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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
FOR THE FISCAL YEAR ENDED JULY 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-04129
ZALE CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 75-0675400
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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<TABLE>
<S> <C>
901 W. WALNUT HILL LANE
IRVING, TEXAS 75038-1003
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's telephone number, including area code: (972) 580-4000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock, $.01 par value per share New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of September 3, 1999, the aggregate market value of the registrant's
voting stock held by non-affiliates of the registrant was approximately
$1,236,162,997.
As of September 3, 1999, the registrant had outstanding 35,984,508 shares
of its common stock, $.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE.
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 on November 5, 1999.
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PART I
ITEM 1. BUSINESS
GENERAL
Zale Corporation and its wholly-owned subsidiaries (the "Company") is the
largest specialty retailer of fine jewelry in North America. At July 31, 1999,
the Company operated 1,333 retail jewelry stores located primarily in shopping
malls throughout the United States, Canada and Puerto Rico. The Company operates
under four brand names: Zales Jewelers(R), Gordon's Jewelers(R), Bailey Banks &
Biddle Fine Jewelers(R), and Peoples Jewellers(R). Zales Jewelers provides
traditional, moderately priced jewelry to a broad range of customers. Gordon's
Jewelers offers contemporary merchandise targeted to regional preferences at
somewhat higher price points than Zales Jewelers. Bailey Banks & Biddle Fine
Jewelers operates upscale jewelry stores which are considered among the finest
jewelry stores in their markets. Under the Zales Jewelers brand name, at July
31, 1999, the Company also operated 31 Zales Outlet stores in 17 states and
offered online shopping at www.zales.com. The Company acquired substantially all
of the assets of Peoples Jewellers Corporation, a Canadian company, effective
May 23, 1999. Peoples Jewellers offers traditional moderately priced jewelry to
customers across Canada. During the fiscal year ended July 31, 1999, the Company
generated $1.4 billion of net sales.
The Company believes it is well-positioned to compete in the approximately
$41 billion, highly fragmented retail jewelry industry, leveraging its
established brand names, economies of scale and geographic and demographic
diversity. The Company enjoys significant brand name recognition as a result of
its long-standing presence in the industry and its national and regional
advertising campaigns. The Company believes that name recognition is an
important advantage in jewelry retailing as products are generally unbranded and
consumers must trust in a retailer's reliability and credibility. In addition,
as the largest specialty retailer of fine jewelry in North America, the Company
believes it realizes economies of scale in purchasing and distribution, real
estate, advertising and administrative costs. The Company also believes that the
geographic diversity of its retail distribution network through all 50 states
and Canada and the demographic breadth of its target customer groups may serve
to mitigate earnings volatility typically associated with local or regional
conditions.
The Company is incorporated in Delaware. Its principal executive offices
are located at 901 W. Walnut Hill Lane, Irving, TX 75038-1003, its telephone
number at that address is (972) 580-4000, and its internet address is
www.zalecorp.com.
BUSINESS INITIATIVES AND STRATEGY
The Company has developed and implemented disciplined merchandising and
marketing strategies to reestablish and promote its brand identities.
Differentiated target customer segments have been emphasized for Zales,
Gordon's, Bailey Banks & Biddle, and Peoples. Product assortments have been
broadened to capitalize on year round gift giving: bridal, fashion and special
occasions.
Management has developed a key item strategy as the foundation for
merchandising and marketing initiatives. Items have been identified from among
the best selling products in the retail jewelry industry, such as tennis
bracelets, diamond solitaires, diamond stud earrings, and bezel set style
diamond pendants and earrings. The Company has ensured that these items are
available in an appropriate variety of styles at a range of competitive price
points. At the same time, the Company has adopted an aggressive approach to
inventory management to keep key items in stock and inventories current. This
goal is achieved through enhancements to the merchandise system which provides
regular reporting to the Company's merchandise buyers on in-stock position and
slow moving merchandise. The Company employs a consistent methodology which
provides inventory turnover and profitability information to identify slow
moving merchandise and determine appropriate merchandising actions on a timely
basis.
The Company's marketing efforts are product and event-focused. Television,
radio, print advertising in nationally distributed newspapers and magazines,
newspaper inserts, and direct mail advertising feature
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selected key items at a variety of price points. The Company has also broadened
its marketing efforts beyond the Christmas season to tie in with other
gift-giving holidays, such as Valentine's Day and Mother's Day. In addition,
advertising and in-store promotions are synchronized with mall marketing efforts
to take advantage of other periods of high mall traffic, such as Labor Day,
which are typically not considered jewelry oriented holidays.
The Company has recruited experienced buyers and has centralized purchasing
for each brand to ensure consistency of quality and cost. In addition, the
Company leverages its size to achieve better prices, payment terms, return
privileges and cooperative advertising arrangements with its suppliers for
certain products.
The Company has enhanced its image as a provider of fine jewelry at
competitive prices by establishing price points for merchandise that are
perceived by customers as good values. Certain items are labeled "Brilliant
Buys," "Premier Values" and "Bailey's Classic Values" in Zales and Peoples,
Gordon's and Bailey Banks & Biddle stores, respectively. These items are
prominently displayed along with their prices throughout the store, a practice
that is uncommon in the U.S. jewelry retailing industry and one that the Company
believes enhances its reputation for pricing integrity.
Over the past five years, the Company has opened approximately 325 stores.
Approximately 70 percent of the Company's stores have received significant
upgrades or investments within the last five years. Typically, these stores
experience revenue growth in future years that is significantly higher than
other stores. The Company has taken steps to provide upgraded sales and product
training company-wide through employee and manager training programs. Staffing
plans are coordinated to schedule employees during peak periods.
The Company's strategy is to continue to increase store productivity and
profitability by: (i) focusing on the core categories of bridal, fashion and
watches; (ii) using key item merchandise to drive volume; (iii) remodeling and
renovating all existing stores; (iv) enhancing merchandising systems to assist
buyer decision making; (v) executing tailored staffing and training programs for
store personnel; (vi) focusing advertising on brand building and product
distinction; and (vii) providing exclusive products to develop brand
distinction.
The Company plans to open approximately 165 new stores, principally under
the brand names Zales, Zales Outlet and Bailey Banks & Biddle, for which it will
incur approximately $40 million in capital expenditures during the combined
fiscal years 2000 and 2001. The Company expects these stores to solidify the
Company's core mall business by further penetrating markets where the Company is
underrepresented. The Company targets premier regional mall locations throughout
the country and selects sites based on a variety of well-defined demographic and
store profitability characteristics. The Company has identified the specific
malls for this planned expansion which satisfy the Company's real estate
strategy. The Company also plans to refurbish, remodel or relocate approximately
200 stores at a cost of approximately $45 million during the same period.
Over the past five years the Company has reduced selling, general and
administrative expenses as a percent of sales principally by leveraging its
fixed store and corporate operating expenses while increasing sales in its
stores. Additionally, the Company has continued a focused effort to reduce
selling, general and administrative expenses where appropriate by streamlining
processes and leveraging technology where possible. Initiatives include: (i)
improving the return on credit operations, including establishing a national
credit card bank which has allowed greater flexibility in establishing finance
charge rates to customers and has simplified the regulatory requirements under
which the Company operates; (ii) outsourcing certain non-strategic functions,
including certain aspects of management information systems operations, credit
services, and the internal audit department among other areas; and (iii)
streamlining corporate operations through review and improvement of current
processes and application of new technology in areas such as merchandising,
credit, store point of sale and financial systems.
The Company continues to apply a disciplined approach to its credit
policies, which are controlled centrally for all stores. See "Business -- Credit
Operations."
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CURRENT YEAR EVENTS
ACQUISITION OF PEOPLES JEWELLERS. Effective May 23, 1999, the Company
acquired substantially all assets of Peoples Corporation, a privately owned
chain consisting principally of 176 fine jewelry stores operating throughout
Canada, for approximately $78 million cash and the assumption of certain
liabilities.
ZALE FUNDING TRUST SECURITIZATION. On July 15, 1999, the Company redeemed
approximately $380.8 million, net of discount, aggregate principal amount of
Receivables Backed Notes ("Receivables Notes") issued by Zale Funding Trust
("ZFT"), a limited purpose Delaware business trust wholly owned by Zale
Delaware, Inc. ("ZDel"), and formed to finance customer accounts receivable. The
Receivables Notes were redeemed with available cash and proceeds of advances
under the Company's Revolving Credit Agreement and through the issuance of
Variable Funding Notes ("Variable Notes") to a purchaser group under a new
securitization facility in the initial aggregate principal amount of $250
million. The Variable Notes are part of a 364-day liquidity facility and are
secured by a lien on customer accounts receivable. The Variable Notes currently
bear interest at the market commercial paper rate plus a dealer fee of 0.05
percent. In addition, the Company pays a fee of 0.375 percent per annum on the
funded portion of the facility and a commitment fee of 0.25 percent per annum on
the unfunded portion. As of July 31, 1999, the entire $250 million facility is
classified as a Short-term Borrowing since it matures within the next twelve
months.
As originally entered into, the facility required the Company to reduce the
outstanding amount of the Variable Notes to $150 million no later than October
15, 1999. On September 15, 1999, the Company entered into an amendment to the
new securitization facility to reduce the commitment of the original Variable
Note purchaser group to $150 million and to add two new note purchaser groups
having an aggregate commitment of $200 million, thereby increasing the total
outstanding amount under the Variable Notes facility to $350 million on terms
consistent with the original facility. Additionally the Company paid down the
approximate $103 million balance under the Revolving Credit Agreement. The
Company expects to refinance the Variable Notes on or before their maturity date
with a new transaction or, with the consent of the note purchaser groups, to
extend the maturity of the outstanding Variable Notes.
STOCK REPURCHASE PLAN. During September 1999, the Board of Directors
approved a stock repurchase program pursuant to which the Company, from time to
time and at management's discretion, may purchase through fiscal year 2000, up
to an aggregate of $50 million of the Company's common stock on the open market.
In June 1999, the Company completed a $50 million repurchase program, which
was authorized during August 1998. Under this program, the Company repurchased
1.7 million shares in fiscal 1999.
DEFERRED COMPENSATION. During February 1999, 180,692 shares of restricted
Common Stock were granted to certain key employees valued at $5.7 million as of
the grant date. The shares will vest ratably on each of the anniversaries
ranging from three to four years from the date of grant and are subject to
restrictions on their sale or transfer. The total cost of restricted stock is
amortized to income as compensation expense ratably over the vesting period and
amounted to $0.7 million for the twelve months ended July 31, 1999.
INDUSTRY
The U.S. retail jewelry industry's sales were approximately $41 billion in
1998. Specialty jewelry stores (such as the Company) account for almost half of
the industry, according to publicly available data. Historically, retail jewelry
store sales have exhibited only limited effects of cyclicality. According to the
U.S. Bureau of the Census, retail jewelry store sales have increased every year
for the past 15 years with the exception of 1991 which included both the Persian
Gulf War and the introduction of the luxury tax. Other significant segments of
the industry include national chain department stores (such as J.C. Penney
Company, Inc. and Sears, Roebuck and Co.), mass merchant discount stores (such
as Wal-Mart Stores, Inc.), other general merchandise stores and apparel and
accessory stores. The remainder of the retail jewelry industry is composed
primarily of catalog and mail order houses, direct-selling establishments, TV
home shopping (such as QVC, Inc.) and computer on-line shopping.
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The U.S. retail jewelry industry is highly fragmented with the 10 largest
companies accounting for less than 25 percent of the market. The largest jewelry
retailer is believed to be Wal-Mart Stores, Inc., followed by the Company. The
Company is the largest specialty jewelry retail chain in North America, with
approximately 3.4 percent of market share based on the United States Census
Bureau estimate of 1998 U.S. Retail Jewelry and Watch Sales. Only two other
specialty jewelry retailers had greater than 2 percent market share.
OPERATIONS
The Company operates principally under four brand names. The following
table presents net sales, average sales per store and the number of stores for
Zales, Gordon's, Bailey Banks & Biddle, and Peoples for the periods indicated.
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YEAR ENDED JULY 31,
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1999 1998 1997
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NET SALES (IN THOUSANDS)
Zales (including Outlet stores)................ $ 829,387 $ 733,395 $ 618,106
Gordon's....................................... 311,671 309,327 282,271
Bailey Banks & Biddle.......................... 264,315 241,441 226,323
Peoples(a)..................................... 21,237 -- --
Other(b)....................................... 2,258 29,547 127,118
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$1,428,868 $1,313,710 $1,253,818
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AVERAGE SALES PER STORE(c)
Zales (including Outlet store)................. $1,166,000 $1,092,000 $1,013,000
Gordon's....................................... 994,000 967,000 888,000
Bailey Banks & Biddle.......................... 2,497,000 2,290,000 1,990,000
Peoples(a)..................................... -- -- --
STORES OPENED DURING PERIOD
Zales (including Outlet stores)................ 54 65 65
Gordon's....................................... 4 17 9
Bailey Banks & Biddle.......................... 6 7 16
Peoples(a)..................................... 0 -- --
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64 89 90
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STORES CLOSED DURING PERIOD
Zales (including Outlet stores)................ 16 6 9
Gordon's....................................... 9 10 22
Bailey Banks & Biddle.......................... 7 13 15
Peoples(a)..................................... 0 -- --
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32 29 46
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TOTAL STORES
Zales (including Outlet stores)................ 739 701 642
Gordon's....................................... 312 317 310
Bailey Banks & Biddle.......................... 106 107 113
Peoples(a)..................................... 176 -- --
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1,333 1,125 1,065
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(a) The Company acquired substantially all assets and certain operational
liabilities of Peoples Jewellers Corporation effective May 23, 1999. See
"Current Year Events -- Acquisition of Peoples Jewellers."
(b) Other net sales: (i) includes sales from direct mail operations and (ii)
includes sales from Diamond Park Fine Jewelers which was divested during
fiscal year 1998.
(c) Based on sales per store open a full twelve months during the respective
year.
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Zales Jewelers
Zales is positioned as the Company's national flagship and is a leading
brand name in jewelry retailing in the United States. At July 31, 1999, Zales
had 708 Zales stores in 50 states and Puerto Rico. Average store size is
approximately 1,470 square feet, and the average selling price per unit sold is
$260. Zales accounted for approximately 58 percent of the Company's sales in
fiscal year 1999.
Zales' merchandise selection is generally standardized across the nation
and targeted at customers representing a cross-section of mainstream America. In
fiscal year 1999, bridal merchandise represented 35 percent of merchandise
sales, while fashion jewelry and watches comprised the remaining 65 percent. The
bridal merchandise category consists of solitaire engagement rings, various
bridal sets and diamond and gold anniversary bands. Fashion jewelry consists
generally of diamond fashion rings, earrings, gold chains, watches and various
other items. The Company believes that the prominence of diamond jewelry in its
product selection fosters an image of quality and trust among consumers. While
maintaining a strong focus on the bridal segment of the business, Zales is
placing added emphasis on the non-bridal merchandise such as the fashion and
gift-giving aspects of the business. Innovative product categories, including
platinum engagement rings, and tanzanite fashion jewelry, have been added. The
combination of Zales' national presence and centralized merchandise selection
allows it to use television advertising across the nation as its primary
advertising medium, supplemented by newspaper inserts and direct mail. Zales is
in the direct fulfillment business through its direct mail operations and
Internet web site. The direct fulfillment operations currently account for less
than 2 percent of the Company's sales.
Leveraging brand recognition and national advertising, Zales Outlet
represents the Company's Outlet Mall format. At July 31, 1999, the Company
operated 31 Zales Outlet stores in 17 states. The Company has begun expanding
its Zales Outlet concept and plans to continue to grow it over the next several
years. The merchandise assortment in a Zales Outlet Store includes a wide
selection of today's most fashion-forward looks, including name brand watches
and fashion items like tanzanite jewelry. Zales Outlet accounted for less than 2
percent of the Company's net sales in fiscal 1999.
Gordon's Jewelers
Gordon's is positioned as a major regional brand with an upgraded product
offering. At July 31, 1999, Gordon's had 312 stores in 35 states and Puerto
Rico. Average store size is approximately 1,400 square feet and the average
selling price per unit sold is $314. Gordon's accounted for approximately 22
percent of the Company's net sales in fiscal year 1999.
Gordon's distinguishes itself from Zales by providing a more upscale,
contemporary product mix and tailoring a portion of store inventory to regional
tastes. A portion of the merchandise sold by Gordon's stores overlaps the Zales
product line. Regional radio broadcast campaigns that emphasize key items are
utilized to complement printed inserts.
Gordon's will continue to emphasize its new image to match its customer
base and will further tailor key items to customers' regional preferences. Steps
to upgrade Gordon's have included store remodeling, a more distinctive and
fashion-oriented product assortment, improved displays, exclusive and value
oriented merchandise and the application of more stringent credit-approval
standards.
Bailey Banks & Biddle Fine Jewelers
Established in 1832, Bailey Banks & Biddle offers high-end merchandise,
exclusive designs and a prestigious shopping environment for the upscale
customer. The stores are among the pre-eminent stores in their markets and carry
both exclusive and recognized designer merchandise selections to appeal to the
more affluent customer. The Bailey Banks & Biddle merchandise assortment
emphasizes the classic and traditional look and focuses on diamonds, precious
stone and gold jewelry, as well as watches and giftware. At July 31, 1999,
Bailey Banks & Biddle operated 106 upscale jewelry stores in 29 states. During
fiscal 1999, the Company converted stores not under the Bailey Banks & Biddle
name to that name. This change will enable Bailey Banks & Biddle to market and
advertise on a national scale. The Company also utilizes the trade name
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Zell Bros.(R) for one store. The stores have an average selling price per unit
sold of $651, an average store size of approximately 3,300 square feet and
accounted for approximately 18 percent of the Company's net sales in fiscal year
1999.
Bailey Banks & Biddle stores rely heavily on upscale direct-mail catalogs,
enabling the stores to focus on specific products for specific customers. In
fiscal year 1999, Bailey Banks & Biddle expanded its advertising reach with a
repetitive presence in nationally distributed newspapers, such as the New York
Times and The Wall Street Journal and high profile magazines such as Town &
Country, Vanity Fair and Bon Appetit.
Peoples Jewellers
Effective May 23, 1999, the Company acquired substantially all assets and
certain operational liabilities of Peoples Jewellers Corporation, a privately
owned chain consisting principally of 176 fine jewelry stores operating
throughout Canada under the Peoples and Mappins names. Peoples offers
traditional jewelry and attracts the moderate customer segment in Canada.
Peoples has the largest market share in Canada. Its closest specialty jewelry
competitor has fewer than 40 locations.
The Company believes that Peoples has a significant opportunity to improve
store productivity by employing a focused merchandising strategy that offers the
top 250 key items or "Brilliant Buys." Approximately 90 percent of this
merchandise will overlap with Zales, allowing the Company to leverage its
merchandising strength.
The Company plans to execute an aggressive marketing strategy that includes
many media channels and campaigns similar to those that Zales employs, including
television advertising campaigns during key holiday periods.
Beginning in late fiscal 2000 the Company expects to begin renovating
existing Peoples' stores with an updated design, as well as targeting growth
opportunities by identifying possible new store locations.
STORE OPERATIONS
The Company's stores are designed to create an attractive environment,
maximize operating efficiencies and make shopping convenient and enjoyable. The
Company pays careful attention to store layout, particularly in areas such as
lighting, choice of materials and arrangement of display cases to maximize
merchandise presentation. Promotional displays are changed periodically to
provide variety, to reflect seasonal events or to complement a particular mall's
promotions.
Each of the Company's stores is led by a store manager who is responsible
for certain store-level operations, including sales and some personnel matters.
Non-sales administrative matters, including purchasing, credit operations and
payroll are consolidated at the corporate level in an effort to maintain low
operating costs at the store level. Each of the stores also offers standard
warranties and return policies and provides extended warranty coverage which may
be purchased at the customer's option.
The Company has implemented inventory control systems, extensive security
systems and loss prevention procedures to maintain low inventory losses. The
Company screens employment applicants and provides all of its store personnel
with training in loss prevention. Despite such precautions, the Company
experiences losses from theft from time to time and maintains insurance to cover
such losses.
The Company believes it is important to provide knowledgeable and
responsive customer service. The Company has implemented employee training
programs, including training in sales techniques for new employees, on-the-job
training and manager training for store managers. Under the banner of Zale
Corporation University, the Company offers training to employees at every level
of the organization, from store associate to buyer.
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, Southeast Asia and Italy. All
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purchasing is done through buying offices at the corporate headquarters. The
Company either purchases merchandise from its vendors or obtains merchandise on
consignment. The Company had approximately $126.2 million and $146.8 million of
consignment inventory on hand at July 31, 1999 and 1998, respectively. 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 price fluctuations in the
commodities that are used in the merchandise it sells. The Company is not
subject to substantial currency fluctuations because most purchases are dollar
denominated. During fiscal years 1999 and 1998, the Company purchased
approximately 33 percent of its merchandise from its top five vendors, including
more than 11 percent from its top vendor.
CREDIT OPERATIONS
The Company's private label credit card programs help facilitate the sale
of merchandise to customers who wish to finance their purchases rather than use
cash or other sources. Approximately 48 percent of the Company's net sales were
generated by credit sales on the private label credit cards in fiscal year 1999.
The Company has found that opening a credit account allows its sales personnel
to build customer relationships that generate customer loyalty and facilitate
repeat purchases as well as enhancing the Company's target marketing capability.
Peoples outsources its proprietary credit program to a third party provider.
In October 1997, the Company established a national credit card bank,
Jewelers National Bank ("JNB" or the "Bank"), for the granting of credit under
its private label credit cards. The creation of the national bank allows the
Company greater flexibility in establishing rates charged to customers and
simplifies regulatory requirements.
Credit extension, customer service and collections for the private label
accounts are performed by JNB in Tempe, Arizona, and Service Centers in
Clearwater, Florida, San Marcos, Texas and San Juan, Puerto Rico. The Bank uses
credit scoring to assess risk in extending credit to customers. The Bank has
enhanced the timeliness of its approval process for new accounts, whereby
customers can be approved rapidly at point of sale. The Bank offers a variety of
credit marketing programs to facilitate sales, with an emphasis on flexible
repayment terms.
The Company currently has approximately 1.5 million customer names on file
to which it directs promotional material. The Company uses many of these
customer names in its target marketing programs.
The Company focuses collection efforts on delinquent accounts in a rapid
and disciplined manner. Collectors are trained with state of the art Computer
Based Training programs, which are developed in-house. Collection accounts are
scored on a behavioral model at monthly billing. This statistical analysis
allows for optimum collection and follow-up on delinquent accounts. Based on the
behavioral score, the account is put into priority queuing for letter and/or
personal phone call follow-up. Early stage delinquencies are handled with an
approach which is sensitive to customer goodwill. If accounts progress into
delinquency, more assertive action is taken.
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The following table presents certain data concerning sales, credit sales
and accounts receivable for the past three fiscal years, excluding Peoples and
Diamond Park:
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<CAPTION>
YEAR ENDED JULY 31,
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1999 1998 1997
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<S> <C> <C> <C>
Net sales (thousands).............................. $1,407,631 $1,284,163 $1,126,700
Net credit sales (thousands)....................... $ 680,320 $ 638,277 $ 556,771
Credit sales as percentage of net sales............ 48.3% 49.7% 49.4%
Average number of active customer accounts......... 806,000 755,000 715,000
Average balance per customer account............... $ 742 $ 742 $ 719
Customer receivables (thousands)................... $ 587,794 $ 562,952 $ 508,885
Average monthly collection percentage.............. 9.8% 9.6% 9.2%
Bad debt expense as a percentage of total sales,
excluding Peoples and Diamond Park............... 5.0% 5.1% 4.9%
Accounts receivable greater than 90 days past due,
excluding late fees.............................. 10.2%(a) 8.4% 8.9%
</TABLE>
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(a) In May 1999, the Company began operating under a new credit system. Under
this system, billing cycles were changed and aging criteria are slightly
different. Management believes that the characteristics of the accounts at
July 31, 1999 are relatively consistent with previous years.
Accounts are automatically charged off when no full scheduled payment is
made for a period of seven consecutive billing cycles. Additionally, accounts
are charged off if twelve contract payments are missed.
INSURANCE AFFILIATES
The Company, through Zale Indemnity Company, Zale Life Insurance Company
and Jewel Re-Insurance Ltd., provides insurance and reinsurance facilities for
various types of insurance coverage, which typically are marketed to the
Company's private label credit card customers. Additionally, the Company
promotes the sale of credit insurance products to customers who use the private
label credit card program. In fiscal year 1999, over 48 percent of the Company's
private label credit card purchasers purchased some form of credit insurance.
The three companies, which are wholly owned subsidiaries of ZDel, 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, leave of absence 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 business 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.
EMPLOYEES
As of July 31, 1999, the Company had approximately 12,000 employees, less
than 1 percent of whom were represented by unions. The Company usually hires a
limited number of temporary employees during each Christmas season.
COMPETITION
The 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 national jewelry chains. The Company also competes
with other types of retailers who sell jewelry and gift items, such as
department stores, catalog showrooms, discounters, direct mail suppliers, online
retailers and television home shopping programs. Certain of the Company's
competitors are non-specialty retailers which are larger and have greater
financial resources than the Company. The malls where the Company's stores are
located typically contain
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competing national chains, independent jewelry stores or department store
jewelry departments. The Company believes that it is also competing for
consumers' discretionary spending dollars and, therefore, competes 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 reputation for
high quality products, brand recognition, store location, distinctive and
value-priced merchandise, personalized customer 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 merchandise categories.
The Company holds no material patents, licenses, franchises or concessions;
however, the established trademarks and trade names for stores and products in
Zales, Gordon's, Bailey Banks & Biddle, and Peoples are important to the Company
in maintaining its competitive position in the jewelry retailing industry.
MANAGEMENT INFORMATION SYSTEMS
The Company's information systems provide information necessary for: (i)
management operating decisions; (ii) sales and margin management; (iii)
inventory control; (iv) profitability monitoring by many measures (merchandise
category, buyer, store); and (v) expense control programs. Data processing
systems include point-of-sale reporting, purchase order management, receiving,
merchandise planning and control, payroll, general ledger, credit card
administration, and accounts payable. Bar code ticketing is used to ensure
timely sales and margin data compilation and to provide for inventory control
monitoring. Information is made available on-line to merchandising staff on a
timely basis, thereby reducing the need for paper reports. The Company uses
electronic data interchange ("EDI") with certain of its vendors to facilitate
timely merchandise replenishment. The Company believes that the further use of
EDI with its vendors will lower the administrative costs associated with invoice
processing and settlement.
The Company's information systems allow management to monitor and control
the Company's operations, and to generate reports on a daily, monthly, quarterly
and annual basis for each store and transaction. Senior management can therefore
review and analyze activity by store, amount of sale, terms of sale or employees
who made the sale.
The Company entered into a five-year agreement during December 1996 with a
third party for the management of the Company's mainframe processing operations,
client server systems, LAN operations and desktop support. The Company believes
that by outsourcing this portion of its management information systems it will
be able to achieve additional efficiencies and allow the Company to focus its
internal information technology efforts on developing new systems to enhance the
performance of its core business.
The Company has an operations services agreement for credit operations with
a third-party servicer. The agreement, dated May 5, 1998, requires minimum
annual payments based on credit activities. The Company has a commitment of
approximately $15.2 million to be paid over the initial term of seven years.
