents, (d) with respect to the Borrowers, the Designated Subsidiaries
and their respective properties and assets, the violation of any Environmental
Law, the presence, disposal, escape, seepage, leakage, spillage, discharge,
emission, release or threatened release of any Hazardous Substances or any
action, suit, proceeding or investigation brought or threatened with respect to
any Hazardous Substances (including, but not limited to, claims with respect to
wrongful death, personal injury or damage to property), or (e) any sales, use,
transfer, documentary and stamp taxes (but excluding any taxes based upon or
measured by the income or profits of any Lender, the Collateral Agent or the
Agent) and any recording and filing fees paid by the Agent, the Collateral Agent
or the Lenders and which arise by reason of the transactions contemplated hereby
or by any of the Loan Documents, in each case including, without limitation, the
reasonable fees and disbursements of counsel and allocated costs of internal
counsel incurred in connection with any such investigation, litigation or other
proceeding; provided, however, that such indemnity shall not apply to the
portion, if any, of any such losses, claims, damages, liabilities or related
expenses of any Person seeking indemnification that is determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted from
the willful misconduct or gross negligence of such Person seeking
indemnification; and provided further that such indemnity shall not apply to the
portion, if any, of any losses, claims, damages, liabilities or related expenses
of any Lender resulting solely and directly from any breach by such Lender of
its obligations under this Credit Agreement. In litigation, or the preparation
therefor, the Lenders, the Collateral Agent and the Agent shall be entitled to
select counsel to act on behalf of the Lenders, the Collateral Agent and the
Agent and, in addition to the foregoing indemnity, the Borrowers jointly and
severally agree to pay promptly the reasonable fees and expenses of such
counsel; provided, however, that in the event of any conflict of interest
between or among any Lender, the Collateral Agent and the Agent, the Person or
Persons with such conflict
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of interest shall be entitled to select its or their own counsel (which counsel
may be the employee of such Person or Persons), and, in addition to the
foregoing indemnity, the Borrowers also jointly and severally agree to pay
promptly the reasonable fees and expenses of such counsel. If, and to the extent
that the obligations of the Borrowers under this Section 17 are unenforceable
for any reason, each of the Borrowers hereby agrees to make the maximum
contribution to the payment in satisfaction of such obligations which is
permissible under applicable law. The covenants contained in this Section 17
shall survive payment or satisfaction in full of all other Obligations.
18. SURVIVAL OF COVENANTS, ETC.
All covenants, agreements, representations and warranties made herein,
in the Notes, in any of the other Loan Documents or in any documents or other
papers delivered by or on behalf of the Borrowers or any of the Designated
Subsidiaries pursuant hereto shall be deemed to have been relied upon by the
Lenders and the Agent, notwithstanding any investigation heretofore or hereafter
made by any of them, and shall survive the making by the Lenders of any of the
Loans and the issuance, extension or renewal of any Letters of Credit, as herein
contemplated, and shall continue in full force and effect so long as any Letter
of Credit or any amount due under this Credit Agreement or the Notes or any of
the other Loan Documents remains outstanding or any Lender has any obligation to
make any Loans or the Agent has any obligation to issue, extend or renew any
Letter of Credit, and for such further time as may be otherwise expressly
specified in this Credit Agreement. All statements contained in any certificate
or other paper delivered to any Lender or the Agent at any time on or after the
Closing Date by or on behalf of the Borrowers or any of the Designated
Subsidiaries pursuant hereto or in connection with the transactions contemplated
hereby shall constitute representations and warranties by such Borrower or such
Designated Subsidiary hereunder.
19. ASSIGNMENT AND PARTICIPATION.
19.1. CONDITIONS TO ASSIGNMENT BY LENDERS. Except as provided
herein, each Lender may assign to one or more Eligible Assignees all or a
portion of its interests, rights and obligations under this Credit Agreement
(including all or a portion of its Commitment Percentage and Commitment and the
same portion of the Loans at the time owing to it, the Notes held by it and its
participating interest in the risk relating to any Letters of Credit); provided
that (a) the Agent shall have given its prior written consent to such
assignment, (b)(i) so long as no Default or Event of Default has occurred and
is continuing, the Borrowers shall have given their prior written consent to
such assignment, which consent will not be unreasonably withheld or delayed,
and (ii) during the continuance of any Default or Event of Default, the
Borrowers shall have given their prior written consent in the case of any such
assignment to an Excluded Assignee, (c) each such assignment shall be of a
constant, and not a varying, percentage of all the assigning Lender's rights
and obligations
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under this Credit Agreement, (d) each assignment shall be in an amount that is
at least equal to $10,000,000, (e) no Lender shall enter into an assignment
which would result in such Lender's Commitment being reduced to less than
$10,000,000, except that any Lender may assign all of its rights and obligations
under this Credit Agreement and reduce its Commitment to $0, and (f) the parties
to such assignment shall execute and deliver to the Agent, for recording in the
Register (as hereinafter defined), an Assignment and Acceptance, substantially
in the form of Exhibit F hereto (an "Assignment and Acceptance"), together with
any Notes subject to such assignment. Upon such execution, delivery, acceptance
and recording, from and after the effective date specified in each Assignment
and Acceptance, which effective date shall be at least five (5) Business Days
after the execution thereof, (i) the assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder, and (ii) the assigning Lender shall, to
the extent provided in such assignment and upon payment to the Agent of the
registration fee referred to in Section 19.3, be released from its obligations
under this Credit Agreement. Notwithstanding the foregoing, any assigning Lender
shall retain its rights to be indemnified pursuant to Section 17 hereof with
respect to claims, actions and suits arising from events or circumstances
occurring prior to the date of such assignment.
19.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS; COVENANTS.
By executing and delivering an Assignment and Acceptance, the parties to the
assignment thereunder confirm to and agree with each other and the other
parties hereto as follows:
(a) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, the assigning Lender makes no
representation or warranty, express or implied, and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Credit Agreement or
the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Credit Agreement, the other Loan Documents
or any other instrument or document furnished pursuant hereto or the
attachment, perfection or priority of any security interest or
mortgage,
(b) the assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition
of the Borrowers and their Subsidiaries or any other Person primarily
or secondarily liable in respect of any of the Obligations, or the
performance or observance by the Borrowers or any other Person
primarily or secondarily liable in respect of any of the Obligations of
any of their obligations under this Credit Agreement or any of the
other Loan Documents or any other instrument or document furnished
pursuant hereto or thereto;
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(c) such assignee confirms that it has received a copy of this
Credit Agreement, together with copies of the most recent financial
statements referred to in Section 7.4 and Section 8.4 and such other
documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and
Acceptance;
(d) such assignee will, independently and without reliance
upon the assigning Lender, the Agent or any other Lender 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 this Credit Agreement;
(e) such assignee represents and warrants that it is an
Eligible Assignee;
(f) such assignee appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under
this Credit Agreement and the other Loan Documents as are delegated to
the Agent by the terms hereof or thereof, together with such powers as
are reasonably incidental thereto;
(g) such assignee agrees that it will perform in accordance
with their terms all of the obligations that by the terms of this
Credit Agreement are required to be performed by it as a Lender;
(h) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance; and
(i) such assignee acknowledges that it has made arrangements
with the assigning Lender satisfactory to such assignee with respect to
its pro rata share of Letter of Credit Fees in respect of outstanding
Letters of Credit.
19.3. REGISTER. The Agent shall maintain a copy of each Assignment
and Acceptance delivered to it and a register or similar list (the "Register")
for the recordation of the names and addresses of the Lenders and the Commitment
Percentage of, and principal amount of the Loans owing to and Letter of Credit
Participations purchased by, the Lenders from time to time. The entries in the
Register shall be conclusive, in the absence of manifest error, and the
Borrowers, the Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this Credit
Agreement. The Register shall be available for inspection by the Borrowers and
the Lenders at any reasonable time and from time to time upon reasonable prior
notice. Upon each such recordation, the assigning Lender agrees to pay to the
Agent a registration fee in the sum of $3,500.
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19.4. NEW NOTES. Upon its receipt of an Assignment and Acceptance
executed by the parties to such assignment, together with each Note subject to
such assignment, the Agent shall (i) record the information contained therein in
the Register, and (ii) give prompt notice thereof to the Borrowers and the
Lenders (other than the assigning Lender). Within five (5) Business Days after
receipt of such notice, the Borrowers, at their own expense, shall execute and
deliver to the Agent, in exchange for each surrendered Note, a new Note to the
order of such Eligible Assignee in an amount equal to the amount assumed by such
Eligible Assignee pursuant to such Assignment and Acceptance and, if the
assigning Lender has retained some portion of its obligations hereunder, a new
Note to the order of the assigning Lender in an amount equal to the amount
retained by it hereunder. Such new Notes shall provide that they are
replacements for the surrendered Notes, shall be in an aggregate principal
amount equal to the aggregate principal amount of the surrendered Notes, shall
be dated the effective date of such Assignment and Acceptance and shall
otherwise be substantially in the form of the assigned Notes. Within five (5)
days of issuance of any new Notes pursuant to this Section 19.4, the Borrowers
shall deliver an opinion of counsel, addressed to the Lenders and the Agent,
relating to the due authorization, execution and delivery of such new Notes and
the legality, validity and binding effect thereof, in form and substance
satisfactory to the Lenders. The surrendered Notes shall be canceled and
returned to the Borrowers.
19.5. PARTICIPATIONS. Each Lender may sell participations to one or
more banks or other entities in all or a portion of such Lender's rights and
obligations under this Credit Agreement and the other Loan Documents; provided
that (i) each such participation shall be in an amount of not less than
$10,000,000, (ii) any such sale or participation shall not affect the rights and
duties of the selling Lender hereunder to the Borrowers, (iii) such participants
shall not be entitled to the benefits of the yield protection and
indemnification provisions contained in Sections 5.3, 5.7, 5.8 and 5.10 hereof,
and (iv) the only rights granted to the participant pursuant to such
participation arrangements with respect to waivers, amendments or modifications
of the Loan Documents shall be the rights to approve waivers, amendments or
modifications that would reduce the principal of or the interest rate on any
Loans, extend the term or increase the amount of the Commitment of such Lender
as it relates to such participant, reduce the amount of any commitment fees or
Letter of Credit Fees to which such participant is entitled or extend any
regularly scheduled payment date for principal or interest.
19.6. CONFIDENTIALITY. Each of the Lenders and the Agent agrees (on
behalf of itself and each of its directors, officers, employees and
representatives) that it will treat in confidence the information obtained
pursuant to this Credit Agreement which is designated by the Borrowers, or
either of them, as confidential and will not, without the consent of the
Borrowers, disclose such information to any third party other than any employee,
director, agent, attorney, accountant or other professional
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advisor of such Lender or the Agent who has agreed to keep such information
confidential. Notwithstanding the foregoing, each of the Borrowers hereby
authorizes each of the Agent and the Lenders to disclose information obtained
pursuant to this Credit Agreement (a) to the Agent or any other Lender; (b) to
other banks or financial institutions who are assignees, participants or
potential assignees or participants in the Obligations, so long as each such
assignee or participant (or potential assignee or participant) first executes
and delivers to the Agent or, as the case may be, such Lender, for the benefit
of the Borrowers, a confidentiality agreement substantially in the form of
Exhibit G hereto; (c) in response to any request or order of any court or other
governmental or regulatory authority having jurisdiction over the Agent or such
Lender or as may be otherwise required pursuant to any statute, rule,
regulation, judicial process or other requirement of law; (d) to bank examiners,
auditors and accountants, or (e) where such information has been publicly
disclosed other than in breach of this Credit Agreement.
19.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWERS. If any
assignee Lender is an Affiliate of either of the Borrowers, then any such
assignee Lender shall have no right to vote as a Lender hereunder or under any
of the other Loan Documents for purposes of granting consents or waivers or for
purposes of agreeing to amendments or other modifications to any of the Loan
Documents or for purposes of making requests to the Agent pursuant to Section
13.1 or Section 13.2, and the determination of the Majority Lenders shall for
all purposes of this Agreement and the other Loan Documents be made without
regard to such assignee Lender's interest in any of the Loans. If any Lender
sells a participating interest in any of the Loans or Reimbursement Obligations
to a participant, and such participant is either of the Borrowers or an
Affiliate of either of the Borrowers, then such transferor Lender shall promptly
notify the Agent of the sale of such participation. A transferor Lender shall
have no right to vote as a Lender hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or modifications to any of the Loan Documents or for
purposes of making requests to the Agent pursuant to Section 13.1 or Section
13.2 to the extent that such participation is beneficially owned by either of
the Borrowers or any Affiliate of either of the Borrowers, and the determination
of the Majority Lenders shall for all purposes of this Agreement and the other
Loan Documents be made without regard to the interest of such transferor Lender
in the Loans to the extent of such participation.
19.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Lender
shall retain its rights to be indemnified pursuant to Section 17 with respect
to any claims or actions arising prior to the date of such assignment. Anything
contained in this Section 19 to the contrary notwithstanding, any Lender may at
any time pledge all or any portion of its interest and rights under this Credit
Agreement (including all or any portion of its Notes) to any of the twelve
Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12
U.S.C. Section 341. No such pledge or the enforcement thereof
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shall release the pledgor Lender from its obligations hereunder or under any of
the other Loan Documents.
19.9. ASSIGNMENT BY BORROWERS. Neither of the Borrowers shall assign
or transfer any of its rights or obligations under any of the Loan Documents
without the prior written consent of each of the Lenders.
19.10. ADDITIONAL COMMITMENT AMOUNTS. (a) Upon request by the Agent,
the Borrowers, and the applicable New Lender (as defined below) at any time and
from time to time, so long as no Default or Event of Default shall have occurred
and be continuing, (i) any Person who would then qualify as an Eligible Assignee
hereunder may, prior to the Maturity Date, join this Credit Agreement as an
additional Lender (such Person being herein referred to as a "New Lender") and
be entitled to all the rights and interests and obligated to perform all of the
obligations and duties of a Lender with respect to a specified additional
Commitment hereunder and (ii) any existing Lender may increase the amount of its
Commitment hereunder (such Person being herein referred to as an "Increasing
Lender"), provided that (A) each of the Agent and the Borrowers shall, in its
reasonable discretion, have given its prior written consent to the addition of
such New Lender as a party to this Credit Agreement or, as the case may be, the
increasing of the Commitment of such Increasing Lender, (B) each New Lender or,
as the case may be, Increasing Lender, the Agent, and the Borrowers shall have
executed and delivered an instrument of adherence in the form of Exhibit H
hereto (the "Instrument of Adherence") pursuant to which such New Lender or, as
the case may be, Increasing Lender, shall agree to be bound as a Lender by the
terms and conditions hereof and the other Loan Documents, and to make Loans to
the Borrowers in accordance with this Credit Agreement, and which Instrument of
Adherence shall specify the new Commitment of such New Lender or, as the case
may be, Increasing Lender, (C) the additional Commitment provided by any New
Lender or, as the case may be, Increasing Lender (such additional Commitment,
the "Additional Commitment Amount") must be at least $10,000,000 for any New
Lender and $5,000,000 for any Increasing Lender, (D) such Additional Commitment
Amount, when aggregated with each other Additional Commitment Amount provided by
a New Lender or an Increasing Lender pursuant to this Section 19.10, shall not
exceed $30,000,000, and (E) such New Lender or Increasing Lender, as the case
may be, and the Agent shall have received such opinions of counsel to the
Borrowers, such evidence of proper corporate organization, existence, authority,
and appropriate corporate proceedings with respect to the Borrowers, and such
other certificates, instruments, and documents, as they shall have reasonably
requested in connection with such Instrument of Adherence.
(b) Upon any New Lender's or Increasing Lender's, as the case may be,
execution of an Instrument of Adherence and the Borrowers' and the Agent's
consent thereto, the Commitment Percentage of each Lender shall be recalculated
and the aggregate Total Commitment shall be adjusted appropriately so as to
reflect the
<PAGE> 114
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addition of the Additional Commitment Amount. Promptly thereafter, the Agent
shall notify each of the Lenders of the joinder hereunder of such New Lender,
or, as the case may be, of the increase of the Commitment of such Increasing
Lender, the resulting increase in the Total Commitment and each Lender's new
Commitment Percentage, and shall also make appropriate notations in the Register
in accordance with Section 19.3 hereof.
(c) Upon the effective date of any Instrument of Adherence, the New
Lender, or, as the case may be, the Increasing Lender shall make all (if any)
such payments to the Agent, for delivery to the other Lenders as may be
necessary to result in the Loans made by such New Lender, or, as the case may
be, Increasing Lender, being equal to such New Lender's, or, as the case may be,
Increasing Lender's, Commitment Percentage (as then in effect) of the aggregate
principal amount of all Loans outstanding to the Borrowers as of such date. Each
of the Borrowers hereby agrees that any New Lender or Increasing Lender so
paying any such amount to the other Lenders pursuant to this Section 19.10 shall
be entitled to all the rights of a Lender hereunder and such payments to the
other Lenders shall constitute Loans held by such New Lender or, as the case may
be, Increasing Lender, hereunder and that such New Lender or, as the case may
be, Increasing Lender, may, to the fullest extent permitted by law, exercise all
of its rights of payment (including the right of set-off) with respect to such
amounts as fully as if such New Lender or, as the case may be, Increasing
Lender, had initially advanced the Borrowers the amount of such payments.
20. NOTICES, ETC.
Except as otherwise expressly provided in this Credit Agreement, all
notices and other communications made or required to be given pursuant to this
Credit Agreement or the Notes or any Letter of Credit Applications shall be in
writing and shall be delivered in hand, mailed by United States registered or
certified first class mail, postage prepaid, sent by overnight courier, or sent
by telegraph, telecopy, facsimile or telex and confirmed by delivery via courier
or postal service, addressed as follows:
(a) if to either of the Borrowers, at 901 W. Walnut Hill
Lane, Irving, Texas 75038-1003, Attention: Thomas E. Whiddon and Alan
P. Shor, or at such other address for notice as the Borrowers shall
last have furnished in writing to the Person giving the notice with a
copy to John C. Beane, Troutman Sanders, 600 Peachtree Street, N.E.,
Suite 5200, Atlanta, GA 30308-2216;
(b) if to the Agent, at 100 Federal Street, Boston,
Massachusetts 02110, USA, Attention: Bethann R. Halligan, Managing
Director, or such other address for notice as the Agent shall last have
furnished in writing to the
<PAGE> 115
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Person giving the notice with a copy to Robert A.J. Barry, Jr.,
Bingham, Dana & Gould, 150 Federal Street, Boston, MA 02110; and
(c) if to any Lender, at such Lender's address set forth on
Schedule 1 hereto, or such other address for notice as such Lender
shall have last furnished in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile and
(ii) if sent by registered or certified first-class mail, postage prepaid, on
the third Business Day following the mailing thereof.
21. GOVERNING LAW.
THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED
THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). EACH OF THE
BORROWERS AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH
OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT. EACH OF THE BORROWERS HEREBY WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY
SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.
22. HEADINGS.
The captions in this Credit Agreement and in the table of contents
hereto are for convenience of reference only and shall not define or limit the
provisions hereof.
23. COUNTERPARTS.
This Credit Agreement and any amendment hereof may be executed in
several counterparts and by each party on a separate counterpart, each of which
when executed and delivered shall be an original, and all of which together
shall constitute one instrument. In proving this Credit Agreement it shall not
be necessary to
<PAGE> 116
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produce or account for more than one such counterpart signed by the party
against whom enforcement is sought.
24. ENTIRE AGREEMENT, ETC.
The Loan Documents and any other documents executed in connection
herewith or therewith express the entire understanding of the parties with
respect to the transactions contemplated hereby. Neither this Credit Agreement
nor any term hereof may be changed, waived, discharged or terminated, except as
provided in Section 26.
25. WAIVER OF JURY TRIAL.
THE PARTIES HERETO HEREBY WAIVE THEIR RIGHT TO A JURY TRIAL WITH
RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH
THIS CREDIT AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS
OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND
OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW, EACH OF THE BORROWERS HEREBY WAIVES
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE
PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR
ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH OF THE BORROWERS
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY LENDER OR THE
AGENT HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH LENDER OR THE AGENT
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND
(B) ACKNOWLEDGES THAT THE AGENT AND THE LENDERS HAVE BEEN INDUCED TO ENTER INTO
THIS CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH THEY ARE PARTIES BY,
AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.
26. CONSENTS, AMENDMENTS, WAIVERS, ETC.
Any consent or approval required or permitted by this Credit Agreement
to be given by all of the Lenders may be given, and any term of this Credit
Agreement, the other Loan Documents or any other instrument related hereto or
mentioned herein may be amended, and the performance or observance by the
Borrowers of any terms of this Credit Agreement, the other Loan Documents or
such other instrument or the continuance of any Default or Event of Default may
be waived (either generally or in a particular instance and either retroactively
or prospectively) with, but only with, the written consent of each of the
Borrowers and the written consent of the Majority Lenders. Notwithstanding the
foregoing, the rate of interest on the Notes (other than
<PAGE> 117
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interest accruing pursuant to Section 5.11 following the effective date of any
waiver by the Majority Lenders of the Default or Event of Default relating
thereto and except with respect to any automatic Performance Adjustments), the
definition of Maturity Date, all rates of interest (except with respect to any
automatic Performance Adjustments), the amount of the Commitments of the Lenders
(except as contemplated by Section 2.3 and Section 19.10), and, except with
respect to any automatic Performance Adjustments, the amount of commitment fee
or Letter of Credit Fees hereunder may not be changed without the written
consent of each of the Borrowers and the written consent of all of the Lenders;
the definition of Majority Lenders may not be amended without the written
consent of all of the Lenders; this Section 26 may not be amended without the
written consent of all of the Lenders; all or a material portion of the
Collateral may not be released (except pursuant to Section 6.3) without the
written consent of all of the Lenders; and the amount of the Agent's fee or any
Letter of Credit Fees payable for the Agent's account and Section 15 may not be
amended without the written consent of the Agent. No waiver shall extend to or
affect any obligation not expressly waived or impair any right consequent
thereon. No course of dealing or delay or omission on the part of the Agent or
any Lender in exercising any right shall operate as a waiver thereof or
otherwise be prejudicial thereto. No notice to or demand upon the Borrowers
shall entitle the Borrowers to other or further notice or demand in similar or
other circumstances.
27. SEVERABILITY.
The provisions of this Credit Agreement are severable and if any one
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction, and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Credit Agreement in any jurisdiction.
<PAGE> 118
IN WITNESS WHEREOF, the undersigned have duly executed this Credit
Agreement as a sealed instrument as of the date first set forth above.
ZALE CORPORATION
By: /s/ MERRILL WERTHEIMER
-------------------------------------
Name: Merrill Wertheimer
Title: Executive Vice President -
Finance and Administration
By: /s/ THOMAS E. WHIDDON
-------------------------------------
Name: Thomas E. Whiddon
Title: Senior Vice President
and Treasurer
ZALE DELAWARE, INC.
By: /s/ MERRILL WERTHEIMER
-------------------------------------
Name: Merrill Wertheimer
Title: Executive Vice President -
Finance and Administration
By: /s/ THOMAS E. WHIDDON
-------------------------------------
Name: Thomas E. Whiddon
Title: Senior Vice President
and Treasurer
THE FIRST NATIONAL BANK
OF BOSTON, individually and as Agent
By: /s/ ELIZABETH A. RATTO
-------------------------------------
Name: Elizabeth A. Ratto
Title: Vice President
<PAGE> 119
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ TIMOTHY C. HUBAN
-------------------------------------
Name: Timothy C. Huban
Title: Vice President
Commercial Finance
SHAWMUT BANK, N.A.
By: /s/ PETER F. SAMSON
-------------------------------------
Name: Peter F. Samson
Title: Assistant Vice President
ABN-AMRO BANK, N.V., NEW YORK BRANCH
By: /s/ JAMES OCCHIOGROSSO
-------------------------------------
Name: James Occhiogrosso
Title: Vice President
By: /s/ ANNA MARTIN
-------------------------------------
Name: Anna Martin
Title: Vice President
CORESTATES BANK, N.A.
By: /s/ RANDALL D. SOUTHERN
-------------------------------------
Name: Randall D. Southern
Title: Vice President
<PAGE> 120
THE NIPPON CREDIT BANK, LTD.
By: /s/ LORI A. RAVIT
-------------------------------------
Name: Lori A. Ravit
Title:
BANK ONE, TEXAS, N.A.
By: /s/ DENISE PARKS
-------------------------------------
Name: Denise Parks
Title: Assistant Vice President
<PAGE> 1
EXHIBIT 4.7
AMENDED AND RESTATED LENDER SECURITY AGREEMENT
AMENDED AND RESTATED LENDER SECURITY AGREEMENT (this "Agreement"),
dated as of August 11, 1995, among ZALE DELAWARE, INC., a Delaware corporation
("Zale Delaware"), ZALE CORPORATION, a Delaware corporation ("Zale" and
together with Zale Delaware, the "Companies"), and THE FIRST NATIONAL BANK OF
BOSTON, a national banking association, as collateral agent (hereinafter, in
such capacity and for the benefit of the parties listed below, the "Secured
Party") for the benefit of (a) itself and other lending institutions
(hereinafter, collectively, the "Lenders") which are or may become parties to a
Revolving Credit Agreement dated as of August 11, 1995 (as amended, modified,
restated or supplemented and in effect from time to time, the "Credit
Agreement"), among the Companies, the Lenders, and The First National Bank of
Boston, as agent for itself and the Lenders (in such capacity, the "Agent" and
together with the Lenders, collectively, the "Creditors") and (b) the Agent.
WHEREAS, in connection with the Prior Credit Agreement (as defined in
the Credit Agreement), the Companies, certain of their affiliates, and The
First National Bank of Boston, as agent for itself and the other lenders under
the Prior Credit Agreement (in such capacity, the "Prior Secured Party"),
previously executed and delivered a certain Lender Security Agreement dated as
of July 30, 1993 (the "Prior Lender Security Agreement") pursuant to which the
Companies and such affiliates granted to the Prior Secured Party a security
interest in certain collateral;
WHEREAS, it is a condition precedent to the Lenders' making any loans
or otherwise extending credit to the Companies under the Credit Agreement that
each of the Companies agree to amend and restate the Prior Lender Security
Agreement pursuant to an amended and restated security agreement in
substantially the form hereof relating to Lender Collateral (as defined
herein);
WHEREAS, each of the Companies wishes to grant security interests in
the Lender Collateral in favor of the Secured Party, as herein provided, it
being intended that the Trustee (as defined in the Credit Agreement) and the
holders of the Debentures (as defined in the Credit Agreement) shall have no
interest in the Lender Collateral and that the Collateral Agency Agreement (as
defined in the Credit Agreement) shall have no application to the Lender
Collateral;
NOW, THEREFORE, in consideration of the promises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
<PAGE> 2
-2-
1. Definitions. All capitalized terms used herein without
definitions shall have the respective meanings provided therefor in the Credit
Agreement. All terms defined in the Uniform Commercial Code of the Commonwealth
of Massachusetts and used herein shall have the same definitions herein as
specified therein. The following terms shall have the meanings set forth in
this $1 or elsewhere referred to below:
Debenture Termination Date. The date upon which the Debenture Debt
shall have been paid in full in cash.
Excluded Collateral. (a) Retail store leases, (b) inventory held by
either of the Companies on consignment from trade vendors or any proceeds
thereof up to the cost thereof to either of the Companies, (c) following the
Debenture Termination Date, the Subordinated Notes and the Trust Certificates
or any other equity interest in ZFT or any other Receivables Securitization
Subsidiary, (d) warrants and Zale stock acquired as permitted by Sections
9.3(q) and (t) of the Credit Agreement, and (e) any chattel paper and general
intangibles which are now or hereafter held by either of the Companies as
licensee, lessee or otherwise, to the extent that (i) such chattel paper and
general intangibles are not assignable or capable of being encumbered as a
matter of law or under the terms of the license, lease or other agreement
applicable thereto (but solely to the extent that any such restriction shall be
enforceable under applicable law), without the consent of the licensor or
lessor thereof or other applicable party thereto and (ii) such consent has not
been obtained; provided, however, that Excluded Collateral shall not include,
(A) any and all proceeds of such chattel paper and general intangibles to the
extent that the assignment or encumbering of such proceeds is not so restricted
and (B) upon any such licensor, lessor or other applicable party consent with
respect to any such otherwise excluded chattel paper or general intangibles
being obtained, thereafter such chattel paper or general intangibles as well as
any and all proceeds thereof.
Joint Collateral. As defined in the Collateral Agency Agreement.
Lender Collateral. The following properties, assets and rights of each
of the Companies, wherever located, whether now owned or hereafter acquired or
arising, and all proceeds and products thereof (a) at all times prior to the
Debenture Termination Date, (i) all accounts; (ii) the Trust Certificates and
all of Zale Delaware's interest in ZFT or any other Receivables Securitization
Subsidiary; (iii) the Subordinated Notes; (iv) cash, negotiable instruments,
documents of title, deposit accounts, securities or other cash equivalents
which would constitute "cash collateral" under Section 363(a) of the federal
Bankruptcy Code in the case of a perfected and unavoidable security interest
therein; and (v) any proceeds of Joint Collateral which constitute any of the
foregoing categories of Lender Collateral; and (b) from and after the Debenture
Termination Date, (i) all inventory, (ii) all accounts, (iii) all Indebtedness
of the Designated Subsidiaries to either of the Companies and any and
<PAGE> 3
-3-
all instruments, chattel paper, documents, notes or contract rights evidencing
or constituting any such Indebtedness of the Designated Subsidiaries to either
of the Companies and (iv) any proceeds of the foregoing. Notwithstanding
anything to the contrary herein contained, Lender Collateral shall not include,
and the Secured Party shall have no lien on or security interest in, the
Securitization Subsidiary Receivables or the Excluded Collateral.
Prior Lender Security Agreement. As defined in the preamble hereto.
Prior Secured Party. As defined in the preamble hereto.
Receivables Securitization Subsidiary. Any Subsidiary of Zale, the
principal purpose of which is to provide funds for working capital or other
general corporate purposes to Zale Delaware and its Subsidiaries through the
transfer of accounts or receivables created by Zale or Zale Delaware or their
respective Subsidiaries (or of instruments received in consideration of
accounts receivable transferred pursuant to the Receivables Securitization
Facility Documents).
Securitization Subsidiary Receivables. Any Receivables (as defined in
the Receivables Securitization Facility Documents, as the same may be amended
in compliance with Section 9.11 of the Credit Agreement), all monies due or to
become due thereon, all collateral security therefor, all proceeds of the
foregoing including Insurance Proceeds (as defined in the Receivables
Securitization Facility Documents, as the same may be amended in compliance
with Section 9.11 of the Credit Agreement) relating thereto, all Recoveries (as
defined in the Receivables Securitization Facility Documents, as the same may
be amended in compliance with Section 9.11 of the Credit Agreement) and all
other interests, rights and assets that have been transferred by either of the
Companies or any corporate predecessors thereof or successors thereto to any
Receivables Securitization Subsidiary pursuant to the Receivables
Securitization Facility Documents (as the same may be amended in compliance
with Section 9.11 of the Credit Agreement); provided, however, that
Securitization Subsidiary Receivables shall not include (a) any accounts
transferred to any such Receivables Securitization Subsidiary after the
occurrence of any Receivables Release Termination Date, (b) the Trust
Certificates or Zale Delaware's interest in ZFT or any other Receivables
Securitization Subsidiary, (c) the Subordinated Notes or (d) either of the
Companies' rights under the Receivables Securitization Facility Documents (as
the same may be amended in compliance with Section 9.11 of the Credit
Agreement); and provided, further, that nothing contained herein or in the
Credit Agreement shall be deemed to constitute a release of or in any way
negate the security interest of the Secured Party, for the benefit of the
Lenders, in any accounts, or in any proceeds or products thereof, transferred
to any Receivables Securitization Subsidiary following any Receivables Release
Termination Date.
Subordinated Notes. As defined in the Receivables Purchase Agreement
(as the same may be amended in compliance with Section 9.11 of the Credit
Agreement) or its
<PAGE> 4
-4-
substitute or equivalent pursuant to any other Receivables Securitization
Facility Documents (as the same may be amended in compliance with Section 9.11
of the Credit Agreement).
2. Grant of Security Interest.
(a) Each of the Companies hereby grants to the
Secured Party, to secure the payment and performance in full of all of
the Obligations, a security interest in and so pledges and assigns to
the Secured Party, the Lender Collateral.
(b) Pursuant to the terms hereof, each of the
Companies has endorsed, assigned and delivered to the Secured Party
all negotiable or non-negotiable instruments (including certificated
securities) and chattel paper pledged by it under Section 2(a) hereof,
together with instruments of transfer or assignment duly executed in
blank as the Secured Party may have specified. In the event that
either of the Companies shall, after the date of this Agreement,
acquire any other negotiable or non-negotiable instruments (including
certificated securities) or chattel paper to be pledged by it under
Section 2(a) hereof, such Company shall forthwith endorse, assign and
deliver the same to the Secured Party, accompanied by such instruments
of transfer or assignment duly executed in blank as the Secured Party
may from time to time specify. To the extent that any securities are
uncertificated, appropriate book-entry transfers reflecting the pledge
of such securities created hereby have been or, in the case of
uncertificated securities hereafter acquired by either of the
Companies, will at the time of such acquisition be, duly made for the
account of the Secured Party or one or more nominees of the Secured
Party with the issuer of such securities or other appropriate
book-entry facility or financial intermediary, with the Secured Party
having at all times the right to obtain definitive certificates (in
the Secured Party's name or in the name of one or more nominees of the
Secured Party) where the issuer customarily or otherwise issues
certificates, all to be held as Lender Collateral hereunder. Each of
the Companies hereby acknowledges that the Secured Party may, in its
discretion, appoint one or more financial institutions to act as the
Secured Party's agent in holding in custodial account instruments or
other financial assets in which the Secured Party is granted a
security interest hereunder, including, without limitation,
certificates of deposit and other instruments evidencing short term
obligations.
<PAGE> 5
-5-
3. Status of Certain Lender Collateral.
(a) Notwithstanding the Companies' grant to the
Secured Party of a security interest in accounts hereunder, the
Secured Party hereby agrees, subject to the limitation set forth in
the immediately following provisos hereinbelow, that it shall have no
right, title or interest in or to any Securitization Subsidiary
Receivables which, prior to the occurrence of any Receivables Release
Termination Date, have been transferred to ZFT or any other
Receivables Securitization Subsidiary; provided, however, that nothing
contained herein shall be deemed to constitute a release of or in any
way negate the security interest of the Secured Party, for the benefit
of the Creditors, in (i) prior to the Debenture Termination Date, Zale
Delaware's rights under the Subordinated Notes or the Trust
Certificates or Zale Delaware's interest in ZFT or any other
Receivables Securitization Subsidiary, and any other rights which the
Companies may have under the Receivables Securitization Facility
Documents and (ii) any accounts, or in any proceeds or products
thereof, transferred to ZFT or any Receivables Securitization
Subsidiary following the occurrence of any Receivables Release
Termination Date; and provided, further, that the Secured Party's
security interest shall extend to, and the term Lender Collateral
shall include, all accounts of the Companies, whether now existing or
hereafter acquired, which shall not have become Securitization
Subsidiary Receivables or which shall have been repurchased by,
reassigned to, reconveyed to or reacquired by either Company, except
pursuant to Section 2.09 of the Receivables Purchase Agreement (as the
same may be from time to time amended in compliance with Section 9.11
of the Credit Agreement). The foregoing shall in no way limit the
Secured Party's rights to, and the Secured Party shall have a security
interest in, all proceeds from the sale of Securitization Subsidiary
Receivables to ZFT or any other Receivables Securitization Subsidiary
to which Zale Delaware is entitled under the Receivables
Securitization Facility Documents; provided, however, that following
the Debenture Termination Date, nothing herein shall be construed as
granting the Secured Party a security interest in the Subordinated
Notes or the Trust Certificates or any other equity interest of the
Borrowers, or either of them, in ZFT or any other Receivables
Securitization Subsidiary.
(b) The Secured Party acknowledges that (a) prior
to its enforcement of its rights hereunder, ZFT and the Receivables
Purchase Agent shall have no obligation to the Lenders or the Agent
except as set forth in the Receivables Purchase Payment Instructions,
and (b) so long as ZFT and the Receivables Purchase Agent are
complying with the provisions of the Receivables Purchase Payment
Instructions and the Receivables Securitization Facility Documents,
Zale Delaware shall have no cause of action against ZFT or the
Receivables Purchase Agent. Further, the Agent shall only exercise its
remedies with respect to Zale Delaware's and Zale's rights under the
<PAGE> 6
-6-
Receivables Securitization Facility Documents in accordance with the
provisions of the Security Documents.
(c) Notwithstanding the foregoing, the Lenders
and the Agent are aware that any security interest granted by the
Security Documents in the Local Depository Accounts, the Corporate
Depository Accounts and the Store Concentration Accounts may not, to
the extent that such amounts represent Securitization Subsidiary
Receivables, be perfected first priority security interests.
4. Status of Lender Collateral, etc. None of the Lender
Collateral constitutes, or is the proceeds of, "farm products" as defined in
Section 9-109(3) of the Uniform Commercial Code of the Commonwealth of
Massachusetts. None of the account debtors in respect of any accounts arising
from the sale of Eligible Inventory and none of the obligers in respect of any
instruments included in the Lender Collateral which have been received by the
Companies as a result of the sale of Eligible Inventory is a governmental
authority subject to the Federal Assignment of Claims Act (unless there has
been compliance with such Act to give the Secured Party a perfected lien
therein).
5. Continuous Perfection. Each of the Companies' respective place
of business or, if more than one, chief executive office is indicated on the
Perfection Certificates delivered by each of the Companies to the Secured Party
herewith (the "Perfection Certificates"). Neither of the Companies will change
the same, or its name, identity or corporate structure in any manner, without
providing at least thirty (30) days' prior written notice to the Secured Party.
Except for Lender Collateral having a value in the aggregate not in excess of
$500,000, the Lender Collateral, to the extent not delivered to the Secured
Party pursuant to Section 2(b), will be kept at those locations listed on the
Perfection Certificates and neither of the Companies will remove the Lender
Collateral from such locations, without providing at least thirty (30) days'
prior written notice to the Secured Party.
6. No Liens. Except for the security interest herein granted and
liens permitted under the Credit Agreement, the Companies shall be the owners
of the Lender Collateral free from any other lien, security interest or other
encumbrance, and the Companies shall defend the same against all claims and
demands of all persons at any time claiming the same or any interests therein
adverse to the Secured Party or any of the Creditors. Neither of the Companies
shall pledge, mortgage or create, or suffer to exist a security interest in the
Lender Collateral in favor of any person other than the Secured Party except as
expressly permitted by the Credit Agreement.
7. No Transfers. Neither of the Companies will sell or offer to
sell or otherwise transfer the Lender Collateral or any interest therein except
for sales permitted by Section 9.5 of the Credit Agreement.
<PAGE> 7
-7-
8. Insurance.
(a) Each of the Companies will maintain with
financially sound and reputable insurers insurance with respect to its
properties and business against such casualties and contingencies as
shall be in accordance with general practices of businesses engaged in
similar activities in similar geographic areas. Such insurance shall
be in such minimum amounts and with such commercially reasonable
deductibles that neither Company will be deemed a co-insurer under
applicable insurance laws, regulations and policies and otherwise
shall be in such amounts, contain such terms, be in such forms and be
for such periods as may be reasonably satisfactory to the Secured
Party. In addition, all such insurance shall be payable to the Secured
Party as loss payee under a "standard" or "New York" loss payee
clause. Without limiting the foregoing, each of the Companies will (i)
keep all of its physical property insured with casualty or physical
hazard insurance on an "all risks" basis, with broad form flood and
earthquake overages and electronic data processing coverage, with a
full replacement cost endorsement and an "agreed amount" clause in an
amount equal to 100% of the full replacement cost of such property
(except inventory, which shall be in an amount equal to 100% of the
cost of such inventory), (ii) maintain all such workers' compensation
or similar insurance as may be required by law and (iii) maintain, in
amounts and with deductibles equal to those generally maintained by
businesses engaged in similar activities in similar geographic areas,
general public liability insurance against claims of bodily injury,
death or property damage occurring, on, in or about the properties of
such Company; and product liability insurance.
(b) The proceeds of any casualty insurance in
respect of any casualty loss of any property of the Companies shall,
subject to the rights, if any, of other parties with a prior interest
in the property covered thereby, (i) so long as no Default or Event of
Default has occurred and is continuing and to the extent that the
amount of such proceeds is less than $5,000,000, be disbursed directly
to either of the Companies for direct application by such Company
solely to the repair or replacement of such Company's property so
damaged or destroyed and (ii) in all other circumstances, at the
election of the Companies, either (A) be applied to the outstanding
Obligations (in which case, the Total Commitment shall be reduced by
the amount of such proceeds), or (B) be held by the Secured Party as
cash collateral for the Obligations and disbursed from time to time
upon such terms and conditions as the Secured Party and the Companies
may agree upon; provided, however, that if an Event of Default shall
have occurred and be continuing, such proceeds shall be held by the
Secured Party as cash collateral for the Obligations.
(c) All policies of insurance shall provide for
at least thirty (30) days' prior written notice of cancellation or
amendment to the Secured Party. In the
<PAGE> 8
-8-
event of failure by either of the Companies to provide and maintain
insurance as herein provided, the Secured Party may, at its option,
provide such insurance and charge the amount thereof to such Company.
Each of the Companies shall furnish the Secured Party with
certificates of insurance and policies evidencing compliance with the
foregoing insurance provision.
9. [INTENTIONALLY OMITTED]
10. Lender Collateral Protection Expenses: Preservation of Lender
Collateral.
(a) In its discretion, following the occurrence
of any Event of Default, the Secured Party may discharge taxes and
other encumbrances at any time levied or placed on any of the Lender
Collateral, make repairs thereto reasonably deemed necessary or
appropriate by the Secured Party and pay any necessary filing fees.
Each of the Companies agrees to reimburse the Secured Party on demand
for any and all reasonable expenditures so made. The Secured Party
shall have no obligation to such Company to make any such
expenditures, nor shall the making thereof relieve such Company of any
default.
(b) Anything herein to the contrary
notwithstanding, each of the Companies shall remain liable under each
contract or agreement comprised in the Lender Collateral to be
observed or performed by such Company thereunder. Neither the Secured
Party nor any of the Creditors shall have any obligation or liability
under any such contract or agreement by reason of or arising out of
this Agreement or the receipt by the Secured Party or any of the
Creditors of any payment relating to any of the Lender Collateral, nor
shall the Secured Party or any of the Creditors be obligated in any
manner to perform any of the obligations of either of the Companies
under or pursuant to any such contract or agreement, to make inquiry
as to the nature or sufficiency of any payment received by the Secured
Party or any of the Creditors in respect of the Lender Collateral or
as to the sufficiency of any performance by any party under any such
contract or agreement, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any
amounts which may have been assigned to the Secured Party or to which
the Secured Party or any of the Creditors may be entitled at any time
or times. The Secured Party's sole duty with respect to the custody,
safe keeping and physical preservation of the Lender Collateral in its
possession, under Section 9-207 of the Uniform Commercial Code of the
Commonwealth of Massachusetts or otherwise, shall be to deal with such
Lender Collateral in the same manner as the Secured Party deals with
similar property for its own account.
11. Securities: Settlement: Deposits. Following the occurrence of
any Event of Default, the Secured Party may at any time, at its option,
transfer to itself or
<PAGE> 9
-9-
any nominee any securities constituting Lender Collateral, receive any income
thereon and hold such income as additional Lender Collateral or apply it to the
Obligations. At all times prior to the occurrence of an Event of Default, the
Companies shall be entitled to receive any such income. When any Obligations
are due and after an occurrence of an Event of Default, the Secured Party may
demand, sue for, collect, or make any settlement or compromise which it deems
desirable with respect to the Lender Collateral. Regardless of the adequacy of
Lender Collateral or any other security for the Obligations, any deposits or
other sums at any time credited by or due from the Secured Party or any of the
Creditors to either of the Companies may at any time be applied to or set off
against any of the Obligations.
12. Notification to Account Debtors and Other Obligers.
(a) If an Event of Default shall have occurred
and be continuing, each of the Companies shall, at the request of the
Secured Party, notify account debtors on accounts, chattel paper and
general intangibles of such Company and obligers on instruments for
which such Company is an obligee of the security interest of the
Secured Party in any such account, chattel paper, general intangible
or instrument and that payment thereof is to be made directly to the
Secured Party, to the FNBB Concentration Accounts or to any financial
institution designated by the Secured Party as the Secured Party's
agent therefor, and the Secured Party may itself, if an Event of
Default shall have occurred and be continuing, without notice to or
demand upon either of the Companies, so notify account debtors and
obligers. After the making of such a request or the giving of any such
notification, each of the Companies shall hold any proceeds from
collection of accounts, chattel paper, general intangibles and
instruments received by such Company as trustee for the Secured Party,
without commingling the same with other funds of such Company and
shall turn the same over to the Secured Party in the identical form
received, together with any necessary endorsements or assignments. The
Secured Party shall apply the proceeds of collection of accounts,
chattel paper, general intangibles and instruments received by the
Secured Party to the Obligations, such proceeds to be immediately
entered after final payment in cash or solvent credits of the items
giving rise to them.
(b) Anything to the contrary contained herein
notwithstanding, the Secured Party shall not, so long as the
Receivables Securitization Facility Documents are in effect, notify
any account debtors on Securitization Subsidiary Receivables of its
security interest in any account with such account debtor or direct
that payment thereof is to be made directly to the Secured Party, and
nothing contained in this Section 12 shall be deemed to alter the
provisions of Section 2.08 of the Receivables Purchase Agreement with
respect to Securitization Subsidiary Receivables and Non-Purchased
Receivables (as defined in the Receivables Purchase Agreement). If the
Secured Party obtains
<PAGE> 10
-10-
any proceeds of collection from Securitization Subsidiary Receivables,
the Secured Party shall hold such proceeds as trustee for the
Receivables Securitization Subsidiary, and shall promptly turn the
same over to the Receivables Securitization Subsidiary in the
identical form received, together with any necessary endorsements or
assignments on a non-recourse basis.
13. Further Assurances. Each of the Companies, at its own expense,
shall do, make, execute and deliver all such additional and further acts,
things, deeds, assurances and instruments as the Secured Party may reasonably
require more completely to vest in and assure to the Secured Party its rights
hereunder or in any of the Lender Collateral, including, without limitation,
(a) executing, delivering and, where appropriate, filing financing statements
and continuation statements under the Uniform Commercial Code, (b) obtaining
governmental and other third party consents and approvals and (c) taking all
actions required by Sections 8-313 and 8321 of the Uniform Commercial Code, as
applicable in each relevant jurisdiction, with respect to certificated and
uncertificated securities.
14. Power of Attorney.
(a) Each of the Companies hereby irrevocably
constitutes and appoints the Secured Party and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorneys-in-fact with full irrevocable power and authority in the
place and stead of such Company or in the Secured Party's own name,
for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents
and instruments that may be necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of the
foregoing, hereby gives said attorneys the power and right, on behalf
of such Company, without notice to or assent by such Company, to do
the following:
(i) upon the occurrence and during
the continuance of an Event of Default, generally to
sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Lender
Collateral in such manner as is consistent with the
Uniform Commercial Code of the Commonwealth of
Massachusetts and as fully and completely as though
the Secured Party were the absolute owner thereof for
all purposes, and to do at the Companies' expense, at
any time, or from time to time, all acts and things
which the Secured Party deems necessary to protect,
preserve or realize upon the Lender Collateral and
the Secured Party's security interest therein, in
order to effect the intent of this Agreement, all as
fully and effectively as such Company might do,
including, without limitation, the execution,
delivery and recording, in connection with any sale
or other disposition of any Lender Collateral, of the
endorsements, assignments or other
<PAGE> 11
-11-
instruments of conveyance or transfer with respect to such Lender Collateral-,
and
(ii) to file such financing
statements with respect hereto, with or without such
Company's signature, or a photocopy of this Agreement
in substitution for a financing statement, as the
Secured Party may deem appropriate and to execute in
such Company's name such financing statements and
amendments thereto, and continuation statements which
may require such Company's signature.