Additional annual payments will be paid based on credit volume for normal credit
processing activities.
The Company has historically upgraded, and expects to continue to upgrade,
its information systems to improve operations and support future growth. The
Company estimates it will make capital expenditures of approximately $21 million
over the next two years for enhancements to its management information systems.
A portion of these expenditures will assist the Company in maintaining Year 2000
compliant systems. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000."
REGULATION
The Company's operations are affected by numerous federal and state laws
that impose disclosure and other requirements upon the origination, servicing
and enforcement of credit accounts and limitations on the maximum amount of
finance charges that may be charged by a credit provider. In addition to the
Company's private label credit cards, credit to the Company's customers is
provided primarily through bank cards such as
9
<PAGE> 11
Visa(R), MasterCard(R), and Discover(R), without recourse to the Company based
upon a customer's failure to pay. Any change in the regulation of credit which
would materially limit the availability of credit to the Company's traditional
customer base could adversely affect the Company's results of operations or
financial condition.
The sale of insurance products by the Company is also highly regulated.
State laws currently impose disclosure obligations with respect to the Company's
sale of credit and other insurance. The Company's and its competitors' practices
are also subject to review in the ordinary course of business by the Federal
Trade Commission, and the Company's and other retail Companies credit cards are
subject to regulation by the Office of the Comptroller of the Currency. See
"Business -- Credit Operations." The Company believes that it is currently in
material compliance with all applicable state and federal regulations.
Merchandise in the retail jewelry industry is frequently sold at a discount
to the "regular" or "original" price. A number of states in which the Company
operates have regulations which require that retailers offering merchandise at
discounted prices must offer the merchandise at regular or original prices for
stated periods of time. Additionally, the Company is subject to certain
truth-in-advertising and other various state and federal laws, including
consumer protection regulations that regulate retailers generally and/or the
promotion and sale of jewelry in particular. The Company undertakes to monitor
changes in those laws and believes that it is in material compliance with all
applicable federal and state laws with respect to such practices.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements,
including statements regarding, among other items, (i) the Company's
implementation of its merchandising strategies, (ii) the extension or
replacement of the Revolving Credit Agreement, (iii) a refinancing of the
Variable Notes on or before their maturity date with a new transaction or, with
the consent of the note purchaser groups, an extension of the maturity of the
outstanding Variable Notes, (iv) expected capital expenditures to be made in the
future, (v) expected significant upgrades to the Company's management
information systems over the next several years, (vi) the addition of new
locations through new store openings, (vii) the renovation and remodeling of the
Company's existing store locations, (viii) the Company's efforts to reduce
costs, (ix) the adequacy of the Company's sources of cash to finance its current
and future operations, (x) the terms of renewal of the Company's store leases,
(xi) resolution of litigation without material adverse effect on the Company and
(xii) the expected impact of the "Year 2000" issue. This notice is intended to
take advantage of the "safe harbor" provided by the Private Securities
Litigation Reform Act of 1995 with respect to such forward-looking statements.
These forward-looking statements involve a number of risks and uncertainties.
Among others, factors that could cause actual results to differ materially are
the following: development of trends in the general economy; competition in the
fragmented retail jewelry business; the variability of quarterly results and
seasonality of the retail business; the ability to improve productivity in
existing stores and to increase comparable store sales; the availability of
alternate sources of merchandise supply during the three month period leading up
to the Christmas season; the dependence on key personnel who have been hired or
retained by the Company; the changes in regulatory requirements which are
applicable to the Company's business; management's decisions to pursue new
distribution channels and strategies which may involve additional costs; and the
risk factors listed herein and from time to time in the Company's Securities and
Exchange Commission reports, including but not limited to, its Annual Reports on
Form 10-K.
ITEM 2. PRINCIPAL PROPERTIES
The Company leases a 430,000 square feet corporate headquarters facility,
which extends through April 2008. The facility is located in Las Colinas, a
planned business development in Irving, Texas, near the Dallas/ Fort Worth
International Airport. During the fiscal year 1999, the Company sold a 120,000
square foot warehouse in Dallas, Texas, leasing back approximately 60,000 square
feet of that warehouse. The Company leases a 32,000 square feet general office
facility in Toronto, Ontario Canada for Peoples, which extends through April
2001.
The Company leases a facility for the operations of JNB in Tempe, Arizona
(24,200 square feet).
10
<PAGE> 12
The Company also leases three credit service centers located in Clearwater,
Florida (30,000 square feet), San Juan, Puerto Rico (2,900 square feet) and one
national collections center located in San Marcos, Texas (9,000 square feet).
The Company rents most of its retail spaces under leases that generally
range from five to ten years and may contain minimum rent escalations. 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 store gross sales.
The following table indicates the expiration dates of the current terms of
the Company's leases as of July 31, 1999 (executed lease agreements, including
non-stores and unopened stores):
<TABLE>
<CAPTION>
PERCENTAGE
TERM EXPIRES STORES OTHER TOTAL OF TOTAL
- ------------ ------ ----- ----- ----------
<S> <C> <C> <C> <C>
2000 and prior...................................... 194 -- 194 14%
2001................................................ 148 1 149 11
2002................................................ 120 2 122 9
2003................................................ 67 1 68 4
2004 and thereafter................................. 863 2 865 62
----- -- ----- ---
Total number of leases.............................. 1,392 6 1,398 100%
===== == ===== ===
</TABLE>
Management believes substantially all of the store leases expiring in
fiscal year 2000 that it wishes to renew (including leases which expired earlier
and are on month-to-month extensions) will be renewed on terms not materially
less favorable to the Company than the terms of the expiring leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. The Company believes that such litigation and
claims, both individually and in the aggregate, 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, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following individuals serve as executive officers of the Company.
Officers are elected by the Board of Directors annually, each to serve until
their successor is elected and qualified, or until their earlier resignation,
removal from office or death.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert J. DiNicola........ 51 Chairman of the Board
Beryl B. Raff............. 48 President and Chief Executive Officer, Director
Alan P. Shor.............. 40 Executive Vice President and Chief Operating Officer
Sue E. Gove............... 41 Executive Vice President and Chief Financial Officer
Mary L. Forte............. 48 Executive Vice President and Chief Administrative
Officer
</TABLE>
The following is a brief description of the business experience of the
executive officers of the Company for at least the past five years.
Mr. Robert J. DiNicola relinquished his responsibilities as Chief Executive
Officer to Beryl B. Raff, the Company's President and Chief Operating Officer on
September 7, 1999. Mr. DiNicola continues to actively serve as Chairman of the
Board of Directors. Mr. DiNicola had served as Chairman of the Board and Chief
Executive Officer of the Company since April 18, 1994. For the three years prior
to joining the Company,
11
<PAGE> 13
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 17
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 during which he held a division officer
position with The May Department Stores Company, Inc.
Ms. Beryl B. Raff was appointed Chief Executive Officer and a member of the
Company's Board of Directors on September 7, 1999 while retaining her position
as President. From July 15, 1998 to September 7, 1999, Ms. Raff served as
President and Chief Operating Officer. From July 1997 to July 1998, she served
as Executive Vice President and Chief Operating Officer. From November 1994 to
July 1997, she served as President of Zales. 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 had 17 years of retailing and merchandising experience
with the Emporium and Macy's department stores.
Mr. Alan P. Shor was named Executive Vice President and Chief Operating
Officer on September 15, 1999 while retaining his position as Secretary. From
November 17, 1997 to September 15, 1999, Mr. Shor served as Executive Vice
President, Chief Logistics Officer, Secretary and General Counsel (he
relinquished the General Counsel position August 1, 1999). From May 1997 to
November 1997, Mr. Shor served as Executive Vice President and Chief
Administrative Officer, General Counsel and Secretary. From June 1995 to May
1997, Mr. Shor served 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.
Ms. Sue E. Gove was appointed Executive Vice President and Chief Financial
Officer on July 15, 1998. From December 1997 to July 1998, she served as Group
Vice President and Chief Financial Officer. From January 1996 to December 1997,
she served as Senior Vice President, Corporate Planning and Analysis. From
September 1996 through June 1997, Ms. Gove also served as Senior Vice President
and Treasurer, overseeing Investor Relations and the Treasury, Tax and Control
functions. Ms. Gove joined the Company in 1980 and served in numerous
assignments until her appointment to Vice President in 1989.
Ms. Mary L. Forte was appointed Executive Vice President and Chief
Administrative Officer on January 13, 1998. From July 1994 to January 1998, Ms.
Forte served as President of Gordon's. 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 of the Federated Department Store. 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 13 years of
retailing and merchandising experience with Macy's, The May Department Stores
Company, Inc. and Federated Department Stores.
12
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS' EQUITY
The Common Stock is listed on the New York Stock Exchange ("NYSE") under
the symbol ZLC. The following table sets forth the high and low sale prices for
the Common Stock for each fiscal quarter during the two most recent fiscal
years.
<TABLE>
<CAPTION>
1999 1998
------------- -------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First.......................................... $32 $19 1/2 $28 3/16 $21
Second......................................... 34 7/16 23 7/8 26 7/8 21 1/2
Third.......................................... 40 3/16 30 5/16 31 1/8 24 1/8
Fourth......................................... 44 5/8 34 1/2 34 1/8 28 3/8
</TABLE>
As of September 3, 1999, the outstanding shares of Common Stock were held
by approximately 1,126 holders of record. The Company has not paid dividends on
the Common Stock since the initial issuance on July 30, 1993, and does not
anticipate paying dividends on the Common Stock in the foreseeable future. In
addition, the Company's Short-term Borrowings and Long-term Debt limit the
Company's ability to pay dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
13
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is qualified in its entirety by the
Consolidated Financial Statements of the Company (and the related Notes thereto)
contained elsewhere in this Form 10-K and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The income statement and balance sheet data for each of the years
ended July 31, 1999, 1998, 1997, 1996 and 1995, have been derived from the
Company's audited Consolidated Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales........................ $1,428,868 $1,313,710 $1,253,818 $1,137,377 $1,036,149
Cost of sales.................... 737,188 681,908 643,318 576,764 524,010
---------- ---------- ---------- ---------- ----------
Gross margin..................... 691,680 631,802 610,500 560,613 512,139
Selling, general and
administrative expenses........ 502,279 475,846 480,522 457,371 434,101
Depreciation and amortization
expense........................ 29,478 22,565 14,022 7,538 381
Unusual items(a)................. -- (8,947) -- (4,486) --
---------- ---------- ---------- ---------- ----------
Operating earnings............... 159,923 142,338 115,956 100,190 77,657
Interest expense, net............ 30,488 32,039 36,098 30,102 29,837
---------- ---------- ---------- ---------- ----------
Earnings before income taxes,
extraordinary item............. 129,435 110,299 79,858 70,088 47,820
Income taxes..................... 48,503 41,362 29,305 25,094 16,350
---------- ---------- ---------- ---------- ----------
Earnings before extraordinary
items.......................... $ 80,932 $ 68,937 $ 50,553 $ 44,994 $ 31,470
========== ========== ========== ========== ==========
Net earnings................... $ 80,932 $ 68,937 $ 50,553 $ 43,898 $ 31,470
========== ========== ========== ========== ==========
Earnings per common share:
Basic:
Earnings before
extraordinary item........ $ 2.24 $ 1.96 $ 1.44 $ 1.28 $ .90
Net earnings................ $ 2.24 $ 1.96 $ 1.44 $ 1.25 $ .90
Diluted:
Earnings before
extraordinary item........ $ 2.21 $ 1.84 $ 1.38 $ 1.23 $ .88
Net earnings................ $ 2.21 $ 1.84 $ 1.38 $ 1.20 $ .88
Weighted average number of common
shares outstanding:
Basic.......................... 36,059 35,201 35,054 35,068 34,970
Diluted........................ 36,688 37,368 36,632 36,465 35,849
BALANCE SHEET DATA:
Working capital................ $ 556,886 $ 971,495 $ 877,130 $ 775,500 $ 781,802
Total assets................... 1,526,932 1,445,929 1,281,206 1,163,811 1,110,708
Total debt..................... 452,589 480,275 451,787 404,354 443,624
Total stockholders'
investment.................. 699,611 648,061 541,574 476,258 391,890
</TABLE>
- ------------------
(a) Unusual items consist of the gain on sale of Diamond Park Fine Jewelers of
($1.6 million) and a gain on sale of land of ($7.3 million) for the year
ended July 31, 1998, and reorganization recoveries of ($4.5 million) for
the year ended July 31, 1996.
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
With respect to forward looking statements made in this Management's
Discussion and Analysis of Financial Condition and Results of Operations see
"Business -- Cautionary Notice Regarding Forward Looking Statements."
RESULTS OF OPERATIONS
The following table sets forth certain financial information from the
Company's audited consolidated statements of operations expressed as a
percentage of net sales and should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net Sales................................................... 100.0% 100.0% 100.0%
Cost of Sales............................................... 51.6 51.9 51.3
----- ----- -----
Gross Margin................................................ 48.4 48.1 48.7
Selling, General and Administrative Expenses................ 35.2 36.2 38.3
Depreciation and Amortization Expense....................... 2.0 1.7 1.2
Unusual Item -- Gain on Sale of Diamond Park Fine
Jewelers.................................................. -- (0.1) --
Unusual Item -- Gain on Sale of Land........................ -- (0.5) --
----- ----- -----
Operating Earnings.......................................... 11.2 10.8 9.2
Interest Expense, Net....................................... 2.1 2.5 2.9
----- ----- -----
Earnings Before Income Taxes................................ 9.1 8.3 6.3
Income Taxes................................................ 3.4 3.1 2.3
----- ----- -----
Net Earnings................................................ 5.7% 5.2% 4.0%
===== ===== =====
</TABLE>
YEAR ENDED JULY 31, 1999 COMPARED TO YEAR ENDED JULY 31, 1998
Net Sales. Net Sales for the year ended July 31, 1999 increased by $115.2
million to $1.4 billion, a 8.8 percent increase compared to the previous year.
Excluding sales from Diamond Park Fine Jewelers which was divested in fiscal
year 1998, total sales for the year increased 10.9 percent. The sales increase
primarily resulted from a 6.0 percent increase in sales from stores open for
comparable periods, 64 new stores added during the year and two months of sales
for Peoples which was acquired in May 1999. These factors were partially offset
by 32 stores closed during the year. The Company believes that sales growth
continues to be influenced by the execution of its merchandising, marketing and
store operations strategies.
Gross Margin. Gross Margin as a percentage of net sales was 48.4 percent
for the year ended July 31, 1999 compared to 48.1 percent for the year ended
July 31, 1998, an increase of 0.3 percent. This increase was principally due to
more efficient purchasing, resulting in lower markdowns. The LIFO benefit was
$0.7 million and $2.5 million for the years ended July 31, 1999 and 1998.
Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses decreased to 35.2 percent of sales for the year ended
July 31, 1999 from 36.2 percent for the year ended July 31, 1998, or 1.0 percent
as a percentage of net sales. Store expenses as a percentage of sales decreased
by 1.0 percent principally due to productivity improvements relating to the
lowering of payroll costs as a percentage of sales. Net corporate expenses
decreased by 0.2 percent of net sales. This decrease in expense was partially
offset by Peoples, which had slightly higher store expenses as a percentage of
sales. The selling, general and administrative expense reduction demonstrates
the Company's ability to leverage its fixed store and corporate operating
expenses while increasing sales in its stores.
Earnings Before Interest, Taxes, Depreciation and Amortization
Expense. Earnings Before Interest, Taxes, Depreciation and Amortization Expense
were $189.4 million and $156.0 million for the years ended July 31, 1999 and
1998, respectively, an increase of 21.4 percent.
15
<PAGE> 17
Depreciation and Amortization Expense. Depreciation and Amortization
Expense increased by $6.9 million, primarily as a result of the purchase of new
assets, principally for new store openings, renovation and refurbishment and the
acquisition of Peoples. Due to fresh start reporting, the Company wrote-off
substantially all fixed assets of the Company effective July 31, 1993. As a
result, depreciation and amortization relates to capital expenditures since July
31, 1993.
Interest Expense, Net. Interest Expense, Net was $30.5 million and $32.0
million for the years ended July 31, 1999 and 1998, respectively. The decrease
is a result of higher interest income from investments due to an increase in net
monthly average cash and cash equivalents for fiscal year 1999 as compared to
fiscal year 1998.
Income Taxes. The income tax expense for the years ended July 31, 1999 and
1998 was $48.5 million and $41.4 million, respectively, reflecting an effective
tax rate of 37.5 percent for both years. The Company will realize a cash benefit
from utilization of tax net operating loss carryforwards ("NOL") (after annual
limitations) against current and future tax liabilities. As of July 31, 1999,
the Company had a remaining NOL (after limitations) of approximately $181
million.
YEAR ENDED JULY 31, 1998 COMPARED TO YEAR ENDED JULY 31, 1997
Net Sales. Net Sales for the year ended July 31, 1998 increased by $60.0
million to $1.3 billion, a 4.8 percent increase compared to the previous year.
The previous year included a full year of sales of the Company's Diamond Park
Fine Jewelers stores, which the Company divested in the first and second
quarters of fiscal year 1998. Excluding sales from Diamond Park Fine Jewelers,
total sales for the year increased 14.2 percent. The sales increase primarily
resulted from a 9.3 percent increase in sales from stores open for comparable
periods and 89 new stores added during the year, which were partially offset by
29 stores closed during the year. The Company believes that the sales growth was
influenced by enhanced merchandise assortments, successful product promotions
and strong store level execution.
Gross Margin. Gross Margin as a percentage of net sales was 48.1 percent
for the year ended July 31, 1998 compared to 48.7 percent for the year ended
July 31, 1997, a decrease of 0.6 percent. This decrease was primarily due to a
shift in the mix to more diamond solitaire merchandise and the Company's planned
competitive stance with regard to pricing in the current year. The LIFO
(benefit)/provision was ($2.5) million and $3.7 million for the years ended July
31, 1998 and 1997. The benefit in fiscal 1998 is partially a result of a
reduction in inventories during the current year.
Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses decreased to 36.2 percent of sales for the year ended
July 31, 1998 from 38.3 percent for the year ended July 31, 1997, or 2.1 percent
as a percentage of net sales. Store expenses as a percentage of sales decreased
by 1.9 percent principally due to productivity improvements and the divestiture
of the Diamond Park Operations which had significantly higher payroll and rent
costs as a percentage of sales. Corporate expenses decreased by 0.2 percent of
net sales principally as a result of lower costs for payroll. The Selling,
General and Administrative Expense reduction demonstrates the Company's ability
to leverage its fixed store and corporate operating expenses while increasing
sales in its stores.
Earnings Before Interest, Taxes, Depreciation and Amortization Expense, and
Unusual Items. Earnings Before Interest, Taxes, Depreciation and Amortization
Expense, and Unusual Items were $156.0 million and $130.0 million for the years
ended July 31, 1998 and 1997, respectively, an increase of 20.0 percent.
Depreciation and Amortization Expense. Depreciation and Amortization
Expense increased by $8.5 million, primarily as a result of the purchase of new
assets, principally for new store openings, renovation and refurbishment. Due to
fresh start reporting, the Company wrote-off substantially all fixed assets of
the Company effective July 31, 1993. As a result, depreciation and amortization
relates to capital expenditures since July 31, 1993.
Unusual Items -- Gain on Sale of Diamond Park Fine Jewelers and Gain on
Sale of Land. The Gain on Sale of Diamond Park Fine Jewelers was $1.6 million
and the Gain on the Sale of Land was $7.3 million for fiscal 1998.
16
<PAGE> 18
Interest Expense, Net. Interest Expense, Net was $32.0 million and $36.1
million for the years ended July 31, 1998 and 1997, respectively. The decrease
is a result of higher interest income from investments due to an increase in
cash and cash equivalents. The increase in cash and cash equivalents is
primarily due to an increase in net earnings and effective inventory management
resulting in the leveraging of accounts payable and accrued liabilities.
Income Taxes. The income tax expense for the years ended July 31, 1998 and
1997 was $41.4 million and $29.3 million, respectively, reflecting an effective
tax rate of 37.5 percent and 36.7 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 has not paid any significant income taxes through fiscal 1998. The
Company expects to begin paying more significant income taxes in fiscal 1999.
The Company will realize a cash benefit from utilization of tax net operating
loss carryforwards ("NOL") (after annual limitations) against current and future
tax liabilities. As of July 31, 1998, the Company had a remaining NOL (after
limitations) of approximately $250.8 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements consist principally of funding inventory
and receivables growth, capital expenditures primarily for new store growth and
renovations, upgrading its management information systems and debt service. As
of July 31, 1999, the Company had cash and cash equivalents of $35.4 million,
and $6.0 million of restricted cash. 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 39.7 percent of
the Company's annual sales were made during the three months ended January 31,
1999 and 1998, 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.
OPERATING ACTIVITIES
Set forth below is certain summary information with respect to the
Company's operations for the most recent eight fiscal quarters.
<TABLE>
<CAPTION>
FISCAL 1999 FISCAL 1998
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
------------------------------------------------ ------------------------------------------------
JULY 31, APRIL 30, JANUARY 31, OCTOBER 31, JULY 31, APRIL 30, JANUARY 31, OCTOBER 31,
1999 1999 1999 1998 1998 1998 1998 1997
-------- --------- ----------- ----------- -------- --------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................... $325,994 $280,736 $567,952 $254,186 $280,867 $258,300 $522,017 $252,526
Gross margin................ 157,441 136,028 276,122 122,089 134,980 124,458 251,441 120,923
Operating earnings.......... 21,879 17,793 109,920 10,331 19,471 10,491 102,556 9,820
Net earnings................ 8,542 6,267 63,960 2,163 7,451 1,503 58,937 1,046
</TABLE>
Net cash provided by operating activities was $74.3 million, $112.8 million
and $16.5 million for fiscal years 1999, 1998 and 1997 respectively. The net
cash provided by operating activities decreased from the prior year principally
due to the Company paying more taxes and to greater investment in inventory. In
fiscal 1998, the net cash provided by operating activities resulted principally
from an increase in net earnings and effective inventory management resulting in
the leveraging of accounts payable and accrued liabilities. In fiscal 1997, net
earnings, depreciation and amortization charges and the non-cash change in lieu
of tax expense were offset by additional working capital needs for accounts
receivable and inventory growth.
Net cash used in investing activities was $154.3 million in fiscal 1999
principally related to the acquisition of Peoples, as well as expenditures for
new store growth and expenditures for remodeling existing stores. Net cash
provided by investing activities was $12.5 million in fiscal 1998, primarily
related to proceeds from the sale of Diamond Park Fine Jewelers and proceeds
from the sale of land offsetting capital expenditures for new store growth and
existing store remodeling and refurbishment. Net cash used in investing
activities was $49.1 million in fiscal 1997 principally related to capital
expenditures for new store growth and existing store remodeling and
refurbishment.
17
<PAGE> 19
Net cash used in financing activities was $57.8 million in fiscal 1999,
principally related to the refinancing and reduction of the Zale Funding Trust
Securitization and repurchase of the Company's common stock on the open market.
Net cash provided by financing activities for fiscal 1998 and fiscal 1997 was
$15.2 million and $46.8 million, respectively. In fiscal 1998, the net cash
provided by financing activities resulted principally from the issuance of the
Senior Notes and proceeds from exercise of stock options and warrants, offset by
the repayment of the Revolving Credit Agreement and purchase of Treasury Stock.
Net cash provided by financing activities for fiscal 1997 is primarily related
to borrowings under the Revolving Credit Agreement.
There has been an increase of approximately $93 million in owned
merchandise inventories at July 31, 1999 compared to the balance at July 31,
1998. This increase resulted principally from new store growth, the acquisition
of Peoples and a broader assortment of merchandise at Bailey Banks and Biddle.
FINANCE ARRANGEMENTS
- - On July 15, 1999, the Company redeemed approximately $380.8 million, net of
discount, aggregate principal amount of Receivables Backed Notes ("Receivables
Notes") issued by Zale Funding Trust ("ZFT"), a limited purpose Delaware
business trust wholly owned by Zale Delaware, Inc. ("ZDel"), and formed to
finance customer accounts receivable. The Receivables Notes were redeemed with
available cash and proceeds of advances under the Company's Revolving Credit
Agreement and through the issuance of Variable Funding Notes ("Variable Notes")
to a purchaser group under a new securitization facility in the initial
aggregate principal amount of $250 million. The Variable Notes are part of a
364-day liquidity facility and are secured by a lien on customer accounts
receivable. The Variable Notes currently bear interest at the market commercial
paper rate plus a dealer fee of 0.05 percent. In addition, the Company pays a
fee of 0.375 percent per annum on the funded portion of the facility and a
commitment fee of 0.25 percent per annum on the unfunded portion. As of July 31,
1999, the entire $250 million facility is classified as a Short-term Borrowing
since it matures within the next twelve months.
As originally entered into, the facility required the Company to reduce the
outstanding amount of the Variable Notes to $150 million no later than October
15, 1999. On September 15, 1999, the Company entered into an amendment to the
new securitization facility to reduce the commitment of the original Variable
Note purchaser group to $150 million and to add two new note purchaser groups
having an aggregate commitment of $200 million, thereby increasing the total
outstanding amount under the Variable Notes facility to $350 million on terms
consistent with the original facility. Additionally the Company paid down the
approximate $103 million balance under the Revolving Credit Agreement. The
Company expects to refinance the Variable Notes on or before their maturity date
with a new transaction or, with the consent of the note purchaser groups, to
extend the maturity of the outstanding Variable Notes.
- - In order to support the Company's growth plans, the Company and ZDel (the
"Borrowers") entered into a three year unsecured revolving credit agreement (the
"Revolving Credit Agreement") with a group of banks on March 31, 1997. The
Revolving Credit Agreement provides for revolving credit loans in an aggregate
amount of up to $225.0 million, including a $30.0 million sublimit for letters
of credit.
The revolving credit loans bear interest at floating rates, currently, at
the Borrowers' option of either (i) the Eurodollar Rate plus 1.25 percent or
(ii) the higher of the annual rate of interest announced from time to time by
the agent bank as its base rate or the Federal Funds Effective Rate plus 0.5
percent. The interest rate based on Eurodollar Rates and letter of credit
commission rates can be reduced or increased based on certain future performance
levels attained by the Borrowers. The Company pays a commitment fee of 0.25
percent per annum (subject to reduction or increase based on future performance)
on the preceding month's unused Revolving Credit Agreement commitment. The
Borrowers may repay the revolving credit loans at any time without penalty prior
to the maturity date. The interest rates and commitment fee will also be reduced
if the Company obtains an investment grade rating. The Revolving Credit
Agreement may be extended by the Borrowers for one year upon obtaining
appropriate consent. At July 31, 1999, approximately $103 million was
outstanding under the Revolving Credit Agreement with a Eurodollar Rate of 6.4
percent. In addition, letters of credit in the amount of approximately $0.6
million were outstanding at July 31, 1999. The Company is currently in
compliance with all of its covenant obligations under the Revolving Credit
Agreement
18
<PAGE> 20
and the instruments governing its other indebtedness. The Company expects to
enter into a new transaction to replace the Revolving Credit Agreement on or
before the maturity date.