(b) To the extent permitted by law, each of the
Companies hereby ratifiers all that said attorneys shall lawfully do
or cause to be done by virtue hereof, except for the Secured Party's
or such attorney's own gross negligence or willful misconduct or any
breach by it of this Agreement. This power of attorney is a power
coupled with an interest and shall be irrevocable.
(c) The powers conferred on the Secured Party
hereunder are solely to protect the interests of the Secured Party and
each of the Creditors in the Lender Collateral and shall not impose
any duty upon the Secured Party to exercise any such powers. The
Secured Party shall be accountable only for the amounts that it
actually receives as a result of the exercise of such powers and
neither it nor any of its officers, directors, employees or agents
shall be responsible to either of the Companies for any act or failure
to act, except for the Secured Party's own gross negligence or willful
misconduct or solely as a result of the Secured Party's breach of this
Agreement.
15. Remedies. If an Event of Default shall have occurred and be
continuing, the Secured Party may, without notice to or demand upon either of
the Companies, declare this Agreement to be in default, and the Secured Party
shall, subject to its agreements contained in Section 12(b) hereof, thereafter
have in any jurisdiction in which enforcement hereof is sought, in addition to
all other rights and remedies, the rights and remedies of a secured party under
the Uniform Commercial Code, including, without limitation, the right to take
possession of the Lender Collateral, and for that purpose the Secured Party
may, so far as either of the Companies can give authority therefor, enter upon
any premises on which the Lender Collateral may be situated and remove the same
therefrom. The Secured Party may in its discretion require either of the
Companies to assemble all or any part of the Lender Collateral at such location
or locations within the state(s) or territory(ies) of such Company's principal
office(s) or at such other locations as the Secured Party may designate. Unless
the Lender Collateral is perishable or threatens to decline speedily in value
or is of a type customarily sold on a recognized market, the Secured Party
shall give to each of the Companies at least ten (10) Business Days' prior
written notice of the time and place of any public sale of Lender Collateral or
of the time after which any private sale or any other intended disposition is
to be made. Each of the Companies hereby
<PAGE> 12
-12-
acknowledges that ten (IO) Business Days' prior written notice of such sale or
sales shall be reasonable notice. In addition, each of the Companies waives any
and all rights that it may have to a judicial hearing in advance of the
enforcement of any of the Secured Party's rights hereunder, including, without
limitation, its right following an Event of Default to take immediate
possession of the Lender Collateral and to exercise its rights with respect
thereto.
16. No Waiver, etc. Each of the Companies waives demand, notice,
protest, notice of acceptance of this Agreement, notice of loans made, credit
extended, Lender Collateral received or delivered or other action taken in
reliance hereon. With respect to both the Obligations and the Lender
Collateral, each of the Companies assents to any extension or postponement of
the time of payment or any other indulgence, to any substitution, exchange or
release of Lender Collateral, to any failure to perfect any security interest,
to the addition or release of any party or person primarily or secondarily
liable, to the acceptance of partial payment thereon and the settlement,
compromising or adjusting of any thereof, all in such manner and at such time
or times as the Secured Party may deem advisable. The Secured Party shall have
no duty as to the collection or protection of the Lender Collateral or any
income thereon, nor as to the preservation of rights against prior parties, nor
as to the preservation of any rights pertaining thereto beyond the safe custody
thereof as set forth in Section 10(b). The Secured Party shall not be deemed to
have waived any of its rights upon or under the Obligations or the Lender
Collateral unless such waiver shall be in writing and signed by the Secured
Party with the written consent of the Agent and the Majority Lenders. No delay
or omission on the part of the Secured Party in exercising any right shall
operate as a waiver of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to or waiver of any right on any
future occasion. All rights and remedies of the Secured Party with respect to
the Obligations or the Lender Collateral, whether evidenced hereby or by any
other instrument or papers, shall be cumulative and may be exercised
singularly, alternatively, successively or concurrently at such time or at such
times as the Secured Party deems expedient.
17. Marshalling. None of the Secured Party or the Creditors shall
be required to marshal any present or future collateral security (including but
not limited to this Agreement and the Lender Collateral) for, or other
assurances of payment of, the Obligations or any of them or to resort to such
collateral security or other assurances of payment in any particular order, and
all of the rights of the Secured Party hereunder and of the Secured Party or
any of the Creditors in respect of such collateral security and other
assurances of payment shall be cumulative and in addition to all other rights,
however existing or arising. To the extent that it lawfully may, each of the
Companies hereby agrees that it will not invoke any law relating to the
marshalling of collateral which might cause delay in or impede the enforcement
of the Secured Party's rights under this Agreement or under any other
instrument creating or evidencing any of the Obligations or under which any of
the Obligations
<PAGE> 13
-13-
is outstanding or by which any of the Obligations is secured or payment thereof
is otherwise assured, and, to the extent that it lawfully may, each of the
Companies hereby irrevocably waives the benefits of all such laws.
18. Proceeds of Dispositions, Expenses. The Companies shall pay to
the Secured Party on demand any and all reasonable expenses, including
reasonable attorneys' fees and disbursements, incurred or paid by the Secured
Party in protecting, preserving or enforcing the Secured Party's rights under
or in respect of any of the Obligations or any of the Lender Collateral. After
deducting all of said expenses, the residue of any proceeds of collection or
sale of the Obligations or Lender Collateral shall, to the extent actually
received in cash, be applied to the payment of the Obligations in such order or
preference as is provided in the Credit Agreement, proper allowance and
provision being made for any Obligations not then due. Upon the final payment
and satisfaction in full of all of the Obligations and after making any
payments required by Section 9-504(l)(c) of the Uniform Commercial Code of the
Commonwealth of Massachusetts, any excess shall be returned to the Companies,
and the Companies shall remain liable for any deficiency in the payment of the
Obligations.
19. Overdue Amounts. Until paid, all amounts due and payable by
either of the Companies hereunder shall be a debt secured by the Lender
Collateral and shall bear, whether before or after judgment, interest at the
rate of interest for overdue amounts set forth in Section 5.11 of the Credit
Agreement.
20. Secured Party. Each of the parties hereto acknowledges and
agrees that the Secured Party is acting in its capacity as collateral agent and
secured party for the benefit solely of the Creditors. Nothing contained herein
or in any other document, instrument or agreement shall be deemed to indicate
that the Secured Party is acting as collateral agent or secured party for any
other Person, including, without limitation, the Trustee and the holders of the
Debentures, or to extend the grant of the security interest in the Lender
Collateral to or for the benefit of the Trustee, the holders of the Debentures
or any other Person (other than the Creditors). Nothing contained herein or in
the Joint Collateral Security Agreement shall be deemed to extend to or create
in the Secured Party, in its capacity as Secured Party hereunder, any
obligations or duties under the Joint Collateral Security Agreement or with
respect to the Joint Collateral.
21. Governing Law: Consent to Jurisdiction. THIS AGREEMENT IS
INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
Each of the Companies agrees that any suit for the enforcement of this
Agreement may be brought in the courts of the Commonwealth of Massachusetts or
any federal court sitting therein and consents to the non-exclusive
jurisdiction of such court. Each of
<PAGE> 14
-14-
the Companies hereby waives any objection that it may now or hereafter have to
the venue of any such suit or any such court or that such suit is brought in an
inconvenient court.
22. Waiver of Jury Trial. EACH OF THE COMPANIES WAIVES ITS RIGHT
TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE
IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE
PERFORMANCE OF ANY SUCH RIGHTS OR OBLIGATIONS. Except as prohibited by law,
each of the Companies waives any right which it may have to claim or recover in
any litigation referred to in the preceding sentence any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages. Each of the Companies (a) certifies that neither the Secured
Party nor any of the Creditors nor any representative, agent or attorney of the
Secured Party or any of the Creditors has represented, expressly or otherwise,
that the Secured Party or any of the Creditors would not, in the event of
litigation, seek to enforce the foregoing waivers and (b) acknowledges that, in
entering into the Credit Agreement and the other Loan Documents to which the
Secured Party or any of the Creditors is a party, the Secured Party and each of
the Creditors are relying upon, among other things, the waivers and
certifications contained in this Section 22.
23. Prior Agreement Superseded. This Agreement shall, on and as of
the date hereof, amend and restate in its entirety the Prior Lender Security
Agreement. From and after the date hereof, the rights and obligations of the
parties under the Prior Lender Security Agreement shall be subsumed within and
governed by this Agreement.
24. Miscellaneous. The headings of each section of this Agreement
are for convenience only and shall not define or limit the provisions thereof.
This Agreement and all rights and obligations hereunder shall be binding upon
each of the Companies and its respective successors and assigns, and shall
inure to the benefit of the Secured Party, each of the Creditors and their
respective successors and assigns. If any term of this Agreement shall be held
to be invalid, illegal or unenforceable, the validity of all other terms hereof
shall in no way be affected thereby, and this Agreement shall be construed and
be enforceable as if such invalid, illegal or unenforceable term had not been
included herein. Each of the Companies acknowledges receipt of a copy of this
Agreement. All obligations of the Companies hereunder shall be joint and
several.
<PAGE> 15
-15-
IN WITNESS WHEREOF, intending to be legally bound. each of the
Companies has caused this Agreement to be duly executed as of the date first
above written.
ZALE DELAWARE, INC.
By: /s/ MERRILL WERTHEIMER
Name: Merrill Wertheimer
Title: Executive Vice President - Finance
and Administration
By: /s/ THOMAS E. WHIDDON
Name: Thomas E. Whiddon
Title: Senior Vice President and Treasurer
Address: 901 W. Walnut Hill Ln.
Irving, TX 75038- 1003
ZALE CORPORATION
By: /s/ MERRILL WERTHEIMER
Name: Merrill Wertheimer
Title: Executive Vice President - Finance
and Administration
By: /s/ THOMAS E. WHIDDON
Name: Thomas E. Whiddon
Title: Senior Vice President and Treasurer
Address: 901 W. Walnut Hill Ln.
Irving, TX 75038-1003
Accepted:
THE FIRST NATIONAL BANK OF BOSTON,
in its capacity as Secured Party
By:
Name:
Title:
<PAGE> 16
-16-
Agreed to solely for the purpose of consenting
and agreeing to the provisions of Section 23 hereof:
ZALE PUERTO RICO, INC.
By: /s/ THOMAS E. WHIDDON
Name: Thomas E. Whiddon
Title: Senior Vice President and Treasurer
DOBBINS JEWELERS, INC.
By: /s/ THOMAS E. WHIDDON
Name: Thomas E. Whiddon
Title: Senior Vice President and Treasurer
JEWELERS FINANCIAL SERVICES, INC.
By: /s/ THOMAS E. WHIDDON
Name: Thomas E. Whiddon
Title: Senior Vice President and Treasurer
<PAGE> 17
-17-
CERTIFICATE OF ACKNOWLEDGMENT
COMMONWEALTH OR STATE OF TEXAS )
) ss
COUNTY OF DALLAS )
Before me, the undersigned, a Notary Public in and for the county
aforesaid, on this 11th day of August, 1995, personally appeared Merrill
Wertheimer and Thomas E. Whiddon to me known personally, and who, being by me
duly sworn, deposes and says that they are the Executive Vice President -
Finance and Administration and the Senior Vice President and Treasurer,
respectively, of Zale Delaware, Inc., and that said instrument was signed and
sealed on behalf of said corporation by authority of its Board of Directors,
and said Merrill Wertheimer and Thomas E. Whiddon each acknowledged said
instrument to be the free act and deed of said corporation.
/s/ CORINNE NEFF
---------------------------------
Notary Public
My Commission Expires: 2-25-99
CERTIFICATE OF ACKNOWLEDGMENT
COMMONWEALTH OR STATE OF TEXAS )
) ss
COUNTY OF DALLAS )
Before me, the undersigned, a Notary Public in and for the county
aforesaid, on this day of August, 1995, personally appeared Merrill Wertheimer
and Thomas E. Whiddon to me known personally, and who, being by me duly sworn,
deposes and says that they are the Executive Vice President - Finance and
Administration and the Senior Vice President and Treasurer, respectively, of
Zale Corporation, and that said instrument was signed and sealed on behalf of
said corporation by authority of its Board of Directors, and said Merrill
Wertheimer and Thomas E. Whiddon each acknowledged said instrument to be the
free act and deed of said corporation.
/s/ CORINNE NEFF
---------------------------------
Notary Public
My Commission Expires: 2-25-99
<PAGE> 1
Exhibit 10.1
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT dated as of July 21, 1993, between
ZALE CORPORATION, a Delaware corporation (the "Corporation"), and the Person
named on Annex A hereto (the "Indemnitee").
W I T N E S S E T H:
WHEREAS, the Corporation has been a debtor in possession in
proceedings under Chapter 11 of the United States Bankruptcy Code since January
1, 1992;
WHEREAS, the Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code (the "Code") for Zale Corporation and Its Affiliated Debtors
dated March 24, 1993, as modified, has been confirmed by order, entered May 20,
1993, of the United States Bankruptcy Court for the Northern District of Texas,
Dallas Division (as so confirmed, the "Plan");
WHEREAS, the Plan of Reorganization is expected to be
consummated on or about July 28, 1993 or as soon thereafter as practicable;
WHEREAS, it is essential to the Corporation to attract as
directors the most capable persons available;
WHEREAS, the Corporation has requested that the Indemnitee
become a member of the Board of Directors of the Corporation effective as of
8:00 a.m. on July 21 (the "Commencement Time") and the Indemnitee has agreed so
to serve in part upon the basis of the indemnification and other agreements
provided for and referred to in this Agreement, including Section 10 hereof;
WHEREAS, both the Corporation and the Indemnitee recognize the
increased risk of litigation and other claims being asserted against directors
of public companies in today's environment and take account especially of the
Corporation's recent history as a debtor-in-possession;
WHEREAS, the Corporation's Restated Certificate of
Incorporation requires the Corporation to indemnify its directors as set forth
therein and expressly authorizes the Corporation to enter into agreements with
its directors for the purpose of providing for such indemnification, and the
Indemnitee has agreed to serve as a director of the Corporation in part in
reliance on such provisions;
<PAGE> 2
WHEREAS, in recognition of the Indemnitee's need for
substantial protection against personal liability in order to enhance the
Indemnitee's commencement and continued service to the Corporation in an
effective manner, the difficulty of finding adequate director and officer
liability insurance coverage and the Indemnitee's reliance on the aforesaid
provisions in the Corporation's Restated Certificate of Incorporation, and, in
part to provide the Indemnitee with specific contractual assurance that the
protection promised by such provisions will be available to the Indemnitee
(regardless of, among other things, any amendment to or revocation of such
provisions of the Certificate of Incorporation, future financial difficulties
of the Corporation, any change in the composition of the Corporation's board of
directors or the occurrence of any acquisition transaction relating to the
Corporation); and
WHEREAS, the Corporation wishes to provide in this Agreement
for the effective indemnification of and the advancing of expenses to the
Indemnitee as set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and of the
Indemnitee agreeing to serve the Corporation directly or, at its request, with
another enterprise, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Indemnification
(a) Agreement to Indemnify. Subject to Section 3 hereof,
the Corporation shall indemnify the Indemnitee to the full extent permitted by
law against expenses (including attorneys' and other professionals' fees and
other out-of-pocket expenses), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the Indemnitee in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative in nature ("Proceeding") in which the
Indemnitee was or is or is threatened to be made a party or in which the
Indemnitee testifies by reason of (i) the fact that the Indemnitee is or was a
director, officer, employee or agent at any time after the Commencement Time of
the Corporation or is or was at any time after the Commencement Time serving at
the request of the Corporation as a director, officer, employee, trustee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise and (ii) any acts or omissions by the
Indemnitee in such capacity that occurred after the Commencement Time, so long
2
<PAGE> 3
as the Indemnitee acted or omitted to act in good faith and in a manner that
the Indemnitee (x) reasonably believed to be in or not opposed to the best
interests of the Corporation and (y) with respect to any criminal action or
proceeding, had reasonable cause to believe was lawful; provided, however, that
if a court of competent jurisdiction, after exhaustion of all appeals
therefrom, adjudges the Indemnitee to be liable to the Corporation for any
amount or if the Indemnitee pays an amount in settlement to the Corporation,
the Corporation may indemnify the Indemnitee for such amount only with the
approval of such court.
(b) Exclusions. The Corporation shall not be liable
under this Agreement to make any payment to the Indemnitee:
(i) for which payment has previously been actually made
to the Indemnitee under a valid and collectible insurance policy,
except in respect of any excess beyond the amount of payment under
such insurance;
(ii) for which payment has previously been actually made
to the Indemnitee by the Corporation other than pursuant to this
Agreement, except in respect of any excess beyond the amount of such
payment; and
(iii) for an accounting of profits made from the purchase
or sale by the Indemnitee of securities of the Corporation within the
meaning of Section 16(b) of the Securities Exchange Act of 1934, as
amended, or similar provisions of any state law;
(c) Standards of Indemnification. In connection with any
determination as to whether the Indemnitee is entitled to be indemnified or
advanced expenses hereunder, to the maximum extent permitted by law, the burden
of proof shall be on the Corporation to establish that Indemnitee is not so
entitled. In connection with any action by the Indemnitee to enforce this
Agreement, to the maximum extent permitted by law, neither the failure of the
Corporation (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of any
action by the Indemnitee under Section 5 hereof that indemnification of the
claimant is proper under the circumstances because the Indemnitee has met the
applicable standard of conduct, nor an actual determination by the Corporation
(including its Board of
3
<PAGE> 4
Directors, independent legal counsel, or its stockholders) that the Indemnitee
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Indemnitee has not met the applicable
standard of conduct. For purposes of this Agreement, the termination of any
Proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the Indemnitee did not act in good faith and in a manner which the Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Corporation or with respect to any criminal Proceeding, had reasonable cause to
believe that the conduct of the Indemnitee was unlawful.
2. Indemnification Against Expenses of Successful Party.
Notwithstanding the other provisions of this Agreement, after the Indemnitee
has been successful on the merits or otherwise, including the dismissal of a
Proceeding without prejudice or the settlement of a Proceeding without
admission of liability, in defense of any Proceeding or in defense of any
claim, issue or matter therein, the Corporation, in accordance with Section
145(c) of the General Corporation Law of the State of Delaware, shall indemnify
the Indemnitee against all expenses (including attorneys' and other
professionals' fees and other out-of-pocket expenses) actually and reasonably
incurred by the Indemnitee in connection therewith.
3. Determination of Right of Indemnification. Any
indemnification under Section 1 (unless otherwise ordered by a court) shall be
made by the Corporation only following receipt of a written demand by the
Indemnitee and only (x) if, in the specific case there has been no
determination that indemnification of the Indemnitee is not proper in the
circumstances because the Indemnitee has not met the applicable standard of
conduct set forth in Section 1 or (y) if (but only if) required by Delaware
law, upon a determination that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct set forth in Section 1. Any such determination shall be made within
thirty (30) days from the date the written request of the Indemnitee is
received by the Corporation either (i) by the Board of Directors by a majority
vote of a quorum consisting of directors who are not or were not parties to
such Proceeding, (ii) if such a quorum is not obtainable or, even if obtainable
if a quorum of disinterested directors so directs, or, if a change in control
(as defined below) has occurred subsequent to the Effective Date of the Plan of
Reorganization, by the written opinion of independent legal
4
<PAGE> 5
counsel selected by the Board of Directors of the Corporation (or if a change
of control has so occurred, selected by the Indemnitee with the consent of the
Corporation, which consent shall not be unreasonably withheld) or (iii) by the
stockholders of the Corporation.
A "change in control" shall be deemed to have occurred if (i)
any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended), other than a Trustee or other
fiduciary holding securities under an employee benefit plan of the Corporation
or a corporation owned directly or indirectly by the stockholders of the
Corporation in substantially the same proportions as their ownership of stock
in the Corporation, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under such Act), directly or indirectly of securities of the Corporation
representing 51% or more of the total voting power represented by the
Corporation's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the board of directors of the Corporation and any new director whose election
by the board of directors or nomination for election by the Corporation's
stockholders was approved by a vote of at least two-thirds of the directors
then still in office who either were directors at the beginning of the period
or whose election or nomination for election was previously so approved, cease
for any reason to constitute a majority thereof, or (iii) the stockholders of
the Corporation approve a merger or consolidation of the Corporation with any
other corporation, other than a merger or consolidation which would result in
the Voting Securities of the Corporation outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total
voting power represented by the Voting Securities of the Corporation or such
surviving entity outstanding immediately after such merger or consolidation, or
the stockholders of the Corporation approve a plan of complete liquidation and
dissolution of the Corporation or an agreement for the sale or disposition by
the Corporation of all or substantially all the Corporation's assets; provided,
however, that any transaction that would otherwise be a change in control under
clause (iii) hereof which is approved and recommended in advance by the
Corporation's board of directors shall not be deemed a change in control. For
purpose of the definition of change in control, the term "Voting Securities"
shall mean any securities of the Corporation which vote generally in the
election of directors.
5
<PAGE> 6
The term "independent legal counsel" as used herein, means a
law firm, an attorney or a member of a law firm that is experienced in matters
of corporate law and neither at the time of engagement is, nor at any time
during the five (5) years preceding the date of the engagement by the
Indemnitee has been, retained to represent (i) either the Corporation or the
Indemnitee in any matter material to either party or (ii) any other party to a
Proceeding giving rise to a claim for indemnification hereunder. The term
"independent legal counsel" shall not include any person who, under the
applicable standards of professional conduct prevailing at the time of the
representation, would have a conflict of interest in representing either the
Corporation or the Indemnitee in an action to determine the Indemnitee's rights
under the provisions of the Corporation's Certificate of Incorporation, Bylaws
or any agreement upon which the Indemnitee relies to establish the Indemnitee's
right to indemnification or advancement of expenses.
The Corporation agrees to pay the reasonable fees of the
independent legal counsel and to indemnify fully such independent legal counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or the engagement of
such independent legal counsel pursuant hereto.
4. Advances of Expenses. Expenses (including attorneys'
fees) incurred by the Indemnitee in defending any Proceeding shall be paid by
the Corporation upon written request of the Indemnitee in advance of the final
disposition of such Proceeding if the Corporation has received an undertaking
by or on behalf of the Indemnitee, in substantially the form attached hereto as
Annex B. The obligation of the Corporation to advance expenses pursuant to
this Section 4 shall be subject to the condition that if, when and to the
extent a determination is made as provided under Section 3 hereof that the
Indemnitee would not be permitted to be indemnified as provided therein, then
the Corporation shall be entitled to be reimbursed by the Indemnitee as
provided in Annex B for all amounts theretofore paid in advance; provided,
however, that if Indemnitee has commenced legal proceedings in a court of
competent jurisdiction to secure a determination that the Indemnitee should be
indemnified under applicable law, any determination made pursuant to this
Agreement that the Indemnitee would not be permitted to be indemnified under
applicable law shall not be binding and the Indemnitee shall not be required to
reimburse the Corporation for any advances hereunder until a final judicial
determination is
6
<PAGE> 7
made with respect thereto (as to which all appeals therefrom have been
exhausted).
In any event, the obligation of the Indemnitee to reimburse
the Corporation for advances shall be unsecured and no interest will be charged
thereon.
5. Procedure for Making Demand.
(a) Payments for any indemnification to which the
Indemnitee is entitled pursuant to Section 1 hereof shall be made by the
Corporation no later than thirty (30) days after the receipt of a written
demand made by the Indemnitee as provided in Section 3 hereof.
(b) Payments of expenses to which the Indemnitee is
entitled pursuant to Section 2 hereof shall be made by the Corporation no later
than ten (10) days after receipt by the Corporation of the written demand for
payment from the Indemnitee.
(c) Advancement of expenses to the extent provided by
Section 4 hereof shall be made by the Corporation no later than thirty (30)
days after receipt by the Corporation of the written undertaking referred to in
Section 4 hereof.
(d) The right to indemnification or advances hereunder
shall be enforceable by each Indemnitee in any court of competent jurisdiction
if the Board of Directors, independent legal counsel or stockholders improperly
denies the claim, in whole or in part or if indemnification or advancement of
expenses is not made within the time specified herein. In any such event, or
if there has been no determination under Section 3, the Indemnitee shall have
the right to commence litigation in any such court in the States of Delaware or
New York or the state(s) of director's residence or employment, having subject
matter jurisdiction thereof, and in which venue is proper, seeking an initial
determination by the court or challenging any such determination under this
Agreement or any aspect thereof, and the Corporation hereby consents to service
of process and to appear in any such proceeding. Any determination as to the
right to indemnification, including expense reimbursement, hereunder shall
otherwise be conclusive and binding on the Corporation and the Indemnitee.
(e) The Corporation shall indemnify the Indemnitee
against any and all expenses (including attorneys' and other professionals'
fees and other
7
<PAGE> 8
out-of-pocket expenses) and, if requested by the Indemnitee, shall, within ten
(10) days of such request, advance such expenses to Director which are incurred
by the Indemnitee in connection with any claim asserted against or action
brought by the Indemnitee for (i) indemnification hereunder or advance payment
of expenses by the Corporation under this Agreement (or the Corporation's
Certificate of Incorporation or By-Laws now or hereafter in effect) and/or (ii)
recovery under any director and officer liability insurance policies maintained
by the Corporation, regardless of whether the Indemnitee ultimately is
determined to be entitled to such indemnification, advance expense payment or
insurance recovery, as the case may be.
6. Subrogation. In the event of payment under this
Agreement, the Corporation shall be subrogated to the extent of such payment to
all of the rights of recovery of the Indemnitee who shall execute all papers
required and shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the Corporation
effectively to bring suit to enforce such rights.
7. Effect of Changes in Law or Corporate Documents. No
change in the Corporation's Certificate of Incorporation or Bylaws or the
Delaware General Corporation Law subsequent to the date first above written
shall have the effect of limiting or eliminating the indemnification available
under this Agreement as to any act, omission or capacity for which this
Agreement provides indemnification at the time of such act, omission or
capacity. If any change after the date of this Agreement in any applicable
law, statute or rule expands the power of the Corporation to indemnify the
Indemnitee, such change shall be within the purview of the Indemnitee's rights
and the Corporation's obligations under this Agreement. If any change in
applicable law, statute or rule narrows the right of the Corporation to
indemnify the Indemnitee, such change, except to the extent otherwise required
by law, statute or rule to be applied to this Agreement, shall have no effect
on this Agreement or the parties' rights or obligations hereunder.
8. Definition of "Corporation." For purposes of this
Agreement, references to "the Corporation" shall include, in addition to the
resulting or surviving corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers and employees or agents, so that any person
who is
8
<PAGE> 9
or was a director of such constituent corporation after the Effective Date or
is or was serving at the request of such constituent corporation as a director,
officer, employee, trustee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise after the Effective
Date, shall stand in the same position under this Agreement with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
9. Partial Indemnity. If the Indemnitee is entitled
under any provision of this Agreement to indemnification by the Corporation for
some or a portion of the expenses, judgments, fines and amounts paid in
settlement but not, however, for all of the total amount thereof, the
Corporation shall nevertheless indemnify the Indemnitee for the portion thereof
to which the Indemnitee is entitled.
10. Security for Obligations of the Corporation; Trust
Fund. The Corporation and the Indemnitee agree that in light of the recent
history of the Corporation and its emergence from reorganization proceedings
under the Code, as well as the terms of the insurance policies obtained by the
Corporation with respect to director and officer liability coverage, it is
appropriate that the obligations of the Corporation pursuant to this Agreement
be secured in a manner satisfactory to the Indemnitee. Consequently, as
promptly as practicable, but not later than October 1, 1993, Zale Delaware,
Inc. and the Corporation will establish a Trust Fund ("Fund") pursuant to a
Trust Agreement in form and substance satisfactory to the Indemnitee, which
shall provide for the deposit by Zale Delaware, Inc. and the Corporation as the
Fund, for the benefit of the Indemnitee and any other directors from time to
time of Zale Delaware, Inc. and the Corporation (collectively, the
"Beneficiaries"), of at least $500,000 plus if such amount is less than
$1,000,000 an additional pro rata amount for each of the next ten months
thereafter until the Fund aggregates $1,000,000 (the "Minimum Balance") in the
aggregate for Zale Delaware, Inc. and the Corporation, in cash or cash
equivalents or, at the Corporation's option with the consent of a majority of
the Beneficiaries, a standby letter of credit from The First National Bank of
Boston or other institution acceptable to a majority of the Beneficiaries;
provided that the form of any such standby letter must be satisfactory to each
Indemnitee. Initially, the terms of the Trust Agreement shall provide, among
other things, that (i) the Trust Fund shall be used, when
9
<PAGE> 10
requested by any Beneficiary, to satisfy the obligations of the Corporation
pursuant to this Agreement and other like agreements of Zale Delaware, Inc. and
the Corporation with Beneficiaries with respect to any and all payments
provided for hereunder or thereunder; (ii) the Fund shall not be revoked or the
principal thereof invaded for any other purpose without the written consent of
the Indemnitee; (iii) the Fund shall continue to be funded by Zale Delaware,
Inc. and the Corporation, jointly and severally, as necessary to maintain the
Minimum Balance, once established; and (iv) the Trustee under the Trust
Agreement shall be chosen by a majority of the Beneficiaries. Nothing in the
Trust Agreement shall relieve the Corporation of any of its obligations under
this Agreement, and this Agreement shall be amended as necessary to be
consistent with the terms of the Trust Agreement as ultimately executed.
11. Successors. The indemnification and advancement of
expenses and other rights granted and obligations undertaken pursuant to this
Agreement shall continue after the Indemnitee has ceased to be a director,
officer, employee or agent as referred to in clause (i) of Section 1(a) hereof
and shall be binding upon the successors and assigns of the Corporation and
shall inure to the benefit of the heirs, executors, administrators and legal
representatives of the Indemnitee and the Corporation.
12. Contract Rights Not Exclusive. The contract rights
conferred by this Agreement shall be in addition to, but not exclusive of, any
other right which the Indemnitee may have or may hereafter acquire under any
statute, the Certificate of Incorporation or Bylaws of the Corporation, any
agreement by the vote of stockholders or disinterested directors of the
Corporation or otherwise, both as to action in the Indemnitee's official
capacity and as to action in another capacity while holding such office. The
rights granted in this Agreement supersede any similar right granted under any
previous Agreement between the Corporation and the Indemnitee with respect to
the subject matter hereof.
13. The Indemnitee's Obligations. The Indemnitee shall
promptly advise the Corporation in writing of the institution of any Proceeding
which is or may be subject to this Agreement and keep the Corporation generally
informed of and consult with the Corporation with respect to, the status and
defense of any such Proceeding.
14. Severability. If any provision of this Agreement is
prohibited by law or otherwise determined to be
10
<PAGE> 11
invalid or unenforceable by a court of competent jurisdiction, such prohibition
shall not affect the validity of the remaining provisions of this Agreement.
15. Modification and Waiver. No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto.
16. Headings. The descriptive headings of the Sections
of this Agreement are inserted for convenience and shall not control or affect
the meaning or construction of any of the provisions hereof.
17. Notices. Any request, notice, direction,
authorization, consent, waiver, demand or other communication permitted or
authorized by this Agreement to be made upon, given or furnished to or filed
with the Corporation or the Indemnitee by the other party hereto shall be
sufficient for every purpose hereunder if in writing (including telecopy
communication) and telecopied or delivered by hand (including by courier
service) as follows:
If to the Corporation, to it at:
Zale Corporation
901 West Walnut Hill Lane
Irving, Texas 75038-1003
Attention: Chief Executive Officer
Telecopy No.: (214) 580-5238
with copies to:
Zale Corporation
901 West Walnut Hill Lane
Irving, Texas 75038-1003
Attention: General Counsel
Telecopy No.: (214) 580-4934
and
Weil, Gotshal & Manges
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Attention: Lawrence D. Stuart, Esq.
Telecopy No.: (214) 746-7777
or
If to the Indemnitee, to the Indemnitee at the address
specified on Annex A hereto,
11
<PAGE> 12
or, in either case, such other address as shall have been set forth in a notice
delivered in accordance with this Section. All such communications shall, when
so telecopied or delivered by hand, be effective when telecopied with
confirmation of receipt or received by the addressee, respectively. Any party
that telecopies any communication hereunder to the other party shall, on the
same date as such telecopy is transmitted, also send, by first class mail,
postage prepaid and addressed to such party as specified above, an original
copy of the communication so transmitted.
18. Choice of Law. This Agreement will be governed by
and construed in accordance with the laws of the State of Delaware applicable
to contracts made and to be performed in such state, without giving effect to
the principles of conflicts of laws.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first written above.
ZALE CORPORATION
By:
---------------------------------------------
Name: Dolph B.H. Simon
Title: Vice President and Secretary
THE INDEMNITEE
------------------------------------------------
Name as specified on Annex A hereto
12
<PAGE> 13
SIGNATURES
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
ZALE CORPORATION
By: DOLPH B.H. SIMON
--------------------------------
Name: Dolph B.H. Simon
Title: Vice President and
Secretary
INDEMNITEE ADDRESS
---------- -------
/s/ MARK DICKSTEIN Dickstein & Co., L.P.
- -------------------------------- 9 West 57th Street, Suite 4630
Mark Dickstein New York, New York 10019
/s/ DEAN G. GROUSSMAN Zale Corporation
- -------------------------------- 901 West Walnut Hill Lane
Dean G. Groussman Irving, Texas 75038-1003
/s/ FRANK E. GRZELECKI Handy & Harman
- -------------------------------- 555 Theodore Fremd Avenue
Frank E. Grzelecki Rye, New York 10580
/s/ RICHARD C. MARCUS 3811 Turtle Creek Centre,
- -------------------------------- Suite 300
Richard C. Marcus Dallas, Texas 75219
/s/ ANDREW H. TISCH Lorillard, Inc.
- -------------------------------- One Park Avenue, 18th Floor
Andrew H. Tisch New York, New York 10016
/s/ PETER P. COPSES Appollo Advisors, LP
- -------------------------------- 1999 Avenue of the Stars
Peter P. Copses Suite 1900
Los Angeles, California 90067
/s/ J. GLEN ADAMS 2711 LBJ Freeway
- -------------------------------- Suite 900
J. Glen Adams Dallas, Texas 75234
<PAGE> 14
Annex B
UNDERTAKING AGREEMENT
AGREEMENT dated ________________, 19__, between Zale
Corporation, a Delaware corporation (the "Corporation"), and the Person named
on Annex A hereto, a member of the Board of Directors of the Corporation (the
"Indemnitee").
WHEREAS, the Indemnitee has become involved in investigations,
claims, actions, suits or proceedings (collectively, "Proceedings") which have
arisen as a result of the Indemnitee's service to the Corporation;
WHEREAS, the Indemnitee desires that the Corporation pay any
and all expenses (including, but not limited to, attorneys' fees and court
costs) actually and reasonably incurred by the Indemnitee or on the
Indemnitee's behalf in defending or investigating any such Proceedings and that
such payment be made in advance of the final disposition of such Proceedings to
the extent that the Indemnitee has not been previously reimbursed by insurance;
WHEREAS, the Corporation is willing to make such payments but,
in accordance with Section 145 of the General Corporation Law of the State of
Delaware, the Corporation may make such payments only if it receives an
undertaking to repay from the Indemnitee; and
WHEREAS, the Indemnitee is willing to give such an undertaking.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements herein contained, the Corporation and the Indemnitee
agree as follows:
1. In regard to any advance payments made by the
Corporation to the Indemnitee pursuant to the terms of the Indemnification
Agreement dated as of July 21, 1993, between the Corporation and the Indemnitee
(the "Indemnification Agreement") or pursuant to Article Seventh of the
Certificate of Incorporation of the Corporation, the Indemnitee hereby
undertakes and agrees to repay to the Corporation any and all amounts so paid
promptly and in any event within thirty (30) days after the disposition,
including exhaustion of all appeals therefrom of any litigation or threatened
litigation on account of which payments were made if it is determined that the
Indemnitee
<PAGE> 15
is not entitled to indemnification pursuant to the Indemnification Agreement,
the Certificate of Incorporation or the General Corporation Law of the State of
Delaware.
2. This Agreement shall not affect in any manner the
rights which the Indemnitee may have against the Corporation, any insurer or
any other person to seek indemnification for or reimbursement of any expenses
referred to herein or any judgment which may be rendered in any litigation or
proceeding.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first written above.
ZALE CORPORATION
By:
-------------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
THE INDEMNITEE
----------------------------------------------
Name as specified on Annex A hereto
2
<PAGE> 16
Addendum to Indemnification Agreement
The following documents are substantially identical to the Indemnification
Agreement shown here, except for the names and dates and therefore are not filed
as separate documents in accordance with Exchange Act Rule 12b-31.
INDEMNIFICATION AGREEMENT dated as of July 21, 1993, between ZALE DELAWARE,
INC., a Delaware Corporation (the "Corporation"), and the Person named on Annex
A (the "Indemnitee"). The date and the names are the same as the agreement
between Zale Corporation.
INDEMNIFICATION AGREEMENT dated as of the date specified on Annex A between ZALE
CORPORATION, a Delaware Corporation (the "Corporation"), and the Person named on
Annex A (the "Indemnitee"). The date of the agreement is September 9, 1993, and
the name of the indemnitee is Peter P. Copses.
INDEMNIFICATION AGREEMENT dated as of the date specified on Annex A between ZALE
DELAWARE, INC., a Delaware Corporation (the "Corporation"), and the Person named
on Annex A (the "Indemnitee"). The date of the agreement is September 9, 1993,
and the name of the indemnitee is Peter P. Copses.
<PAGE> 1
ISSC/Zale Corporation EXHIBIT 10.5a
Amendment #1 to Agreement for Systems Operations Services
- --------------------------------------------------------------------------------
Zale Corporation, a corporation having a place of business at 901 West Walnut
Hill Lane, Irving, Texas 75038 ("Zale"), and Integrated Systems Solutions
Corporation, d/b/a ISSC, a wholly owned subsidiary of International Business
Machines Corporation, having its headquarters at 44 South Broadway, White
Plains, New York 10601 ("ISSC"), agree that the following terms and conditions
amend and/or supplement the Agreement for Systems Operations Services dated
February 1, 1993 between Zale and ISSC. This Amendment changes the section(s)
of the Agreement as indicated below. Unless modified herein, all other terms
defined in the Agreement, Supplement, and Schedules shall have the same meaning
when used in this Amendment. All terms and conditions of the Agreement and
Schedules not otherwise specifically amended or supplemented herein remain
unchanged and in full force and effect. The Term of this Amendment, when
executed by both Parties, will begin as of August 1, 1994 and will run
concurrently with the Agreement as amended. Termination of this Amendment may
only be effected through termination of the Agreement, as amended.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Title Page Section Title Page
<S> <C> <C> <C> <C> <C>
1.0 Background and Objectives . . . . . . . 1 5.0 Zale Responsibilities . . . . . . . . 3
5.4 Other Responsibilities . . . . . . . 3
2.0 Definitions, Documents and Terms . . . 1
2.3 Associated Contract Documents . . . . 1 6.0 Charges and Expenses . . . . . . . . 3
2.5 Term . . . . . . . . . . . . . . . . . 2 6.2 Additional Resource Charges and Reduced
2.6 Renewal and Expiration . . . . . . . . 2 Resource Credits . . . . . . . . . 3
6.9 Adjustment for Reduction of
Zale Work . . . . . . . . . . . . 3
4.0 ISSC Service Responsibilities. . . . . 3
4.7 Additional Machines . . . . . . . . . 3 7.0 Invoice and Payment . . . . . . . . . 3
7.1 Annual Services Charge . . . . . . . . 3
</TABLE>
1.0 BACKGROUND AND OBJECTIVES
Both Parties desire to continue their current relationship, to extend this
Agreement, and to migrate from its current information services configuration
to a downleveled configuration in support of Zale's current and future business
needs. The Parties are entering Amendment #1 for the purpose of achieving
these goals.
Thus, this Amendment #1:
1) extends the Term to July 31, 1997, while simultaneously granting Zale the
right to terminate for convenience on or after August 1, 1996; and
2) provides for ISSC and Zale to progressively migrate to a downleveled
configuration of Host CPU, DASD, Tape Utilization, and Print Utilization
in two stages, one effective August 1994 and the second effective August
1995; and
3) concurrently reduces Zale's Annual Services Charges; eliminates ARCs and
RRCs for CPU, DASD, Tape Utilization, and Print Utilization; and provides
for ISSC's agreement to pass through to Zale certain additional cost
savings on selected hardware and software.
This Amendment #1 reflects changes to the base Agreement as follows:
1) underscored text is new text added by this Amendment; and
2) text marked with overstrikes is deleted from the base Agreement by this
Amendment; and
3) text without underscores or overstrikes is either already agreed upon in
the base Agreement or explanatory information for this Amendment.
2.0 DEFINITIONS, DOCUMENTS AND TERMS
2.3 Associated Contract Documents
a) Add to Section 2.3(a) of the Agreement the following:
Supplement #1 amends, replaces and restates in its entirety the prior
Supplement. All references to the Supplement contained in the Agreement
and Schedules shall be deemed to refer to Supplement #1.
<PAGE> 2
b) Amend Schedule E, Section (V) (D), as follows:
A Performance Management process shall be supported by ISSC for daily
monitoring of systems to measure, analyze and report on the best approach
to attain committed Performance Standards and Minimum Service Levels
("Service Level Standards"). If at any time ISSC believes Zale's
migration to a downleveled configuration may impact ISSC's ability to
meet or exceed the Service Level Standards, ISSC will promptly notify
Zale of the situation and discuss what course of action may alleviate
such impact. Zale shall have the option to:
1) implement, or request ISSC to implement subject to Section 6.5
("New Services"), such course(s) of action to allow ISSC to meet or
exceed the existing Service Level Standard(s); and/or
2) agree with ISSC on new Service Level Standard(s) by either
benchmarking ISSC's Services with the downleveled configuration for
an appropriate period of time or by discussion and mutual agreement;
and/or
3) relieve ISSC of the affected Service Level Standard(s) and the
obligation to pay Performance Credits, if any, to the extent, and
for the period of time during which, ISSC's ability to meet such
Service Level Standard(s) is affected by the migration to the
downleveled configuration or by Zale's decision not to implement the
course(s) of action.
c) Amend Schedule J as follows:
i) Replace the first paragraph on page 1 of Schedule J with the
following: ARCs and RRCs will be based on Zale's utilization of the
following:
a) Network; and
b) Microfiche.
The categories of resources for which ARCs and RRCs will not be charged are:
a. Host CPU Utilization;
b. Allocated DASD;
c. Tape Utilization; and
d. Print Utilization;
With respect to these categories, resource utilization during the planned
migration to the downleveled configuration will be within the Baselines set
forth in the Supplement, and such utilization is included within the Annual
Services Charge. Additional utilization beyond such Baselines will be provided
subject to Section 6 ("Charges and Expenses") and the Supplement.
ii) Revise the first sentence in section 1, page 1 of Schedule J as
follows: As of August 1, 1994, ISSC will measure and track RUs in
the categories of Net work and Microfiche utilization, and such
other categories as ISSC deems appropriate.
iii) Delete section (c) on page 4 of Schedule J ("Application Support")
in its entirety.
iv) Revise the first sentence of section (2) on page 4 of Schedule J as
follows:
After the completion of each month during the Term, starting on the effective
date of Amendment #1, ISSC will calculate ARCs and RRCs for Network and
Microfiche utilization as follows.
2.5 TERM
Amend Section 2.5 as follows:
The Term of this Agreement will begin as of 12:00am central time on the
Commencement Date and will end as of 12:00am central time on July 31, 1997,
unless terminated or extended in accordance with this Agreement. (the "Term").
2.6 RENEWAL AND EXPIRATION
Amend Section 2.6 as set forth below:
Not less than 6 months prior to the expiration of the Term of this Agreement,
ISSC agrees to notify Zale whether it desires to renew this Agreement and of
the proposed prices and terms to govern such renewal. Not less that 3 months
prior to the expiration of the Term, Zale agrees to inform ISSC whether it
desires to renew.
In the event Zale desires to renew the Agreement, but the Parties are unable to
agree upon renewal terms and conditions prior to expiration, this Agreement
will expire on July 31, 1997.
<PAGE> 3
4.0 ISSC SERVICE RESPONSIBILITIES
4.7 Additional Machines
Amend the second sentence of Section 4.7 as follows:
Additional or replacement Machines, including upgrades, will be added to the
Data Center and Data Network as necessary to perform the Services in accordance
with the Performance Standards, subject to ARCs for growth beyond the specified
RB or to Section 6.5 ("New Services").
5.0 ZALE RESPONSIBILITIES
5.4 Other Responsibilities
Add to Section 5.4 the following subsection (1):
1) Zale shall either migrate to the downleveled Host CPU, DASD, Tape
Utilization, and Print Utilization levels set forth in the Supplement on
or before the dates specified therein, or, alternatively, notify ISSC of
its decision not to migrate and to pay ISSC for the price agreed upon
pursuant to Section 6.2(d). Zale shall notify ISSC of its decision not
to migrate as set forth in the Supplement as soon as possible, but not
less than thirty (30) days prior to the scheduled migration.
6.0 CHARGES AND EXPENSES
6.2 Additional Resource Charges and Reduced Resource Credits
Add paragraphs (c & d) to Section 6.2 as follows:
c) Zale agrees to pay for any additional charges agreed upon by ISSC and
Zale pursuant to Section 6.5 ("New Services"), Schedule J, and the
Supplement. ISSC agrees to credit Zale for the actual cost savings
realized by ISSC on or after August 1, 1995, if any, for removing or
downleveling selected hardware and software beyond that contemplated by
the downleveling set forth in the Supplement.
d) If Zale elects not to migrate, as described in Section 5.4(l), Zale will
pay ISSC the Annual Services Charge ("ASC") for the applicable time
period, plus an additional charge for Zale to remain at the
8/1/94-7/31/95 Baselines. Such charge shall not exceed the price set
forth in the Supplement, provided Zale does not exceed the 8/1/94-7/31/95
Baselines.
6.9 ADJUSTMENT FOR REDUCTION OF ZALE WORK
Delete Section 6.9 in its entirety.
7.0 INVOICING AND PAYMENT
7.1 Annual Services Charge
Amend the first sentence of Section 7.1 as follows:
ISSC will invoice Zale in advance on a monthly basis the amount of the
Annual Services Charge set forth in the Supplement.
THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS AMENDMENT, UNDERSTAND IT, AND
AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS. FURTHER, THE PARTIES AGREE THAT
THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES
RELATING TO THIS SUBJECT SHALL CONSIST OF 1) THE AMENDMENTS, 2) THE SUPPLEMENT,
3) THE SCHEDULES, AND 4) THE FEBRUARY 1, 1993 AGREEMENT. THIS STATEMENT OF THE
AMENDMENT SUPERSEDES ALL PROPOSALS OR OTHER PRIOR AGREEMENTS, ORAL OR WRITTEN,
AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER
DESCRIBED IN THIS AMENDMENT.
Accepted by: Accepted by:
INTEGRATED SYSTEMS SOLUTIONS CORPORATION ZALE CORPORATION
D/B/A/ ISSC, INC.