- - In order to support the Company's longer term capital financing requirements,
the Company issued $100 million of Senior Notes (the "Senior Notes") on
September 23, 1997. These notes bear interest at 8 1/2 percent and are due in
2007. The Senior Notes are unsecured and are fully and unconditionally
guaranteed by ZDel. The proceeds were utilized to repay indebtedness under the
Company's Revolving Credit Agreement and for general corporate purposes. The
indenture relating to the Senior Notes contains certain restrictive covenants
including but not limited to limitations on indebtedness, limitations on
dividends and other restricted payments (including repurchases of the Company's
common stock), limitations on transactions with affiliates, limitations on liens
and limitations on disposition of proceeds of asset sales, among others.
CAPITAL GROWTH
During the year ended July 31, 1999, the Company made approximately $60
million in capital expenditures, a portion of which was used to open 64 new
stores. Under its continued growth strategy, the Company plans to open
approximately 165 new stores for which it will incur approximately $40 million
in capital expenditures during the combined fiscal years 2000 and 2001. These
stores are expected to solidify the Company's core mall business by further
penetrating markets where the Company is underrepresented. During the combined
fiscal years 2000 and 2001, the Company anticipates spending approximately $45
million to remodel, relocate or refurbish approximately 200 additional stores.
The Company also estimates it will make capital expenditures of approximately
$21 million during the combined fiscal years 2000 and 2001 for enhancements to
its management information systems. In total, the Company anticipates spending
approximately $132 million on capital expenditures during the combined fiscal
years 2000 and 2001. The Revolving Credit Agreement limits the Company's capital
expenditures to $75 million for fiscal year 2000.
OTHER ACTIVITIES AFFECTING LIQUIDITY
- - Effective May 23, 1999, the Company acquired substantially all assets of
Peoples Jewellers Corporation, a privately owned chain consisting principally of
176 fine jewelry stores operating throughout Canada, for approximately $78
million cash and the assumption of certain liabilities.
- - During September 1999, the Board of Director's authorized a stock repurchase
program pursuant to which the Company, from time to time and at management's
discretion, may purchase up to an aggregate of $50 million of the Company's
common stock on the open market through fiscal year 2000. In June 1999, the
Company completed the $50 million repurchase plan authorized on August 25, 1998.
- - The Company has an operations services agreement for credit operations with a
third-party servicer. The agreement, dated May 5, 1998, requires minimum annual
payments based on credit activities. The Company has a commitment of
approximately $15.2 million to be paid over the initial term of seven years.
Additional annual payments will be paid based on credit volume for normal credit
processing activities.
- - The Company has an operations services agreement for management information
systems with a third-party servicer. The agreement, which began in December
1996, requires fixed payments totaling $34.4 million over a 60 month term and a
variable amount based on usage.
- - Future liquidity will be enhanced to the extent that the Company is able to
realize the cash benefit from utilization of its NOL against current and future
tax liabilities. The cash benefit realized in fiscal year 1999 was approximately
$13 million. As of July 31, 1999, the Company had a NOL (after limitations) of
approximately $181 million, which represents up to $72 million in future tax
benefits. The utilization of this asset is subject to limitations. The most
restrictive is the Internal Revenue Code Section 382 annual limitation. The NOL
can be utilized through 2008.
Management believes that operating cash flow, amounts available under the
Revolving Credit Agreement, the extension or replacement of the Revolving Credit
Agreement, the Variable Notes and a refinancing of the Variable Notes (or an
extension of the maturity of the outstanding Variable Notes) should
19
<PAGE> 21
be sufficient to fund the Company's current operations, debt service and
currently anticipated capital expenditure requirements for the foreseeable
future.
YEAR 2000
The Company's management has recognized the need to ensure, to the extent
possible, that its operations and relationships with vendors and other third
parties will not be adversely impacted by software processing errors arising
from calculations using the year 2000 and beyond ("Year 2000"). Like those of
many companies, a significant number of the Company's computer applications and
systems required modification in order to render these systems Year 2000
compliant. The Company recognized that failure by the Company to timely resolve
internal Year 2000 issues could result, in the worst case, in an inability of
the Company to distribute its merchandise to its stores and to process its daily
business for some period of time. However, Company management presently believes
that scenario is unlikely based on the accomplishment of its Year 2000
remediation plan. Failure of one or more third party service providers on whom
the Company relies to address Year 2000 issues could also result, in a worst
case scenario, in some business interruption. However, to the extent possible,
the Company has undertaken to ensure that its most critical vendors and service
providers will be able to serve the Company without interruption. The lost
revenues, if any, resulting from a worst case scenario such as those examples
described above would depend on the time period in which the failure goes
uncorrected and on how widespread the impact.
Zale has used a combination of internal and external resources to assess
and make the needed changes to its many different information technology ("IT")
systems and personal computers, such as credit, point of sale, payroll, purchase
ordering, merchandise distribution, management reporting, mainframe, and client/
server applications. In 1997 the Company launched a formal project using an
industry standard process to address the Year 2000 problem. The process involved
seven steps: 1) create awareness, 2) assess/inventory, 3) devise strategy/action
plan, 4) replace/modify/outsource, 5) test/certify, 6) install and 7) provide
post implementation support. The specialized software programs and hardware used
throughout the corporation are now in the seventh phase of the process and will
remain there until after the transition to Calendar Year 2000. Non-compliant
programs and systems have been replaced, modified or outsourced, including
credit processing, Store POS systems, inventory systems, distribution center
systems, the EDI system, financial systems, HR systems, and Data Audit. The
period from August 1, 1999 through December 31, 1999 will be used to perform
additional testing, address exceptions and respond to issues, contingencies
and/or third party concerns. Progress reports on the Year 2000 project are
presented regularly to the Company's Board of Directors and senior management.
With regard to non-IT systems, such as the General Office security systems,
store security systems, environmental systems, and phone systems, the Company
has remediated or replaced noncompliant systems.
Since June 1998, the Company has sent approximately 3,500 inquiries to its
vendors requesting compliance certification. The Company has collected responses
to those inquiries. It continues to follow-up with those material vendors who
either did not respond or whose response was insufficient. The Company has made
and will continue to make site visits to critical vendors' facilities as
appropriate. The Company outsources its MIS processing and credit processing and
inquiry systems. These outsourcers have contractually committed to Year 2000
compliance, and the Company is monitoring their progress in that regard. The
Company's primary delivery service has provided assurance that its systems will
function correctly through the date change. The Company's payroll processing
service provider has indicated that its major systems will operate with correct
date logic for Year 2000. The Company's major benefits vendors and service
providers have indicated they are or will be Year 2000 compliant, as have most
of the Company's major merchandise vendors.
Direct expenditures were approximately $1.7 million and internal costs were
approximately $0.5 million, for a total cost of $2.2 million in expenditures
associated with the Year 2000 in fiscal year 1998. Direct costs of $3.5 million
and internal costs of $0.9 million, for a total cost of $4.4 million, were
expended in fiscal year 1999. The Company has funded and will continue to fund
these expenditures through its normal IT operations budget. As required by
generally accepted accounting principles, these costs are expensed as incurred.
The
20
<PAGE> 22
Company is currently addressing the financial needs associated with the Year
2000 for fiscal year 2000, which began August 1, 1999, and expects these costs
to be approximately $0.75 million.
The Company has had each of its departments develop basic contingency plans
to restore material functions in the case of a Year 2000 failure. The
contingency plans cover critical functions within each business location,
including the stores, the General Office, the credit centers and third party
service providers. The Company will continue to refine these plans, test them as
possible, and make them more comprehensive as more information becomes available
from testing and from third party suppliers. In addition, the Company's two
processing outsourcers also have contingency plans for the Company's processing
should their primary systems fail.
Additionally, in the normal course of business, the Company has made
capital investments in certain third party software and hardware systems to
address the financial and operational needs of the business. These systems,
which will improve the efficiencies and productivity of the replaced systems,
have also been certified Year 2000 compliant by either the vendor or the
Company. To date all of these capital projects were part of the Company's
long-term strategic capital plan and their timing has not been accelerated as a
result of the Year 2000 issue.
Prior to the acquisition of its assets by the Company, Peoples had launched
a Year 2000 compliance initiative that included replacement of its core
merchandising, accounting and distribution systems, inspection and upgrades of
POS devices, and validation of the Year 2000 compliance of its vendors,
suppliers and service providers. That initiative has been continued by Zale, and
its review indicates that Peoples will meet its Year 2000 goals in a timely
manner. Testing and documentation will continue during the third calendar
quarter to minimize any Year 2000 exposure. The fourth calendar quarter will be
spent mitigating any material risks discovered during the third quarter.
Management does not expect any Year 2000 issues within Peoples to be material to
the Company.
Although there can be no assurance that unanticipated events will not
occur, or that the Company has identified all Year 2000 issues, it is
management's belief that the Company has taken and continues to take adequate
action to address Year 2000 issues. Management does not expect the financial
impact of being Year 2000 compliant to be material to the Company's consolidated
financial position, results of operations or cash flows.
INFLATION
In management's opinion, changes in net sales and net earnings that have
resulted from inflation and changing prices have not been material during the
periods presented. There is no assurance, however, that inflation will not
materially affect the Company in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates which
may adversely affect its financial position, results of operations and cash
flows. In seeking to minimize the risks from interest rate fluctuations, the
Company manages exposures through its regular operating and financing
activities. The Company does not use financial instruments for trading or other
speculative purposes and is not party to any leveraged financial instruments.
The Company is exposed to interest rate risk primarily through its
borrowing activities, which are described under "Short-term Borrowings" and
"Long-term Debt" in the Notes to the Consolidated Financial Statements. The
majority of the Company's borrowings are under variable rate arrangements. See
"Short-term Borrowings" and "Long-term Debt" Notes to the Consolidated Financial
Statements, which are incorporated herein by reference.
The investments of the Company's insurance subsidiaries, primarily stocks
and bonds in the amount of $27.7 million, approximate market value at July 31,
1999.
21
<PAGE> 23
Based on the Company's market risk sensitive instruments (including
variable rate debt) outstanding at July 31, 1999, the Company has determined
that there was no material market risk exposure to the Company's consolidated
financial position, results of operations or cash flows as of such date.
Due to its Canadian operations, the Company is exposed to market risk from
currency exchange rate exposure which may adversely affect the Company's
financial position, results of operations and cash flows. In seeking to minimize
this risk, the Company manages exposures through its regular operating and
financing activities. Based on the Company's market risk from currency exchange
rate exposure at July 31, 1999, the Company believes that there was no material
market risk exposure to the Company's consolidated financial position, results
of operations or cash flows on such date.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of the Company and
supplementary data are included as pages F-1 through F-31 at the end of this
Annual Report on Form 10-K:
<TABLE>
<CAPTION>
PAGE
INDEX NUMBER
----- ------
<S> <C>
Management's Report......................................... F-2
Report of Independent Public Accountants.................... F-3
Consolidated Statements of Operations....................... F-4
Consolidated Balance Sheets................................. F-5
Consolidated Statements of Cash Flows....................... F-6
Consolidated Statements of Stockholders' Investment......... F-7
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required to be included in Part III of this Annual Report
on Form 10-K is incorporated by reference to the Company's Proxy Statement for
the 1999 Annual Meeting of Stockholders.
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:
The list of financial statements required by this item is set forth in Item
8.
2. INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Independent Public Accountants.................... 26
Schedule II -- Valuation and Qualifying Accounts............ 27
</TABLE>
22
<PAGE> 24
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>
<C> <S>
2.1 -- Purchase of Assets Agreement, dated June 2, 1999, between
Zale Canada Co. and Peoples Jewellers Corporation.(11)
3.1 -- Restated Certificate of Incorporation of Zale
Corporation, dated July 30, 1993.(1)
3.2 -- Amended Bylaws of Zale Corporation, dated November 1,
1996.(5)
4.1 -- Revolving Credit Agreement dated March 31, 1997 among
Zale Corporation and Zale Delaware, Inc. and The First
National Bank of Boston, as agent for the lenders
identified therein. The Schedules attached to the
Agreement, as identified in the list of Schedules filed
as a part of this exhibit, are omitted from this filing,
but will be provided supplementally to the Commission
upon request.(5)
4.2 -- Indenture, dated September 30, 1997, by and among Zale
Corporation, Zale Delaware, Inc. and Bank One, N.A. as
Trustee.(7)
4.3 -- Indenture, dated as of July 15, 1999, between Zale
Funding Trust as Issuer and The Bank of New York as
Indenture Trustee and Securities Intermediary.(11)
4.4 -- Series 1999 -- A Indenture Supplement, dated as of July
15, 1999, between Zale Funding Trust as Issuer and The
Bank of New York as Indenture Trustee and Securities
Intermediary.(11)
4.5 -- Purchase and Servicing Agreement, dated as of July 15,
1999, among Zale Funding Trust, Zale Delaware, Inc. and
Jewelers National Bank.(11)
*10.1 -- Class A Note Purchase Agreement, dated as of July 15,
1999, among Zale Funding Trust (Issuer), Zale Delaware,
Inc. (Seller), Jewelers National Bank (Servicer), The
Class A Purchasers Parties Thereto, Credit Suisse First
Boston, New York Branch (Administrative Agent and Agent)
and Other Agents Parties Thereto.(11)
10.2 -- Indemnification agreement, dated as of July 21, 1993,
between Zale Corporation and certain present and former
directors thereof.(3)
*10.3 -- Zale Corporation Stock Option Plan.(1)
*10.4 -- The Executive Severance Plan for Zale Corporation and Its
Affiliates, as amended and restated as of February 10,
1994.(2)
*10.4a -- Amendment to The Executive Severance Plan for Zale
Corporation and Its Affiliates effective May 20, 1995.(4)
*10.5 -- Settlement Agreement, dated as of November 30, 1997,
between Zale Corporation and Louis J. Grabowsky.(8)
10.6 -- Lease Agreement Between Principal Mutual Life Insurance
Company, As Landlord, and Zale Corporation, as Debtor and
Debtor-In-Possession, As Tenant, dated as of September
17, 1992.(4)
10.6a -- First Lease Amendment and Agreement between Principal
Mutual Life Insurance Company and Zale Delaware, Inc.,
dated as of February 1, 1996.(4)
10.7 -- Indemnification Agreement, executed on October 30, 1996,
and dated as of June 6, 1996, between Zale Corporation
and Andrea Jung.(5)
*10.8 -- Form Change of Control Agreement dated as of October 30,
1996, but executed thereafter, between Zale Corporation
and Key Employees.(6)
10.8a -- Modified list of parties to Change of Control
Agreement.(9)
10.9 -- Asset Purchase Agreement, dated September 3, 1997, by and
among Finlay Enterprises, Inc., Finlay Fine Jewelry
Corporation, Zale Corporation and Zale Delaware, Inc.(9)
</TABLE>
23
<PAGE> 25
<TABLE>
<C> <S>
10.10 -- Seller Restrictive Covenant Agreement, dated as of June 2, 1999, between Peoples
Jewellers Corporation, Zale Canada Co. and Zale Corporation.(11)
*10.11 -- Amended and Restated Employment Agreement, dated September 7, 1999, between Zale
Corporation and Robert J. DiNicola.(11)
*10.12 -- Employment Agreement, dated as of August 1, 1998, between Zale Corporation and Beryl B.
Raff. (9)
*10.13 -- Employment Agreement, dated as of August 1, 1998, between Zale Corporation and Alan P.
Shor. (9)
*10.14 -- Employment Agreement, dated as of January 15, 1998 between Zale Corporation and Mary L.
Forte. (9)
*10.15 -- Employment Agreement, dated as of August 1, 1998, between Zale Corporation and Sue E.
Gove. (9)
*10.16 -- Amendment to Employment Agreement, dated as of October 8, 1998, between Zale
Corporation and Beryl B. Raff. (10)
*10.17 -- Amendment to Employment Agreement, dated as of October 8, 1998, between Zale
Corporation and Alan P. Shor. (10)
*10.18 -- Amendment to Employment Agreement, dated as of October 8, 1998, between Zale
Corporation and Mary L. Forte. (10)
*10.19 -- Amendment to Employment Agreement, dated as of October 8, 1998, between Zale
Corporation and Sue E. Gove. (10)
21 -- Subsidiaries of the registrant. (11)
23 -- Consent of Independent Public Accountants.(11)
27 -- Financial data schedule.(11)
</TABLE>
- ---------------
(1) 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.
(2) Incorporated by reference to the corresponding exhibit to the registrant's
Registration Statement on Form S-1 (No. 33-73310) filed with the
Commission on December 23, 1993, as amended.
(3) Previously filed as an exhibit to the registrant's Form 10-K (No. 0-21526)
for the fiscal year ended July 31, 1995, and incorporated herein by
reference.
(4) Previously filed as an exhibit to the registrant's Form 10-K (No. 0-21526)
for the fiscal year ended July 31, 1996, and incorporated herein by
reference.
(5) Previously filed as an exhibit to the registrant's Form 10-Q for the
quarterly period ended October 31, 1996, and incorporated herein by
reference.
(6) Previously filed as an exhibit to the registrant's Form 10-Q for the
quarterly period ended January 31, 1997, and incorporated herein by
reference.
(7) Previously filed as an exhibit to the registrants' Form 10-K (No. 0-21526)
for the fiscal year ended July 31, 1997, and incorporated herein by
reference.
(8) Incorporated by reference to Exhibit 4.1 to the registrant's Registration
Statement on Form S-4 (No. 33-39473) filed with the Commission on November
4, 1997.
(9) Previously filed as an exhibit to the registrant's Form 10-K (No. 1-04129)
for the fiscal year ended July 31, 1998, and incorporated herein by
reference.
(10) Previously filed as an exhibit to the registrant's Form 10-Q for the
quarterly period ended October 31, 1998, and incorporated herein by
reference.
(11) Filed herewith.
* Management Contracts and Compensatory Plans.
4. REPORTS ON FORM 8-K
99 Press Release issued by the Company on June 3, 1999.
24
<PAGE> 26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Report......................................... F-2
Report of Independent Public Accountants.................... F-3
Consolidated Statements of Operations....................... F-4
Consolidated Balance Sheets................................. F-5
Consolidated Statements of Cash Flows....................... F-6
Consolidated Statements of Stockholders' Investment......... F-7
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
F-1
<PAGE> 27
MANAGEMENT'S REPORT
To the Stockholders of Zale Corporation:
The integrity and consistency of the consolidated financial statements 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 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 consolidated financial statements of the Company have been audited by
Arthur Andersen LLP, independent public accountants. Their report expresses
their opinion as to the fair presentation, in all material respects, of the
financial statements and is 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 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.
<TABLE>
<S> <C> <C>
Robert J. DiNicola Beryl B. Raff Sue E. Gove
Chairman of the Board President and Executive Vice President and
Chief Executive Officer, Chief Financial Officer
Director
</TABLE>
F-2
<PAGE> 28
REPORT 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 as of July 31, 1999 and
1998, and the related consolidated statements of operations, cash flows, and
stockholders' investment for each of the three years in the period ended July
31, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Zale
Corporation and subsidiaries as of July 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended July 31, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
September 1, 1999
(except with respect to the matter discussed
in the Subsequent Event footnote, as to which
the date is September 15, 1999)
F-3
<PAGE> 29
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales................................................ $1,428,868 $1,313,710 $1,253,818
Cost of Sales............................................ 737,188 681,908 643,318
---------- ---------- ----------
Gross Margin............................................. 691,680 631,802 610,500
Selling, General and Administrative Expenses............. 502,279 475,846 480,522
Depreciation and Amortization Expense.................... 29,478 22,565 14,022
Unusual Item -- Gain on Sale of Diamond Park Fine
Jewelers............................................... -- (1,634) --
Unusual Item -- Gain on Sale of Land..................... -- (7,313) --
---------- ---------- ----------
Operating Earnings....................................... 159,923 142,338 115,956
Interest Expense, Net.................................... 30,488 32,039 36,098
---------- ---------- ----------
Earnings Before Income Taxes............................. 129,435 110,299 79,858
Income Taxes............................................. 48,503 41,362 29,305
---------- ---------- ----------
Net Earnings............................................. $ 80,932 $ 68,937 $ 50,553
========== ========== ==========
Earnings Per Common Share:
Basic.................................................. $ 2.24 $ 1.96 $ 1.44
Diluted................................................ $ 2.21 $ 1.84 $ 1.38
Weighted Average Number of Common Shares and Common Share
Equivalents Outstanding:
Basic.................................................. 36,059 35,201 35,054
Diluted................................................ 36,688 37,368 36,632
</TABLE>
See Notes to the Consolidated Financial Statements.
F-4
<PAGE> 30
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1999 1998
---------- ----------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents................................. $ 35,403 $ 173,069
Restricted Cash........................................... 6,029 6,192
Customer Receivables, Net................................. 510,714 495,468
Merchandise Inventories................................... 571,669 478,467
Other Current Assets...................................... 36,827 26,720
---------- ----------
Total Current Assets........................................ 1,160,642 1,179,916
Property and Equipment, Net................................. 203,841 162,884
Other Assets................................................ 99,654 44,326
Deferred Tax Asset, Net..................................... 62,795 58,803
---------- ----------
Total Assets................................................ $1,526,932 $1,445,929
========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Short-term Borrowings..................................... $ 353,000 $ --
Accounts Payable and Accrued Liabilities.................. 237,392 187,621
Deferred Tax Liability, Net............................... 13,364 20,800
---------- ----------
Total Current Liabilities................................... 603,756 208,421
Non-current Liabilities..................................... 70,892 50,190
Long-term Debt.............................................. 99,589 480,275
Excess of Revalued Net Assets Over Stockholders' Investment,
Net....................................................... 53,084 58,982
Commitments and Contingencies
Stockholders' Investment:
Preferred Stock........................................... -- --
Common Stock.............................................. 392 380
Additional Paid-In Capital................................ 504,300 477,657
Accumulated Other Comprehensive Income.................... 376 2,851
Accumulated Earnings...................................... 292,273 211,341
Deferred Compensation..................................... (5,005) --
---------- ----------
792,336 692,229
Treasury Stock............................................ (92,725) (44,168)
---------- ----------
Total Stockholders' Investment.............................. 699,611 648,061
---------- ----------
Total Liabilities and Stockholders' Investment.............. $1,526,932 $1,445,929
========== ==========
</TABLE>
See Notes to the Consolidated Financial Statements.
F-5
<PAGE> 31
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31,
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................... $ 80,932 $ 68,937 $ 50,553
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization expense.................... 31,252 23,689 16,290
Amortization of deferred compensation.................... 709 -- --
Deferred taxes and utilization of NOL operating losses... 7,633 34,544 28,697
Unusual Item -- Gain on Sale of Diamond Park Fine
Jewelers.............................................. -- (1,634) --
Unusual Item -- Gain on Sale of Land..................... -- (7,313) --
Changes in assets and liabilities, net of Peoples Jewellers
acquisition:
Restricted cash.......................................... 163 2,821 22,497
Customer receivables, net................................ (15,223) (41,198) (34,393)
Merchandise inventories.................................. (57,976) (19,277) (53,840)
Other current assets..................................... (7,966) 12,551 (13,736)
Other assets............................................. 367 122 1,467
Accounts payable and accrued liabilities................. 34,628 45,144 (490)
Non-current liabilities.................................. (173) (5,613) (580)
--------- --------- -----------
Net Cash Provided by Operating Activities.................. 74,346 112,773 16,465
--------- --------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........................ (59,538) (63,497) (54,025)
Dispositions of property and equipment..................... 1,941 649 4,887
Acquisition of Peoples Jewellers, net of cash acquired..... (96,662) -- --
Proceeds from Sale of Diamond Park Fine Jewelers........... -- 62,443 --
Proceeds from Sale of Land................................. -- 12,911 --
--------- --------- -----------
Net Cash (Used in) Provided by Investing Activities........ (154,259) 12,506 (49,138)
--------- --------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short term borrowings...................... 250,000 -- --
(Payments on) proceeds from long-term debt................. -- (410) 291
Payments on receivables securitization facility............ (380,760) -- --
Payments on revolving credit agreement..................... (3,500) (192,900) (1,027,700)
Borrowings under revolving credit agreement................ 106,500 122,200 1,074,800
Net proceeds from issuance on senior notes................. -- 99,530 --
Debt issue and capitalized financing costs................. (1,094) (2,621) (945)
Proceeds from exercise of stock options.................... 21,044 9,198 1,073
Proceeds from exercise of warrants......................... -- 20,170 --
Purchase of common stock................................... (49,943) (40,000) (759)
--------- --------- -----------
Net Cash (Used in) Provided by Financing Activities........ (57,753) 15,167 46,760
--------- --------- -----------
Net (Decrease) Increase in Cash and Cash Equivalents....... (137,666) 140,446 14,087
Cash and Cash Equivalents at Beginning of Period........... 173,069 32,623 18,536
--------- --------- -----------
Cash and Cash Equivalents at End of Period................. $ 35,403 $ 173,069 $ 32,623
========= ========= ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................ $ 35,956 $ 35,853 $ 34,914
Interest received........................................ $ 7,289 $ 7,776 $ 936
Income taxes paid (net of refunds received).............. $ 39,403 $ 1,741 $ 3,431
</TABLE>
See Notes to the Consolidated Financial Statements.
F-6
<PAGE> 32
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
NUMBER OF ADDITIONAL OTHER
COMMON SHARES COMMON PAID-IN COMPREHENSIVE
OUTSTANDING STOCK CAPITAL INCOME
------------- ------ ---------- -------------
<S> <C> <C> <C> <C>
Balance July 31, 1996........................ 35,199 $352 $383,042 $1,013
Net Earnings................................. -- -- -- --
Unrealized Gain on Securities, net........... -- -- -- 1,169
Reduction of Tax Valuation Allowance......... -- -- 13,280 --
Exercise of Stock Options.................... 113 1 1,072 --
Recoveries and Purchase of Common Stock...... (290) (3) 3,727 --
------ ---- -------- ------
Balance, July 31, 1997....................... 35,022 350 401,121 2,182
====== ==== ======== ======
Net Earnings................................. -- -- -- --
Unrealized Gain on Securities, net........... -- -- -- 669
Reduction of Tax Valuation Allowance......... -- -- 46,572 --
Exercise of Stock Options.................... 768 11 9,187 --
Exercise of Warrants......................... 1,945 19 20,151 --
Purchase of Common Stock..................... (1,365) -- -- --
Recoveries of Common Stock................... (5) -- 166 --
Contribution to 401(k) plan.................. 35 -- 460 --
------ ---- -------- ------
Balance, July 31, 1998....................... 36,400 380 477,657 2,851
====== ==== ======== ======
Net Earnings................................. -- -- -- --
Unrealized Loss on Securities, net........... -- -- -- (285)
Cumulative Translation Adjustments........... -- -- -- (2,190)
Exercise of Stock Options, including tax
benefit.................................... 1,019 10 21,034 --
Purchase of Common Stock..................... (1,669) -- -- --
Contribution to 401(k) plan.................. 52 -- (104) --
Restricted Stock Awards...................... 181 2 5,713 --
Deferred Compensation Amortization........... -- -- -- --
------ ---- -------- ------
Balance July 31, 1999........................ 35,983 $392 $504,300 $ 376
====== ==== ======== ======
</TABLE>
See Notes to the Consolidated Financial Statements.