By /s/ E. Eugene Hoffman By /s/ John C. Belknap
----------------------------------- ---------------------------------
E. Eugene Hoffman 9/19/94 John C. Belknap 9/19/94
- ------------------------------------- -----------------------------------
Name (Type or Print) Name (Type or Print)
<PAGE> 4
ISSC/Zale Corporation
Agreement for Systems Operations Services
- --------------------------------------------------------------------------------
Supplement #1 to
Agreement for Systems Operations Services
Name and Address of Customer: Customer No.: 9988837
Zale Corporation
901 West Walnut Hill Lane
Irving, Texas 75234
ISSC Project Office Address:
ISSC Project Executive
8000 Bent Branch Drive
Irving, Texas 75063
Term Commencement Date: August 1,1994
Term End Date: July 31, 1997
<TABLE>
<CAPTION>
Annual Services Charge (ASC) Per Contract Year
----------------------------------------------
Year #1 Year #2 Year #3
------- ------- -------
8/1/94- 8/1/95- 8/1/96-
7/31/95 7/31/96 7/31/97
------- ------- -------
<S> <C> <C> <C>
Annual Services
Charge* $10.8 $10.5 $10.2
($ in Millions)
</TABLE>
<TABLE>
<CAPTION>
Annual Services Charge (ASC) Payment Stream
-------------------------------------------
8/1/94- 1/1/95- 8/1/95- 1/1/96- 8/1/96- 1/1/97-
12/31/94 7/31/95 12/31/95 7/31/96 12/31/96 7/31/97
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
ASC Payment
Stream* $5.15 $5.65 $5.35 $5.15 $5.35 $4.85
($ in Millions)
</TABLE>
<TABLE>
<CAPTION>
COLA Protection Index Per Contract Year
---------------------------------------
8/1/94- 8/1/95- 8/1/96-
BASE 7/31/95 7/31/96 7/31/97
---- ------- ------- -------
<S> <C> <C> <C> <C>
COLA Protection
Index 141.9 155.0 161.9 169.1
</TABLE>
<PAGE> 5
Supplement #1 to
Agreement for Systems Operations Services
<TABLE>
<CAPTION>
Monthly Resource Unit (RU) Baselines Per Contract Year
------------------------------------------------------
8/1/94- 8/1/95- 8/1/96-
7/31/95 7/31/96 7/31/97
-------- ------- --------
<S> <C> <C> <C>
Host CPU MIP Utilization 86 71 71
85% 500J 85% 400J 85% 400J
DASD 430 301 301
(Allocated Gigabytes)
Tape Utilization 77,250 46,350 46,350
(Mounts)
Print Utilization 180,000 162,000 162,000
(Thousand Lines)
Network
(56kbps Increments)
Tampa FL 3 3 3
Tempe AR 3 3 3
Microfiche (Thousands)
Masters 22,138 22,138 22,138
Duplicates 51,017 51,017 51,017
</TABLE>
<PAGE> 6
Supplement #1 to
Agreement for Systems Operations Services
<TABLE>
<CAPTION>
Additional Charges & Credits By Contract Year
---------------------------------------------
8/1/94- 8/1/95- 8/1/96-
7/31/95 7/31/96 7/31/97
-------- ------- --------
<S> <C> <C> <C>
ADDITIONAL RESOURCE
CHARGE RATES
Network
Per 56KB Increment
Initial Set Up 7700.00 7700.00 7700.00
Monthly Charge 706.52 706.52 706.52
Microfiche
($ per fiche)
Masters .76 .76 .76
Duplicates .11 .11 .11
REDUCED RESOURCE CREDITS
Microfiche
($ per fiche)
Masters .38 .38 .38
Duplicates .05 .05 .05
Termination Charge $31.5 $20.7 $4.0
($ in Millions) to to
$20.7 $10.2
</TABLE>
*OTHER CHARGES
If Zale elects not to migrate from the 8/1/94 - 7/31/95 Baseline, as set forth
in Section 5.4(l), ISSC will charge Zale the ASC set forth for the applicable
time period, plus an additional charge which shall not exceed the following
monthly charge ($ - thousands), provided Zale does not exceed the
8/1/94-7/31/95 Baselines:
Host CPU MIP Utilization: $60K per month;
DASD (Allocated Gigabytes): $25K per month;
Tape Utilization (Mounts): $20K per month;
Print Utilization (Thousand Lines): $20K per month.
If Zale's usage exceeds the Baselines for Tape and Print Utilization at any
time, Zale will be subject to an additional usage rate which shall not exceed
the following:
Tape Utilization ($ Per Tape Mount): 1.17
Print Utilization ($ Per Thousand LOP): .52
<PAGE> 7
Supplement #1 to
Agreement for Systems Operations Services
Exhibit 1
Initialization Fee
Zale, currently having excess capacity/space in its existing Data Center,
agrees to permit ISSC to operate other customer data center system services
operations utilizing the Zale facilities. Zale will not be required to incur
any additional capital costs associated with this consent. ISSC will
compensate Zale for the additional costs, including utilities resulting from
the increased requirements, by paying one percent of the new customer(s)
contract.
The Fees are subject to the following limitations:
a) the one time fee for each customer will be paid 30 days after the start
of Service for that ISSC customer; and
b) the fee payments will be capped at a cumulative value of $5,000,000.
<PAGE> 1
EXHIBIT 10.7
May 15, 1995
Mr. Dolph B. Simon
901 West Walnut Hill Ln.
Irving, Texas
75038
Dear Dolph:
This letter will confirm our agreement ("Agreement") with respect to
the termination of your employment at Zale Corporation ("Zale"). The parties
agree that neither the specific terms nor the existence of this agreement will
be disclosed by either party to anyone except as required by law or for the
purpose of obtaining advice as provided for herein.
1. Your last day of employment at Zale will be June 15, 1995.
2. The Company will provide severance benefits to you under the
Executive Severance Plan, as amended and restated February 10, 1994 ("Plan")
(copy attached), as follows:
a. Nine months of severance pay;
b. Medical and life insurance benefits contemplated by
the Plan during the period ended June 30, 1995;
thereafter, you will be eligible for benefits under
the Zale Retired Employee Medical Plan in accordance
with the terms of that Plan;
c. Outplacement assistance for three months; and
d. Use of Company car for 45 days (with an option to
purchase in accordance with Company policy).
Pursuant to Section 4.1 of the Plan, in order to receive the
benefits discussed above, you are required to execute the Waiver of Benefits
attached as Exhibit A.
3. In addition to benefits under the Plan, the Company will
provide the additional benefits described in this Section, which you acknowledge
is above and beyond any benefits or payments you are entitled to receive under
the law or pursuant to any contract or benefit plan of Zale (including the
Plan). In consideration of these additional benefits, you are required to
execute the Agreement and General Release attached as Exhibit B, and you agree
to comply with the terms of this Agreement. You understand and agree that,
except as set forth in this Agreement, you will receive no payments,
compensation, benefits, perquisites, remuneration or bonuses, including
severance, which you might otherwise be entitled to pursuant to any
understanding or agreement.
<PAGE> 2
a. (i) Zale will pay to you the nine months of severance pay,
specified in Section 2 (a) above, in a single lump sum payment in cash on June
15, 1995, your last day of employment. Zale will pay to you three months
additional severance pay in a single lump sum payment in cash on April 15, 1996.
(ii) Zale will pay you twelve months additional base salary
in twelve equal monthly installments, starting July 15, 1995 provided that
amounts payable to you under this Section 3 (a) (ii) ( but not under Section 2
(a) or 3 (a) (i) shall be subject to reduction equal to any amounts you earn or
become entitled to receive during such twelve month period from any employment,
whether as an employee, consultant, advisor, partner or otherwise, other than as
a non-employee member of the Board of Directors of Oshman's Sporting Goods, Inc.
You agree to notify Zale in writing on the first day of each month during such
period of any amounts so earned or to which you became entitled during the prior
month.
b. You will receive the bonus to which you would otherwise have
been entitled for the fiscal year ending July 31, 1995 under Zale's Annual
Incentive Plan had your employment terminate after July 31, 1995. Solely for
purposes hereof, the percent of your "base salary" payable as bonus for the full
fiscal year shall be determined based solely upon achievement of the same
corporate and divisional goals required for other senior executives of Zale, and
individual performance will not be considered in your case. Any bonus payable to
you hereunder shall be paid at the same time bonuses are paid to other senior
executives.
4. a. Zale owns and has developed and compiled, and will develop
and compile, certain proprietary techniques and confidential information which
have great value to its business (referred to in this Agreement, collectively,
as "Confidential Information"). Confidential Information includes not only
information disclosed by Zale to you, but also information developed or learned
by during the course or as a result of employment with Zale, which information
is and shall be the property of Zale. confidential Information includes all
information that has or could have commercial value or other utility in the
business in which Zale is engaged or contemplates engaging, and all information
of which the unauthorized disclosure could be detrimental to the interests of
Zale, whether or not such information is specifically labelled as Confidential
Information by Zale. By way of example and without limitation, Confidential
Information includes any and all information developed, obtained or owned by
Zale concerning trade secrets, techniques, know-how (including designs, plans,
procedures, merchandising know-how, processes, and research records), software,
computer programs, innovations, discoveries, improvements, research,
development, test results, reports, specifications, data, formats, marketing
data and plans, business plans, strategies, forecasts, unpublished financial
information, orders, agreements and other forms of documents, price and cost
information, sourcing plans and techniques, merchandising opportunities,
expansion plans, store plans, budgets, projections, customer, supplier and
subcontractor identities, characteristics and agreements, and salary, staffing
and employment information.
<PAGE> 3
b. You acknowledge and agree that Zale disclosed to and
entrusted you with Confidential Information which is the exclusive property of
Zale and which you may not use upon leaving the employ of Zale. You also
acknowledge that you are aware that the unauthorized disclosure of Confidential
Information, among other things, may be prejudicial to Zale's interests, an
invasion of privacy and an improper disclosure of trade secrets. You shall not,
directly or indirectly, use, make available, sell, disclose or otherwise
communicate to any corporation, partnership, individual, or other third party,
any Confidential Information, either during the period of severance payments
hereunder or thereafter.
c. You will not remove from Zale's premises, or provide access
to any other person, without Zale's prior written consent any records, files,
drawings, documents, equipment, materials and writings received from, created
for or belonging to Zale, including those which relate to or contain
Confidential Information, or any copies thereof.
5. Following on your last day of employment, Zale will pay you an
amount equal to your earned (during the fiscal year ended March 31, 1994 and the
short fiscal year ended July 31, 1994) but unused (as of June 15, 1995) vacation
pay and your earned, unpaid base salary through June 15, 1995. Further, Zale
will reimburse you for any travel/business expenses in accordance with Zale's
expense reimbursement policies, provided that you submit to Zale the required
documentation. You will not receive or be entitled to any accrued vacation pay
in respect of the fiscal year ending July 31, 1995 or any unused sick leave.
6. Questions concerning the premium charge for continuation of
insurance coverage after June 30, 1995 should be directed to Jackie Werblo,
along with any other questions you may have concerning your right to
distribution of the amounts in Zale's 401(k) and other retirement plans in which
you may have accounts. You will be receiving a separate notice concerning your
right to continue insurance coverage under the Zale retired employee medical
plan.
7. You agree to return to Zale all original documents, software,
equipment, and other materials belonging to Zale, including, but not limited to,
Zale identification and keys, wherever such items may be located.
8. In the event you breach this Agreement, Zale will be entitled
to such relief as is available to it at law or in equity. Specifically, and
without limiting any other rights, if you breach any provisions of Section 4
hereof, the Company shall be entitled to cease any further payments owing to you
under Section 3 hereof.
9. If any section of this Agreement should be held invalid by
operation of law or by any tribunal of competent jurisdiction, or if compliance
with or enforcement of any section is restrained by such tribunal, the
application of any and all other sections, other than those which have been held
invalid, shall not be affected.
<PAGE> 4
10. This Agreement shall be binding upon you, your heirs,
administrators, representatives, executors, successors and assigns and shall
likewise be binding on Zale and its divisions, subsidiaries and affiliates, and
their respective successors and assigns and shall inure to the benefit of you,
your heirs, administrators, representatives, executors, successors and assigns,
and of Zale and its divisions, subsidiaries and affiliates, and their respective
successors and assigns.
11. This Agreement and Exhibits A and B hereto set forth the entire
Agreement between the parties and with respect to the subject matter hereof and
fully supersedes any and all prior agreements or understanding between them
pursuant to such subject matter.
If the arrangements we have discussed and agreed upon are accurately
set forth above, please confirm your approval and acceptance of our Agreement by
signing both enclosed copies of this Agreement and Exhibits A and B, and
returning both copies to me.
/s/ A. HERSCHEL KRANITZ
A. Herschel Kranitz
Sr. V.P Human Resources
Agreed as modified on page 2.
/s/ DOLPH B. SIMON
Dolph B. Simon
<PAGE> 5
AGREEMENT AND GENERAL RELEASE
This Agreement and General Release ("Agreement") is made and entered
into by and between Zale Corporation and Dolph Simon.
DEFINITIONS
As used throughout this Agreement and General Release:
1. "Executive" refers to Dolph Simon, his heirs, executors,
administrators, agents, successors, assigns and dependents.
2. "Zale" refers to Zale Corporation, its past and present
parents, subsidiaries, affiliates, and divisions, and each of their respective
past and present officers, directors, agents, employees, successors and assigns.
RECITALS
WHEREAS, Executive has been employed by Zale as General Counsel.
WHEREAS, Executive's employment with Zale is being terminated in
accordance with the attached letter ("Letter"); and
WHEREAS, the parties desire to settle fully any and all claims and
controversies arising out of the employment relationship between Executive and
Zale and the termination thereof;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and in the Letter, and intending to be and being legally
bound hereby, the parties agree as follows:
AGREEMENT
1. Executive represents that he does not have any claim, action or
proceeding pending against Zale.
2. Except as necessary to enforce the terms of this Agreement and
General Release and the Letter, and in exchange for and in consideration of the
promises, covenants and agreements set forth herein, Executive hereby releases
Zale from any and all manner of claims, demands, causes of action, obligations,
damages, or liabilities whatsoever of every kind and nature, at law or in
equity, known or unknown, and whether or not discoverable, which he has or may
have for any period prior to and including the date of the execution of this
Agreement and General Release, including, but not limited to, any claim of
defamation, wrongful discharge, breach of an express or implied contract, and
claims of discrimination under the Age Discrimination In Employment Act of 1967
and all other federal, state and local laws, and any claim for attorneys' fees
or costs.
<PAGE> 6
3. Executive promises never to file or participate in a lawsuit,
arbitration or other legal proceeding asserting any claims that are released
pursuant to this Agreement and General Release. If Executive breaches his
promise and files or participates in a legal proceeding based on claims he has
released, he agrees to pay for all costs incurred by Zale, including reasonable
attorneys' fees, in defending against his claim.
Zale asserts that it does not have any present knowledge of a
factual basis for, and has no present intention of filing, a lawsuit or other
legal proceeding against you.
4. The parties (and persons acting on their behalf) shall not
disclose, and shall take all reasonable measures to prevent the disclosure, to
any person or entity the existence, terms and/or subject matter of this
Agreement and General Release, except as required by law. This provision does
not prohibit Executive from providing this information to his spouse or to his
attorneys or accountants for purposes of obtaining legal, tax or financial
advice or as otherwise required by law.
5. On or before June 15, 1995, Executive shall return to Zale all
of Zale's property in his possession, custody or control; provided, however,
that (1) Executive may have the use of his company car until August 1, 1995.
6. In executing this Agreement and General Release, neither Zale
nor Executive is admitting any liability or wrongdoing, and the considerations
exchanged herein do not constitute an admission of any liability, error,
contract violation, or violation of any federal, state, or local law or
regulation.
7. This Agreement and General Release shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
8. The unenforceability or invalidity of any provision or provisions of
this Agreement and General Release shall not render any other provision or
provisions hereof unenforceable or invalid.
9. This Agreement and General Release and the accompanying Letter
constitute the entire agreement between the parties and cannot be altered except
in a writing signed by the parties. The parties acknowledge that they entered
into this Agreement and General Release voluntarily, that they fully understand
all of its provisions, and that no representations were made to induce execution
of this Agreement and General Release which are not expressly contained herein.
10. The parties agree that any disputes concerning the
interpretation or application of the Agreement and General Release shall be
governed by Texas Law in a state or federal court located in Texas, without
regard to principles of conflicts of laws.
11. Executive has been afforded an opportunity to take at least
twenty-one (21) days to consider this Agreement and General Release and has been
advised to consult with the attorneys of his choice prior to executing this
Agreement and General Release. The parties understand and acknowledge that
Executive will have a period of seven (7) calendar days
<PAGE> 7
following his execution of this Agreement and General Release in which to revoke
his consent, and that the Agreement and General Release will not become
effective or enforceable until the revocation period has expired.
IN WITNESS WHEREOF, the parties have executed this Agreement and
General Release on the dates indicated below.
ZALE CORPORATION
/s/ Dolph Simon By: /s/ A. HERSCHEL KRANITZ
- ------------------------------------ -----------------------------------
Dolph Simon A. Herschel Kranitz
Senior Vice President
Human Resources
SWORN to before me this day of SWORN to before me this day of
, 1995. , 1995.
- ------------------- -------------------
- ------------------------------------ -----------------------------------
Notary Public Notary Public
<PAGE> 1
EXHIBIT 11
ZALE CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Common Share
(amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Twelve Months Ended
July 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Primary:
Net earnings applicable to common stock $31,470 $21,557
======= =======
Shares
Weighted average number of common shares
outstanding 34,969 34,965
Assuming exercise of options reduced by the
number of shares which could have been
purchased with the proceeds from exercise
of such options 382 - - -
Assuming exercise of warrants reduced by
the number of shares which could have been
purchased with the proceeds from exercise
of such warrants 498 - - -
------- -------
Weighted average number of common shares
outstanding as adjusted 35,849 34,965
======= =======
Net earnings per common share $ 0.88 $ 0.62
======= =======
Fully Diluted:
Net earnings applicable to common stock $31,470 $21,557
======= =======
Shares
Weighted average number of common shares
outstanding 34,969 34,965
Assuming exercise of options reduced by the
number of shares which could have been
purchased with the proceeds from exercise
of such options 559 - - -
Assuming exercise of warrants reduced by
the number of shares which could have been
purchased with the proceeds from exercise
of such warrants 1,037 - - -
------- -------
Weighted average number of common shares
outstanding as adjusted 36,565 34,965
======= =======
Net earnings per common share $ 0.86 $ 0.62
======= =======
</TABLE>
<PAGE> 1
EXHIBIT 13
ZALE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Consolidated Financial Statements of the
Company (and the related notes thereto) included elsewhere in this Annual
Report. The "Selected Financial Data" presented below are derived from the
audited Consolidated Financial Statements of the Company, unless otherwise
indicated.
GENERAL
On July 30, 1993, the Company completed a comprehensive restructuring
of its debt through implementation of its Plan of Reorganization as confirmed on
May 20, 1993 by the Bankruptcy Court. As a result of the restructuring
transaction and the implementation of fresh-start financial reporting, the
Company's results of operations subsequent to July 31, 1993 are not comparable
to results of operations for prior periods. The most significant effects of
fresh-start financial reporting on results of operations are the reduction in
amortization and depreciation expense from the write-off of substantially all
the Company's fixed assets and the amortization of the "Excess of Revalued Net
Assets Over Stockholders' Investment." See the note to the Consolidated
Financial Statements of the Company entitled "REORGANIZATION AND BASIS OF
PRESENTATION" included elsewhere in this Annual Report for information on
consummation of the Plan of Reorganization and implementation of fresh-start
financial reporting.
On December 13, 1993, the Board of Directors of the Company authorized
the change in the Company's fiscal year end to July 31. Such change was
effective as of April 1, 1994. To facilitate a comparison of the Company's
operating performance for the years ended July 31, 1995 and 1994, the four
months ended July 31, 1993 and the year ended March 31, 1993, the following
table includes a presentation of historical income statement data for twelve
months ended July 31, 1993. This includes the four month period ended July 31,
1993 and the eight months ended March 31, 1993. This twelve month period ended
July 31, 1993 will be referred to as "pro forma year ended July 31, 1993" and is
unaudited.
1
<PAGE> 2
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PREDECESSOR
----------------------------------
PRO FORMA(1)
YEAR FOUR MOS.
ENDED ENDED
YEAR ENDED JULY 31, JULY 31, JULY 31,
-------------------- ----------- ---------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1995 1994 1993 1993
--------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $1,036,149 $ 920,307 $ 956,447 $ 244,539
Cost of sales 524,010 460,060 533,080 127,484
Selling, general and administrative expenses 434,101 401,744 402,116 119,786
Depreciation and amortization expense (credit) 381 (4,385) 26,459 8,973
Unusual items - provision for valuation of assets --- --- 20,200 ---
Reorganization and restructure costs --- --- 143,690 47,879
Net reduction of reserves for preacquisition
contingencies --- --- --- ---
Gain on sale of assets --- --- --- ---
Interest expense, net 29,837 28,142 23,508 6,623
------------------------------------------------------------------
Earnings (loss) before fresh-start revaluation,
income taxes, extraordinary items and
cumulative effect of accounting changes 47,820 34,746 (192,606) (66,206)
Fresh-start revaluation --- --- (246,236) (246,236)
------------------------------------------------------------------
Earnings (loss) before income taxes,
extraordinary items and cumulative
effect of accounting changes 47,820 34,746 (438,842) (312,442)
Income taxes 16,350 11,621 --- ---
------------------------------------------------------------------
Earnings (loss) before extraordinary items and
cumulative effect of accounting changes $ 31,470 $ 23,125 $ (438,842) $ (312,442)
==================================================================
Net earnings (loss) $ 31,470 $ 21,557 $ 664,991 $ 791,391
==================================================================
Earnings per common share (2):
Primary:
Earnings before extraordinary item $ 0.88 $ 0.66
Net earnings $ 0.88 $ 0.62
Assuming full dilution:
Earnings before extraordinary item $ 0.86 $ 0.66
Net earnings $ 0.86 $ 0.62
Weighted average number of common shares outstanding (2):
Primary 35,849 34,965
Assuming full dilution 36,565 34,965
BALANCE SHEET DATA: (END OF PERIOD)
Working capital $ 781,802 $ 763,216 $ 676,677 $ 676,677
Total assets 1,110,708 1,112,647 1,013,523 1,013,523
Long-term debt, net of current portion 440,717 443,581 351,498 351,498
Total stockholders' investment 391,890 342,740 311,070 311,070
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1993 1992 1991
---------------------------------------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 980,832 $ 1,156,455 $ 1,335,269
Cost of sales 534,420 663,707 662,788
Selling, general and administrative expenses 418,133 575,592 562,167
Depreciation and amortization expense (credit) 26,316 50,899 56,024
Unusual items - provision for valuation of assets 20,200 574,336 ---
Reorganization and restructure costs 137,937 175,659 ---
Net reduction of reserves for preacquisition
contingencies --- 5,566 13,141
Gain on sale of assets --- 2,667 ---
Interest expense, net 24,829 84,885 126,008
---------------------------------------------
Earnings (loss) before fresh-start revaluation,
income taxes, extraordinary items and
cumulative effect of accounting changes (181,003) (960,390) (58,577)
Fresh-start revaluation --- --- ---
---------------------------------------------
Earnings (loss) before income taxes,
extraordinary items and cumulative
effect of accounting changes (181,003) (960,390) (58,577)
Income taxes --- --- ---
---------------------------------------------
Earnings (loss) before extraordinary items and
cumulative effect of accounting changes $ (181,003) $ (960,390) $ (58,577)
==============================================
Net earnings (loss) $ (181,003) $ (960,390) $ (54,125)
==============================================
Earnings per common share (2):
Primary:
Earnings before extraordinary item
Net earnings
Assuming full dilution:
Earnings before extraordinary item
Net earnings
Weighted average number of common shares outstanding (2):
Primary
Assuming full dilution
BALANCE SHEET DATA: (END OF PERIOD)
Working capital $ 961,671 $ 809,417 $ 487,439
Total assets 1,252,448 1,088,060 1,789,178
Long-term debt, net of current portion 284,554 --- 956,753
Total stockholders' investment (791,391) (610,388) 350,002
</TABLE>
(1) Amounts in this column represent historical income statement data for the
twelve months ended July 31, 1993 which includes the four month period ended
July 31, 1993 and the eight months ended March 31, 1993.
(2) Earnings (loss) per share is not presented in the "Predecessor" columns
because such presentation would not be meaningful. The old stock, which was
not publicly traded, was cancelled under the plan of reorganization and the
new stock was not issued until July 30, 1993 (the "Effective Date").
2
<PAGE> 3
OPERATING RESULTS -- YEAR ENDED JULY 31, 1995 COMPARED TO YEAR ENDED JULY 31,
1994
Net Sales
Net Sales for the year ended July 31, 1995 increased by $115.8 million
to $1,036.1 million, a 12.6 percent increase compared to the previous year. The
increase is primarily the result of new management's implementation of a key
item merchandising strategy, product-focused marketing and improved execution in
the stores. Sales for stores open for comparable periods increased by
approximately 12.8 percent.
Costs and Expenses
Cost of Sales was 50.6 percent and 50.0 percent of sales for the years
ended July 31, 1995 and 1994, respectively. The percentage increase resulted
primarily from higher markdowns during the last half of the year for clearance
of discontinued merchandise.
Selling, General and Administrative Expenses, which increased by $32.4
million, were 41.9 percent and 43.7 percent of sales for the years ended July
31, 1995 and 1994, respectively. Store expenses decreased by 1.7 percent of
sales as store occupancy costs and payroll increased at a lower rate than sales.
Promotional expenditures decreased as both a percentage of sales and in total
dollars. Corporate expenses decreased by 1.2 percent of sales principally as a
result of lower costs for management information systems and insurance. These
improvements were offset by a decrease in net credit income principally from
reduced finance charge income on a lower average receivables portfolio in
relation to the prior year. The reduction in the average receivables portfolio
resulted from the decrease of accounts from significant store closings in 1992
and 1993, coupled with faster cash collections of customer balances than in the
prior year.
Earnings before interest, taxes and depreciation and amortization expense
(credit) were $78.0 million and $58.5 million for the years ended July 31, 1995
and 1994, respectively, an increase of 33.4 percent.
Depreciation and Amortization Expense increased by $4.8 million.
Amortization of the Excess of Revalued Net Assets Over Stockholders' Investment
was $5.9 million in both periods. However, depreciation and amortization of
property and equipment increased from $1.4 million to $6.2 million as new assets
have been purchased since the fresh-start reporting write-off of substantially
all fixed assets of the Company at July 31, 1993.
Interest
Interest Expense, Net was $29.8 million and $28.1 million for the years
ended July 31, 1995 and 1994, respectively. The increase was principally due to
the refinancing of the Receivables Securitization Facility in July 1994 at a
higher amount, partially offset by an increase in investment income. The current
year also includes $1.2 million of interest income on funds escrowed for
bankruptcy matters which are not expected to continue at this level.
Income Taxes
Income Taxes for the years ended July 31, 1995 and 1994 were $16.4
million and $10.6 million, respectively, reflecting an effective tax rate of
34.2 percent and 32.9 percent, respectively. As a result of guidelines regarding
accounting for income taxes of companies utilizing Fresh-Start reporting, the
Company reports earnings on a fully-taxed basis even though it does not expect
to pay any significant income taxes for the near future. As of July 31, 1995,
the Company had a tax net operating loss ("NOL") carryforward (after
limitations) of approximately $378 million. The Company will be able to offset
taxes that would ordinarily be paid this year and in future years through
utilization of this tax NOL.
As the Company develops a longer-term earnings record, it may determine
that a portion of the valuation reserve on the Company's deferred tax asset will
not be required as such asset will more likely than not be realizable. Any
reduction in the valuation reserve will increase Additional Paid-in Capital
directly.
3
<PAGE> 4
OPERATING RESULTS -- YEAR ENDED JULY 31, 1994 COMPARED TO PRO FORMA YEAR ENDED
JULY 31, 1993
Net Sales
Net Sales for the year ended July 31, 1994 decreased by $36.1 million
or 3.8 percent when compared with the pro forma year ended July 31, 1993. The
significant decrease in Net Sales in fiscal 1994 is primarily the result of
closing approximately 175 locations in January through March 1993 as part of the
Company's operational restructuring.
Costs and Expenses
Cost of Sales was 50.0 percent of sales for fiscal year 1994 and 55.7
percent of sales for the pro forma year ended July 31, 1993. A reserve against
merchandise inventory of approximately $43.0 million was provided in Cost of
Sales during the pro forma year ended July 31, 1993 for estimated shrinkage,
markdowns, damage or other loss in value caused by closing approximately 175
locations. Excluding the reserve provision, Cost of Sales as a percentage of
sales was 51.2 percent. The primary reason for the 1.2 percent decrease in Cost
of Sales was a higher initial merchandise margin partially offset by increased
markdowns.
Selling, General and Administrative Expenses as a percentage of sales
were 43.7 percent for fiscal year 1994 and 42.0 percent for the pro forma year
ended July 31, 1993. The percentage increase in fiscal 1994 resulted primarily
from higher promotional and employee benefit costs incurred during the year
relative to sales.
Depreciation and Amortization Expense decreased by $30.8 million
principally due to the fresh-start reporting write-off of substantially all
fixed assets of the Company at July 31, 1993.
Unusual Items
The unusual items in the pro forma year ended July 31, 1993 relate to
provisions made to reduce the value of certain non-operating assets, including
properties held for sale and a large diamond held for investment, to their
estimated net realizable values. A provision was also made for the valuation of
customer receivables. See the note to the Consolidated Financial Statements
"UNUSUAL ITEMS -- PROVISIONS FOR VALUATION OF ASSETS."
Reorganization and Restructure Costs
Reorganization and Restructure Costs are segregated from normal
operations in the pro forma year ended July 31, 1993 Consolidated Statement of
Operations and reflect the costs incurred by the Company in the implementation
of its operational and financial restructuring plan as well as costs related
directly to the bankruptcy filing.
Interest
Interest Expense, Net was $28.1 million for fiscal year 1994 and $23.5
million for the pro forma year ended July 31, 1993. The increase in fiscal 1994
primarily represents interest incurred on the 11% $60.0 million Second Priority
Senior Secured Notes which were issued in conjunction with the Company's
emergence from bankruptcy and a reduction in interest income due to lower
average balances in short-term investments as a result of payment of bankruptcy
obligations in July 1993.
Income Taxes
Income Taxes for the year ended July 31, 1994 were $10.6 million. An
income tax benefit was not provided in the period ended July 31, 1993 because
all operating losses would have to be carried forward to future years and the
realization of a tax benefit for those losses was not assured. As a result of
guidelines regarding accounting for income taxes of companies utilizing
Fresh-Start reporting, the Company reports earnings on a fully-taxed basis even
though it does not expect to pay any significant income taxes for the near
future. The Company will be able to offset taxes that would ordinarily be paid
this year and in future years through utilization of the NOL.
4
<PAGE> 5
OPERATING RESULTS --- FOUR MONTHS ENDED JULY 31, 1993
Net Sales for the four months ended July 31, 1993 were $244.5 million.
Cost of Sales was 52.1 percent of sales and Selling, General and Administrative
Expenses were 49.0 percent of sales for the four month period ended July 31,
1993. Due to the seasonality of the business, these results were not
representative of results expected for a full year. Reorganization and
Restructure Costs are segregated from normal operations in the Four Months Ended
July 31, 1993 Consolidated Statement of Operations and primarily represent
professional fees incurred in conjunction with the Chapter 11 reorganization.
Reorganization and Restructure Costs, the Fresh-Start Revaluation and Gain on
Debt Discharge all relate to the Company's reorganization under Chapter 11 and
are described in the notes to the Consolidated Financial Statements
"REORGANIZATION AND BASIS OF PRESENTATION" and "REORGANIZATION AND RESTRUCTURE
COSTS."
OPERATING RESULTS --- YEAR ENDED MARCH 31, 1993
Net Sales for the year ended March 31, 1993 were $980.8 million. Cost
of Sales was 54.5 percent of sales for the year ended March 31, 1993. A reserve
against merchandise inventory of approximately $43.0 million was provided in
Cost of Sales for estimated shrinkage, markdowns, damage or other loss in value
caused by closing approximately 175 locations. Excluding the reserve provision,
Cost of Sales as a percentage of sales was 50.1 percent. Selling, General and
Administrative Expenses were 42.6 percent of sales for the year ended March 31,
1993.
The unusual items in the year ended March 31, 1993 relate to provisions
made to reduce the value of certain non-operating assets, including properties
held for sale and a large diamond held for investment, to their estimated net
realizable values. A provision was also made for the valuation of customer
receivables. See the note to the Consolidated Financial Statements "UNUSUAL
ITEMS -- PROVISIONS FOR VALUATION OF ASSETS."
Reorganization and Restructure Costs are segregated from normal
operations in the March 31, 1993 Consolidated Statement of Operations and
reflect the costs incurred by the Company in the implementation of its
operational and financial restructuring plan as well as costs related directly
to the bankruptcy filing. The major components are described in the notes to the
Consolidated Financial Statements "REORGANIZATION AND BASIS OF PRESENTATION" and
"REORGANIZATION AND RESTRUCTURE COSTS."
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements consist principally of funding
inventory and receivables growth, capital expenditures primarily for renovations
and new store growth, and debt service. As of July 31, 1995, the Company had
cash and cash equivalents of $154.9 million, including $51.4 million restricted
primarily by the collateral requirements under the Receivables Securitization
Facility. The retail jewelry business is highly seasonal, with a significant
proportion of sales and operating income being generated in November and
December of each year. Approximately 41.2 percent and 40.1 percent of the
Company's annual sales were made during the three months ended January 31, 1995
and 1994, respectively, which includes the Christmas selling season. The
Company's working capital requirements fluctuate during the year, increasing
substantially during the fall season as a result of higher planned seasonal
inventory levels.
Upon emergence from bankruptcy, the Company entered into a three-year
revolving credit and gold consignment agreement (the "Working Capital
Facility"). See the note to the Consolidated Financial Statements "CREDIT
ARRANGEMENTS". At July 31, 1995 and 1994, there were no loans outstanding under
the Working Capital Facility and no borrowings were made during the current year
under this facility. There were approximately $7.3 million and $5.9 million of
letters of credit outstanding at July 31, 1995 and 1994, respectively.
On August 11, 1995, Zale Corporation ("Zale") and Zale Delaware, Inc.
("ZDel"), a wholly-owned subsidiary of Zale, (the "Borrowers") entered into a
new three-year revolving credit agreement (the "Revolving Credit Agreement")
which provides for revolving credit loans in an aggregate amount of up to $150.0
million, with a $30.0 million sublimit for letters of credit. At no time may the
total amount of revolving credit loans outstanding exceed a defined borrowing
base (based on a fixed percentage of eligible inventory, as defined). See the
note to the Consolidated Financial Statements "CREDIT ARRANGEMENTS".
5
<PAGE> 6
In July 1994, Zale Funding Trust ("ZFT"), a limited purpose Delaware
business trust and wholly-owned by ZDel, was formed to finance customer accounts
receivable. ZFT established an accounts receivable securitization facility (the
"ZFT Securitization"), pursuant to which it issued approximately $380.6 million,
net of discount, aggregate principal amount of Receivables Backed Notes ("ZFT
Receivables Notes"). The ZFT Receivables Notes are secured by a lien on all
customer accounts receivable. See the note to the Consolidated Financial
Statements "LONG-TERM DEBT".
When the Company refinanced its accounts receivable securitization
program in July 1994, it increased liquidity under the securitization program by
$50 million to $90 million dependent on seasonal balances of customer
receivables. A substantial portion of this increased liquidity is being used in
the capital expenditure program over a three-year period which began in August
1994. It also allowed the Company to redeem the $60.0 million Second Priority
Senior Secured Notes in September 1995. As part of the Company's business
strategy, it has embarked on a store remodeling and refurbishment program. This
program will enable the Company to enhance its stores in certain key markets
relative to its competition. Additionally, the Company plans significant
upgrades to its management information systems over the next two years. The
Company anticipates spending approximately $50.0 million on capital expenditures
in fiscal 1996. Capital expenditures are typically scheduled for the late spring
through early fall in order to have new or renovated stores ready for the
Christmas selling season. During the year ended July 31, 1995, the Company made
approximately $42.3 million in capital expenditures principally to enhance the
appearance of 411 stores. The Company intends to open 250 new locations over the
next three years.
The Company had approximately $60.0 million of Second Priority Senior
Secured Notes due 2000 bearing interest at 11.0 percent per annum that were
issued upon exit from bankruptcy. These notes were redeemed on September 11,
1995 utilizing cash on hand. Upon redemption, the Company paid an early
redemption premium and other costs associated with the redemption of
approximately $1.7 million. An extraordinary item of $1.0 million, net of an
income tax benefit of $0.7 million, will be recorded in the first quarter of
fiscal year 1996. See the note to the Consolidated Financial Statements
"LONG-TERM DEBT".
On August 31, 1995, Zale redeemed the Series B Warrants and acquired
all Swarovski International Holding, A.G. ("Swarovski") rights, title and
interest under the warrant agreement and paid $9.3 million to Swarovski in
consideration of the redemption. As a result of this, the Series B Warrants were
cancelled and are no longer outstanding. See the note to the Consolidated
Financial Statements "CAPITAL STOCK".
Management believes that operating cash flow, amounts available under
the Revolving Credit Agreement and amounts available under the Receivables
Securitization Facility should be sufficient to fund the Company's operating,
debt service and capital expenditure requirements for the foreseeable future.
INFLATION
In management's opinion, changes in net sales and earnings (loss)
before income taxes that have resulted from inflation and changing prices have
not been material.
6
<PAGE> 7
MANAGEMENT'S REPORT
To the Stockholders of Zale Corporation:
The integrity and consistency of the financial statements and financial
statement schedules of Zale Corporation (the "Company"), which were prepared in
accordance with generally accepted accounting principles, are the responsibility
of management and properly include some amounts that are based upon estimates
and judgments.
The Company maintains a system of internal accounting controls, which is
supported by a program of internal audits with appropriate management follow-up
action, to provide reasonable assurance, at appropriate cost, that the Company's
assets are protected and transactions are properly recorded. Additionally, the
integrity of the financial accounting system is based on careful selection and
training of qualified personnel, organizational arrangements which provide for
appropriate division of responsibilities and communication of established
written policies and procedures.
The financial statements of the Company have been audited by Arthur Andersen
LLP, independent public accountants. Their reports express their opinions as to
the fair presentation, in all material respects, of the financial statements and
are based upon their independent audit conducted in accordance with generally
accepted auditing standards.
The Audit Committee, composed solely of outside directors, meets periodically
with the independent public accountants, the internal auditors and
representatives of management to discuss auditing and financial reporting
matters. In addition, the independent public accountants meet periodically with
the Audit Committee without management representatives present and have free
access to the Audit Committee at any time. The Audit Committee is responsible
for recommending to the Board of Directors the engagement of the independent
public accountants, which is subject to stockholder approval, and the general
oversight review of management's discharge of its responsibilities with respect
to the matters referred to above.
Robert J. DiNicola Merrill J. Wertheimer
Chairman and Chief Executive Officer Executive Vice President -
Finance and Administration
Larry Pollock Thomas E. Whiddon
President and Chief Operating Officer Senior Vice President and
Chief Financial Officer
7
<PAGE> 8
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Zale Corporation:
We have audited the accompanying consolidated balance sheets of Zale Corporation
(a Delaware corporation) and subsidiaries (subsequent to emergence from
bankruptcy - See Notes to Consolidated Financial Statements - "Reorganization
and Basis of Presentation" for discussion) as of July 31, 1995 and 1994, and the
related consolidated statements of operations, cash flows, and stockholders'
investment for the years then ended. 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 Zale Corporation and
subsidiaries as of July 31, 1995 and 1994, and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Dallas, Texas,
September 12, 1995
8
<PAGE> 9
To the Stockholders and Board of Directors of Zale Corporation:
We have audited the accompanying consolidated statements of operations, cash
flows, and stockholders' investment of Zale Corporation (a Delaware corporation)
and subsidiaries for the four month period ended July 31, 1993, and for the year
ended March 31, 1993. 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.
As discussed in the Notes to Consolidated Financial Statements - "Reorganization
and Basis of Presentation," the Company emerged from bankruptcy on July 30,
1993, and adopted fresh-start reporting as of July 31, 1993. The effects
resulting from the adoption of fresh-start reporting and the forgiveness of debt
have been reflected in the statement of operations for the four month period
ended July 31, 1993. As such, results of operations through July 31, 1993, are
not comparable with results of operations subsequent to that date.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Zale
Corporation and subsidiaries for the four month period ended July 31, 1993, and
for the year ended March 31, 1993, in conformity with generally accepted
accounting principles.
As discussed in the Notes to Consolidated Financial Statements, on April 1,
1993, the Company changed its method of accounting for post-retirement benefits
other than pensions and its method of accounting for income taxes.
Arthur Andersen LLP
Dallas, Texas,
September 12, 1995
9
<PAGE> 10
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------
FOUR
YEAR ENDED YEAR ENDED MONTHS ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, MARCH 31,
1995 1994 1993 1993
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Net Sales $1,036,149 $ 920,307 $ 244,539 $ 980,832
Cost of Sales 524,010 460,060 127,484 534,420
Selling, General and Administrative
Expenses 434,101 401,744 119,786 418,133
Depreciation and Amortization Expense
(Credit) 381 (4,385) 8,973 26,316
Unusual Items -- Provisions for Valuation
of Assets -- -- -- 20,200
Reorganization and Restructure Costs -- -- 47,879 137,937
Interest Expense, Net 29,837 28,142 6,623 24,829
---------- --------- ----------- ---------
Earnings (Loss) Before Fresh-Start
Revaluation, Income Taxes,
Extraordinary Items and Cumulative
Effect of Accounting Change 47,820 34,746 (66,206) (181,003)
Fresh-Start Revaluation -- -- (246,236) --
---------- --------- ----------- ---------
Earnings (Loss) Before Income Taxes,
Extraordinary Items and Cumulative
Effect of Accounting Change 47,820 34,746 (312,442) (181,003)
Income Taxes 16,350 11,621 -- --
---------- --------- ----------- ---------
Earnings (Loss) Before Extraordinary
Items and Cumulative Effect of
Accounting Change 31,470 23,125 (312,442) (181,003)
Extraordinary Items:
Loss on Early Extinguishment of Debt,
Net of Income Taxes of $(1,045) -- (1,568) -- --
Gain on Debt Discharge, Net of Income
Taxes of $-0- -- -- 1,118,587 --
Cumulative Effect of Accounting Change:
Postretirement Benefits, Net of Income
Taxes of $-0- -- -- (14,754) --
---------- --------- ----------- ---------
Net Earnings (Loss) $ 31,470 $ 21,557 $ 791,391 $(181,003)
========== ========= =========== =========
Earnings Per Common Share (1):
Primary:
Earnings Before Extraordinary Item $ 0.88 $ 0.66
Extraordinary Item -- (0.04)
---------- ---------
Net Earnings $ 0.88 $ 0.62
========== =========
Assuming full dilution:
Earnings Before Extraordinary Item $ 0.86 $ 0.66
Extraordinary Item -- (0.04)
---------- ---------
Net Earnings $ 0.86 $ 0.62
========== =========
Weighted Average Number of Common
Shares Outstanding (1):
Primary 35,849 34,965
Assuming full dilution 36,565 34,965
</TABLE>
(1) Earnings (loss) per share is not presented in the four months ended July
31, 1993 or the year ended March 31, 1993 because such presentation would
not be meaningful. The shares of the Predecessor, which were not publicly
traded, were cancelled under the plan of reorganization and the new shares
were not issued until the Effective Date.
See Notes to the Consolidated Financial Statements.
10
<PAGE> 11
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 154,905 $ 153,700
Customer Receivables, Net 396,380 397,886
Merchandise Inventories 375,413 401,034
Other Current Assets 23,859 21,474
---------- ----------
Total Current Assets 950,557 974,094
Property and Equipment, Net 71,487 37,211
Other Assets 39,864 39,342
Deferred Tax Asset, Net 48,800 62,000
---------- ----------
Total Assets $1,110,708 $1,112,647
========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current Portion of Long-term Debt $ 2,907 $ 3,897
Accounts Payable and Accrued Liabilities 117,048 144,981
Deferred Tax Liability, Net 48,800 62,000
---------- ----------
Total Current Liabilities 168,755 210,878
Non-current Liabilities 32,670 32,873
Long-term Debt 440,717 443,581
Excess of Revalued Net Assets Over Stockholders'
Investment, Net 76,676 82,575
Commitments and Contingencies
Stockholders' Investment:
Preferred Stock --- ---
Common Stock 350 350
Additional Paid-In Capital (Includes Stock Warrants) 337,534 321,159
Unrealized Gains (Losses) on Securities 979 (326)
Accumulated Earnings 53,027 21,557
---------- ----------
Total Stockholders' Investment 391,890 342,740
---------- ----------
Total Liabilities and Stockholders' Investment $1,110,708 $1,112,647
========== ==========
</TABLE>
See Notes to the Consolidated Financial Statements.
11
<PAGE> 12
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------
FOUR
YEAR ENDED YEAR ENDED MONTHS ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, MARCH 31,
1995 1994 1993 1993
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings (loss) $ 31,470 $ 21,557 $ 791,391 $(181,003)
Non cash expenses, gains and losses:
Depreciation and amortization
expense (credit) 1,498 (4,186) 8,973 26,316
Increase in inventory
restructure reserve -- -- -- 42,988
Unusual items - provisions for
valuation of assets -- -- -- 20,200
Reorganization and restructure
costs, net of cash payments -- -- 42,373 86,925
Utilization of pre-emergence net
operating loss 16,204 10,439 -- --
Cumulative effect of change in
accounting for postretirement
benefits -- -- 14,754 --
Fresh-start revaluation charge -- -- 246,236 --
Extraordinary gain on debt
discharge -- -- (1,118,587) --
Other adjustments to reconcile net
earnings (loss) to net cash
provided by operating
activities:
(Increase) decrease in:
Customer receivables, net 1,506 27,214 37,216 75,927
Merchandise inventories 25,621 (19,609) 10,248 10,983
Other current assets (2,385) 8,148 3,888 40,876
Other assets (55) 6,360 (2,325) (2,210)
Increase (decrease) in:
Accounts payable and accrued
liabilities (27,752) (40,666) (8,284) 30,404
Non-current liabilities (203) 4,885 (191) (790)
Obligations subject to
settlement under reorgani-
zation proceedings -- -- (2,396) (28,111)
-------- -------- ----------- ---------
Net Cash Provided by Operating
Activities 45,904 14,142 23,296 122,505
-------- -------- ----------- ---------
NET CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property and
equipment (42,295) (27,838) (7,346) (10,177)
Dispositions of property and
equipment 1,987 63 814 963
Other (205) 103 1,005 1,014
-------- -------- ----------- ---------
Net Cash Used in Investing
Activities (40,513) (27,672) (5,527) (8,200)
-------- -------- ----------- ---------
</TABLE>
See Notes to the Consolidated Financial Statements.
12
<PAGE> 13
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------
FOUR
YEAR ENDED YEAR ENDED MONTHS ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, MARCH 31,
1995 1994 1993 1993
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
NET CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on long-term debt $ (3,896) $ (3,630) $ (1,410) $ (4,212)
Borrowings under accounts
receivable securitization facility -- 380,551 -- --
Borrowings (repayments) of
prior accounts receivable
securitization facility -- (284,700) -- 284,522
Payment of prepayment penalty on
early extinguishment of debt -- (2,613) -- --
Repurchase of Zale and Gordon
customer receivables -- -- -- (414,053)
Redemption of marketable
security collateral for Private
Label Credit Card Program -- -- -- 97,600
Debt issue and capitalized
financing costs (461) (5,400) (4,565) (625)
Cash distributions at date of
plan consummation -- -- (54,989) --
Proceeds from exercise of
stock options and warrants 171 -- -- --
Other -- (243) (27) (1,069)
--------- --------- --------- ---------
Net Cash Provided by (Used in)
Financing Activities (4,186) 83,965 (60,991) (37,837)
--------- --------- --------- ---------
Net Increase (Decrease) in Cash
and Cash Equivalents 1,205 70,435 (43,222) 76,468
Cash and Cash Equivalents at
Beginning of Period 153,700 83,265 126,487 50,019
--------- --------- --------- ---------
Cash and Cash Equivalents at
End of Period $ 154,905 $ 153,700 $ 83,265 $ 126,487
========= ========= ========= =========
Supplemental cash flow information:
Interest paid $ 36,443 $ 27,278 $ 9,408 $ 27,257
Interest received $ 7,641 $ 1,724 $ 1,536 $ 3,577
Income taxes paid (net of refunds
received) $ 568 $ 470 $ 368 $ (333)
Restricted cash - at period end
date $ 51,422 $ 58,528 $ 15,988 $ 6,233
Noncash transaction:
Capital lease obligation incurred
for acquisition of equipment $ -- $ -- $ 10,265 $ --
</TABLE>
See Notes to the Consolidated Financial Statements.