F-7
<PAGE> 33
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT -- (CONTINUED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED DEFERRED TREASURY TOTAL COMPREHENSIVE
EARNINGS COMPENSATION STOCK INVESTMENT INCOME
----------- ------------ -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance July 31, 1996............. $ 91,851 $ -- $ -- $476,258 $ --
Net Earnings...................... 50,553 -- -- 50,553 50,553
Unrealized Gain on Securities,
net............................. -- -- -- 1,169 1,169
Reduction of Tax Valuation
Allowance....................... -- -- -- 13,280 --
Exercise of Stock Options......... -- -- -- 1,073 --
Recoveries and Purchase of Common
Stock........................... -- -- (4,483) (759) --
-------- ------- -------- -------- -------
Balance, July 31, 1997............ 142,404 -- (4,483) 541,574 51,722
======== ======= ======== ======== =======
Net Earnings...................... 68,937 -- -- 68,937 68,937
Unrealized Gain on Securities,
net............................. -- -- -- 669 669
Reduction of Tax Valuation
Allowance....................... -- -- -- 46,572 --
Exercise of Stock Options......... -- -- -- 9,198 --
Exercise of Warrants.............. -- -- -- 20,170 --
Purchase of Common Stock.......... -- -- (40,000) (40,000) --
Recoveries of Common Stock........ -- -- (166) -- --
Contribution to 401(k) plan....... -- -- 481 941 --
-------- ------- -------- -------- -------
Balance, July 31, 1998............ 211,341 -- (44,168) 648,061 69,606
======== ======= ======== ======== =======
Net Earnings...................... 80,932 -- -- 80,932 80,932
Unrealized Gain on Securities,
net............................. -- -- -- (285) (285)
Cumulative Translation
Adjustments..................... -- -- -- (2,190) (2,190)
Exercise of Stock Options,
including tax benefit........... -- -- -- 21,044 --
Purchase of Common Stock.......... -- -- (49,943) (49,943) --
Contribution to 401(k) plan....... -- -- 1,386 1,282 --
Restricted Stock Awards........... -- (5,715) -- -- --
Deferred Compensation
Amortization.................... -- 710 -- 710 --
-------- ------- -------- -------- -------
Balance July 31, 1999............. $292,273 $(5,005) $(92,725) $699,611 $78,457
======== ======= ======== ======== =======
</TABLE>
See Notes to the Consolidated Financial Statements.
F-8
<PAGE> 34
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS include the accounts of
Zale Corporation and its wholly-owned subsidiaries (the "Company" or "Zale").
The Company consolidates substantially all its U.S. operations into Zale
Delaware, Inc. ("ZDel"). ZDel is the parent company for several subsidiaries,
including three that are engaged primarily in providing credit insurance to
credit customers of the Company. The Company consolidates its Canadian retail
operations (see Acquisition of Peoples Jewellers) into Zale International, Inc.,
which is a wholly owned subsidiary of Zale Corporation. All significant
intercompany transactions have been eliminated.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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, 1999, $6.0 million was
restricted primarily by the capital requirements of Jewelers National Bank
("JNB"), the Company's national credit card bank and consignment arrangements
with certain vendors.
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 $76.5 million and $67.3 million at July 31,
1999 and 1998, respectively. Finance charge income and net earnings from credit
insurance subsidiaries of $118.5 million, $113.3 million and $101.0 million for
the years ended July 31, 1999, 1998 and 1997, respectively, has been reflected
as a reduction of Selling, General and Administrative Expenses. Finance charge
and insurance charge income are recorded pursuant to the calculation set forth
in the Company's credit card agreements.
MERCHANDISE INVENTORIES are stated at the lower of cost or market. Cost for
U.S. inventories is determined primarily in accordance with the retail inventory
method. Substantially all U.S. inventories represent finished goods which are
valued using the last-in, first-out ("LIFO") method. Merchandise inventory of
Peoples Jewellers are valued using the first-in, first-out ("FIFO") method
determined using the cost method.
LONG LIVED ASSETS. In fiscal year 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
establishes accounting standards for the impairment of long-lived assets and
goodwill. Under the guidance of SFAS No. 121, intangibles and long-lived assets
are reviewed for impairment whenever events or changes in circumstances indicate
the carrying amount may not be recoverable. Any impairment would be recognized
in operating results if a permanent reduction were to occur.
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 twenty years. Original cost and
related accumulated depreciation or amortization are removed from the accounts
in the year assets are 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 each of the
years ended July 31, 1999, 1998 and 1997. Accumulated amortization was $35.4
million and $29.5 million at July 31, 1999 and 1998, respectively.
F-9
<PAGE> 35
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STORE PRE-OPENING COSTS are charged to results of operations when incurred.
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.
Cooperative advertising funds are received from certain merchandise vendors.
Amounts charged against operations were $49.0 million, $45.8 million and $46.1
million for the years ended July 31, 1999, 1998 and 1997, respectively, net of
amounts contributed by vendors to the Company. The amounts of prepaid
advertising at July 31, 1999 and 1998 are $2.5 million and $4.4 million,
respectively.
RECLASSIFICATIONS. The classifications in use at July 31, 1999 have been
applied to the financial statements for July 31, 1998 and 1997.
FOREIGN CURRENCY. Translation adjustments result from translating foreign
subsidiaries' financial statements into U.S. dollars. Balance sheet accounts are
translated at exchange rates in effect at the balance sheet date. Income
statement accounts are translated at average exchange rates during the year.
Resulting translation adjustments are included as a component of Comprehensive
Income in the Consolidated Statements of Stockholders' Investment.
ACQUISITION OF PEOPLES JEWELLERS
Effective May 23, 1999, the Company acquired substantially all assets of
Peoples Jewellers Corporation, a privately owned chain consisting principally of
176 fine jewelry stores operating throughout Canada, for approximately $78
million cash, payment of approximately $18 million to pay down existing bank
debt and the assumption of certain liabilities.
The excess of the purchase price over the fair value of the net assets
acquired of approximately $57.1 million is classified as goodwill, and is
included in other assets in the accompanying balance sheet and is being
amortized on a straight-line basis over twenty years. Assets acquired and
liabilities assumed have been recorded at their estimated fair values, and are
subject to adjustment when additional information concerning the alignment of
operations is finalized.
The acquisition described above was accounted for by the purchase method of
accounting for business combinations. Accordingly, the accompanying consolidated
statements of operations do not include any revenues or expenses related to the
acquisition prior to May 23, 1999. The entire cost of the acquisition was funded
through the Company's available cash.
The following unaudited pro forma information presents a summary of our
consolidated results of operations including Peoples Jewellers as if the
acquisition was effective on August 1, 1997:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31, 1999 JULY 31, 1998
------------- -------------
UNAUDITED
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Sales............................................... $1,542,645 $1,452,326
Net Earnings........................................ 81,203 69,086
Earnings Per Common Share:
Diluted........................................... 2.21 1.85
</TABLE>
The unaudited pro forma information does not purport to represent what the
results of operations of the Company would actually have been if the
aforementioned transaction had occurred on August 1, 1997, nor do they project
the results of operations or financial position for any future periods or at any
future date.
F-10
<PAGE> 36
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MERCHANDISE INVENTORIES
The Company's U.S. operations use the LIFO method of accounting for
inventory, which results in a matching of current costs with current revenues.
The LIFO (benefit)/provision was ($0.7) million, ($2.5) million and $3.7 million
for the years ended July 31, 1999, July 31, 1998 and July 31, 1997,
respectively. The estimated cost of replacing the Company's inventories exceeds
its net LIFO cost by approximately $12.7 million and $13.4 million at July 31,
1999 and 1998, respectively. Inventories on a first-in, first-out ("FIFO") basis
were $546.8 million and $491.9 million at July 31, 1999 and 1998, respectively.
The Company also maintained consigned inventory at its retail locations of
approximately $126.3 million and $146.8 million at July 31, 1999 and 1998,
respectively. This consigned inventory and related contingent obligation are not
reflected in the Company's financial statements. At the time consigned inventory
is sold, the Company records the purchase liability in accounts payable and the
related cost of merchandise in Cost of Sales.
The Company's Canadian operations use the FIFO method of accounting for
inventory. Inventory net of reserves was approximately $37.6 million and
consigned inventory was approximately $5.4 million at July 31, 1999.
PROPERTY AND EQUIPMENT
The Company's property and equipment consists of the following:
<TABLE>
<CAPTION>
JULY 31, 1999 JULY 31, 1998
------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Buildings and Leasehold Improvements................ $111,141 $ 80,149
Furniture and Fixtures.............................. 176,258 129,145
Construction in Progress............................ 10,041 19,054
-------- --------
297,440 228,348
Less: Accumulated Amortization and Depreciation..... (93,599) (65,464)
-------- --------
Total Net Property and Equipment.................... $203,841 $162,884
======== ========
</TABLE>
ACCOUNTS PAYABLE, ACCRUED LIABILITIES AND NON-CURRENT LIABILITIES
The Company's accounts payable and accrued liabilities consist of the
following:
<TABLE>
<CAPTION>
JULY 31, 1999 JULY 31, 1998
------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Accounts Payable.................................... $104,759 $ 77,711
Accrued Payroll..................................... 25,453 22,542
Accrued Taxes....................................... 18,210 18,601
Extended Warranty................................... 19,419 15,706
Accrued Percentage Rent............................. 16,162 11,093
Other Accruals...................................... 53,389 41,968
-------- --------
Total Accounts Payable and Accrued Liabilities...... $237,392 $187,621
======== ========
</TABLE>
The Company's non-current liabilities consist principally of the
accumulated obligation for postretirement benefits under SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," loss
reserves for insurance subsidiaries and reserves for tax contingencies.
POSTRETIREMENT BENEFITS. In February 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
132 ("SFAS No. 132"), "Employers' Disclosures
F-11
<PAGE> 37
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
about Pensions and Other Postretirement Benefits an amendment of FASB Statements
No. 87, 88, and 106," which revises employers' disclosures about pensions and
other postretirement benefit plans. The Company adopted the provisions of SFAS
No. 132 for the year ended July 31, 1999. All prior year information has been
restated in accordance with SFAS No. 132.
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. 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 continuous
service. The medical and dental benefits are provided under two plans. 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. The costs of the postretirement benefits are recognized in the financial
statements over an employee's active career on an accrual basis. The Company
funds actual claims as they occur.
Change in Benefit Obligation:
<TABLE>
<CAPTION>
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
------------- ------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Benefit Obligation At Beginning Of Year......... $20,865 $20,920 $20,733
Service Cost.................................... 339 440 613
Interest Cost................................... 1,053 936 1,112
Actuarial Gain.................................. (572) (743) (582)
Benefits Paid................................... (597) (688) (956)
------- ------- -------
Benefit Obligation At End of Year............... $21,088 $20,865 $20,920
======= ======= =======
</TABLE>
The weighted average assumption of the discount rate is 7.75 percent and
7.0 percent as of July 31, 1999, and 1998 respectively. For measurement
purposes, a 10.0 percent and 11.0 percent annual rate of increase in the per
capita cost covered health care benefits was assumed for July 31, 1999 and July
31, 1998 respectively. The rate was assumed to decrease gradually to 6.0 percent
for 2006 and remain at that level thereafter.
Components of Net Periodic Benefit Cost:
<TABLE>
<CAPTION>
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
------------- ------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Service Cost.................................... $ 339 $ 440 $ 613
Interest Cost................................... 1,053 936 1,112
Amortization of Prior Service Cost.............. (572) (743) (582)
------ ----- ------
Net Periodic Benefit Cost....................... $ 820 $ 633 $1,143
====== ===== ======
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Effect on total service and interest cost
components................................ $ 178 13.5% $ (85) (6.4)%
Effect on post retirement benefit
obligation................................ 1,780 13.1% (1,619) (11.9)%
</TABLE>
F-12
<PAGE> 38
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SHORT-TERM BORROWINGS
The Company's Short-term Borrowings consist of the following:
<TABLE>
<CAPTION>
JULY 31, 1999 JULY 31, 1998
------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Revolving Credit Agreement............................... $103,000 $ --
Zale Funding Trust Securitization........................ 250,000 --
-------- ----
$353,000 $ --
======== ====
</TABLE>
REVOLVING CREDIT AGREEMENT. In order to support the Company's growth plans,
the Company and ZDel (the "Borrowers") entered into a three year unsecured
revolving credit agreement (the "Revolving Credit Agreement") with a group of
banks on March 31, 1997. The Revolving Credit Agreement provides for revolving
credit loans in an aggregate amount of up to $225.0 million, including a $30.0
million sublimit for letters of credit.
The revolving credit loans bear interest at floating rates, currently, at
the Borrowers' option of either (i) the Eurodollar Rate plus 1.25 percent or
(ii) the higher of the annual rate of interest announced from time to time by
the agent bank as its base rate or the Federal Funds Effective Rate plus 0.5
percent. The interest rate based on Eurodollar Rates and letter of credit
commission rates can be reduced or increased based on certain future performance
levels attained by the Borrowers. The Company pays a commitment fee of 0.25
percent per annum (subject to reduction or increase based on future performance)
on the preceding month's unused Revolving Credit Agreement commitment. The
Borrowers may repay the revolving credit loans at any time without penalty prior
to the maturity date. The interest rates and commitment fee will also be reduced
if the Company obtains an investment grade rating. The Revolving Credit
Agreement may be extended by the Borrowers for one year upon obtaining
appropriate consent. At July 31, 1999, approximately $103 million was
outstanding under the Revolving Credit Agreement with a Eurodollar Rate of 6.4
percent. In addition, letters of credit in the amount of approximately $0.6
million were outstanding at July 31, 1999. The Company is currently in
compliance with all of its covenant obligations under the Revolving Credit
Agreement and the instruments governing its other indebtedness. The Company
expects to enter into a new transaction to replace the Revolving Credit
Agreement on or before the maturity date. See Notes to Consolidated Financial
Statements -- Subsequent Event.
The Revolving Credit Agreement contains certain restrictive covenants,
which, among other things, restricts within certain limits the Borrowers'
ability to pay dividends and make other payments, incur additional indebtedness,
make capital expenditures, 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.
ZALE FUNDING TRUST SECURITIZATION. On July 15, 1999, the Company redeemed
approximately $380.8 million, net of discount, aggregate principal amount of
Receivables Backed Notes ("Receivables Notes") issued by Zale Funding Trust
("ZFT"), a limited purpose Delaware business trust wholly owned by Zale
Delaware, Inc. ("ZDel"), and formed to finance customer accounts receivable. The
Receivables Notes were redeemed with available cash and proceeds of advances
under the Company's Revolving Credit Agreement and through the issuance of
Variable Funding Notes ("Variable Notes") to a purchaser group under a new
securitization facility in the initial aggregate principal amount of $250
million. The Variable Notes are part of a 364-day liquidity facility and are
secured by a lien on customer accounts receivable. The Variable Notes currently
bear interest at the market commercial paper rate plus a dealer fee of 0.05
percent. In addition, the Company pays a fee of 0.375 percent per annum on the
funded portion of the facility and a commitment fee of 0.25 percent per annum on
the unfunded portion. As of July 31, 1999, the entire
F-13
<PAGE> 39
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$250 million facility is classified as a Short-term Borrowing since it matures
within the next twelve months. At that same time the effective borrowing rate
was 5.6 percent.
As originally entered into, the facility required the Company to reduce the
outstanding amount of the Variable Notes to $150 million no later than October
15, 1999. The Company expects to refinance the Variable Notes on or before their
maturity date with a new transaction or, with the consent of the note purchaser
groups, to extend the maturity of the outstanding Variable Notes. See Notes to
Consolidated Financial Statements -- Subsequent Event.
Jewelers National Bank (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 Company has accounted for the
Variable Notes as a secured borrowing in accordance with the provisions of SFAS
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities."
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 Securitization may be declared due and payable
immediately. The restricted cash balance shown on the Consolidated Balance
Sheets as of July 31, 1999 and 1998 includes the restricted cash of ZFT of $1.2
million and $2.3 million as of July 31, 1999 and July 31, 1998 respectively,
which is based on the relationship between the ZFT Securitization outstanding
and gross accounts receivable as of July 31, 1999 and 1998.
LONG-TERM DEBT
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
JULY 31, 1999 JULY 31, 1998
------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Senior Notes................................................ $99,589 $ 99,556
Zale Funding Trust Securitization........................... -- 380,719
------- --------
Total Long-Term Debt........................................ $99,589 $480,275
======= ========
</TABLE>
SENIOR NOTES. On September 23, 1997, the Company sold $100 million in
aggregate principal amount of 8 1/2 percent Senior Notes (the "Senior Notes")
due 2007 by means of an offering memorandum to qualified institutional buyers
under Rule 144A promulgated under the Securities Act of 1933. All proceeds from
the sale of the Senior Notes were used by the Company to repay outstanding
indebtedness under its Revolving Credit Agreement and for general corporate
purposes. The Senior Notes are unsecured and are fully and unconditionally
guaranteed by ZDel. The Senior Notes are redeemable for cash at any time on or
after October 1, 2002, at the option of the Company, in whole or in part, at
redemption prices starting at 104.25 percent of the principal amount.
The indenture relating to the Senior Notes contains certain restrictive
covenants including, but not limited to, limitations on indebtedness,
limitations on dividends and other restricted payments (including repurchases of
the Company's common stock), limitation on transactions with affiliates,
limitations on liens and limitations on disposition proceeds of asset sales,
among others. Pursuant to a registration rights agreement relating to the Senior
Notes, the Company has exchanged for the Senior Notes new notes of the Company
registered with the Securities and Exchange Commission and with terms identical
in all material respects to the Senior Notes. The Senior Notes are included in
Long-term Debt on the accompanying balance sheet.
F-14
<PAGE> 40
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ZALE FUNDING TRUST SECURITIZATION. See Short-term Borrowings for
description of Zale Funding Trust Securitization.
LEASE COMMITMENTS
The Company rents most of its retail space under leases that generally
range from five to ten years and may contain base rent escalations. Lease
incentives of approximately $4.3 million for reimbursement of certain leasehold
improvement expenditures are being amortized against lease payments over the
life of the lease. All existing real estate leases are treated as operating
leases. Sublease rental income under noncancelable leases is not material.
Rent expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31,
1999 1998 1997
---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Retail Space:
Minimum Rentals.................................. $ 88,943 $79,181 $ 70,344
Rentals Based on Sales........................... 12,069 13,046 27,762
-------- ------- --------
101,012 92,227 98,106
Equipment and Corporate Headquarters............... 2,770 2,643 3,240
-------- ------- --------
Total Rent Expense................................. $103,782 $94,870 $101,346
======== ======= ========
</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, 1999, for all noncancellable
leases of ongoing operations were as follows: 2000 -- $91.2 million;
2001 -- $85.5 million; 2002 -- $78.7 million; 2003 -- $74.5 million;
2004 -- $70.6 million; thereafter -- $197.4 million; for a total of $597.9
million.
INTEREST
Interest expense for the years ended July 31, 1999, 1998 and 1997 was
approximately $37.5 million, $37.2 million and $36.9 million, respectively.
Interest income for the years ended July 31, 1999, 1998 and 1997 was $7.0
million, $5.2 million and $0.8 million, respectively.
F-15
<PAGE> 41
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Currently, the Company files a consolidated income tax return. The
effective income tax rate varies from the federal statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31,
1999 1998 1997
---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Federal Income Tax Expense at Statutory Rate....... $45,495 $38,605 $27,950
Amortization of Excess of Revalued Net Assets Over
Stockholders' Investment......................... (2,064) (2,064) (2,064)
State Income Taxes, Net of Federal Income Tax
Benefit.......................................... 5,128 4,635 3,243
Other.............................................. (56) 186 176
------- ------- -------
Total Income Tax Expense........................... $48,503 $41,362 $29,305
======= ======= =======
Effective Income Tax Rate.......................... 37.5% 37.5% 36.7%
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31,
1999 1998 1997
---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Current Provision:
Federal.......................................... $37,746 $ 6,405 $ 221
State............................................ 3,124 413 387
------- ------- -------
Total Current Provision.......................... 40,870 6,818 608
Deferred Provision
Federal.......................................... 5,629 30,322 25,841
State............................................ 2,004 4,222 2,856
------- ------- -------
Total Deferred Provision......................... 7,633 34,544 28,697
------- ------- -------
Total Income Tax Provision......................... $48,503 $41,362 $29,305
======= ======= =======
</TABLE>
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. In
connection with the adoption of fresh-start reporting, the net book values of
substantially all non-current assets existing at July 30, 1993 (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 as an increase 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 its tax net operating loss ("NOL") against current and future tax
liabilities. The cash benefit realized was approximately $13 million, $38
million and $25 million for the years ended July 31, 1999, 1998 and 1997,
respectively.
As of July 31, 1999, the Company has a NOL carryforward (after limitations)
of approximately $181 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. The NOL carryforward can be utilized through 2008.
F-16
<PAGE> 42
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities 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. Tax effects of
temporary differences that give rise to significant components of the deferred
tax assets and deferred tax liabilities at July 31, 1999 and 1998 are presented
below.
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1999 1998
---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Current Deferred Taxes:
Assets --
Customer receivables................................... $ 19,632 $ 8,152
Accrued liabilities.................................... 25,438 20,690
State and local taxes.................................. 1,291 1,950
Net operating loss carryforward........................ 9,957 38,000
Other.................................................. 771 120
-------- --------
Total Assets........................................... 57,089 68,912
Less -- Valuation Allowance............................ (6,381) (22,073)
-------- --------
50,708 46,839
Liabilities --
Merchandise inventories, principally due to LIFO
reserve.............................................. (64,072) (67,224)
Other.................................................. -- (415)
-------- --------
Deferred Current Tax Liability, Net......................... $(13,364) $(20,800)
======== ========
Non-Current Deferred Taxes:
Assets --
Property and equipment,................................ $ 6,001 $ 13,976
Net operating loss carryforward........................ 63,960 59,813
Postretirement benefits................................ 8,828 9,815
Other.................................................. 1,850 2,726
-------- --------
Total Assets........................................... 80,639 86,330
Less -- Valuation Allowance............................ (8,619) (27,357)
-------- --------
72,020 58,973
Liabilities --
Other.................................................. -- (170)
Goodwill............................................... (9,225) --
-------- --------
Deferred Non-Current Tax Asset, Net......................... $ 62,795 $ 58,803
======== ========
</TABLE>
Pursuant to the requirements of SFAS No. 109, a valuation allowance must be
provided when it is more likely than not that the deferred income tax asset will
not be realized. The valuation reserve was approximately $15 million and $49
million as of July 31, 1999 and 1998, respectively. The Company believes that,
as of July 31, 1999, a sufficient history of earnings has been established to
make realization of an approximately $49 million deferred income tax asset more
likely than not. The change in valuation allowance from July 31, 1998 to July
31, 1999 was approximately $34 million.
CAPITAL STOCK
COMMON STOCK. At July 31, 1999 and 1998, 70,000,000 shares of Common Stock,
par value of $0.01 per share, were authorized, 39,261,005 shares and 38,061,538
shares, respectively, were issued, of which
F-17
<PAGE> 43
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
35,982,708 shares and 36,400,047 shares, respectively, were outstanding. The
Company held 3,278,297 and 1,661,491 treasury shares at July 31, 1999 and 1998,
respectively.
PREFERRED STOCK. At July 31, 1999 and 1998, 5,000,000 shares of Preferred
Stock, par value of $0.01, were authorized. None are issued or outstanding.
WARRANTS. During 1998, 1,945,420 Series A Warrants were exercised. The
remaining 27,330 Series A Warrants expired July 30, 1998. Accordingly, at July
31, 1999 and July 31, 1998 there were no warrants outstanding. Each Series A
Warrant entitled the holder to purchase one share of Zale common stock for
$10.368 per share (subject to certain anti-dilution adjustments).
TREASURY STOCK. During fiscal 1998 the Company repurchased approximately
1,364,971 shares at an aggregate cost of $40 million, related to a stock
repurchase program authorized in February 1998. In June 1999, the Company
completed a $50 million repurchase program, which was authorized during August
1998. Under this program, the Company repurchased 1,669,400 shares in fiscal
1999.
During September 1999, the Board of Directors approved a stock repurchase
program pursuant to which the Company, from time to time and at management's
discretion, may purchase through fiscal year 2000, up to an aggregate of $50
million of common stock on the open market.
INCENTIVE STOCK PLAN. As of July 31, 1999 the Company had two stock
incentive plans. On July 30, 1993 the Company adopted an incentive stock option
plan (the "Incentive Stock 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. Stock awards to purchase an aggregate of
6,555,000 shares of common stock may be granted under the Incentive Stock Plan
to eligible employees. The Incentive Stock Plan allows for the granting of
restricted stock, stock options, stock bonuses and stock appreciation rights
subject to the provisions of the Incentive Stock Plan. Restricted Stock granted
under the Incentive Stock Plan vests ratably over a four year vesting period
except for 103,846 shares granted which vest ratably over a three year period,
and are non-transferable prior to vesting. 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 ratably over a four-year vesting period and (iii) expire
ten years from the date of grant. The 1995 Outside Director Stock Option Plan,
(the "Director Plan") authorizes the Company to grant common stock to
non-employee directors at fair market value of the Company common stock on the
date of grant. The options vest over a four year period and expire ten years
from the date of grant. The maximum number of shares which may be granted under
the Director Plan is 150,000 shares.
During February 1999, 180,692 shares of restricted Common Stock were
granted to certain key employees valued at $5.7 million as of the grant date.
The shares will vest ratably on each of the anniversaries ranging from three to
four years from the date of grant and are subject to restrictions on their sale
or transfer. The total cost of restricted stock is amortized to income as
compensation expense ratably over the vesting period and amounted to $0.7
million for the twelve month period ended July 31, 1999.
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
SHARES GRANT PRICE
---------------------------------- ------------------------------------------
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
1999 1998 1997 1999 1998 1997
---------- --------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year............... 3,365,757 3,088,425 2,722,075 $ 8.68-33.44 $ 8.68-21.81 $ 8.68-19.00
Granted................. 643,500 1,295,000 615,700 23.88-43.50 25.13-33.44 17.56-21.81
Exercised............... (1,018,775) (767,968) (112,825) 8.68-33.44 8.68-19.31 8.73-17.69
Canceled................ (78,325) (249,700) (136,525) 9.74-33.44 9.00-21.81 9.00-17.69
---------- --------- --------- ------------ ------------ ------------
Outstanding, end of
year.................. 2,912,157 3,365,757 3,088,425 $ 8.68-43.50 $ 8.68-33.44 $ 8.68-21.81
========== ========= ========= ============ ============ ============
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
------------------------
FISCAL FISCAL FISCAL
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Outstanding, beginning
of year............... $22.65 $15.16 $13.60
Granted................. 42.17 33.24 21.37
Exercised............... 14.00 11.72 11.67
Canceled................ 20.22 17.67 13.07
------ ------ ------
Outstanding, end of
year.................. $30.01 $22.65 $15.16
====== ====== ======
</TABLE>
F-18
<PAGE> 44
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of July 31, 1999 and 1998, 918,448 and 1,155,257, respectively, of
options outstanding were exercisable.
In fiscal year 1997, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." The Company accounts for the Stock Option Plan under
APB Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for this plan been determined pursuant to the provisions of
SFAS No. 123, the Company's pro-forma net earnings for fiscal years 1999, 1998
and 1997 would have been (amounts in thousands) $77,149, $67,002 and $48,587
respectively, resulting in diluted earnings per share of $2.10, $1.79 and $1.33,
respectively. The fair value of each option grant is estimated on the date of
grant using the Black Scholes option pricing model with the following
weighted-average assumptions used for options granted in fiscal years 1999, 1998
and 1997 respectively: risk-free interest rate of 5.3 percent, 5.8 percent and
6.0 percent, expected dividend yield of zero, expected lives of 5 years, and
expected volatility of 34.0 percent, 32.2 percent, and 35.8 percent. The
weighted average fair value of options granted for fiscal years 1999, 1998 and
1997 is $17.34, $12.74 and $9.06, respectively.
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to August 1, 1996, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
reporting period. Diluted earnings per share reflect the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Outstanding stock options, restricted
stock and warrants issued by the Company represent the only dilutive effect
reflected in diluted weighted average shares. For the years ended July 31, 1999,
1998 and 1997, there were antidilutive common stock equivalents of 593,000,
1,266,000 and 524,000, respectively.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------
1999 1998 1997
----------- ----------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net earnings available to shareholders................ $80,932 $68,937 $50,553
BASIC:
Weighted average number of common shares
outstanding......................................... 36,059 35,201 35,054
Earnings per common share -- basic.................... $ 2.24 $ 1.96 $ 1.44
======= ======= =======
DILUTED:
Weighted average number of common shares
outstanding......................................... 36,059 35,201 35,054
Effect of dilutive securities:
Stock options......................................... 551 980 675
Restricted Stock...................................... 78 -- --
Warrants.............................................. -- 1,187 903
------- ------- -------
Weighted average number of common shares outstanding
as adjusted......................................... 36,688 37,368 36,632
Earnings per common share -- diluted.................. $ 2.21 $ 1.84 $ 1.38
======= ======= =======
</TABLE>
COMPREHENSIVE INCOME
Effective August 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for
the reporting and display of comprehensive
F-19
<PAGE> 45
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
income and its components in a full set of general-purpose financial statements.
Comprehensive income is defined as the change in equity during a period from
transactions and other events, except those resulting from investments by and
distributions to stockholders. The components of comprehensive income are
reported in the consolidated statements of stockholders' investment.
SEGMENTS
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
The Company has one reportable segment given the similarities of economic
characteristics and products offered between the operations represented by the
Company's four brands. Revenues of international retail operations represent
approximately 1.5 percent of the Company's revenues for fiscal 1999. Net
property and equipment of international operations, represents approximately 8.0
percent of the Company's net property and equipment for fiscal 1999. The
Company's international retail operations commenced with the acquisition of
Peoples Jewellers effective May 23, 1999.
UNUSUAL ITEM -- GAIN ON SALE OF DIAMOND PARK
On September 3, 1997, the Company signed an agreement to sell Diamond Park
Fine Jewelers (the "Diamond Park Sale"). Diamond Park Fine Jewelers, which
managed leased fine jewelry departments in major department store chains
including Marshall Field's, Dillard's, Mercantile and Parisian, had net sales of
$125.3 million in fiscal year 1997. On October 6, 1997, the Company closed the
Diamond Park Sale resulting in a gain of $1.6 million. The Company received
$58.0 million in October 1997 and approximately $4.8 million was received in
February 1998.
UNUSUAL ITEM -- GAIN ON SALE OF LAND
In fiscal 1998, the Company closed the sale of excess land surrounding the
corporate headquarters facility for $12.9 million, resulting in a gain of $7.3
million.
COMMITMENTS AND CONTINGENCIES
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 began in December
1996, requires fixed payments totaling $34.4 million over a 60 month term and a
variable amount based on usage.
The Company has an operations services agreement for credit operations with
a third-party servicer. The agreement, dated May 5, 1998, requires minimum
annual payments based on credit activities. The Company has a commitment of
approximately $15.2 million to be paid over the initial term of seven years.
Additional annual payments will be paid based on credit volume for normal credit
processing activities.
BENEFIT PLANS
Defined Contribution Retirement Plan
At July 31, 1999, 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. Effective August 1, 1998, new employees are
required to complete one year of continuous service with the Company to be
eligible
F-20
<PAGE> 46
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to participate in the plan. Each employee can contribute from one percent to
fifteen percent of their annual salary. Under this plan, the Company matches one
dollar in Zale stock for every dollar an employee contributes up to four percent
of annual earnings, subject to Internal Revenue Service limitations. 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.
For matching contributions made through fiscal year 1998 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. Matching contributions subsequent to July 31, 1998, will immediately
vest 100 percent. In order to be eligible for the contribution, employees must
be employed by the Company at the time of the contribution.
The Company's matching contributions were $1.3 million, $1.2 million and
$1.2 million for fiscal years 1999, 1998 and 1997, respectively. The Company
contributed 52,594 and 35,047 treasury shares to its 401(k) plan in fiscal year
1999 and 1998, respectively.
Retirement Plan
On September 14, 1995, the Boards of Directors of Zale and ZDel approved
the preparation and implementation of the Zale Delaware, Inc. Supplemental
Executive Retirement Plan (the "Plan"), which was executed on behalf of the
Company February 23, 1996, to be effective as of September 15, 1995. The purpose
of the Plan is to provide eligible executives with the opportunity to receive
payments each year after retirement equal to a portion of their final average
pay as defined.
FINANCIAL INSTRUMENTS
As cash and short-term cash investments, customer receivables, the
revolving credit agreement, variable funding notes, trade payables and certain
other short-term financial instruments are all short-term in nature, their
carrying amount approximates fair value. Also, the carrying amount of the $99.6
million, net of discount, Senior Notes approximates fair value.
The investments of the Company's insurance subsidiaries, primarily stocks
and bonds in the amount of $27.7 million and $26.6 million, approximate market
value at July 31, 1999 and July 31, 1998 respectively and are reflected in Other
Assets on the Consolidated Balance Sheets. Investments are classified as
available for sale and are carried at fair value. Changes in unrealized gains
and losses are recorded directly to stockholders' investment. Net realized gains
recognized for the years ended July 31, 1999, 1998 and 1997 were $1.6 million,
$0.8 million, and $2.0 million, respectively.
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,
1999 and 1998, 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 $2.6 million and $3.1 million of jewelry
merchandise during fiscal year 1999 and 1998, respectively. The Company believes
the terms were equivalent to those of unrelated parties.
F-21
<PAGE> 47
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company's payment obligations under the Senior Notes are guaranteed by
ZDel (the "Guarantor Subsidiary"). Such guarantee is full and unconditional with
respect to ZDel. ZFT, a limited purpose Delaware business trust wholly owned by
ZDel which owns the customer accounts receivable of ZDel, is not a guarantor of
the obligations under the Senior Notes. Separate financial statements of the
Guarantor Subsidiary are not presented because the Company's management has
determined that they would not be material to investors. The following
supplemental financial information sets forth, on an unconsolidated basis,
statements of operations, balance sheets, and statements of cash flow
information for the Company ("Parent Company Only"), for the Guarantor
Subsidiary and for the Company's other subsidiaries (the "Non-Guarantor
Subsidiaries"). The supplemental financial information reflects the investments
of the Company and the Guarantor Subsidiary in the Guarantor and Non-Guarantor
Subsidiaries using the equity method of accounting. Certain reclassifications
have been made to provide for uniform disclosure of all periods presented. These
reclassifications are not material.
F-22
<PAGE> 48
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales............................ $ -- $1,378,670 $50,198 $ -- $1,428,868
Cost of Sales........................ -- 712,072 25,116 -- 737,188
------- ---------- ------- -------- ----------
Gross Margin......................... -- 666,598 25,082 -- 691,680
Selling, General, and Administrative
Expenses (Income).................. 150 529,119 (26,990) -- 502,279
Depreciation and Amortization
Expense............................ -- 26,193 3,285 -- 29,478
------- ---------- ------- -------- ----------
Operating Earnings (Loss)............ (150) 111,286 48,787 -- 159,923
Interest Expense, Net................ -- (11,718) 42,206 -- 30,488
------- ---------- ------- -------- ----------
Income (Loss) Before Income Taxes.... (150) 123,004 6,581 -- 129,435
Income Taxes......................... (56) 46,254 2,305 -- 48,503
------- ---------- ------- -------- ----------
Earnings (Loss) Before Equity in
Earnings of Subsidiaries........... (94) 76,750 4,276 -- 80,932
Equity in Earnings of Subsidiaries... 81,026 4,459 -- (85,485) --
------- ---------- ------- -------- ----------
Net Earnings......................... $80,932 $ 81,209 $ 4,276 $(85,485) $ 80,932
======= ========== ======= ======== ==========
</TABLE>
F-23
<PAGE> 49
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales.............................. $ -- $1,291,146 $22,564 $ -- $1,313,710
Cost of Sales.......................... -- 670,776 11,132 -- 681,908
------- ---------- ------- -------- ----------
Gross Margin........................... -- 620,370 11,432 -- 631,802
Selling, General, and Administrative
Expenses (Income).................... 158 509,123 (33,435) -- 475,846
Depreciation and Amortization
Expense.............................. -- 21,352 1,213 -- 22,565
Unusual Item -- Gain on Sale of Diamond
Park Fine Jewelers................... -- (1,634) -- -- (1,634)
Unusual Item -- Gain on Sale of Land... -- (7,313) -- -- (7,313)
------- ---------- ------- -------- ----------
Operating Earnings (Loss).............. (158) 98,842 43,654 -- 142,338
Interest Expense, Net.................. -- (7,327) 39,366 -- 32,039
------- ---------- ------- -------- ----------
Income (Loss) Before Income Taxes...... (158) 106,169 4,288 -- 110,299
Income Taxes........................... (59) 39,812 1,609 -- 41,362
------- ---------- ------- -------- ----------
Earnings (Loss) Before Equity in
Earnings of Subsidiaries............. (99) 66,357 2,679 -- 68,937
Equity in Earnings of Subsidiaries..... 69,036 2,619 -- (71,655) --
------- ---------- ------- -------- ----------
Net Earnings........................... $68,937 $ 68,976 $ 2,679 $(71,655) $ 68,937
======= ========== ======= ======== ==========
</TABLE>
F-24
<PAGE> 50
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales......................... $ -- $1,233,438 $ 20,380 $ -- $1,253,818
Cost of Sales..................... -- 633,208 10,110 -- 643,318
------- ---------- -------- -------- ----------
Gross Margin...................... -- 600,230 10,270 -- 610,500
Selling, General, and
Administrative Expenses
(Income)........................ 150 497,636 (17,264) -- 480,522
Depreciation and Amortization
Expense......................... -- 12,295 1,727 -- 14,022
------- ---------- -------- -------- ----------
Operating Earnings (Loss)......... (150) 90,299 25,807 -- 115,956
Interest Expense, Net............. -- 1,739 34,359 -- 36,098
------- ---------- -------- -------- ----------
Income (Loss) Before Income
Taxes........................... (150) 88,560 (8,552) -- 79,858
Income Taxes...................... (55) 32,498 (3,138) -- 29,305
------- ---------- -------- -------- ----------
Earnings (Loss) Before Equity in
Earnings of Subsidiaries........ (95) 56,062 (5,414) -- 50,553
Equity in Earnings of
Subsidiaries.................... 50,648 (6,040) -- (44,608) --
------- ---------- -------- -------- ----------
Net Earnings (Loss)............... $50,553 $ 50,022 $ (5,414) $(44,608) $ 50,553
======= ========== ======== ======== ==========
</TABLE>
F-25
<PAGE> 51
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JULY 31, 1999
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents......... $ -- $ 22,294 $ 13,109 $ -- $ 35,403
Restricted Cash................... -- 1,533 4,496 -- 6,029
Customer Receivables, Net......... -- -- 510,714 -- 510,714
Merchandise Inventories........... -- 524,184 47,485 -- 571,669
Other Current Assets.............. -- 33,869 2,958 -- 36,827
-------- ---------- -------- ----------- ----------
Total Current Assets................ -- 581,880 578,762 -- 1,160,642
Investment in Subsidiaries.......... 698,197 47,880 -- (746,077) --
Property and Equipment, Net......... -- 183,789 20,052 -- 203,841
Intercompany Receivable............. 102,768 151,287 -- (254,055) --
Other Assets........................ -- 8,393 91,261 -- 99,654
Deferred Tax Assets, Net............ 58 67,335 (4,598) -- 62,795
-------- ---------- -------- ----------- ----------
Total Assets........................ $801,023 $1,040,564 $685,477 $(1,000,132) $1,526,932
======== ========== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Short-term borrowings............. $ -- $ 103,000 $250,000 $ -- $ 353,000
Accounts Payable and Accrued
Liabilities.................... 2,784 216,101 18,507 -- 237,392
Deferred Tax Liability, Net....... 646 17,954 (5,236) -- 13,364
-------- ---------- -------- ----------- ----------
Total Current Liabilities........... 3,430 337,055 263,271 -- 603,756
Non-current Liabilities............. -- 59,294 11,598 -- 70,892
Intercompany Payable................ -- -- 254,055 (254,055) --
Long-term Debt...................... 99,589 -- -- -- 99,589
Excess of Revalued Net Assets Over
Stockholders' Investment, Net..... -- 53,084 -- -- 53,084
Total Stockholders' Investment...... 698,004 591,131 156,553 (746,077) 699,611
-------- ---------- -------- ----------- ----------
Total Liabilities and Stockholders'
Investment........................ $801,023 $1,040,564 $685,477 $(1,000,132) $1,526,932
======== ========== ======== =========== ==========
</TABLE>
F-26
<PAGE> 52
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JULY 31, 1998
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents....... $ -- $165,248 $ 7,821 $ -- $ 173,069
Restricted Cash................. -- 1,541 4,651 -- 6,192
Customer Receivables, Net....... -- -- 495,468 -- 495,468
Merchandise Inventories......... -- 468,076 10,391 -- 478,467
Other Current Assets............ -- 24,502 2,218 -- 26,720
-------- -------- -------- --------- ----------
Total Current Assets.............. -- 659,367 520,549 -- 1,179,916
Investment in Subsidiaries........ 648,160 52,493 -- (700,653) --
Property and Equipment, Net....... -- 158,807 4,077 -- 162,884
Intercompany Receivable........... 102,801 495 -- (103,296) --
Other Assets...................... -- 10,493 33,833 -- 44,326
Deferred Tax Assets, Net.......... 59 58,741 3 -- 58,803
-------- -------- -------- --------- ----------
Total Assets...................... $751,020 $940,396 $558,462 $(803,949) $1,445,929
======== ======== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current Portion of Long-term
Debt............................ $ -- $ -- $ -- $ -- $ --
Accounts Payable and Accrued
Liabilities..................... 2,758 182,725 2,138 -- 187,621
Deferred Tax Liability, Net....... 646 20,154 -- -- 20,800
-------- -------- -------- --------- ----------
Total Current Liabilities......... 3,404 202,879 2,138 -- 208,421
Non-current Liabilities........... -- 38,420 11,770 -- 50,190
Intercompany Payable.............. -- -- 103,296 (103,296) --
Long-term Debt.................... 99,555 -- 380,720 -- 480,275
Excess of Revalued Net Assets Over
Stockholders' Investment, Net... -- 58,982 -- -- 58,982
Total Stockholders' Investment.... 648,061 640,115 60,538 (700,653) 648,061
-------- -------- -------- --------- ----------
Total Liabilities and
Stockholders' Investment........ $751,020 $940,396 $558,462 $(803,949) $1,445,929
======== ======== ======== ========= ==========
</TABLE>
F-27
<PAGE> 53
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JULY 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided by (Used in)
Operating Activities................ $125,561 $ (86,411) $ 47,435 $ (12,239) $ 74,346
Net Cash Flows from Investing
Activities:
Additions to property and equipment... -- (58,418) (1,120) -- (59,538)
Dispositions of property and
equipment........................... -- 1,875 66 -- 1,941
Acquisition of Peoples Jewellers, net
of cash acquired.................... (96,662) -- -- -- (96,662)
-------- --------- --------- --------- ---------
Net Cash Used in Investing
Activities.......................... (96,662) (56,543) (1,054) -- (154,259)
-------- --------- --------- --------- ---------
Net Cash Flows from Financing
Activities:
Net increase in short-term
borrowings.......................... -- -- 250,000 -- 250,000
Payments on receivables securitization
facility............................ -- -- (380,760) -- (380,760)
Payments on revolving credit
agreement........................... -- (3,500) -- -- (3,500)
Borrowings under revolving credit
agreement........................... -- 106,500 -- -- 106,500
Debt issue and capitalized financing
costs............................... -- -- (1,094) -- (1,094)
Proceeds from exercise of stock
options............................. 21,044 -- -- -- 21,044
Purchase of common stock.............. (49,943) -- -- -- (49,943)
Proceeds from issuance of Common
Stock............................... -- -- 103,000 (103,000) --
Dividends paid........................ -- (103,000) (12,239) 115,239 --
-------- --------- --------- --------- ---------
Net Cash Used in Financing
Activities.......................... (28,899) -- (41,093) 12,239 (57,753)
-------- --------- --------- --------- ---------
Net (Decrease) Increase in Cash and
Cash Equivalents.................... -- (142,954) 5,288 -- (137,666)
Cash and Cash Equivalents at Beginning
of Period........................... -- 165,248 7,821 -- 173,069
-------- --------- --------- --------- ---------
Cash and Cash Equivalents at End of
Period.............................. $ -- $ 22,294 $ 13,109 $ -- $ 35,403
======== ========= ========= ========= =========
</TABLE>
F-28
<PAGE> 54
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JULY 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided by Operating
Activities........................... $ 10,632 $ 101,492 $ 13,922 $(13,273) $ 112,773
Net Cash Flows from Investing
Activities:
Additions to property and equipment.... -- (61,959) (1,538) -- (63,497)
Dispositions of property and
equipment............................ -- 548 101 -- 649
Proceeds from Sale of Diamond Park Fine
Jewelers............................. -- 62,443 -- -- 62,443
Proceeds from Sale of Land............. -- 12,911 -- -- 12,911
-------- --------- -------- -------- ---------
Net Cash Provided by (Used in)
Investing Activities................. -- 13,943 (1,437) -- 12,506
-------- --------- -------- -------- ---------
Net Cash Flows from Financing
Activities:
Proceeds from long-term debt........... -- (410) -- -- (410)
Payments on revolving credit
agreement............................ -- (192,900) -- -- (192,900)
Borrowings under revolving credit
agreement............................ -- 122,200 -- -- 122,200
Issuance of Senior Notes............... 99,530 -- -- -- 99,530
Loan from Zale Corporation to Zale
Delaware, Inc. ...................... (99,530) 99,530 -- -- --
Debt issue and capitalized financing
costs................................ -- (2,621) -- -- (2,621)
Proceeds from exercise of stock
options.............................. 9,198 -- -- -- 9,198
Proceeds from exercise of warrants..... 20,170 -- -- -- 20,170
Purchase of common stock............... (40,000) -- -- -- (40,000)
Proceeds from issuance of common
stock................................ -- -- 2,500 (2,500) --
Dividends paid......................... -- -- (15,773) 15,773 --
-------- --------- -------- -------- ---------
Net Cash (Used in) Provided by
Financing Activities................. (10,632) 25,799 (13,273) 13,273 15,167
-------- --------- -------- -------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents..................... -- 141,234 (788) -- 140,446
Cash and Cash Equivalents at Beginning
of Period............................ -- 24,014 8,609 -- 32,623
-------- --------- -------- -------- ---------
Cash and Cash Equivalents at End of
Period............................... $ -- $ 165,248 $ 7,821 $ -- $ 173,069
======== ========= ======== ======== =========
</TABLE>
F-29
<PAGE> 55
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION -- (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JULY 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided by (Used in)
Operating Activities............... $ (314) $ 23,764 $ 5,910 $(12,895) $ 16,465
Net Cash Flows from Investing
Activities:
Additions to property and
equipment.......................... -- (54,025) -- -- (54,025)
Dispositions of property and
equipment.......................... -- 2,277 2,610 -- 4,887
------ ----------- -------- -------- -----------
Net Cash (Used in) Provided by
Investing Activities............... -- (51,748) 2,610 -- (49,138)
------ ----------- -------- -------- -----------
Net Cash Flows from Financing
Activities:
Proceeds from long-term debt......... -- 291 -- -- 291
Payments on revolving credit
agreement.......................... -- (1,027,700) -- -- (1,027,700)
Borrowings under revolving credit
agreement.......................... -- 1,074,800 -- -- 1,074,800
Debt issue and capitalized financing
costs.............................. -- (945) -- -- (945)
Proceeds from exercise of stock
options............................ 1,073 -- -- -- 1,073
Purchase of common stock............. (759) -- -- -- (759)
Dividends paid....................... -- -- (12,895) 12,895 --
------ ----------- -------- -------- -----------
Net Cash Provided by (Used in)
Financing Activities............... 314 46,446 (12,895) 12,895 46,760
------ ----------- -------- -------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents................... -- 18,462 (4,375) -- 14,087
Cash and Cash Equivalents at
Beginning of Period................ -- 5,552 12,984 -- 18,536
------ ----------- -------- -------- -----------
Cash and Cash Equivalents at End of
Period............................. $ -- $ 24,014 $ 8,609 $ -- $ 32,623
====== =========== ======== ======== ===========
</TABLE>
F-30
<PAGE> 56
ZALE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUBSEQUENT EVENT
As originally entered into, the facility required the Company to reduce the
outstanding amount of the Variable Notes to $150 million no later than October
15, 1999. On September 15, 1999, the Company entered into an amendment to the
new securitization facility to reduce the commitment of the original Variable
Note purchaser group to $150 million and to add two new note purchaser groups
having an aggregate commitment of $200 million, thereby increasing the total
outstanding amount under the Variable Notes facility to $350 million on terms
consistent with the original facility. Additionally the Company paid down the
approximate $103 million balance under the Revolving Credit Agreement. The
Company expects to refinance the Variable Notes on or before their maturity date
with a new transaction or, with the consent of the note purchaser groups, to
extend the maturity of the outstanding Variable Notes. See Notes to Consolidated
Financial Statements -- Short-term Borrowings, Zale Funding Trust
Securitization.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Unaudited quarterly results of operations for the years ended July 31, 1999
and 1998 were as follows (amounts in thousands except per share data):
<TABLE>
<CAPTION>
FISCAL 1999
FOR THE THREE MONTHS ENDED
------------------------------------------------
JULY 31, APRIL 30, JANUARY 31, OCTOBER 31,
1999 1999 1999 1998
-------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales......................................... $325,994 $280,736 $567,952 $254,186
Gross margin...................................... 157,441 136,028 276,122 122,089
Net earnings...................................... 8,542 6,267 63,960 2,163
Net earnings per diluted common share............. .23 .17 1.75 .06
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1998
FOR THE THREE MONTHS ENDED
------------------------------------------------
JULY 31, APRIL 30, JANUARY 31, OCTOBER 31,
1998 1998 1998 1997
-------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales......................................... $280,867 $258,300 $522,017 $252,526
Gross margin...................................... 134,980 124,458 251,441 120,923
Net earnings...................................... 7,451 1,503 58,937 1,046
Net earnings per diluted common share............. .20 .04 1.57 .03
</TABLE>
F-31
<PAGE> 57
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 30 day of
September, 1999.
ZALE CORPORATION
By: /s/ ROBERT J. DINICOLA
----------------------------------
Robert J. DiNicola
Chairman of the Board
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
--------- ----- ----
<C> <S> <C>
/s/ ROBERT J. DINICOLA Chairman of the Board September 30, 1999
- -----------------------------------------------------
Robert J. DiNicola
/s/ BERYL B. RAFF President and Chief September 30, 1999
- ----------------------------------------------------- Executive Officer,
Beryl B. Raff Director (principal
executive officer of the
registrant)
/s/ SUE E. GOVE Executive Vice President and September 30, 1999
- ----------------------------------------------------- Chief Financial Officer
Sue E. Gove (principal financial
officer of the registrant)
/s/ MARK R. LENZ Senior Vice President, September 30, 1999
- ----------------------------------------------------- Controller (principal
Mark R. Lenz accounting officer of the
registrant)
/s/ GLEN ADAMS Director September 30, 1999
- -----------------------------------------------------
Glen Adams
/s/ A. DAVID BROWN Director September 30, 1999
- -----------------------------------------------------
A. David Brown
/s/ PETER P. COPSES Director September 30, 1999
- -----------------------------------------------------
Peter P. Copses
/s/ ANDREA JUNG Director September 30, 1999
- -----------------------------------------------------
Andrea Jung
/s/ RICHARD C. MARCUS Director September 30, 1999
- -----------------------------------------------------
Richard C. Marcus
/s/ CHARLES H. PISTOR, JR. Director September 30, 1999
- -----------------------------------------------------
Charles H. Pistor, Jr.
/s/ ANDREW H. TISCH Director September 30, 1999
- -----------------------------------------------------
Andrew H. Tisch
</TABLE>
25
<PAGE> 58
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 of Zale Corporation (a Delaware corporation) and
subsidiaries included in this Form 10-K, and have issued our report thereon
dated September 1, 1999 (except with respect to the matter discussed in the
Subsequent Event footnote, as to which the date is September 15, 1999). Our
audit was 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 audit
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 1, 1999
26
<PAGE> 59
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, 1999
Allowance for doubtful accounts.................. $67,285 $72,126 $62,877(1) $76,534
Fiscal year ended July 31, 1998
Allowance for doubtful accounts.................. $57,819 $66,066 $56,600(1) $67,285
Fiscal year ended July 31, 1997
Allowance for doubtful accounts.................. $51,402 $55,850 $49,433(1) $57,819
</TABLE>
- ---------------
(1) Accounts written off, less recoveries and other adjustments.