13
<PAGE> 14
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL UNREALIZED ACCUMULATED
COMMON SHARES COMMON PAID-IN GAINS (LOSSES) EARNINGS
OUTSTANDING STOCK CAPITAL ON SECURITIES (DEFICIT) TOTAL
------------- ------ ---------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR -
Balance, March 31, 1992 3 $-- $ 404,127 $ -- $(1,014,515) $(610,388)
Net Loss -- -- -- -- (181,003) (181,003)
------ ---- --------- ------- ----------- ---------
Balance, March 31, 1993 3 -- 404,127 -- (1,195,518) (791,391)
Net Earnings -- -- -- -- 791,391 791,391
Elimination of Former Equity
Interests in Connection
with Emergence from
Bankruptcy (3) -- (404,127) -- 404,127 --
Issuance of New Equity
Interests in Connection
with Emergence from
Bankruptcy 34,972 350 310,720 -- -- 311,070
------ ---- --------- ------- ----------- ---------
POST-EMERGENCE -
Balance, July 31, 1993
(Fresh-Start Reporting Date) 34,972 350 310,720 -- -- 311,070
Net Earnings -- -- -- -- 21,557 21,557
Utilization of Pre-Emergence
Net Operating Loss -- -- 10,439 -- -- 10,439
Treasury Stock Acquired (7) -- -- -- -- --
Unrealized Holding Period Loss -- -- -- (326) -- (326)
------ ---- --------- ------- ----------- ---------
Balance, July 31, 1994 34,965 350 321,159 (326) 21,557 342,740
Net Earnings -- -- -- -- 31,470 31,470
Utilization of Pre-Emergence
Net Operating Loss -- -- 16,204 -- -- 16,204
Exercise of Stock Options
and Warrants 19 -- 171 -- -- 171
Treasury Stock Acquired (1) -- -- -- -- --
Unrealized Holding Period Gain -- -- -- 1,305 -- 1,305
------ ---- --------- ------- ----------- ---------
Balance, July 31, 1995 34,983 $350 $ 337,534 $ 979 $ 53,027 $ 391,890
====== ==== ========= ======= =========== =========
</TABLE>
See Notes to the Consolidated Financial Statements.
14
<PAGE> 15
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REORGANIZATION AND BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements are those of Zale
Corporation and its wholly-owned subsidiaries (the "Company"). The
classifications in use at July 31, 1995 have been applied to the financial
statements for July 31, 1994, July 31, 1993 and March 31, 1993.
CHAPTER 11 REORGANIZATION. On July 30, 1993 (the "Effective Date"),
Zale Corporation ("Zale") consummated its plan of reorganization under Chapter
11 of the United States Bankruptcy Code (the "Plan") and emerged from
bankruptcy. The Plan terminated the former direct or indirect ownership of the
Company by Peoples Jewellers Limited and Swarovski International Holding, A.G.
("Swarovski"). See discussion of Swarovski warrants in the note to the
Consolidated Financial Statements "CAPITAL STOCK". On the Effective Date, the
Company consolidated substantially all its retail operations into Zale Delaware,
Inc. ("ZDel"), which is a wholly-owned subsidiary of Zale. ZDel, in turn, is
the parent company for several subsidiaries, including three that are engaged
primarily in providing credit insurance to credit customers of the Company. The
Plan resulted in the elimination, through merger or liquidation, of seventeen
former Zale subsidiaries.
In connection with the consummation of the Plan, the Company
distributed shares of its common stock to various classes of its pre-bankruptcy
creditors. The Plan provided for, among other things, cash payments of
approximately $55.0 million (including $45.0 million paid in settlement of
certain senior and subordinated bondholder claims), the issuance of
approximately $60.0 million of secured notes and the distribution of the common
stock of reorganized Zale.
The value of the cash, other assets, new debt and equity securities
distributed under the Plan was approximately $1.1 billion less in total value
than the allowed claims being settled, and the resulting gain was recorded as an
extraordinary item in the Consolidated Statement of Operations for the four
month period ended July 31, 1993.
FRESH-START REPORTING. Pursuant to the guidance provided by the
American Institute of Certified Public Accountants in Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" ("SOP 90-7"), the Company adopted fresh-start reporting as of the close of
business on July 31, 1993. Fresh-start reporting resulted in a revaluation of
the Company's assets and liabilities as of the Effective Date to reflect
allocation of the reorganization value based upon the estimated fair market
values of those assets and liabilities.
The resulting charge of $246.2 million from all fresh-start
adjustments, including the write-off of most noncurrent assets, is presented as
"Fresh-Start Revaluation" in the Consolidated Statement of Operations for the
four month period ended July 31, 1993.
In accordance with fresh-start reporting guidelines, certain noncurrent
assets were reduced to zero because the fair value of the Company's assets
exceeded the fair value of its liability and stockholders' investment. After
reducing the value of certain noncurrent assets to zero, the excess of the fair
value of the remaining assets over the fair value of liabilities and
stockholders' investment was recorded as a deferred credit, "Excess of Revalued
Net Assets Over Stockholders' Investment". This balance is being amortized over
15 years.
In connection with the adoption of fresh-start reporting, the Company
adopted Statement of Financial Accounting Standards ("SFAS"), No. 109,
"Accounting for Income Taxes", which had no impact on the statement of
operations. See the note to the Consolidated Financial Statements "INCOME
TAXES" for further discussion.
As a result of fresh-start reporting being used to reflect the fair
values of assets, liabilities and stockholders' investment of the reorganized
Company at July 31, 1993, the Consolidated Statements of Operations,
Consolidated Statements of Cash Flows and Consolidated Statements of
Stockholders' Investment for the fiscal years ended July 31, 1995 and 1994, are
not comparable in certain material respects to such predecessor statements for
any prior periods. The Consolidated Financial Statements for the periods after
July 31, 1993, are those of the reorganized entity.
15
<PAGE> 16
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY'S BUSINESS consists principally of the retail sale of fine
jewelry merchandise.
CONSOLIDATED FINANCIAL STATEMENTS include all subsidiaries including
ZDel and Zale Funding Trust ("ZFT"), a limited purpose Delaware business trust,
wholly-owned by ZDel and formed in July 1994 to finance customer accounts
receivable, and the Company's insurance subsidiaries. All significant
intercompany transactions have been eliminated.
CASH AND CASH EQUIVALENTS includes cash on hand, deposits in banks and
short-term marketable securities at varying interest rates with maturities of
three months or less. The carrying amount approximates fair value because of
the short maturity of those instruments. At July 31, 1995, $51.4 million was
restricted of which $50.8 million was restricted based on collateral
requirements under the Receivables Securitization Facility.
CUSTOMER RECEIVABLES are classified as current assets, including
amounts which are due after one year, in accordance with industry practices. The
allowance for doubtful accounts was $42.6 million and $42.7 million at July 31,
1995 and 1994, respectively. Finance charge income of $79.3 million and $82.4
million for the years ended July 31, 1995 and 1994, respectively, $29.2 million
for the four months ended July 31, 1993 and $92.1 million for the year ended
March 31, 1993 has been reflected as a reduction of Selling, General and
Administrative Expenses.
MERCHANDISE INVENTORIES are stated at the lower of cost or market,
which is determined primarily in accordance with the retail inventory method.
Substantially all inventories represent finished goods which are valued using
the last-in, first-out ("LIFO") method. Since July 31, 1993 the Company has
employed a methodology which provides better inventory turnover and
profitability information in order to identify and determine the appropriate
merchandising action for problem merchandise on a more timely basis and ensure
that such inventory is valued at the lower of cost or market.
DEPRECIATION AND AMORTIZATION are computed using the straight-line
method over the estimated useful lives of the assets or remaining lease life.
Estimated useful lives of the assets range from three to forty years. Original
cost and related accumulated depreciation or amortization are removed from the
accounts in the year assets become retired. Gains or losses on dispositions of
property and equipment are included in operations in the year of disposal.
Computer software costs related to the development of major systems are
capitalized as incurred and are amortized over their useful lives.
EXCESS OF REVALUED NET ASSETS OVER STOCKHOLDERS' INVESTMENT is being
amortized over fifteen years. Amortization was $5.9 million for the years ended
July 31, 1995 and 1994. Accumulated amortization was $11.8 million and $5.9
million at July 31, 1995 and 1994, respectively.
STORE PREOPENING COSTS are charged to results of operations in the
period in which the store is opened. Store closing costs are estimated and
recognized in the period in which the Company makes the decision that the store
will close. Such costs include the present value of estimated future rentals
net of anticipated sublease income, loss on retirement of property and equipment
and other related occupancy costs.
ADVERTISING EXPENSES are charged against operations when incurred.
Amounts charged against operations were $35.2 million and $36.9 million for the
years ended July 31, 1995 and 1994, respectively, $9.6 million for the four
months ended July 31, 1993 and $33.3 million for the year ended March 31, 1993.
The amounts of prepaid advertising at July 31, 1995 and 1994 are $1.8 million
and $0.3 million, respectively.
YEAR-END CHANGE. On December 13, 1993, the Board of Directors of the
Company authorized the change in the Company's fiscal year end to July 31. Such
change was effective as of April 1, 1994. The Company's determination to change
its fiscal year was based on several considerations. By changing to a July 31
fiscal year end, the Company has established quarterly reporting periods that
are more consistent with other companies in the retail industry. Additionally,
a July 31 year end coincides with the Company's emergence from bankruptcy
proceedings, thereby providing for greater comparability of historical financial
data in the future, and, it makes the Company's planning process more effective.
16
<PAGE> 17
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MERCHANDISE INVENTORIES
The Company uses the last-in, first-out ("LIFO") method of accounting
for inventory, which results in a matching of current costs with current
revenues. The estimated cost of replacing the Company's inventories exceeds its
net LIFO cost by approximately $9.9 million and $7.1 million at July 31, 1995
and 1994, respectively. Inventories on a first-in, first-out ("FIFO") basis
were $385.3 million and $408.1 million at July 31, 1995 and 1994, respectively.
The Company also maintained consigned inventory at its retail locations of
approximately $85.9 million and $111.4 million at July 31, 1995 and 1994,
respectively. This consigned inventory and related contingent obligation are
not reflected in the Company's financial statements. At the time of sale, the
Company records the purchase liability in accounts payable and the related cost
of merchandise in Cost of Sales.
Upon implementation of fresh-start reporting, the LIFO reserve as of
July 31, 1993 was eliminated for financial reporting purposes when merchandise
inventories were revalued at their fair market value. The Company began
reporting, for financial reporting purposes, its LIFO inventories using a new
base period starting July 31, 1993.
PROPERTY AND EQUIPMENT
The Company's property and equipment consists of the following:
<TABLE>
<CAPTION>
July 31, 1995 July 31, 1994
------------- -------------
(amounts in thousands)
<S> <C> <C>
Buildings and Leasehold Improvements $21,357 $ 8,240
Furniture and Fixtures 36,976 14,143
Construction in Progress 10,752 5,361
Property Held for Sale 9,896 10,894
------- -------
78,981 38,638
Less: Accumulated Amortization and Depreciation (7,494) (1,427)
------- -------
Total Net Property and Equipment $71,487 $37,211
======= =======
</TABLE>
Property Held for Sale represents land and buildings which are being
held for future sale and are not being used in the Company's operations.
ACCOUNTS PAYABLE, ACCRUED LIABILITIES AND NON-CURRENT LIABILITIES
The Company's accounts payable and accrued liabilities consists of the
following:
<TABLE>
<CAPTION>
July 31, 1995 July 31, 1994
------------- -------------
(amounts in thousands)
<S> <C> <C>
Accounts Payable $ 43,108 $ 66,242
Accrued Payroll 20,690 15,025
Accrued Taxes 14,000 16,010
Other Accruals 39,250 47,704
-------- --------
Total Accounts Payable and Accrued Liabilities $117,048 $144,981
======== ========
</TABLE>
The Company's non-current liabilities consists principally of the accumulated
obligation for postretirement benefits under SFAS No. 106.
17
<PAGE> 18
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACCOUNTS PAYABLE, ACCRUED LIABILITIES AND NON-CURRENT LIABILITIES (CONTINUED)
POSTRETIREMENT BENEFITS. The Company provides medical and dental
insurance benefits for all eligible retirees and spouses with benefits to the
latter continuing after the death of the retiree for a maximum of thirty-six
months. Substantially all of the Company's full-time employees, who were hired
on or before November 14, 1994, become eligible for those benefits upon
reaching age 55 while working for the Company and having ten years of continuous
service. The medical and dental benefits are provided under a single plan. The
lifetime maximum on medical benefits is $500,000 up to the age of 65 and $50,000
thereafter. These benefits include deductibles, retiree contributions and
co-insurance provisions that are assumed to grow with the health care cost trend
rate.
Effective April 1, 1993, the Company adopted the provisions of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions".
This standard requires that the costs of the postretirement benefits described
in the preceding paragraph be recognized in the financial statements over an
employee's active working career on an accrual basis. In previous years, the
Company recognized the costs on a cash basis.
The accumulated postretirement benefits obligation ("APBO"), which
represents the actuarial present value of benefits attributed to employee
service rendered as of July 31, 1995 and 1994 for the unfunded plan, include the
following components (amounts in thousands):
<TABLE>
<CAPTION>
July 31, July 31,
1995 1994
---- ----
<S> <C> <C>
Active Employees Under Retirement Age $ 6,574 $ 5,945
Active Employees Eligible to Retire 3,624 3,102
Current Retirees 10,488 9,825
------- -------
Accumulated Benefit Obligation 20,686 18,872
Unrecognized Prior Service Cost (406) --
Unrecognized Net Loss (1,607) (2,276)
------- -------
Accrued Postretirement Benefit Liability $18,673 $16,596
======= =======
</TABLE>
The APBO of approximately $14.8 million was recognized as a cumulative
effect of an accounting change at April 1, 1993. In addition to the one-time
cumulative effect adjustment, the annual expense relating to postretirement
benefits is approximately $2.5 million. The components of such annual expense,
which are reflected in Selling, General and Administrative Expenses, are as
follows (amounts in thousands):
<TABLE>
<S> <C>
Service Cost on benefits earned during the year $1,035
Interest Cost on accumulated benefit obligation 1,465
Amortization 16
------
Total $2,516
======
</TABLE>
This represents a $1.4 million increase over the annual expense that
would have been recognized under the old accounting method.
The weighted-average discount rate used in determining the APBO at July
31, 1994 was 8.0 percent. At July 31, 1995, this rate was lowered to 7.75
percent. The weighted-average annual assumed rates of increase in the cost of
covered medical and dental benefits at July 31, 1994 are 14.0 percent and 8.75
percent, respectively, and are assumed to decrease gradually to 7.0 percent in
the year 2001 and remain at that level thereafter. At July 31, 1995, the
initial medical and dental trend rates are 13.0 percent and 8.5 percent,
respectively, and are assumed to gradually decrease to 6.0 percent in the year
2003. The effect of a one percent increase in the health care cost trend rate
on the APBO and the net periodic expense would be an increase of approximately
$1.0 million and $0.2 million, respectively.
CREDIT ARRANGEMENTS
WORKING CAPITAL FINANCING. On July 30, 1993, ZDel, as borrower, and
Zale and certain of ZDel's subsidiaries, as guarantors, entered into a
three-year revolving credit and gold consignment agreement (the "Working Capital
Facility"). The Working Capital Facility provided for (a) revolving credit
loans in an aggregate amount of up to $100.0 million, with a $20.0 million
sublimit for letters of credit and (b) loans or advances ("Gold Loans") in an
aggregate amount of up to $50.0 million under a gold consignment facility. At
July 31, 1995 and 1994, there were no loans outstanding under the Working
Capital Facility and no borrowings were made during the current year under this
facility. There were approximately $7.3 million and $5.9 million of letters of
credit outstanding at July 31, 1995 and 1994, respectively.
18
<PAGE> 19
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CREDIT ARRANGEMENTS (CONTINUED)
On August 11, 1995, Zale and ZDel (the "Borrowers") entered into a new
three-year revolving credit agreement (the "Revolving Credit Agreement") which
provides for revolving credit loans in an aggregate amount of up to $150.0
million, with a $30.0 million sublimit for letters of credit. At no time may
the total amount of revolving credit loans outstanding exceed a defined
borrowing base (based on a fixed percentage of eligible inventory, as defined).
The Borrowers' obligations under the Revolving Credit Agreement are
primarily secured by a first lien on and security interest in all inventory
(excluding inventory on consignment).
The revolving credit loans bear interest at floating rates, currently
LIBOR + 2.0 percent or the agent's adjusted base rate + 0.75 percent, at the
Borrowers' option, and can be adjusted based on certain future performance
levels attained by the Borrowers. The Borrowers incur letter of credit fees and
also pay a commitment fee of 3/8 percent per annum on the preceding month's
unused Revolving Credit Agreement commitment. The Borrowers may repay the
revolving credit loans at any time without penalty.
The Revolving Credit Agreement contains certain restrictive covenants,
which, among other things, keeps within certain limits the Borrowers ability to
pay dividends and make other restricted payments, incur additional indebtedness,
engage in certain transactions with affiliates, incur liens, make investments
and sell assets. The Revolving Credit Agreement also requires the Borrowers to
maintain certain financial ratios and specified levels of net worth.
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
July 31, 1995 July 31, 1994
------------- -------------
(amounts in thousands)
<S> <C> <C>
Receivables Securitization Facility $380,593 $380,551
Second Priority Senior Secured Notes 60,017 60,017
Capital Lease Obligations 2,499 5,922
Other (primarily mortgages) 515 988
-------- --------
443,624 447,478
Less Current Portion (2,907) (3,897)
-------- --------
$440,717 $443,581
======== ========
</TABLE>
Fiscal year scheduled maturities of long-term debt at July 31, 1995
were as follows: 1996 - $2.9 million; 1997 - $-0- million; 1998 - $-0- million;
1999 - $380.6 million; 2000 - $60.0 million; thereafter - $0.1 million; for a
total of $443.6 million.
RECEIVABLES SECURITIZATION FACILITIES. In November 1992, Diamond
Funding Corp. ("DFC") established an accounts receivable securitization facility
(the "DFC Securitization") pursuant to which it issued approximately $284.6
million, net of discount, aggregate principal amount of 6.35 percent Receivables
Backed Notes ("DFC Receivables Notes"). The proceeds from the DFC Receivables
Notes were used to buy the revolving credit card accounts receivable of ZDel and
other Zale affiliates.
The Company refinanced its DFC Receivables Notes effective July 15,
1994 through a new securitization program discussed below. Upon consummation of
the new securitization program, the DFC Receivables Notes were redeemed. The
Company was required to pay a special redemption premium in the amount of
approximately $2.6 million upon early redemption of the DFC Receivables Notes.
This amount, net of an income tax benefit of $1.0 million, has been classified
as an extraordinary item on the Consolidated Statement of Operations as of July
31, 1994.
19
<PAGE> 20
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LONG-TERM DEBT (CONTINUED)
In connection with the refinancing, ZFT established an accounts
receivable securitization facility (the "ZFT Securitization"), pursuant to which
it issued approximately $380.6 million, net of discount, aggregate principal
amount of Receivables Backed Notes ("ZFT Receivables Notes"). The proceeds from
the ZFT Receivables Notes were used to buy the revolving credit card accounts
receivable of DFC, ZDel and other affiliates. Collections from those
receivables are used in part to pay interest on the ZFT Receivables Notes and to
purchase daily ZDel's customer accounts receivable. The ZFT Receivables Notes
are secured by a lien on all customer accounts receivable and are nonrecourse
with regard to Zale and Zdel.
The ZFT Receivables Notes bear interest at the following rates, payable
monthly in arrears (amounts in thousands):
<TABLE>
<CAPTION>
Principal Rate
--------- ----
<S> <C>
$ 37,620 LIBOR + .40%, not to exceed 12.0%
294,100 7.325%
28,600 7.50%
20,440 8.15%
--------
$380,760
========
</TABLE>
The effective interest rate, including amortization of debt issuance
costs, will approximate 7.6 percent based on the current LIBOR rate of 6.0
percent, with a maximum of 8.1 percent.
Jewelers Financial Services, Inc. (the "Servicer"), a subsidiary of
ZDel, is the servicing entity for the collection of the customer accounts
receivable and its servicing obligations are guaranteed by ZDel.
The ZFT Receivables Notes will be subject to redemption at the option
of ZFT in whole but not in part, on the Scheduled Redemption Date of July 15,
1999 at a redemption price equal to the outstanding principal amount of the ZFT
Receivables Notes together with accrued and unpaid interest thereon at the
applicable interest rates. If ZFT has not given notice by June 15, 1999 that
it will redeem the ZFT Receivables Notes in full on the scheduled payment date
occurring in July 1999, the Servicer will promptly solicit bids for the purchase
of all or a portion of the receivables. If the Servicer is unable to sell the
receivables for a price such that the proceeds of such sale, together with other
available funds, is sufficient to pay in full the outstanding principal amount
of the ZFT Receivables Notes and interest thereon to the Scheduled Redemption
Date, the ZFT Receivables Notes will remain outstanding and will begin
amortizing based on collections of customer accounts receivable beginning in
August 1999.
The ZFT Securitization imposes certain reporting obligations on the
Company and limits ZFT's ability, among other things, to grant liens, incur
certain indebtedness, or enter into other lines of business. Additionally,
under certain conditions as defined, including among other things, failure to
pay principal or interest when due, failure to cure a borrowing base deficiency
and breach of any covenant that is not cured, the ZFT Securitization is subject
to an early amortization whereby the ZFT Receivables Notes may be declared due
and payable immediately. The restricted cash balance shown on the Consolidated
Statements of Cash Flows as of July 31, 1995 and 1994 primarily represents the
restricted cash of ZFT which is based on the relationship between the ZFT
Receivables Notes outstanding and gross accounts receivable as of July 31, 1995
and 1994.
11.0 PERCENT SECOND PRIORITY SENIOR SECURED NOTES DUE 2000. The 11.0
Percent Second Priority Senior Secured Notes due 2000 (the "Notes") were issued
by ZDel under an indenture dated as of July 30, 1993 among ZDel, as issuer,
Zale, as guarantor and IBJ Schroder Bank & Trust Company, as trustee. At July
31, 1995 and 1994, there was approximately $60.0 million principal amount of
Notes outstanding. The Notes were guaranteed by Zale and were secured by second
liens on substantially all the assets of Zale and ZDel.
The terms of the new Revolving Credit Agreement allowed the Company to
redeem the Notes on September 11, 1995 utilizing cash on hand. The Notes were
optionally redeemable by ZDel at a redemption price equal to 102 percent of
their principal amount together with accrued interest to the redemption date.
Upon redemption, the Company paid an early redemption premium and other costs
associated with the redemption of approximately $1.7 million. An extraordinary
item of $1.0 million, net of an income tax benefit of $0.7 million, will be
recorded in the first quarter of fiscal year 1996.
CAPITAL LEASE OBLIGATION. The Company entered into a capital lease
effective April 1, 1993 for certain store point-of-sale equipment in the amount
of approximately $10.3 million with a borrowing rate of 11.0 percent. The
related debt is payable monthly over a three-year period.
20
<PAGE> 21
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LEASE COMMITMENTS
The Company rents most of its retail space under leases that generally
range from five to fifteen years and may contain minimum rent escalations and
renewal options for consecutive one-to-five year periods. In addition, the
corporate headquarters is leased under a five-year agreement that began on
August 1, 1992 after the original lease agreement was rejected in the
reorganization process. All existing real estate leases are treated as
operating leases. Sublease rental income under noncancellable leases is not
material.
Rent expense, exclusive of lease rejection provisions which are
recorded in Reorganization and Restructure Costs in the year ended March 31,
1993, is as follows:
<TABLE>
<CAPTION>
Predecessor
--------------------------
Four
Year Ended Year Ended Months Ended Year Ended
July 31, July 31, July 31, March 31,
1995 1994 1993 1993
---- ---- ---- ----
(amounts in thousands)
<S> <C> <C> <C> <C>
Retail Space:
Minimum Rentals $55,645 $52,064 $16,737 $57,145
Rentals Based on Sales 28,365 25,346 6,387 29,174
------- ------- -------
84,010 77,410 23,124 86,319
Equipment and Corporate Headquarters 3,386 3,478 1,374 5,502
------- ------- -------
Total Rent Expense $87,396 $80,888 $24,498 $91,821
======= ======= ======= =======
</TABLE>
Contingent rentals paid to lessors of certain store facilities are
determined principally on the basis of a percentage of sales in excess of
contractual limits.
Future minimum rent commitments as of July 31, 1995, for all
noncancellable leases of ongoing operations were as follows: 1996 - $54.3
million; 1997 - $48.2 million; 1998 - $39.4 million; 1999 - $33.2 million; 2000
- - $28.1 million; thereafter - $81.6 million; for a total of $284.8 million.