27
<PAGE> 60
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Purchase of Assets Agreement, dated June 2, 1999, between
Zale Canada Co. and Peoples Jewellers Corporation.(11)
3.1 -- Restated Certificate of Incorporation of Zale
Corporation, dated July 30, 1993.(1)
3.2 -- Amended Bylaws of Zale Corporation, dated November 1,
1996.(5)
4.1 -- Revolving Credit Agreement dated March 31, 1997 among
Zale Corporation and Zale Delaware, Inc. and The First
National Bank of Boston, as agent for the lenders
identified therein. The Schedules attached to the
Agreement, as identified in the list of Schedules filed
as a part of this exhibit, are omitted from this filing,
but will be provided supplementally to the Commission
upon request.(5)
4.2 -- Indenture, dated September 30, 1997, by and among Zale
Corporation, Zale Delaware, Inc. and Bank One, N.A. as
Trustee. (7)
4.3 -- Indenture, dated as of July 15, 1999, between Zale
Funding Trust as Issuer and The Bank of New York as
Indenture Trustee and Securities Intermediary.(11)
4.4 -- Series 1999 -- A Indenture Supplement, dated as of July
15, 1999, between Zale Funding Trust as Issuer and The
Bank of New York as Indenture Trustee and Securities
Intermediary.(11)
4.5 -- Purchase and Servicing Agreement, dated as of July 15,
1999, among Zale Funding Trust, Zale Delaware, Inc. and
Jewelers National Bank. (11)
*10.1 -- Class A Note Purchase Agreement, dated as of July 15,
1999, among Zale Funding Trust (Issuer), Zale Delaware,
Inc. (Seller), Jewelers National Bank (Servicer), The
Class A Purchasers Parties Thereto, Credit Suisse First
Boston, New York Branch (Administrative Agent and Agent)
and Other Agents Parties Thereto.(11)
10.2 -- Indemnification agreement, dated as of July 21, 1993,
between Zale Corporation and certain present and former
directors thereof.(3)
*10.3 -- Zale Corporation Stock Option Plan.(1)
*10.4 -- The Executive Severance Plan for Zale Corporation and Its
Affiliates, as amended and restated as of February 10,
1994.(2)
*10.4a -- Amendment to The Executive Severance Plan for Zale
Corporation and Its Affiliates effective May 20, 1995.(4)
*10.5 -- Settlement Agreement, dated as of November 30, 1997,
between Zale Corporation and Louis J. Grabowsky.(8)
10.6 -- Lease Agreement Between Principal Mutual Life Insurance
Company, As Landlord, and Zale Corporation, as Debtor and
Debtor-In-Possession, As Tenant, dated as of September
17, 1992.(4)
10.6a -- First Lease Amendment and Agreement between Principal
Mutual Life Insurance Company and Zale Delaware, Inc.,
dated as of February 1, 1996.(4)
10.7 -- Indemnification Agreement, executed on October 30, 1996,
and dated as of June 6, 1996, between Zale Corporation
and Andrea Jung.(5)
*10.8 -- Form Change of Control Agreement dated as of October 30,
1996, but executed thereafter, between Zale Corporation
and Key Employees.(6)
10.8a -- Modified list of parties to Change of Control
Agreement.(9)
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.9 -- Asset Purchase Agreement, dated September 3, 1997, by and
among Finlay Enterprises, Inc., Finlay Fine Jewelry
Corporation, Zale Corporation and Zale Delaware, Inc.(9)
10.10 -- Seller Restrictive Covenant Agreement, dated as of June
2, 1999, between Peoples Jewellers Corporation, Zale
Canada Co. and Zale Corporation.(11)
*10.11 -- Amended and Restated Employment Agreement, dated
September 7, 1999, between Zale Corporation and Robert J.
DiNicola.(11)
*10.12 -- Employment Agreement, dated as of August 1, 1998, between
Zale Corporation and Beryl B. Raff. (9)
*10.13 -- Employment Agreement, dated as of August 1, 1998, between
Zale Corporation and Alan P. Shor. (9)
*10.14 -- Employment Agreement, dated as of January 15, 1998
between Zale Corporation and Mary L. Forte. (9)
*10.15 -- Employment Agreement, dated as of August 1, 1998, between
Zale Corporation and Sue E. Gove. (9)
*10.16 -- Amendment to Employment Agreement, dated as of October 8,
1998, between Zale Corporation and Beryl B. Raff. (10)
*10.17 -- Amendment to Employment Agreement, dated as of October 8,
1998, between Zale Corporation and Alan P. Shor. (10)
*10.18 -- Amendment to Employment Agreement, dated as of October 8,
1998, between Zale Corporation and Mary L. Forte. (10)
*10.19 -- Amendment to Employment Agreement, dated as of October 8,
1998, between Zale Corporation and Sue E. Gove. (10)
21 -- Subsidiaries of the registrant. (11)
23 -- Consent of Independent Public Accountants.(11)
27 -- Financial data schedule.(11)
</TABLE>
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(1) 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.
(2) Incorporated by reference to the corresponding exhibit to the registrant's
Registration Statement on Form S-1 (No. 33-73310) filed with the
Commission on December 23, 1993, as amended.
(3) Previously filed as an exhibit to the registrant's Form 10-K (No. 0-21526)
for the fiscal year ended July 31, 1995, and incorporated herein by
reference.
(4) Previously filed as an exhibit to the registrant's Form 10-K (No. 0-21526)
for the fiscal year ended July 31, 1996, and incorporated herein by
reference.
(5) Previously filed as an exhibit to the registrant's Form 10-Q for the
quarterly period ended October 31, 1996, and incorporated herein by
reference.
(6) Previously filed as an exhibit to the registrant's Form 10-Q for the
quarterly period ended January 31, 1997, and incorporated herein by
reference.
(7) Previously filed as an exhibit to the registrants' Form 10-K (No. 0-21526)
for the fiscal year ended July 31, 1997, and incorporated herein by
reference.
(8) Incorporated by reference to Exhibit 4.1 to the registrant's Registration
Statement on Form S-4 (No. 33-39473) filed with the Commission on November
4, 1997.
(9) Previously filed as an exhibit to the registrant's Form 10-K (No. 1-04129)
for the fiscal year ended July 31, 1998, and incorporated herein by
reference.
<PAGE> 62
(10) Previously filed as an exhibit to the registrant's Form 10-Q for the
quarterly period ended October 31, 1998, and incorporated herein by
reference.
(11) Filed herewith.
* Management Contracts and Compensatory Plans.
<PAGE> 1
EXHIBIT 2.1
- --------------------------------------------------------------------------------
ZALE CANADA CO.
PURCHASE OF ASSETS
OF
PEOPLES JEWELLERS CORPORATION
JUNE 2, 1999
MORRIS/ROSE/LEDGETT
BARRISTERS AND SOLICITORS
161 BAY STREET, SUITE 2600
BCE PLACE, CANADA TRUST TOWER
TORONTO, ON M5J 2S1
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 INTERPRETATION..........................................................................................1
1.1 DEFINED TERMS.........................................................................................1
1.2 CURRENCY..............................................................................................6
1.3 SECTIONS AND HEADINGS.................................................................................6
1.4 NUMBER, GENDER AND PERSONS............................................................................6
1.5 ACCOUNTING PRINCIPLES.................................................................................6
1.6 ENTIRE AGREEMENT......................................................................................6
1.7 TIME OF ESSENCE.......................................................................................7
1.8 APPLICABLE LAW AND AGENT FOR SERVICE..................................................................7
1.9 SEVERABILITY..........................................................................................7
1.10 SUCCESSORS AND ASSIGNS................................................................................7
1.11 AMENDMENTS AND WAIVERS................................................................................7
1.12 INTERPRETATION........................................................................................7
1.13 DEFINITION OF KNOWLEDGE...............................................................................7
1.14 SCHEDULES AND EXHIBITS................................................................................8
ARTICLE 2 PURCHASE AND SALE OF ASSETS.............................................................................9
2.1 TRANSFER OF ASSETS....................................................................................9
2.2 EXCLUDED ASSETS......................................................................................11
2.3 ASSUMED LIABILITIES..................................................................................12
2.4 EXCLUDED LIABILITIES.................................................................................12
2.5 PURCHASE PRICE.......................................................................................13
2.6 PURCHASE PRICE ADJUSTMENT - INVENTORY COUNT..........................................................14
2.7 ALLOCATION OF PURCHASE PRICE.........................................................................15
2.8 GST ELECTIONS........................................................................................15
2.9 TRANSFER TAXES.......................................................................................15
2.10 INCOME TAX ELECTION..................................................................................15
2.11 REMITTANCE OF TAXES..................................................................................15
ARTICLE 3 CLOSING................................................................................................16
3.1 TRANSFER.............................................................................................16
3.2 CLOSING DATE.........................................................................................16
3.3 RISK OF LOSS.........................................................................................16
3.4 DELIVERIES OF SELLER.................................................................................16
3.5 PROCEDURES FOR CONTRACTS NOT TRANSFERABLE............................................................18
3.6 DELIVERIES OF PURCHASER..............................................................................18
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER...............................................................19
4.1 ORGANIZATION AND GOOD STANDING.......................................................................19
4.2 POWER AND AUTHORITY..................................................................................19
4.3 BINDING EFFECT.......................................................................................19
4.4 NO OTHER AGREEMENTS TO PURCHASE......................................................................20
4.5 NO VIOLATION; CONSENTS...............................................................................20
4.6 CONSENTS AND APPROVALS...............................................................................20
4.7 CANADIAN RESIDENCE...................................................................................20
4.8 GST REGISTRATION.....................................................................................20
4.9 FINANCIAL STATEMENTS.................................................................................20
4.10 LIABILITIES..........................................................................................21
4.11 TITLE TO ASSETS......................................................................................21
4.12 REAL PROPERTY........................................................................................21
4.13 INTELLECTUAL PROPERTY................................................................................22
4.13A ENVIRONMENTAL MATTER.................................................................................23
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
4.14 RECEIVABLES..........................................................................................23
4.15 CONTRACTS............................................................................................23
4.16 ORDINARY COURSE OF THE BUSINESS......................................................................24
4.17 LITIGATION...........................................................................................25
4.18 COMPLIANCE WITH LAWS.................................................................................25
4.19 PERMITS AND LICENSES.................................................................................25
4.20 TAXES................................................................................................26
4.21 INSURANCE............................................................................................26
4.22 EMPLOYEES............................................................................................26
4.23 EMPLOYEE BENEFITS....................................................................................27
4.23A ACCELERATED PAYMENTS.................................................................................27
4.24 GOVERNMENT WITHHOLDINGS..............................................................................27
4.25 EMPLOYMENT PAYMENTS BY SELLER TO DATE OF CLOSING.....................................................28
4.26 WORKER'S COMPENSATION................................................................................28
4.27 LABOUR MATTERS.......................................................................................28
4.28 HEALTH AND SAFETY....................................................................................28
4.29 BANK ACCOUNTS........................................................................................28
4.30 SUPPLIERS............................................................................................28
4.31 INVENTORY............................................................................................28
4.32 PRODUCT WARRANTIES ETC...............................................................................29
4.33 INSOLVENCY PROCEEDINGS...............................................................................29
4.34 BOOKS AND RECORDS....................................................................................29
4.35 YEAR 2000 COMPLIANCE.................................................................................29
4.36 SCHEDULES............................................................................................29
4.37 FULL DISCLOSURE......................................................................................29
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER AND ZALE...................................................29
5.1 ORGANIZATION AND GOOD STANDING.......................................................................29
5.2 POWER AND AUTHORITY..................................................................................30
5.3 BINDING EFFECT.......................................................................................30
5.4 NO VIOLATION; CONSENTS...............................................................................30
5.5 CONSENTS AND APPROVALS...............................................................................30
5.6 GST REGISTRATION.....................................................................................30
5.7 FULL DISCLOSURE......................................................................................30
ARTICLE 6 COVENANTS OF SELLER PENDING CLOSING....................................................................30
6.1 CONDUCT OF THE BUSINESS PENDING CLOSING..............................................................30
6.2 INTENTIONALLY DELETED................................................................................31
6.3 ACCESS TO THE BUSINESS...............................................................................31
6.4 UPDATES..............................................................................................32
6.5 DELIVERY OF BOOKS AND RECORDS........................................................................32
6.6 CHANGE THE USE OF NAME...............................................................................32
ARTICLE 7 CONDITIONS TO OBLIGATIONS OF PURCHASER.................................................................33
7.1 REPRESENTATIONS AND WARRANTIES.......................................................................33
7.2 PERFORMANCE OF AGREEMENTS............................................................................33
7.3 APPROVALS............................................................................................33
7.4 CONSENTS AND APPROVALS OF THIRD PARTIES..............................................................33
7.5 NO INJUNCTIONS.......................................................................................33
7.6 ORDINARY COURSE OF BUSINESS..........................................................................33
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 8 CONDITIONS TO OBLIGATIONS OF SELLER....................................................................34
8.1 REPRESENTATIONS AND WARRANTIES.......................................................................34
8.2 PERFORMANCE OF AGREEMENTS............................................................................34
8.3 APPROVALS............................................................................................34
8.4 CONSENTS AND APPROVALS OF THIRD PARTIES..............................................................34
8.5 NO INJUNCTIONS.......................................................................................34
ARTICLE 9 TERMINATION............................................................................................34
9.1 TERMINATION..........................................................................................34
9.2 CUT-OFF DATE.........................................................................................35
9.3 EFFECT OF TERMINATION................................................................................35
ARTICLE 10 OTHER AGREEMENTS OF THE PARTIES.......................................................................35
10.1 COMMERCIALLY REASONABLE EFFORTS......................................................................35
10.2 BROKERS; EXPENSES....................................................................................35
10.3 PUBLICITY AND CONFIDENTIALITY........................................................................35
10.4 TRANSFERRED EMPLOYEES................................................................................36
10.5 EXCLUSIVITY..........................................................................................36
10.6 BULK SALES ACT.......................................................................................37
10.7 TAX RETURNS AND AUDITS...............................................................................37
10.8 LITIGATION:..........................................................................................38
10.9 REIMBURSEMENT OF EXPENSES FOR SELLER POST-CLOSING....................................................38
10.10 ACKNOWLEDGEMENT......................................................................................38
ARTICLE 11 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION...........................................39
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES...........................................................39
11.2 NON-WAIVER...........................................................................................40
11.3 INDEMNIFICATION BY SELLER............................................................................40
11.4 INDEMNIFICATION BY PURCHASER.........................................................................40
11.5 ADMINISTRATION OF THIRD PARTY CLAIMS.................................................................41
11.6 MONETARY LIMITATIONS.................................................................................41
11.7 INSURANCE AND TAX LIMITATION.........................................................................42
11.8 SET-OFF UNDER ESCROW AGREEMENT.......................................................................42
11.9 EXCLUSION OF OTHER RIGHTS............................................................................42
11.10 OBLIGATIONS OF ZALE..................................................................................42
ARTICLE 12 MISCELLANEOUS.........................................................................................42
12.1 NOTICES..............................................................................................42
12.2 REASONABLE EFFORTS TO SETTLE DISPUTES................................................................44
12.3 ARBITRATION..........................................................................................44
12.4 WAIVER; AMENDMENT....................................................................................45
12.5 FURTHER ASSURANCES...................................................................................45
12.6 COUNTERPARTS; FAX SIGNATURES.........................................................................46
</TABLE>
(iii)
<PAGE> 5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into
this 2nd day of June, 1999, by and between ZALE CORPORATION, a Delaware
corporation ("Zale"), ZALE CANADA CO., a Nova Scotia corporation ("Purchaser"),
and PEOPLES JEWELLERS CORPORATION, an Ontario corporation ("Seller").
RECITALS:
A. Seller is engaged in the retail sale of fine jewelry and watches throughout
Canada and all business which is incidental or ancillary thereto (collectively,
the "Business").
B. Pursuant to the terms and conditions contained herein, Seller desires to sell
to Purchaser, and Purchaser desires to purchase from Seller, substantially all
of the property and assets owned, leased or licensed by Seller and used by
Seller in connection with the operation of the Business.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the premises, the mutual
promises, covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties hereby agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINED TERMS. For the purposes of this Agreement, unless the context
otherwise requires, the following terms shall have the respective meanings set
out below and grammatical variations of such terms shall have corresponding
meanings:
(a) "ACT" means the Business Corporations Act (Ontario) as in effect on
the date hereof;
(b) "AFFILIATE" has the meaning given to that term in the Act;
(c) "AGREEMENT" means this asset purchase agreement and all Schedules and
Exhibits attached hereto and which are incorporated herein by
reference;
(d) "ASSETS" has the meaning set out in section 2.1;
(e) "ASSUMED LIABILITIES" has the meaning set out in section 2.3;
(f) "ASSUMPTION AGREEMENT" has the meaning set out in section 3.6(b);
(g) "AUDITED FINANCIAL STATEMENTS" means the audited financial statements
of Seller as of March 28, 1998 and March 27, 1999, including the notes
thereto and the report of Seller's auditors thereon, copies of which
are annexed hereto as Schedule 4.9;
<PAGE> 6
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(h) "BILL OF SALE" has the meaning set out in section 3.4(a);
(i) "BNS" has the meaning set out in section 3.4(j);
(j) "BNS LEASE" means the Scotia Leasing Lease-Fixed Rate between Seller
and BNS dated April 5, 1999.
(k) "BOOK INVENTORY" has the meaning set out in section 2.6(a);
(l) "BRACEWELL CONSULTING AGREEMENT" means the consulting agreement
between J.A. Bracewell Consulting Inc. and Seller dated December 19,
1997, as amended by agreement dated January 12, 1999;
(m) "BULK SALES LEGISLATION" has the meaning set out in section 10.6;
(n) "BUSINESS" has the meaning set out in paragraph A under the heading
"Recitals" on page 1 of this Agreement;
(o) "BUSINESS DAY" means any day, other than a Saturday or a Sunday, on
which the main branch of Bank of Nova Scotia in Toronto is open for
business;
(p) "CLOSING" means the completion of the transaction of purchase and sale
contemplated in this Agreement;
(q) "CLOSING DATE" means June 2, 1999 or such other date as Seller and
Purchaser may mutually determine;
(r) "COMMISSIONER" means the Commissioner of Competition appointed under
the Competition Act (Canada), as amended from time to time;
(s) "COMPETITION ACT APPROVAL" means either
(i) the issuance of an Advance Ruling Certificate by the Commissioner
under section 102 of the Competition Act (Canada); or
(ii) receipt by Purchaser of written notification from the
Commissioner;
to the effect that the Commissioner is satisfied that he would not
have sufficient grounds upon which to apply to the Competition
Tribunal for an order under section 92 of the Competition Act (Canada)
with respect to the transaction contemplated by this Agreement;
(t) "CONSIGNMENT INVENTORY" has the meaning set out in section 4.11;
(u) "CONTRACT" has the meaning set out in section 2.1(e);
(v) "CREDIT AGREEMENT" has the meaning set out in section 2.4(d);
<PAGE> 7
-3-
(w) "CUT-OFF DATE" has the meaning set out in section 9.2;
(x) "DISPUTE" has the meaning set out in section 12.2;
(y) "EFFECTIVE TIME" means 12:01 a.m. (Toronto time) on May 23, 1999;
(z) "EMPLOYEE PLANS" has the meaning set out in section 4.23;
(aa) "EMPLOYEES" has the meaning set out in section 4.22;
(bb) "ENVIRONMENTAL LAW" means the common law, any law, bylaw, order,
ordinance, ruling, regulation, certificate, approval or consent of any
applicable federal, provincial or municipal government, governmental
department, agency or regulatory authority or any court of competent
jurisdiction, relating to protection of the environment or public
health;
(cc) "ENVIRONMENTAL PERMITS" has the meaning set out in section 4.13A;
(dd) "ESCROW AGENT" means CIBC Mellon Trust Company;
(ee) "ESCROW AGREEMENT" means an escrow agreement substantially in the form
of Exhibit A dated as of the Closing Date entered into among Seller,
Purchaser and Escrow Agent;
(ff) "ETA" means Part IX of the Excise Tax Act (Canada), as amended from
time to time;
(gg) "EXCLUDED ASSETS" has the meaning set out in section 2.2;
(hh) "EXCLUDED LIABILITIES" has the meaning set out in section 2.4;
(ii) "FACILITY LEASES" has the meaning set out in section 4.12;
(jj) "GST" means all taxes payable under the ETA or under any provincial
legislation similar to the ETA, and any reference to a specific
provision of the ETA or any such provincial legislation shall refer to
any successor provision thereto of like or similar effect;
(kk) "INDEMNIFIED PARTY" has the meaning set out in section 11.5;
(ll) "INDEMNIFYING PARTY" has the meaning set out in section 11.5;
(mm) "INTELLECTUAL PROPERTY" has the meaning set out in section 2.1(c);
(nn) "INTERIM FINANCIAL STATEMENTS" means the unaudited financial
statements of Seller as at and for the two month period ended May 22,
1999;
(oo) "INVENTORY AGENT" has the meaning set out in section 2.6;
<PAGE> 8
-4-
(pp) "INVENTORY COST" has the meaning set out in section 2.6(a);
(qq) "LAWS" has the meaning set out in section 4.18;
(rr) "LEASED ASSETS" has the meaning set out in section 4.11;
(ss) "LEASE ASSIGNMENT AGREEMENT" has the meaning set out in section
3.4(h);
(tt) "LICENCES" has the meaning set out in section 4.19;
(uu) "LIENS" means any encumbrance, lien, charge, hypothec, pledge,
mortgage, title retention agreement, adverse claim, security
interest of any nature, or any other arrangement or condition, in
each case which, in substance, secures payment or performance of an
obligation;
(vv) "LOSSES" means all claims, demands, losses, damages, liabilities,
costs, penalties, fines, and expenses of any kind or nature
(including, without limitation, all legal and other professional
fees and disbursements, interest and penalties);
(ww) "MATERIAL CONTRACT" means
(i) any Contract involving payments to or by Seller in excess of
$10,000; or
(ii) any Contract the original term of which extends beyond one
year and which cannot be terminated by Seller without penalty
on less than 30 days notice;
(xx) "OPERATING CREDIT" has the meaning given to such term in the Credit
Agreement dated as of September 24, 1993 between Seller and BNS, as
amended;
(yy) "PARTIES" means, collectively, Seller, Purchaser and Zale, and
"PARTY" means any one of them;
(zz) "PERMITTED ENCUMBRANCES" means the Liens set out in Schedule
1.1(zz);
(aaa) "PHYSICAL INVENTORY" has the meaning set out in section 2.6
(bbb) "PREMISES" means the premises leased under the Facility Leases as
set out in Schedule 4.12;
(ccc) "PRINCIPAL RESTRICTIVE COVENANT AGREEMENT" has the meaning set out
in section 3.4(f);
(ddd) "PROCEEDING" has the meaning set out in section 10.8(a);
(eee) "PROHIBITED TRANSACTION" has the meaning set out in section 10.5;
(fff) "PURCHASE PRICE" has the meaning set out in section 2.5;
<PAGE> 9
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(ggg) "PURCHASER CLAIM" has the meaning set out in section 11.3;
(hhh) "PURCHASE PRICE ADJUSTMENT" has the meaning set out in section 2.6;
(iii) "REAL PROPERTY" has the meaning set out in section 4.12;
(jjj) "RECEIVABLES" has the meaning set out in section 2.1(f);
(kkk) "RECONCILIATION" has the meaning set out in section 2.6;
(lll) "SAMPSON CONSULTING AGREEMENT" means the consulting agreement
between Patrick Sampson & Associates and Seller dated February 16,
1998 as extended by the agreement dated February 16, 1999.
(mmm) "SELLER RESTRICTIVE COVENANT AGREEMENT" has the meaning set out in
section 3.4(e);
(nnn) "SUPPLEMENT" has the meaning set out in section 6.4;
(ooo) "SYSTEMS AND SOFTWARE" means computer hardware, software and
firmware owned, licensed or leased by Seller and used in connection
with the Business;
(ppp) "TAX ACT" means the Income Tax Act (Canada), as amended from time to
time;
(qqq) "THIRD PARTY CLAIM" has the meaning set out in section 11.5;
(rrr) "TIME OF CLOSING" has the meaning set out in section 3.2;
(sss) "TRANSFERRED EMPLOYEES" has the meaning set out in section 10.4;
(ttt) "YEAR 2000 COMPLIANT" means with respect to any of the Systems and
Software, that the Systems and Software are able to correctly:
(i) process date and time related data without causing any
processing interruptions, abnormal terminations, or changes in
performance characteristics including, without limitation,
(A) process date and time related data before, during and
after January 1, 2000, accepting date and time input,
providing date and time output, and performing ongoing
operations on dates and times and portions of dates and
times including, but not limited to, calculating,
comparing and sequencing of dates and times (in both
forward and backward operations spanning century
boundaries); and
(B) process leap year calculations including, but not
limited to, identification of leap years, interval
calculations (in both forward and backward operations
spanning century boundaries), day-in-year
<PAGE> 10
-6-
calculation, day-of-the-week calculations, and
week-of-the-year calculations; and
(ii) process and manipulate all date and time related
functions including, without limitation,
(A) manipulate all date and time related input in a
manner that resolves ambiguity as to century, and
(B) store, retrieve and provide output of date and
time related data in a manner that is unambiguous
as to century.
(uuu) "YEAR 2000 PLAN" has the meaning set out in section 4.35.
1.2 CURRENCY. Unless otherwise indicated, all dollar amounts in this Agreement
are expressed in Canadian funds.
1.3 SECTIONS AND HEADINGS. The titles, captions and headings contained in this
Agreement are inserted for convenience of reference only and are not intended to
be a part of or to affect in any way the meaning or interpretation of this
Agreement. Numbered or lettered Articles, sections, Schedules and Exhibits
herein contained refer to Articles, sections, Schedules and Exhibits of this
Agreement unless otherwise expressly stated. The words "herein," "hereof,"
"hereunder," "hereby," "this Agreement" and other similar references shall be
construed to mean and include this Agreement and all amendments to this
Agreement unless the context shall clearly indicate or require otherwise.
1.4 NUMBER, GENDER AND PERSONS. In this Agreement, words importing the singular
number only shall include the plural and vice versa, words importing gender
shall include all genders and words importing persons shall include individuals,
corporations, partnerships, associations, trusts, unincorporated organizations,
governmental bodies and other legal or business entities of any kind whatsoever.
1.5 ACCOUNTING PRINCIPLES. Any reference in this Agreement to generally accepted
accounting principles refers to generally accepted accounting principles that
have been established in Canada, including those approved from time to time by
the Canadian Institute of Chartered Accountants or any successor body thereto.
1.6 ENTIRE AGREEMENT. This Agreement, any agreement, document or instrument
delivered pursuant hereto and the confidentiality agreement referred to in
section 10.3 contain the entire agreement and understanding concerning the
subject matter hereof among the Parties and specifically supersede any other
agreement or understanding among the Parties related to the subject matter
hereof including, without limitation, the letter of intent dated March 16, 1999
between Seller and Zale. There are no conditions, covenants, agreements,
representations, warranties or other provisions, express or implied, collateral,
statutory or otherwise, relating to the subject hereof except as herein provided
or as provided for in any agreement, document or instrument delivered pursuant
hereto, or in such confidentiality agreement. If there is any inconsistency or
conflict between the provisions of this Agreement and the provisions of any
<PAGE> 11
-7-
agreement, document or instrument delivered pursuant hereto, the provisions of
this Agreement shall prevail.
1.7 TIME OF ESSENCE. Time shall be of the essence of this Agreement.
1.8 APPLICABLE LAW AND AGENT FOR SERVICE. This Agreement shall be construed,
interpreted and enforced in accordance with, and the respective rights and
obligations of the parties shall be governed by, the laws of the Province of
Ontario and the federal laws of Canada applicable therein, and each Party
irrevocably and unconditionally submits to the non-exclusive jurisdiction of the
courts of such province and all courts competent to hear appeals therefrom. Zale
hereby appoints Chris Eustace, a partner with the law firm Morris/Rose/Ledgett,
as agent for service of process with respect to any matter arising under or
related to this Agreement or any agreement, document or instrument delivered
pursuant hereto, or the confidentiality agreement referred to in section 10.3.
1.9 SEVERABILITY. If any provision of this Agreement shall be held void,
voidable, invalid or inoperative by a court of competent jurisdiction, no other
provision of this Agreement shall be affected as a result thereof, and,
accordingly, the remaining provisions of this Agreement shall remain in full
force and effect as though such void, voidable, invalid or inoperative provision
had not been contained herein.
1.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
inure to the benefit of the Parties and their respective successors and
permitted assigns. None of the Parties may assign this Agreement, in whole or in
part, without the prior written consent of the other Parties provided, however,
that Purchaser may assign this Agreement to a subsidiary of Zale at any time
prior to the Time of Closing without the consent of Seller; provided further,
that any such assignment shall not relieve Purchaser or Zale of any liability or
obligation hereunder. Any attempted assignment not in accordance herewith shall
be null and void and of no force or effect.
1.11 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of this
Agreement shall be binding on any Party unless consented to in writing by such
Party. No waiver of any provision of this Agreement shall constitute a waiver of
any other provision nor shall any waiver constitute a continuing waiver unless
otherwise provided.
1.12 INTERPRETATION. This Agreement shall not be construed more strictly against
any Party hereto regardless of which Party is responsible for its preparation,
it being agreed that this Agreement was fully negotiated by the Parties.
1.13 DEFINITION OF KNOWLEDGE. Any reference in this Agreement or in any
certificate delivered pursuant hereto to Seller's knowledge (whether to "the
best of" Seller's knowledge or other similar expressions relating to the
knowledge or awareness of Seller) means all matters which any officer of Seller
actually knew or should reasonably have known after making diligent inquiry of:
(a) Carolyn Leonetti, in respect of financial matters;
(b) Pat Sampson, in respect of the Premises and the Facility Leases;
<PAGE> 12
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(c) Judy Bracewell, in respect of Systems and Software forming part of
the Intellectual Property; and
(d) Anna DiRuscio and Susan Stitt, in respect of Employees and Employee
Plans.
For purposes hereof, the officers of Seller are E. Duff Scott, Clare R.
Copeland, Howard E. Board, Dominic Guglielmi, Mary Kreuk, Tanya Boyd-Saffran and
Brian C. Land.
1.14 SCHEDULES AND EXHIBITS. The following Schedules and Exhibits are attached
to and form part of this Agreement:
Schedule 1.1(zz) - Permitted Encumbrances
Schedule 2.1(i) - Prepaid Expenses
Schedule 2.1(j) - Telephone Numbers, etc.
Schedule 2.3 - Assumed Liabilities
Schedule 2.7 - Allocation of Purchase Price
Schedule 3.4(g) - Security Interests to be Released
Schedule 3.4(n) - BNS Lease - Payout Calculation
Schedule 4.6 - Seller Consents and Approvals
Schedule 4.9 - Financial Statements
Schedule 4.11 - Inventory on Consignment
Schedule 4.12 - Facility Leases and Lease Summaries
Schedule 4.13 - Intellectual Property
Schedule 4.14 - Receivables Written Off
Schedule 4.15 - Material Contracts
Schedule 4.16 - Ordinary Course of Business
Schedule 4.17 - Litigation
Schedule 4.19 - Permits and Licences
Schedule 4.21 - Insurance
Schedule 4.22 - Employees
Schedule 4.22A - Employee Loans to be Assigned
Schedule 4.22B - Employee Share Purchase Loans
Schedule 4.23 - Employee Benefits
Schedule 4.23A - Accelerated Payments
Schedule 4.26 - Workers' Compensation
Schedule 4.29 - Bank Accounts
Schedule 4.32 - Product Warranties, etc.
Schedule 4.35 - Year 2000 Plan
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of Bill of Sale and General Conveyance
Exhibit C - Form of Seller's Counsel's Opinion
Exhibit C1 - Forms of Local Counsel Opinions
Exhibit D - Form of Seller Restrictive Covenant Agreement
Exhibit E - Form of Principal Restrictive Covenant Agreement
Exhibit F - Form of Assumption Agreement
Exhibit G - Form of Troutman Sanders LLP Opinion
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Exhibit H - Form of Morris/Rose/Ledgett Opinion
Exhibit I - Form of Lease Assignment Agreement
Exhibit J - Form of BNS Certificate
Exhibit K - Form of Employee Release
Exhibit L - Form of Offer of Employment (Share Purchase Loan Employees)
Exhibit M - Form of BNS Release
Exhibit N - Form of Offer of Employment (T. Boyd-Saffran and E. McGrath)
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 TRANSFER OF ASSETS. Upon the terms and subject to the conditions contained
herein, effective as at the Effective Time, Seller shall sell, assign and convey
to Purchaser, and Purchaser shall purchase from Seller, all of its right, title
and interest in and to the Assets, free and clear of any and all Liens save and
except for the Permitted Encumbrances. For purposes of this Agreement, "Assets"
shall mean all of the assets, properties and rights existing on the Closing Date
owned, leased or licensed by Seller and used by Seller in connection with the
operation of the Business, other than the Excluded Assets, whether real or
personal, tangible or intangible, of every kind and description and wheresoever
situate including, without limitation, the following:
(a) all cash on hand (including the cash float at each of the Premises),
amounts on deposit in bank accounts, amounts held in trust for or on
behalf of Seller, cheques, credit card receipts and other cash
equivalents and marketable securities, including cash on hand of
Seller, collected as GST, provincial sales taxes and Employee source
deductions;
(b) all machinery, equipment, vehicles, office equipment, computer
hardware, furniture, fixtures and other tangible personal property;
(c) all registered and unregistered trademarks, trademark applications,
service marks, logos, trade dress, trade names, business names,
patents, patent applications, copyrightable works, copyrights,
processes, designs, inventions, customer lists, dealer networks,
trade secrets, know-how, computer programs and software (and to the
extent assignable, all rights under licences and other agreements
and instruments relating thereto), trade secrets, confidential
business information, and other intellectual property owned or
licensed and used by Seller in connection with the operation of the
Business, including, without limitation, the names "Peoples
Jewellers" and "Mappins Jewellers," and to the extent assignable all
of Seller's rights in and to any intellectual property licensed to
Seller by any other person (all of the foregoing referred to
collectively as "Intellectual Property") including, without
limitation, the Intellectual Property referred to in Schedule 4.13;
(d) to the extent assignable, all Licences;
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(e) to the extent assignable, all of Seller's rights under all
agreements, covenants, options, chattel leases, guaranties, orders
or contracts (other than Facility Leases and any agreement,
covenant, option, chattel lease, guarantee or contract relating to
the Excluded Assets or the Excluded Liabilities) for the provision
of goods or services and other similar instruments and arrangements,
whether oral or written, to which Seller is a party or by which
Seller or its assets (other than Excluded Assets) are bound
(collectively, the "Contracts") including, without limitation, those
referred to in Schedule 4.15;
(f) all accounts receivable, notes receivable, book debts, amounts due
from suppliers (including volume discount rebates and the net
realizable value of warranty claims) undelivered refunds including
any duty drawback and any other tax refunds (except for refunds in
respect of Seller's income or capital taxes and those refunds
relating to any of the other taxes referred to in section 2.4(b),
the processing of which has not been commenced prior to the Closing
Date) and other receivables and debts due or accruing due to Seller
in connection with the Business including the Employee receivables
set forth in Schedule 4.22A but excluding the Employee receivables
set forth in Schedule 4.22B, and the benefit of all rights under all
security documents, instruments and other agreements relating
thereto (collectively, "Receivables");
(g) all inventories, merchandise, stock-in-trade, finished goods,
work-in-process, raw materials, supplies, packaging materials and
spare and replacement parts;
(h) to the extent assignable, all of Seller's rights under the Facility
Leases set forth in Schedule 4.12, together with all of Seller's
rights in the leasehold improvements relating thereto;
(i) all prepaid expenses and all prepaid security and other deposits
which included, as at March 27, 1999, those referred to in Schedule
2.1(i);
(j) all telephone and facsimile numbers which included, as of April 1,
1999, those referred to in Schedule 2.1(j) and all e-mail addresses
and Internet websites, domain names and addresses including, without
limitation, those listed in Schedule 2.1(j);
(k) all books and records (other than the books and records of Peoples
Jewellers Limited, the minute books of Seller, the income and
capital tax books and records of Seller and books and records of
Seller required by law to be retained by the Seller, copies of which
books and records will be made available to Purchaser upon request),
including, without limitation, customer lists and databases, sales
records, price lists and catalogues, sales literature, advertising
material, marketing materials, manufacturing data, production
records, employee manuals, personnel records, supply records,
inventory records and correspondence files related thereto (together
with, in the case of any such information that is stored
electronically, the media on which the same is stored);
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(l) all claims, refunds, causes of action, choses in action, rights of
recovery, rights of set off and rights of recoupment relating to the
Business or any of the other Assets (except in respect of Seller's
income or capital tax refunds and those refunds relating to any of
the other taxes referred to in section 2.4(b), the processing of
which has not been commenced prior to the Closing Date) against any
other person and the full benefit of all warranties and warranty
rights (express, implied or otherwise) against manufacturers,
suppliers or sellers which apply to any of the other Assets;
(m) all goodwill related to the Business, together with the exclusive
right for Purchaser to represent itself as carrying on the Business
in succession to Seller and the right to use any words indicating
that the Business is so carried on, including the exclusive right to
use the names "Peoples Jewellers" and "Mappins Jewellers", or any
variation thereof, as part of the corporate name, business name or
style under which the Business or any part thereof is carried on by
Purchaser; and
(n) all other tangible and intangible assets of any kind or description,
wherever located, that are owned and used by Seller in connection
with the operation of the Business.
2.2 EXCLUDED ASSETS. Only the following assets (the "Excluded Assets") are being
retained by Seller and not sold to Purchaser pursuant to this Agreement:
(a) the books and records of Peoples Jewellers Limited;
(b) the minute books and corporate records of Seller;
(c) the original income and capital tax books and records of Seller;
(d) books and records of Seller required by law to be retained by
Seller;
(e) any refunds in respect of Seller's income or capital tax and those
refunds relating to any of the other taxes referred to in section
2.4(b), the processing of which has not commenced prior to the
Closing Date;
(f) any amounts owing to Seller by Employees or former employees of
Seller or Peoples Jewellers Limited in respect of share purchase
loans made to such persons by Seller or Peoples Jewellers Limited
(predecessor to the Business), including those referred to in
Schedule 4.22B;
(g) all insurance policies relating to directors and officers liability
including, without limitation, Chubb Insurance Company of Canada
Policy Number 8141-57-98C, American Home Insurance Company Policy
Number 4492108 and Reliance Insurance Company Policy Number TDO
0002730 and all insurance policies providing life insurance for E.
Duff Scott, Clare R. Copeland or Howard E. Board
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including, without limitation, Canada Life Assurance Company Policy
Numbers 3338841, 3338843 and 3338847;
(h) the 1998 Audi A6, the 1998 Toyota Camry XLE and the 1998 Cadillac
Seville STS Sedan leased by Seller pursuant to the Motor Vehicle
Lease between Foss National Leasing (a division of Roy Foss Motors
Ltd.) and Seller dated November 16, 1993;
(i) the shareholders agreement relating to Seller;
(j) the option agreement pursuant to which BNS holds options to acquire
shares in Seller; and
(k) the direction from KPMG Inc. (formerly Peat Marwick Thorne Inc.) in
its capacity as Receiver and Manager of Peoples Jewellers Limited
("KPMG") to, among others, Seller and dated January 23, 1998 and the
assignment agreement made as of the 8th day of August, 1998 between
KPMG and Seller.
2.3 ASSUMED LIABILITIES. Upon the terms and subject to the conditions contained
herein and subject to the Closing, Purchaser shall assume and shall pay,
satisfy, perform, discharge and fulfil, as and from the Effective Time, all of
the liabilities and obligations of Seller with respect to the Business and the
Assets (other than the Excluded Liabilities) (collectively, the "Assumed
Liabilities") listed on Schedule 2.3 in accordance with their respective terms.
2.4 EXCLUDED LIABILITIES. Notwithstanding anything else contained herein to the
contrary, Purchaser shall not assume and shall have no obligation to pay,
satisfy, perform, discharge or fulfil any of the following liabilities or
obligations of Seller (whether known or unknown, liquidated or unliquidated,
contingent or fixed) other than the Assumed Liabilities (collectively, the
"Excluded Liabilities"). The Excluded Liabilities shall remain the liabilities
and obligations of Seller and shall not be assumed by Purchaser pursuant hereto
(regardless of whether any such liabilities or obligations are disclosed in this
Agreement). Seller hereby agrees that it shall fully and timely pay, satisfy,
perform and discharge all of the Excluded Liabilities in accordance with their
respective terms. Without limiting the generality of the foregoing, Excluded
Liabilities include the following:
(a) any liability or obligation related to the Excluded Assets;
(b) any liability or obligation for any of Seller's income or capital
taxes owed by Seller and, subject to section 2.9, any liability or
obligation for any sales, use, excise, GST or other taxes
(including, without limitation, income taxes, withholding taxes and
employment and payroll taxes) arising prior to or in connection with
the consummation of the transactions contemplated by this Agreement,
other than those liabilities and obligations of Seller included in
Assumed Liabilities referred to in section 2.3;
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(c) except as otherwise expressly provided for herein, any liability or
obligation of Seller for costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby;
(d) any liability or obligation of Seller under the Credit Agreement
dated as of September 24, 1993 between Seller and BNS, as amended
(the "Credit Agreement") including, without limitation, liabilities
and obligations relating to the Term Credit and the Vendor Take-Back
Note (as those terms are defined in the Credit Agreement) but
excluding liabilities and obligations relating to the Operating
Credit;
(e) any liability or obligation of Seller in respect of the employee
share purchase loan arrangements with Seller including, without
limitation, those on Schedule 4.22B;
(f) any liability or obligation of Seller relating to the guaranty by
Seller of any third party obligations;
(g) if Euan McGrath and Tanya Boyd-Saffran accept Purchaser's offers of
employment made in accordance with section 10.4, any liability or
obligation arising out of the transactions contemplated by this
Agreement including, without limitation, in respect of the change of
control arrangements between each of Euan McGrath and Tanya
Boyd-Saffran and Seller;
(h) any liability or obligation in respect of Euan McGrath and Tanya
Boyd-Saffran if either one does not accept Purchaser's offer of
employment made in accordance with section 10.4 and substantially in
the form of Exhibit N;
(i) any liability or obligation in respect of any Employee listed in
Schedule 4.22B who rejects the Purchaser's offer of employment made
in accordance with section 10.4 and substantially in the form of
Exhibit N; and
(j) any liability or obligation in respect of the sale by Seller of the
real property located on Sparks Street, Ottawa, Ontario.
2.5 PURCHASE PRICE. Subject to the terms and conditions contained herein, the
aggregate purchase price payable by Purchaser to Seller for the Assets shall be
$115,000,000 (the "Purchase Price"), subject to adjustment pursuant to sections
2.6 and 10.2. At Closing, the Purchase Price shall be paid as follows:
(a) $110,000,000 (less any adjustment pursuant to sections 2.6 and 10.2)
by bank draft payable to Seller or by wire transfer of immediately
available funds to such bank account as may be designated to
Purchaser in writing by Seller at least two (2) Business Days prior
to the Closing; and
(b) $5,000,000 by bank draft payable to Escrow Agent or by wire transfer
of immediately available funds to an account designated to Purchaser
by the Escrow Agent at least two (2) Business Days prior to the
Closing, such $5,000,000 to be
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held (and released) by Escrow Agent pursuant to the terms of the
Escrow Agreement
2.6 PURCHASE PRICE ADJUSTMENT - INVENTORY COUNT.
(a) For purposes hereof, the following terms shall have the following
meanings:
(i) "BOOK INVENTORY" shall mean the amount of the Seller's
inventory as per the Seller's accounting records as at the
physical inventory cut-off date, valued at Inventory Cost net
of reserves for damages, break-up or gold melt; but before any
reserves for "shrink" or obsolescence; such reserves being
listed on Seller's books and determined in accordance with
past practice applied on a consistent basis; and
(ii) "INVENTORY COST" shall mean the weighted average specific cost
of each individual item or article of merchandise determined
by Seller's SAP inventory system and in accordance with
generally accepted accounting principles.
(b) Prior to the Closing, the Parties shall cause Western Inventory
Service or such other independent person or entity as the Parties
may mutually agree (the "Inventory Agent") to conduct a physical
count of Seller's inventory located at the Premises (the "Physical
Inventory"). For the purposes hereof, Seller's inventory shall
include all inventory on hand including Consignment Inventory. Any
damaged inventory or inventory sent out for repair and listed on the
store's repair log will be included in the count and identified with
a specific location code which will allow for a separate detailed
listing of all such inventory. Purchaser shall have the right to
monitor any and all portions of the Physical Inventory. The
Inventory Agent will use its best efforts to complete the Physical
Inventory during the period from May 13 through May 19, 1999. The
Seller shall properly identify to the Inventory Agent all
merchandise that is not of quality useable and saleable in the
ordinary course of the Business (the "Excluded Inventory") and the
Inventory Agent shall be instructed not to include such Excluded
Inventory in the Physical Inventory.
(c) Immediately following the Inventory Count, the Parties shall prepare
a reconciliation of the Seller's inventory (the "Reconciliation")
comparing the amount of the Physical Inventory to the amount of
inventory prior to any reserve listed on Seller's books as at the
physical inventory cut-off date. In preparing the Reconciliation,
the Parties shall initially value the Physical Inventory at the
retail price and a comparison shall be made to the retail book
inventory for each location. A preliminary overage or shortage will
be calculated for each location using cost of sales percentage for
the month of April 1999 applied against the above-noted retail
overage or shortage.
A cumulative summary of such overages and shortages will be
maintained during the period of the physical counts. The final
valuation for each location's Physical
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Inventory will be made using the Inventory Cost for each item.
Damaged inventory or inventory sent out for repair and identified
during the physical count will be revalued in aggregate at Inventory
Cost net of an appropriate provision for damages, break-up or gold
melt in accordance with the Seller's historical accounting practice
for this type of merchandise and as agreed to by Purchaser. The
aggregate Physical Inventory valued at Inventory Cost net of
appropriate provisions for damages, break-up or gold melt will be
compared to the Seller's Book Inventory. If there is a shortage as
determined above, and if the amount of this shortage exceeds the sum
of "shrink" reserves listed on Seller's books plus 0.5% of the Book
Inventory; then the excess amount will be considered as the final
inventory shortfall subject to a purchase price adjustment. The
Purchase Price shall accordingly be reduced by the amount of such
final inventory shortfall (such amount, the "Purchase Price
Adjustment") and the allocation provided for in section 2.7 shall
accordingly be adjusted. The Parties agree that the Closing is
conditional upon the Physical Inventory and the Reconciliation
having been completed and all matters in respect of Physical
Inventory having been resolved to the satisfaction of the Parties in
accordance herewith.
(d) The cost of the Physical Inventory shall be borne by Purchaser.
2.7 ALLOCATION OF PURCHASE PRICE. Seller and Purchaser agree to allocate the
Purchase Price among the Assets in accordance with Schedule 2.7 and to report
the sale and purchase of the Assets for all federal, provincial and local tax
purposes in a manner consistent with such allocation, subject to any adjustment
made pursuant to Sections 2.6 and 10.2 hereof.
2.8 GST ELECTIONS. Purchaser and Seller shall elect jointly under subsection
167(1) of the ETA and section 75 of the Quebec Sales Tax ("QST") legislation, in
the form prescribed for purposes of each of those sections, in respect of the
sale and transfer of the Assets hereunder, and the Purchaser shall file such
election in its GST and QST returns, respectively for its reporting period that
includes the Closing Date.
2.9 TRANSFER TAXES. Purchaser shall be liable for and shall pay all federal and
provincial sales taxes (including any retail sales taxes), GST and all other
taxes, duties, fees or other like charges of any jurisdiction properly payable
in connection with the transfer of the Assets by Seller to Purchaser, excluding
any income taxes for which Seller is liable in connection with such transfer.
Where applicable, Purchaser shall have the right to furnish to Seller at the
Time of Closing appropriate certificates, exempting such transfer of Assets from
any such taxes, duties, fees and other like charges.
2.10 INCOME TAX ELECTION. Purchaser and Seller agree to elect jointly in the
prescribed form under section 22 of the Tax Act as to the sale of the accounts
receivable and any other debt receivables described in section 22 of the Tax Act
and to designate in such election the amount equal to the portion of the
Purchase Price allocated to such receivables pursuant to section 2.7 hereof as
the consideration paid by the Purchaser therefor.
2.11 REMITTANCE OF TAXES. Purchaser shall prepare and file all applicable
returns, filings and reports relating to, and shall remit, all taxes or
withholdings collected or deducted by Seller prior
<PAGE> 20
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to the Closing Date and not required to be filed or remitted prior to the
Closing Date including, without limitation, all sales, use or excise taxes, all
GST, all employee income taxes, employment insurance contributions, Canada
Pension Plan contributions, Quebec Pension Plan contributions, provincial
employer and employee health taxes and other taxes and deductions.
ARTICLE 3
CLOSING
3.1 TRANSFER. Subject to the terms and conditions hereof and to the Closing, the
transfer of the Assets hereunder shall be deemed to take effect as at the
Effective Time.
3.2 CLOSING DATE. Subject to the terms and conditions hereof, the Closing shall
be held at the offices of Purchaser's Canadian counsel, Morris/Rose/Ledgett,
located at Suite 2600, 161 Bay Street, Toronto, Ontario M5J 2S1 Canada, at 10:30
a.m. local time on the Closing Date, or at such other time (the "Time of
Closing") or place as the Parties shall mutually agree.
3.3 RISK OF LOSS. From the date hereof up to the Time of Closing, the Assets
shall be and remain at the risk of Seller. If, prior to the Time of Closing, all
or any part of the Assets that are necessary to carry on the Business as
currently conducted are destroyed or damaged by fire or any other casualty or
shall be appropriated, expropriated or seized by governmental or other lawful
authority, unless Purchaser terminates its obligations under this Agreement as
contemplated by section 9.1, Purchaser shall complete the purchase without
reduction of the Purchase Price, in which event all proceeds of insurance or
compensation for expropriation or seizure received by Seller prior to the
Closing Date shall be transferred to Purchaser at the Closing and all right and
claim of Seller to any such amounts not received by Seller by the Closing Date
shall be assigned at the Closing to Purchaser.
3.4 DELIVERIES OF SELLER. At the Closing, Seller shall deliver to Purchaser each
of the following:
(a) A bill of sale and general conveyance substantially in the form of
Exhibit B (the "Bill of Sale"), and such other assignments, notices,
documentation and other instruments of transfer and conveyance, in
form and substance reasonably satisfactory to Purchaser, necessary
to sell, transfer and assign the Assets to Purchaser; provided that
the terms of such other assignments, notices, documents and
instruments of transfer and conveyance are consistent with terms of
this Agreement.
(b) A copy of the Escrow Agreement executed by Seller.
(c) An opinion of Stikeman, Elliott, counsel to Seller, dated as of the
Closing Date, addressed to Purchaser, substantially in the form of
Exhibit C, together with opinions of local counsel in support
thereof substantially in the forms attached as Exhibit C1.
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(d) A certificate of an officer of Seller (without personal liability),
in form and substance reasonably satisfactory to Purchaser, dated as
of the Closing Date, certifying to the fulfilment of the conditions
set forth in sections 7.1, 7.2 and 7.6.
(e) A restrictive covenant agreement substantially in the form of
Exhibit D (the "Seller Restrictive Covenant Agreement") which has
been executed by Seller.
(f) A restrictive covenant agreement substantially in the form of
Exhibit E (the "Principal Restrictive Covenant Agreement") which has
been executed by Clare R. Copeland and Howard E. Board.
(g) A release and discharge of the security interests set forth in
Schedule 3.4(g), and, if appropriate, a waiver by such secured
parties of compliance with Bulk Sales Legislation, all in form and
substance satisfactory to Purchaser, acting reasonably.
(h) A lease assignment agreement executed by Seller, substantially in
the form of Exhibit I (the "Lease Assignment Agreement"), in respect
of all Facility Leases containing, or together with, any applicable
required consent to the assignment, if obtained prior to the Closing
Date.
(i) An assignment of the employment agreements between Seller and each
of Clare R. Copeland, Howard E. Board, E. Duff Scott and Mary Kreuk
together with the applicable consent to such assignment required
under each such agreement, in form and substance reasonably
satisfactory to Purchaser.
(j) A certificate from Bank of Nova Scotia ("BNS") confirming that as at
the Closing Date, it has not exercised its option rights to acquire
and hold, directly or indirectly, shares in the capital of Seller
and confirmation that as at the Closing Date it is not an
"Affiliate" of Seller as defined in the Competition Act (Canada),
substantially in the form of Exhibit J.
(k) Copies of the Interim Financial Statements, together with any other
information reasonably requested by Purchaser in respect thereof.
(l) A Statement of Expenses and corresponding Purchase Price Adjustment
in accordance with Section 10.2, together with such supporting
documentation as is reasonably requested by Purchaser in respect
thereof.
(m) An Assignment of the BNS Lease together with consent of BNS to such
assignment, in form and substance satisfactory to Purchaser, acting
reasonably.
(n) Upon payment to BNS of the amount set forth in Schedule 3.4(n) in
respect of the BNS Lease, a release substantially in the form of
Exhibit M, from BNS in favour of Seller and Purchaser of any
liabilities and obligations pursuant to the BNS Lease and of any
right, title or interest of BNS in the Assets leased thereunder.
(o) INTENTIONALLY DELETED
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(p) Copies of Articles of Amendment, in registerable form, changing
names of Seller and any of its Affiliates that include the words
"Peoples Jewellers" or any part thereof, together with any required
filing fee, and cancellations of all business name registrations
held by Seller (in registerable form) all in form and substance
satisfactory to Purchaser, acting reasonably.
(q) An assignment of the Sampson Consulting Agreement and the Bracewell
Consulting Agreement together with consents to such assignments, in
form and substance satisfactory to Purchaser, acting reasonably.
(r) An assignment of the consulting agreements between Seller and each
of Dennis Hunkin and Bassani Technical Solutions together with
consents to such assignments, in form and substance satisfactory to
Purchaser, acting reasonably.
(s) Certificate(s) issued by the Minister of Revenue of Ontario under
subsection 6(1) of the Retail Sales Tax Act (Ontario) and by
comparable government agencies in such other applicable
jurisdictions where the Business is conducted.
(t) Evidence satisfactory to Purchaser that Seller has reduced the
amount of the Operating Credit payable by Seller on Closing pursuant
to section 3.6(g) by an amount equal to the Excess Cash Flow Payment
of $3,468,000.00 paid by Seller to BNS on March 11, 1999.
3.5 PROCEDURES FOR CONTRACTS NOT TRANSFERABLE. If any Contract or Facility Lease
is not assignable or transferable either by virtue of the provisions thereof or
under applicable law without the consent of some other person or entity and such
consents are not obtained by Seller at or before the Closing, nothing in this
Agreement and the related instruments of transfer shall be construed as an
assignment or transfer of such Contract or Facility Lease. Instead, Seller shall
(i) at the request and expense and under direction of Purchaser continue to hold
such non-assigned Contracts and Facility Leases in trust for the benefit of
Purchaser and promptly pay over to Purchaser all monies collected by or paid to
Seller in respect of every such non-assigned Contract and Facility Lease; and
(ii) use all reasonable efforts to obtain any such required consents not
previously obtained as soon as reasonably possible after the Closing or
otherwise obtain for Purchaser the practical benefit of such property or rights.
3.6 DELIVERIES OF PURCHASER. At the Closing, Purchaser shall pay the Purchase
Price (as adjusted pursuant to sections 2.6, and 10.2) in accordance with
section 2.5 and shall deliver to Seller each of the following:
(a) A copy of the Escrow Agreement executed by Purchaser and Escrow
Agent.