INTEREST
Interest expense for the years ended July 31, 1995 and 1994, for the
four months ended July 31, 1993 and for the year ended March 31, 1993 was
approximately $37.5 million, $30.3 million, $8.0 million and $25.7 million,
respectively.
Interest income for the years ended July 31, 1995 and 1994, for the
four months ended July 31, 1993 and for the year ended March 31, 1993 was $7.7
million, $2.1 million, $1.3 million and $0.8 million, respectively.
Generally, interest expense on prepetition debt did not accrue after
the commencement of bankruptcy. If the prepetition debts were secured by
property with a value that was greater than the amount of the debt, interest was
accrued up to the value of the collateral. For financial statement purposes
prior to the Effective Date, the Company accrued interest expense on secured
debt. The Company ceased accruing interest expense on its unsecured prepetition
debt.
INCOME TAXES
Effective April 1, 1993, the Company adopted the provisions of SFAS No.
109, "Accounting for Income Taxes". SFAS No. 109 requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on
estimated future tax effects of the difference between the financial statement
and tax basis of assets and liabilities using enacted tax rates in effect. There
was no cumulative effect on income taxes related to this change in method of
accounting.
21
<PAGE> 22
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES (CONTINUED)
Currently, the Company files a consolidated income tax return.
The effective income tax rate varies from the federal statutory rate as follows:
<TABLE>
<CAPTION>
Predecessor
--------------------------
Four
Year Ended Year Ended Months Ended Year Ended
July 31, July 31, July 31, March 31,
1995 1994 1993 1993
---- ---- ---- ----
(amounts in thousands)
<S> <C> <C> <C> <C>
Federal Income Tax Expense
(Benefit) at Statutory Rate $16,737 $12,161 $(109,355) $(61,541)
Amortization of Excess of Revalued
Net Assets Over Stockholders'
Investment (2,064) (2,064) -- --
State Income Taxes, Net of Federal
Income Tax Benefit 1,677 1,524 -- --
Effects of Unused Net Operating
Loss Carryforwards -- -- 109,355 61,541
------- ------- --------- --------
Total Income Tax Expense 16,350 11,621 -- --
Tax Benefit on Extraordinary Item -- (1,045) -- --
------- ------- --------- --------
Total Income Tax Expense $16,350 $10,576 $ -- $ --
======= ======= ========= ========
Effective Income Tax Rate 34.2% 32.9% 0.0% 0.0%
======= ======= ========= ========
</TABLE>
An income tax benefit was not provided in the four month period ended
July 31, 1993 or the year ended March 31, 1993 because all operating losses
would have to be carried forward to future years and the realization of a tax
benefit for those losses was not assured.
In connection with the adoption of fresh-start reporting, the net book
values of substantially all non-current assets existing at the Effective Date
were eliminated. As a consequence, SFAS No. 109, in conjunction with SOP 90-7,
requires that any tax benefits realized for book purposes after the Effective
Date, from the reduction of the valuation allowance existing as of the Effective
Date be reported in the future as an addition to additional paid-in capital
rather than as a reduction in the tax provision in the Consolidated Statements
of Operations. However, the Company will realize the cash benefit from
utilization of the tax net operating loss ("NOL") against current and future tax
liabilities.
As of July 31, 1995, the Company has a NOL carryforward (after
limitations) of approximately $378 million. A majority of the tax basis NOL
carryforward, which will be available to offset future taxable income of the
Company, was determined based upon the initial equity valuation of the Company
as determined upon the Effective Date. The utilization of this asset is subject
to limitations. The most restrictive is the Internal Revenue Code Section 382
annual limitation. Until the Company develops a longer term earnings record,
the NOL carryover and other assets are fully reserved to the extent there are no
long-term deferred liabilities to offset. The NOL carryforward will begin to
expire in fiscal year 2002 but can be utilized through 2009.
As of July 31, 1995, all years through fiscal year 1988 have been
settled with the Internal Revenue Service ("IRS") and all income tax liabilities
thereon have been paid. In addition, the IRS did not file any income tax claims
in the bankruptcy case; therefore, the Company believes that under the
bankruptcy laws any potential income tax liabilities have been discharged
through the Effective Date
22
<PAGE> 23
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES (CONTINUED)
Tax effects of temporary differences that give rise to significant
components of the deferred tax assets and deferred tax liabilities at July
31,1995 and 1994 are presented below (amounts in thousands).
<TABLE>
<CAPTION>
July 31, July 31,
1995 1994
---- ----
<S> <C> <C>
Current Deferred Taxes:
Assets --
Customer receivables $ 17,628 $ 17,083
Accrued liabilities 11,883 9,692
State and local taxes 2,194 2,780
Net operating loss carryforward 7,601 7,803
Other 78 1,353
--------- ---------
Total Assets 39,384 38,711
Less -- Valuation Allowance (28,793) (26,181)
--------- ---------
10,591 12,530
Liabilities --
Merchandise inventories, principally due to LIFO
reserve (59,391) (74,530)
--------- ---------
Deferred Current Tax Liability, Net $ (48,800) $ (62,000)
========= =========
Non-current Deferred Taxes:
Assets --
Property and equipment, principally due to fresh-
start adjustments $ 24,997 $ 37,250
Net operating loss carryforward 139,894 143,512
Postretirement benefits 9,333 6,833
Other 7,402 4,994
--------- ---------
Total Assets 181,626 192,589
Less -- Valuation Allowance (132,641) (130,330)
--------- ---------
48,985 62,259
Liabilities --
Other (185) (259)
--------- ---------
Deferred Non-current Tax Asset, Net $ 48,800 $ 62,000
========= =========
</TABLE>
The valuation reserve of approximately $161.4 million and $156.5 million
recognizes that, as of July 31, 1995 and 1994, respectively, net deferred tax
assets are only realizable to the extent of net deferred tax liabilities.
The net increase in the valuation allowance from July 31, 1994 to July 31,
1995 was $4.9 million. This amount was comprised of the following (amounts in
thousands):
<TABLE>
<S> <C>
Utilization of pre-emergence net deferred tax assets $(16,204)
Increase in net deferred tax assets resulting from
identification of additional temporary differences 21,127
--------
Net change in valuation allowance account $ 4,923
========
</TABLE>
23
<PAGE> 24
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CAPITAL STOCK
COMMON STOCK. At July 31, 1995 and 1994, 70,000,000 shares of Common
Stock, par value of $0.01 per share, were authorized and 34,983,258 shares and
34,965,481 shares, respectively, were outstanding. The Company held 35,942 and
34,519 treasury shares at July 31, 1995 and 1994, respectively.
PREFERRED STOCK. At July 31, 1995 and 1994, 5,000,000 shares of
Preferred Stock, par value of $0.01, were authorized. None are issued or
outstanding.
WARRANTS. Pursuant to the Plan, Zale had authorized 2,000,000 Series A
Warrants to purchase common stock. At July 31, 1995 and 1994, 1,999,550 and
2,000,000 Series A Warrants, respectively, were outstanding. Each Series A
Warrant entitles the holder to purchase, for $10.368 per share, one share of
Zale common stock (subject to certain anti-dilution adjustments). The Series A
Warrants are exercisable on or before July 30, 1998, although their expiration
date may be shortened if the market value of Zale's common stock increases to at
least 150.0 percent of the warrant exercise price for a specified number of days
and less than 5.0 percent of the Series A Warrants originally issued under the
Plan are outstanding on the date on which Zale gives the acceleration notice.
As part of its settlement of certain litigation with Swarovski, Zale
issued its Series B Warrants to purchase common stock. Each Series B Warrant
entitled the holder to purchase for $10.368 per share, one share of Zale common
stock (subject to certain anti-dilution adjustments). The Series B Warrants
were presently exercisable and, if not previously exercised, would expire on
September 9, 1998, subject to the Company's right to accelerate the expiration
date of the Series B Warrants if certain conditions were met. At July 31, 1995,
the Series B Warrants issued entitled the holders to purchase an aggregate of
1,852,884 shares of Zale common stock. Zale, at its expense, filed and
maintained effective a shelf registration statement covering the resale of the
Series B Warrants and the issuance and sale of shares of common stock upon
exercise of the Series B Warrants (the "Shelf Registration").
On August 31, 1995, Zale redeemed the Series B Warrants and acquired
all Swarovski's rights, title and interest under the warrant agreement and paid
$9.3 million to Swarovski in consideration of the redemption. As a result of
this, the Series B Warrants were cancelled and are no longer outstanding.
STOCK OPTION PLAN. As of the Effective Date, the Company adopted a
stock option plan (the "Stock Option Plan") to enable the Company to attract,
retain and motivate officers and key employees by providing for proprietary
interest of such individuals in the Company. Options to purchase an aggregate
of 3,055,000 shares of Common Stock may be granted under the Stock Option Plan
to eligible employees. Options granted under the Stock Option Plan (i) must be
granted at an exercise price not less than the fair market value of the shares
of Common Stock into which such options are exercisable, (ii) vest over a
four-year vesting period and (iii) expire ten years from the date of grant.
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
Shares Grant Price
------ -----------
Fiscal 1995 Fiscal 1994 Fiscal 1995 Fiscal 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 1,629,200 -- $ 8.68 - 9.74 $ --
Granted 779,000 1,679,100 10.75 - 14.00 8.68 - 9.74
Exercised (18,750) -- 8.87 - 9.74 --
Cancelled (176,525) (49,900) 8.87 - 13.19 9.74
--------- --------- -------------- ------------
Outstanding, end of year 2,212,925 1,629,200 $ 8.68 - 14.00 $8.68 - 9.74
========= ========= ============== ============
</TABLE>
As of July 31, 1995 and 1994, 359,350 and 200, respectively, of options
outstanding were exercisable. The remaining options will become exercisable
over the next three years based on vesting percentages.
24
<PAGE> 25
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMMITMENTS AND CONTINGENCIES
JEWEL RECOVERY, L.P. Pursuant to the Plan, Zale assigned certain
claims and causes of action and advanced $3.0 million to Jewel Recovery, L.P., a
limited partnership ("Jewel Recovery") which was formed upon Zale's emergence
from bankruptcy. The sole purpose of Jewel Recovery is to prosecute and settle
such assigned claims and causes of action. The general partner of Jewel
Recovery is Jewel Recovery, Inc., a subsidiary of the Company. Its limited
partners are holders of various prior unsecured claims against Zale.
There is a possibility that the Company may recover the $3.0 million
advance made to Jewel Recovery as well as other amounts related to the
finalization of the Chapter 11 claims settlement process. It is likely that
these matters will be resolved by the end of the second quarter of fiscal 1996.
The Company does not expect these recoveries to be material to its financial
position or recurring operations.
In addition, the Company and ZDel have agreed to indemnify certain
parties to litigation settlements entered into by the Company in connection with
the Plan against cross-claims, similar third-party claims or costs of defending
such claims brought against such parties as a result of litigation instigated by
the Company, ZDel or Jewel Recovery. At September 12, 1995, no material claims
had been asserted against the Company or ZDel for such indemnification.
OTHER. The Company is involved in certain other legal actions and
claims arising in the ordinary course of business. Management believes that such
litigation and claims will be resolved without material effect on the Company's
financial position or results of operations.
The Company has an operations services agreement for management
information systems with a third-party servicer. The agreement, which
originally began in February 1993, was amended on August 1, 1994 and, requires
payments totaling $31.5 million over a thirty-six month term and is paid monthly
on a straight-line basis.
PROFIT SHARING PLAN
At July 31, 1995, the Company maintains The Zale Corporation Savings &
Investment Plan. Substantially all employees who are at least age 21 are
eligible to participate in the plan. Each employee can contribute from one
percent to fifteen percent of their annual salary. Under this plan, the Company
will match 50 cents in Zale stock for every dollar an employee contributes up to
two percent of annual earnings. In order for an employee to be eligible for the
Company match, the employee must have worked at least 1,000 hours during the
plan year and be employed on the last day of the plan year.
An employee is 33.3 percent vested in the Zale stock after one year of
service, 66.7 percent vested after two years of service and 100 percent vested
after three years of service. As of July 31, 1995 approximately 2,100
employees participated in The Zale Corporation Savings & Investment Plan.
Also, under this plan, the Company may make a profit sharing
contribution at its sole discretion. To be eligible for such discretionary
profit sharing contributions, an employee must have at least twelve consecutive
months of service, have worked at least 1,000 hours during the plan year and be
employed on the last day of the plan year.
An employee is 20 percent vested in the profit sharing contributions
after three years of service, 40 percent vested after four years of service, 60
percent vested after five years of service, 80 percent vested after six years of
service and 100 percent vested after seven years of service. The Company's
contribution to the plan was $2.5 million and $2.2 million for fiscal years
1995 and 1994, respectively.
25
<PAGE> 26
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACCOUNTING CHANGES
Effective April 1, 1994, the Company adopted the provisions of SFAS No.
113, "Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts" and SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities". Debt and equity securities are classified as
available for sale under SFAS No. 115. The effects of these standards on the
consolidated financial position and results of operations are not material.
FINANCIAL INSTRUMENTS
In fiscal 1993, the Company adopted SFAS No. 107 "Disclosures about
Fair Value of Financial Instruments" which extends existing fair value
disclosure practices by requiring all entities to disclose the fair value of
financial instruments, for which it is practicable to estimate fair value.
As cash and short-term cash investments, customer receivables, trade
payables and certain other short-term financial instruments are all short-term
in nature, their carrying amount approximates fair value. The carrying amount
of the $380.6 million, net of discount, Receivables Securitization Facility also
approximates fair value. The carrying amount of the $60.0 million 11.0 Percent
Second Priority Senior Secured Notes which were secured by second liens on
substantially all the assets of Zale and ZDel were redeemed on September 11,
1995 for 102 percent of face value. The investments of the Company's insurance
subsidiaries, primarily stocks and bonds in the amount of $28.8 million,
approximate market value at July 31, 1995 and are reflected in Other Assets on
the Consolidated Balance Sheets.
CONCENTRATIONS OF CREDIT RISK. Financial instruments which potentially
subject the Company to significant concentrations of credit risk consist
principally of cash investments and customer receivables. The Company maintains
cash and cash equivalents, short and long-term investments and certain other
financial instruments with various financial institutions. These financial
institutions are located throughout the country. Concentrations of credit risk
with respect to customer receivables are limited due to the Company's large
number of customers and their dispersion across many regions. As of July 31,
1995 and 1994, the Company had no significant concentrations of credit risk.
RELATED PARTY TRANSACTIONS
One of the Company's directors serves as a director of a company from
which the Company purchased approximately $0.4 million and $0.2 million of
jewelry merchandise during fiscal year 1995 and 1994, respectively. The Company
believes the terms were equivalent to those of unrelated parties.
REORGANIZATION AND RESTRUCTURE COSTS
Reorganization and Restructure Costs are shown on a separate line item
in the Consolidated Statements of Operations and reflect the costs incurred by
the Company in the implementation of its restructuring plan as well as costs
related directly to its bankruptcy case. No Reorganization and Restructure
Costs, for which the Company had not previously provided, were incurred in the
years ended July 31, 1995 and 1994. During January through March 1993, the
Company closed approximately 130 under-performing store locations as it
continued to focus operations in its most profitable locations. These store
closings were primarily in the Company's Guild division. In addition,
approximately 45 of the Company's leased locations with one landlord in its
Diamond Park division were closed at the end of January 1993 in department
stores that no longer carry fine jewelry.
26
<PAGE> 27
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNUSUAL ITEMS -- PROVISIONS FOR VALUATION OF ASSETS
There were no unusual items recognized during the years ended July 31,
1995 and 1994 or the four months ended July 31, 1993. The unusual items
recognized during the year ended March 31, 1993 were as follows (amounts in
thousands):
<TABLE>
<S> <C>
Write-off of favorable lease rights and property $ 4,200
Provision for valuation of customer receivables 12,500
Provision for valuation of diamond held for investment 3,500
-------
$20,200
=======
</TABLE>
The Company determined during the March 31, 1993 year-end closing
process that the methodology used to calculate its allowance for doubtful
customer receivables, which had been applied consistently since the early
1980's, did not provide a sufficient allowance for doubtful accounts. The $12.5
million shortfall was an accumulation of individual amounts during certain prior
years, none of which was material to a specific prior year, and, accordingly,
the cumulative effect has been reflected as an unusual item in the year ended
March 31, 1993. There was no material effect to the March 31, 1993 operating
results.
Additionally, the Company made provisions to reduce the value of
certain non-operating assets, including properties held for sale and a large
diamond held for investment, to their estimated net realizable values.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Unaudited quarterly results of operations for the years ended July 31,
1995 and 1994 were as follows (amounts in thousands except per share data):
<TABLE>
<CAPTION>
Fiscal 1995
For the Three Months Ended
-----------------------------------------------------
July 31, April 30, January 31, October 31,
1995 1995 1995 1994
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $211,400 $192,083 $427,194 $205,472
Gross profit 100,708 94,871 214,675 101,885
Net earnings (loss) (3,132) (3,994) 41,771 (3,175)
Net earnings (loss) per primary common share (0.09) (0.11) 1.19 (0.09)
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1994
For the Three Months Ended
-----------------------------------------------------
July 31, April 30, January 31, October 31,
1994 1994 1994 1993
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $199,885 $167,078 $368,596 $184,748
Gross profit 99,345 85,608 183,439 91,855
Net earnings (loss) (5,380) (4,458) 37,542 (6,147)
Net earnings (loss) per primary common share (0.15) (0.13) 1.07 (0.18)
</TABLE>
27
<PAGE> 28
[ZALE CORPORATION LOGO]
ZALE CORPORATION AND SUBSIDIARIES
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
- ------------------
ROBERT J. DINICOLA
Chairman of the Board,
Chief Executive Officer
Zale Corporation
LARRY POLLOCK
President,
Chief Operating Officer
Zale Corporation
GLEN ADAMS
Chairman, President and
Chief Executive Officer
Southmark Corporation
PETER P. COPSES
Limited Partner
Apollo Advisors, L.P.
AUDIT COMMITTEE
Glen Adams
Peter P. Copses
Mark Dickstein
MARK DICKSTEIN*
President
Dickstein Partners Inc
FRANK E. GRZELECKI
President
Chief Operating Officer
Handy & Harman
COMPENSATION COMMITTEE
Frank E. Grzelecki
Richard C. Marcus
Andrew H. Tisch
RICHARD C. MARCUS
Principal
InterSolve Group, Inc.
ANDREW H. TISCH
Director
Loews Corporation
* Mr. Dickstein has decided not to stand for re-election
OFFICERS OF THE COMPANY
- -----------------------
ROBERT J. DINICOLA
Chairman and Chief Executive
President and President,
Officer
LARRY POLLOCK
President and Chief Operating
President and
Officer
MERRILL J. WERTHEIMER
Executive Vice President --
Finance and Administration
BERYL RAFF
Senior Vice President and President,
Zales Division
MARY FORTE
Senior Vice President and President,
Gordon's Division
PAUL LEONARD
Senior Vice President and President,
Guild Division
MAX BROWN
Senior Vice President and President,
Diamond Park Division
JO ANN CONNOLLY
Senior Vice President --
Corporate Merchandising
PAUL KANNEMAN
Senior Vice President and
Chief Information Officer
HERSCHEL KRANITZ
Senior Vice President --
Human Resources
ALAN P. SHOR
Senior Vice President, General
Counsel and Secretary
JOHN SKINNER
Senior Vice
Jewelers Financial Services, Inc.
THOMAS E. WHIDDON
Senior Vice
Chief Financial Officer
CORPORATE INFORMATION
- ---------------------
EXECUTIVE OFFICES
901 West Walnut Hill Lane
Irving, Texas 75038-1003
(214) 580-4000
REGISTRAR & TRANSFER AGENT
Bank of Boston
Shareholder Services Division
P.O. Box 644
Mail Stop: 45-02-09
Securities
Boston, MA 02102-0644
(617) 575-3120
STOCKHOLDER INFORMATION
Stockholder Communications
901 West Walnut Hill Lane
M.S. 6B-1
Irving, Texas 75038-1003
(214) 580-4149
INDEPENDENT PUBLIC
ACCOUNTANTS
Arthur Andersen LLP, Dallas
STOCK LISTINGS
Nasdaq
Common -- Symbol: ZALE
Series A Warrants --
Symbol: ZALEW
FORM 10-K REQUESTS
Stockholders may obtain, without charge, a copy of the Corporation's Form 10-K
as filed with the and Exchange Commission for the year ended July 31, 1995.
Requests should be addressed to Stockholder Communications.
NOTICE OF ANNUAL MEETING
- ------------------------
Zale Corporation's 1995 Annual Meeting of Stockholders will be held at 10 a.m.,
Thursday, November 2, 1995 at the Westin Galleria in Dallas, Texas.
COMMON STOCK INFORMATION
- ------------------------
The Common Stock is quoted on the Nasdaq National Market, where it began trading
on August 2, 1993 under the symbol "ZALEV" and, commencing on October 21, 1993,
under the Symbol "ZALE". Prior to August 2, 1993, there was no public market for
the Common Stock. The following table sets forth the high and low sales price
per share for the Common Stock during the periods indicated as reported by the
Nasdaq National Market.
<TABLE>
<CAPTION>
1995 1994
Quarter High Low High Low
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $14 $ 8 $11 $9
Second 13 1/4 10 11 8
Third 12 1/2 10 1/4 9 1/2 8
Fourth 14 11 1/4 9 8 1/4
</TABLE>
As of September 5, 1995, the outstanding shares of Common Stock were held
byapproximately 1,500 holders of record. The Company has not paid dividends on
the Common Stock since the issuance on July 30, 1993, and does not anticipate
paying dividends on the Common Stock in the foreseeable future. In addition, the
terms of the Company's long-term indebtedness places certain restrictions on the
Company's ability to declare and pay dividends on its Common Stock.
28
<PAGE> 1
Exhibit 21 -- Subsidiaries of the Company
The following companies are subsidiaries of Zale Corporation:
Zale Delaware, Inc.
Diamond Funding Corp. (iv)
Zale Acquisition Corporation (iv)
Jewel Recovery, Inc.
JHC Holding Corporation (i) (iv)
Zale Holding Corporation (ii)
ZHCL Corporation (iii) (iv)
The following companies are subsidiaries of Zale Delaware, Inc.:
Zale Puerto Rico, Inc.
Dobbins Jewelers, Inc.
Jewelers Financial Services, Inc.
Zale Life Insurance Company
Zale Indemnity Company
Diamond Guaranty Insurance Company (iv)
Jewel Re-Insurance Ltd.
Zale Employees Child Care Association, Inc.
(i) Jewelers Holding Corporation, formerly parent company of Zale Holding
Corporation, merged into JHC Holding Corporation, which was formed on
July 30, 1993 (the "Effective Date") for purposes of the merger.
(ii) Formerly parent company of Zale Corporation and currently a subsidiary
of JHC Holding Corporation.
(iii) Formerly sister company of Zale Corporation and currently a subsidiary
of JHC Holding Corporation.
Through reorganization, all of these companies became subsidiaries of Zale
Corporation on the Effective Date.
(iv) Currently an inactive corporation.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports incorporated by reference in this Form 10-K, into the Company's
previously filed Form S-8 Registration Statement File No. 33-87782.
ARTHUR ANDERSEN LLP
Dallas, Texas,
October 16, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JULY 31,
1995 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<CASH> 154,905
<SECURITIES> 0
<RECEIVABLES> 438,976
<ALLOWANCES> 42,596
<INVENTORY> 375,413
<CURRENT-ASSETS> 950,557
<PP&E> 78,981
<DEPRECIATION> 7,494
<TOTAL-ASSETS> 1,110,708
<CURRENT-LIABILITIES> 168,755
<BONDS> 440,717
<COMMON> 0
0
350
<OTHER-SE> 391,540
<TOTAL-LIABILITY-AND-EQUITY> 1,110,708
<SALES> 1,036,149
<TOTAL-REVENUES> 1,036,149
<CGS> 524,010
<TOTAL-COSTS> 524,010
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 40,781
<INTEREST-EXPENSE> 29,837
<INCOME-PRETAX> 47,820
<INCOME-TAX> 16,350
<INCOME-CONTINUING> 31,470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,470
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.86
</TABLE>