(b) An assumption agreement, substantially in the form of Exhibit F (the
"Assumption Agreement") executed by Purchaser.
(c) Each of the Seller Restrictive Covenant Agreement and the Principal
Restrictive Covenant Agreement executed by Purchaser.
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(d) An opinion of Troutman Sanders, LLP, United States counsel to Zale,
dated as of the Closing Date, substantially in the form of Exhibit
G.
(e) An opinion of Morris/Rose/Ledgett, Canadian counsel to Purchaser and
Zale, dated as of the Closing Date, substantially in the form of
Exhibit H.
(f) A certificate of an officer of Purchaser (without personal
liability), in form and substance reasonably satisfactory to Seller,
dated as of the Closing Date, certifying to the fulfilment of the
conditions set forth in sections 8.1 and 8.2;
(g) A bank draft payable to BNS or wire transfer of immediately
available funds to such bank account as may be designated to
Purchaser in writing by BNS at least two (2) Business Days prior to
the Closing in an amount equal to the amount owing by Seller to BNS
pursuant to the Operating Credit as of 11:59 p.m. on the day
immediately preceding the Closing Date;
(h) A bank draft payable to BNS or wire transfer of immediately
available funds to such bank account as may be designated to
Purchaser in writing by BNS at least two (2) Business Days prior to
the Closing in an amount equal to the amount set forth in Schedule
3.4(n); and
(i) The Lease Assignment Agreement executed by Purchaser.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to the Purchaser as follows and
acknowledges that Purchaser is relying on such representations and warranties in
entering into this Agreement and in consummating the transactions contemplated
herein:
4.1 ORGANIZATION AND GOOD STANDING. Seller is a corporation organized and
existing under the laws of the Province of Ontario and has the corporate power
to own or lease its assets and property, to carry on the Business as now being
conducted by it and Seller is duly qualified as a corporation to do business in
each jurisdiction in which the nature of the Business or the Assets makes such
qualification necessary.
4.2 POWER AND AUTHORITY. Seller has the requisite corporate power and authority
to enter into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Seller and
Seller's shareholders, and no other corporate proceedings on the part of Seller
or Seller's shareholders are necessary to authorize the execution, delivery and
performance of this Agreement by Seller.
4.3 BINDING EFFECT. This Agreement has been duly executed and delivered by
Seller and constitutes a legal, valid and binding obligation of Seller,
enforceable in accordance with its
<PAGE> 24
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terms, except as enforcement may be limited by bankruptcy, insolvency and other
laws affecting the rights of creditors generally and except that equitable
remedies may be granted only in the discretion of a court of competent
jurisdiction.
4.4 NO OTHER AGREEMENTS TO PURCHASE. No person other than Purchaser has any
written or oral agreement or option or any right or privilege (whether by law,
pre-emptive or contractual) capable of becoming an agreement or option for the
purchase or acquisition from Seller of any of the Assets, other than inventory
sold by Seller in the ordinary course of the Business.
4.5 NO VIOLATION; CONSENTS. Neither the execution and delivery of this Agreement
by Seller, nor the performance by Seller of its obligations hereunder, will:
(a) violate or conflict with any provision of the articles (including
any amendments thereto) or by-laws or resolutions of the board of
directors (or any committee thereof) or shareholders of Seller;
(b) breach or otherwise constitute or give rise to a default under any
Contract;
(c) violate any Laws;
(d) violate any Licences; or
(e) create or impose any Lien, encumbrance or adverse claim of any kind
on any of the Assets other than any such Lien, encumbrance or
adverse claim in favour of Purchaser or Zale arising pursuant to
this Agreement.
4.6 CONSENTS AND APPROVALS. There is no requirement to make any filing with,
give any notice to or to obtain any licence, permit, certificate, registration,
authorization, consent or approval of, any governmental or regulatory authority
as a condition to the lawful consummation of the transactions contemplated by
this Agreement, except for the filings, notifications, licences, permits,
certificates, registrations, consents and approvals described in Schedule 4.6 or
that relate solely to the identity of Purchaser or the nature of any business
carried on by Purchaser. There is no requirement under any Material Contract or
Facility Lease to give any notice to, or to obtain the consent or approval of,
any party to any Material Contract or Facility Lease to the consummation of the
transactions contemplated by this Agreement, except for the notifications,
consents and approvals described in Schedule 4.6 or Schedule 4.12 or referred to
in the insurance policies listed in Schedule 4.21.
4.7 CANADIAN RESIDENCE. Seller is not a non-resident of Canada for purposes of
the Tax Act.
4.8 GST REGISTRATION. Seller is a registrant for purposes of the ETA whose
registration number is 13632-6246RT0001.
4.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 4.9 are true, correct and
complete copies of the Audited Financial Statements. The Audited Financial
Statements were prepared in accordance with generally accepted accounting
principles consistently applied, and, subject to the
<PAGE> 25
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BNS Lease being deemed to be a capital lease subsequent to March 27, 1999,
present fairly in all material respects the assets and liabilities and the
financial position of Seller as of the dates indicated therein and the results
of operations of Seller for the periods covered thereby. The Interim Financial
Statements will have been prepared in accordance with generally accepted
accounting principles consistently applied, except for the change in accounting
methodology for inventory (which change does not affect the accuracy of such
Interim Financial Statements), and will present fairly in all material respects
the assets and liabilities and the financial position of Seller as of the date
indicated therein and the results of operations of Seller for the period covered
thereby subject to adjustments to be made at the end of Seller's current fiscal
year in the ordinary course of preparing Seller's audited financial statements
for such fiscal year consistent with past practice.
4.10 LIABILITIES. Seller does not have any debt, liability, or obligation of any
kind related to the Business, that, in accordance with generally accepted
accounting principles, are required to be reflected in its financial statements,
except (a) those reflected in the most recent Audited Financial Statements, and
(b) liabilities incurred since the date of the most recent Audited Financial
Statements in the ordinary course of business consistent with past practices and
those relating to the BNS Lease which have been disclosed to Purchaser and any
liabilities incurred in connection with items 1, 4, 5 or 6 on Schedule 4.16.
Seller does not have any obligations (absolute or contingent) to provide funds
on behalf of, or to guarantee or assume any debt, liability or obligation of,
any person or entity.
4.11 TITLE TO ASSETS. Except for the Permitted Encumbrances set forth on
Schedule 1.1(zz), Seller owns all of the Assets, other than the Premises, the
Consignment Inventory, the Leased Assets and the Intellectual Property that is
licensed by Seller, free and clear of all Liens. Schedule 4.11 identifies, as of
the date of this Agreement, any inventory held by Seller on consignment,
merchandise on approval or other similar arrangement (collectively, the
"Consignment Inventory"). Schedule 4.11 also identifies, as of the date of this
Agreement, all of the leased tangible personal property used by Seller in the
conduct of the Business (collectively, the "Leased Assets"). The Assets
constitute all assets (other than the Excluded Assets) needed to conduct the
Business substantially in accordance with past practices. As of the date of this
Agreement, Seller has the right to use all of the Leased Assets in connection
with the operation of the Business pursuant to valid lease arrangements and
Seller has provided to Purchaser a true and complete copy of each such written
lease arrangement that is a Material Contract and all amendments, variations and
extensions thereto. All of the machinery, equipment, vehicles, office equipment,
computer hardware, furniture and fixtures included in the Assets are in good
repair and operating condition, having a regard to their use and age (normal
wear and tear excepted).
4.12 REAL PROPERTY.
(a) Seller does not own and has not agreed to acquire any fee simple
interest in any real property.
(b) Schedule 4.12 lists all of the leased locations in respect of which
Seller has entered into a lease, agreement to lease, or other form
of tenancy agreement and, in certain cases, lease amending
agreements, extensions, renewals and other
<PAGE> 26
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related agreements (the "Facility Leases") of real property (the
"Real Property") used, or to be used, by Seller in the operation of
the Business. Save and except for any encumbrances registered
against any owner's title to the Real Property and for Permitted
Encumbrance, Seller's interest in the leasehold estate of all the
Premises is not subject to any Lien and, subject to any limitations
contained in any Facility Lease relating to the Premises, Seller has
the exclusive right to possess, use and occupy the Premises free
from any easement or other restriction of any kind. Except as set
forth on Schedule 4.12, each Facility Lease is in good standing and
is valid, in full force and effect and contains the entire agreement
between each party and Seller has neither given nor received any
notice of default, termination, or partial termination under any
Facility Lease, which notice is currently outstanding, and there is
no existing or continuing breach or default by Seller or, to the
knowledge of Seller, any other party in the performance or payment
of any obligation under any Facility Lease and Seller has complied
in all material respects with the provisions of each Facility Lease.
Schedule 4.12 also lists all of the locations in respect of which
Seller has made an offer to lease to the owner, which offer to lease
if accepted will constitute an agreement to lease on the terms set
out therein.
(c) Seller has not assigned, subleased or granted any right in rem of
occupation or otherwise in respect of any portion of the Premises to
any person or entity except for Seller's sublease of the Premises at
Park Royal Shopping Centre in North Vancouver, British Columbia.
(d) Subject to the terms of the Facility Leases, none of the Premises
are subject to any easement, right of way, license, grant, building
or use restriction, exception, reservation, limitation or other
impediment which adversely interferes with or impairs the present
and continued use thereof in the operation of the Business in a
manner consistent with past practices, and Seller enjoys peaceful
and undisturbed possession of all the Premises.
(e) Schedule 4.12 sets out the parties to each of the Facility Leases,
their expiry dates, any options to renew, the locations of the
leased premises and the rates of Minimum (net) Rent payable
thereunder.
(f) Seller has provided to Purchaser access to its files to review a
true and complete copy of each Facility Lease and all amendments,
variations and extensions thereto.
(g) There are no unresolved disputes of a material nature between Seller
and any party to a Facility Lease.
4.13 INTELLECTUAL PROPERTY. Schedule 4.13 contains a correct and complete list
as at April 27, 1999 of all Intellectual Property owned or licensed and used by
Seller in connection with the operation of the Business and indicates whether
such Intellectual Property is owned by or licensed to Seller. Except as referred
to on Schedule 4.17, Seller owns all rights to use, or holds a valid license to
use, all such Intellectual Property. Without limiting the generality of the
foregoing, Seller owns all right, title and interest in and to the names
"Peoples Jewellers" and
<PAGE> 27
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"Mappins Jewellers" except as specifically referred to on Schedule 4.17. To the
knowledge of Seller and except as specifically referred to on Schedule 4.17,
Seller has not violated or infringed any patent, copyright, trade secret,
trademark, service mark or other intellectual property rights of any other
person or entity, and there are no claims pending or to the knowledge of Seller,
threatened against Seller asserting that the use of any Intellectual Property by
Seller infringes the rights of any other person or entity. Seller has not made
or asserted any claim of violation or infringement of any Intellectual Property
against any other person or entity, and Seller is not aware of any such
violation or infringement. Seller has not granted any outstanding licenses or
other rights to any Intellectual Property to any person or entity. Seller has
provided to Purchaser a true and complete copy of all written agreements, and
all amendments or variations thereto pursuant to which Seller has licensed from
any person or entity any of the Intellectual Property.
4.13A ENVIRONMENTAL MATTERS. During Seller's occupancy of the Premises pursuant
to each Facility Lease, Seller and those for whom in law it is responsible have
complied in all material respects with Environmental Laws as they affect the
Premises.
Seller has obtained all licences, permits, approvals, consents, certificates,
regulations and other authorizations ("Environmental Permits") under
Environmental Laws required for the operation of the Business, all of which are
described in Schedule 4.19 and all such Environmental Permits are valid,
subsisting and in good standing and Seller is not in default or breach of any
such Environmental Permits, which default or breach would have a material
adverse effect on the Assets or the Business, and no proceeding is pending or,
to the best of knowledge of Seller, threatened, to revoke or limit such
Environmental Permits. All hazardous substances (as that term is defined under
any Environmental Laws) and all other wastes and other materials and substances
used in whole or in part by Seller in respect of the Business are used, stored
and disposed of in compliance with all Environmental Laws, except to the extent
that any such non-compliance would not have a material adverse effect on the
Assets or the Business.
4.14 RECEIVABLES. All Receivables owned by or due to Seller are valid and
represent bona fide claims against debtors for sales made, services performed or
other charges, and, subject to any claims under any warranties or otherwise
which may arise in the ordinary course of the Business, all of the goods
delivered and services performed that gave rise to such Receivables were
delivered or performed in all material respects in accordance with the
applicable Contracts. To Seller's knowledge, no Receivables are subject to any
defenses, counterclaims or rights of off-set, and Seller expects that all of
such Receivables (net of any reserves therefor on Seller's books) will be
collected in the ordinary course of the Business. Except as set forth on
Schedule 4.14, Seller has not written off any such Receivables since March 27,
1999, except for non-material write-offs in the ordinary course of the Business
consistent with past practices.
4.15 CONTRACTS. Schedule 4.15 contains a list of all Material Contracts to which
Seller is a party or by which Seller or any of the Assets is bound. Each
Contract to which Seller is a party or by which Seller or any of its Assets is
bound, was entered into in the ordinary course of the Business and is in full
force and effect. Seller is entitled to all benefits under such Contracts and,
except as set forth in Schedule 4.15, has neither given nor received any notice
of default, termination or partial termination under any such Contract, which
notice is currently outstanding, and there is no existing or continuing breach
or default by Seller or, to the knowledge of Seller,
<PAGE> 28
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any other party in the performance or payment of any obligation under any
Contract. Seller has complied in all material respects with the provisions of
each Contract. In addition, neither the Business nor Seller is bound by any
non-competition agreement or similar restrictive covenant except that, as of
Closing, Seller will be bound by Seller Restrictive Covenant Agreement. Seller
has provided to Purchaser a true and complete copy of each Material Contract
listed in Schedule 4.15 and all amendments, variations and extensions relating
thereto (except for any Material Contracts relating to key repair vendors listed
in Schedule 4.15 provided; however, the form of such contract has been provided
to Purchaser).
4.16 ORDINARY COURSE OF THE BUSINESS. Except as set forth on Schedule 4.16,
Seller has operated the Business in the ordinary course of business consistent
with past practices since December 31, 1998. Without limiting the generality of
the foregoing, and except as set forth on Schedule 4.16, since December 31,
1998:
(a) there has been no material adverse change in the Business or in the
Assets, liabilities, results of operations, cash flow or financial
condition of Seller;
(b) there has been no destruction or loss of or to any of the Assets or
properties of Seller, except for any destruction or losses which
individually and in the aggregate do not have a material adverse
effect on the Business;
(c) there has been no sale, transfer or other disposition of any
material asset of Seller, other than in the ordinary course of
business consistent with past practices;
(d) the books, accounts and records of Seller have been maintained in
the usual, regular and ordinary manner on a basis consistent with
prior years;
(e) there has been no labour dispute, organizational effort by any
union, unfair labor practice charge or employment discrimination
charge, nor institution or, to the knowledge of the Seller,
threatened institution of any effort, complaint or other proceeding
in connection therewith, involving Seller or otherwise materially
adversely affecting the operation of the Business;
(f) there has been no amendment, termination or waiver of any right of
Seller under any Material Contract or Licence, other than in the
ordinary course of business consistent with past practices;
(g) there has been no: (i) increase in the compensation or in the rate
of compensation or commissions payable or to become payable by
Seller to any director, officer, employee, salesman, independent
contractor or agent of Seller, other than in the ordinary course of
the Business consistent with past practices; or (ii) increase in any
payment of or commitment to pay any bonus, profit sharing or other
extraordinary compensation to any officer, director, salesman,
agent, independent contractor or employee of Seller, other than in
the ordinary course of business consistent with past practices;
<PAGE> 29
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(h) there has been no Lien created on or in any of the Assets or assumed
by Seller with respect to any of the Assets or the Business, other
than in the ordinary course of business consistent with past
practices;
(i) there has been no creation of, amendment to or contribution, grant,
payment or accrual for or to the credit of any employee of Seller
with respect to any bonus, incentive compensation, deferred
compensation, profit sharing, retirement, pension, group insurance
or other benefit plan, or any union, employment or consulting
agreement or arrangement, other than in the ordinary course of
business consistent with past practices;
(j) there has not been any forward purchase commitments in excess of the
requirements of the Business for normal operating inventories or at
prices higher than the current market prices;
(k) there has not been any forward sales commitments or any failure to
satisfy any accepted order for goods or services other than in the
ordinary course of business consistent with past practices;
(l) there has not been any change in the accounting or tax practices
followed by Seller;
(m) there has not been any change adopted in the depreciation or
amortization policies or rates; or any change in the credit terms
offered to customers of, or by suppliers to, the Business; and
(n) Seller has not incurred any indebtedness for any liabilities or paid
for or prepaid any liabilities incurred other than in the ordinary
course of business consistent with past practices.
4.17 LITIGATION. Except as set forth on Schedule 4.17, there is no litigation,
action, suit, proceeding, arbitration, mediation, hearing or governmental
investigation pending or, to Seller's knowledge, threatened by or against Seller
or the Business. Except as set forth on Schedule 4.17, no judgement, award,
order or decree has been rendered against Seller which is still outstanding or,
to Seller's knowledge, threatened against or involving Seller or the Business.
4.18 COMPLIANCE WITH LAWS. Seller is currently in compliance with and has in the
past complied with all statutes, laws, rules, regulations, orders, decrees and
ordinances applicable to it or the operation of the Business (collectively, the
"Laws") except to the extent any such non-compliance would not have a material
adverse effect on the Assets or the Business and no notice, claim, charge,
complaint, action, suit, proceeding, investigation or hearing has been received
by Seller which is still outstanding or, to the Seller's knowledge, filed,
commenced or threatened against Seller alleging any such violation.
4.19 PERMITS AND LICENSES. Seller holds all required permits, licenses,
registrations, approvals and authorizations from all governmental or regulatory
authorities which are necessary to conduct the Business in a manner consistent
with its past practices (the "Licences") and all of
<PAGE> 30
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the Licences are listed on Schedule 4.19. Each Licence is valid, subsisting and
in good standing and Seller is not in default or breach of any Licence which
default or breach would have a material adverse effect on the Assets or the
Business, and to the knowledge of Seller, no proceeding is pending or threatened
to revoke or limit any Licence.
4.20 TAXES. Seller has paid all applicable Taxes with respect to any period of
time prior to the date hereof, except for Taxes accrued but not yet due and
payable. Seller has collected or deducted at source all applicable Taxes
required to be collected or deducted at source prior to the date hereof. Seller
has made adequate provision for Taxes accrued but not yet due and payable. No
notice of assessment or reassessment and no notice of any pending action,
proceeding or claim, relating to Taxes payable or collectable in respect of the
Business has been received by Seller. No extension of a statute of limitations
relating to Taxes is in effect with respect to Seller. For purposes of this
section 4.20, "Tax and Taxes" shall include any taxes, fees, levies, duties,
charges, premiums, contributions or similar assessments (including interest,
penalties and additions) imposed by or payable to any governmental or other
taxing authority, whether foreign, federal, state, provincial, local or
otherwise.
4.21 INSURANCE. Schedule 4.21 contains a complete list and description
(including the expiration date, premium amount and coverage thereunder) of all
policies of insurance and bonds presently maintained by Seller with respect to
the Assets and the Business. All material terms, obligations and provisions of
each of such policies and bonds have been complied with, all premiums due
thereon have been paid, and no notice of cancellation with respect thereto has
been received by Seller. To Seller's knowledge, no state of facts exists with
respect to which Seller would file any insurance claim other than any insurance
claim which would be made in the ordinary course of the Business consistent with
past practices. Seller has provided Purchaser with a complete list of all claims
made within the last three (3) years and all pending claims under any policies
of property and casualty insurance and bonds maintained by Seller.
4.22 EMPLOYEES. Schedule 4.22 contains a true and complete list of the names,
titles, and salaries or hourly rates, date of hire, bonus arrangements and
commissions of each full-time and part-time employee of Seller as of April 30,
1999 (collectively, the "Employees"). The list includes all persons who,
pursuant to applicable workers' compensation, employment standards or similar
legislation or otherwise at law or in equity are employees of Seller and all
employees of Seller who have been laid off but retain recall or reinstatement
rights pursuant to any statute. Except as indicated on Schedule 4.22, none of
the Employees has a written employment agreement with Seller or any oral
contract of employment which is not terminable on the giving of reasonable
notice and/or severance pay in accordance with applicable law and, to the
knowledge of Seller, no inducements to accept employment with the Seller were
offered to any of the Employees which have the effect of materially increasing
the period of notice of termination to which any such Employee is entitled.
Schedule 4.22A contains a true and correct list of all loans owing by Employees
(or former employees) and a summary of the terms of such loan and the security,
if any, granted in respect thereof (except share purchase loans initially
outstanding to Peoples Jewellers Limited).
<PAGE> 31
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Schedule 4.22B contains a true and complete list of all current Employees of
Seller who have entered into employee loan arrangements with Seller in respect
of share purchase loans which were outstanding to Peoples Jewellers Limited.
Also set forth in Schedule 4.22 is a complete list of all independent
consultants who are presently engaged by Seller to provide services at Seller's
head office located at 1440 Don Mills Road, Toronto, Ontario pursuant to any
written Material Contract.
No notice has been received by Seller of any complaint filed by any of the
Employees or any independent consultant against Seller claiming that Seller has
violated the Employment Standards Act (Ontario), the Human Rights Code (Ontario)
(or any applicable employment standards or human rights or similar legislation
in the other jurisdictions in which the Business is conducted) or of any
complaints to or proceedings before any court, tribunal or governmental
authority of any kind involving any of the Employees and Seller, except as
disclosed in Schedule 4.22. There are no outstanding orders or charges against
Seller under the Occupational Health and Safety Act (Ontario) (or any applicable
occupational health and safety legislation in the other jurisdictions in which
the Business is conducted). All levies, assessments and penalties made against
Seller pursuant to the Workplace Safety and Insurance Act (Ontario) (and any
applicable workers' compensation legislation in the other jurisdictions in which
the Business is conducted) which are due and payable have been paid by Seller.
4.23 EMPLOYEE BENEFITS. Schedule 4.23 lists all bonus, stock option, stock
purchase, restricted stock, incentive, deferred compensation, retiree medical or
life insurance, supplemental retirement, pension, severance or other benefit
plans, programs or arrangements to which Seller is a party or which are
maintained, contributed to or sponsored by Seller for the benefit of any current
or former employee, officer or director of Seller (the "Employee Plans"). Seller
is not in default in any material respect of any of its obligations under the
Employee Plans. Each Employee Plan has been maintained in compliance in all
material respects with its terms and the requirements prescribed by any and all
statutes, orders, rules and regulations that are applicable to such Employee
Plan. Seller has provided to Purchaser a true and complete copy of each Employee
Plan.
4.23A ACCELERATED PAYMENTS. Except as set forth in Schedule 4.23A, none of the
Material Contracts contain any obligation to make a "change of control" payment
to employees or consultants of Seller (including without limitation, severance,
so-called "parachute" payments, bonuses or otherwise) or result in the
acceleration of time of payment or vesting of any benefits under any Material
Contract or give rise to any right of termination, or acceleration of
indebtedness, under any Material Contract, or give rise to any restriction or
limitation under any Material Contract.
4.24 GOVERNMENT WITHHOLDINGS. Seller has deducted and remitted to the relevant
governmental authority all income taxes, employment insurance contributions,
Canada Pension Plan contributions, Quebec Pension Plan contributions, provincial
employer or employee health tax remittances and any taxes or deductions or other
amounts which it is required by statute or Contract to deduct and remit to any
governmental authority, prior to the date hereof.
<PAGE> 32
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4.25 EMPLOYMENT PAYMENTS BY SELLER TO DATE OF CLOSING. All accruals for unpaid
vacation pay, premiums for unemployment insurance, health premiums, Canada
Pension Plan premiums, accrued wages, salaries and commissions with respect to
the Employees and payments by Seller under the Employee Plans have been
accurately reflected in all material respects in the books and records of
Seller.
4.26 WORKER'S COMPENSATION. There are no Employees in receipt of or who have
outstanding claims for benefits under any long term disability or workers'
compensation plan or arrangement or any other form of disability benefit
program, other than those Employees identified on Schedule 4.26.
4.27 LABOUR MATTERS. Seller has not entered into any collective bargaining with
any union or labour organization. There is no certification application
outstanding with respect to the Employees. Except as disclosed in Schedule 4.17
or 4.22, there is no grievance proceeding relating to the Employees or
arbitration proceeding (in respect of such a grievance) or governmental
proceeding relating to the Employees pending, nor, to the knowledge of Seller,
is there any such proceeding threatened against Seller which might have a
material adverse effect on the conduct of the Business.
4.28 HEALTH AND SAFETY. To the knowledge of Seller, the Premises are in
compliance, in all material respects, with applicable occupational health and
safety legislation and regulations and are not subject to any orders or
directions of an occupational health and safety authority or similar body which
might have a material adverse effect on the conduct of the Business.
4.29 BANK ACCOUNTS. Schedule 4.29 lists the names and addresses of every bank
and other institution in which Seller maintains an account or safety deposit
box, the account numbers of each such account, and the names of all persons who
are authorized to draw thereon or have access thereto.
4.30 SUPPLIERS. Seller has provided Purchaser with Seller's accounts payable
master file and register as of May 22, 1999. Seller has no reason to believe
that the benefits of any relationship with any of the major suppliers of the
Business will not continue after the Closing Date in substantially the same
manner as before this Agreement.
4.31 INVENTORY. Seller's inventory (including Consignment Inventory), included
in the Assets has been acquired in the ordinary course of the Business. Subject
to an allowance for obsolete, damaged inventory and shrinkage consistent with
the allowances reflected in the most recent Audited Financial Statements and
subject to inventory that is being repaired in the ordinary course of the
Business, Seller's inventory (including Consignment Inventory) consists of items
which are not damaged and are of a quality and quantity usable and saleable in
the ordinary course of the Business. To the knowledge of Seller, Seller's
inventories (including Consignment Inventory) are labelled, stored and sold in
substantial compliance with all applicable manufacturer's warranties,
consignment agreements, and all applicable federal, provincial and local laws.
<PAGE> 33
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4.32 PRODUCT WARRANTIES ETC. Schedule 4.32 is a complete list of all express
warranties and store repair and return policies in respect of products and
services sold and provided by Seller in connection with the Business.
4.33 INSOLVENCY PROCEEDINGS. No insolvency proceedings of any kind or nature,
including, without limitation, bankruptcy, receivership, reorganization, or
other arrangements with creditors, whether voluntary or involuntary, with
respect to Seller are pending or, to Seller's knowledge, threatened.
4.34 BOOKS AND RECORDS. Subject to adjustments to be made at the end of Seller's
current fiscal year in the ordinary course of preparing Seller's audited
financial statements for such year consistent with past practices, the books and
records of Seller fairly present, in all material respects, in accordance with
generally accepted accounting principles, the financial position of Seller, and
all material financial transactions of Seller relating to the Business have been
recorded in such books and records.
4.35 YEAR 2000 COMPLIANCE. Seller has adopted and is diligently implementing a
Year 2000 compliance plan (the "Year 2000 Plan"), a copy of which is attached
hereto as Schedule 4.35. All remediation, testing and certification required by
such plan will be completed by no later than December 31, 1999. To the knowledge
of Seller, the Year 2000 Plan, including the remediation efforts and contingency
plans therein, is reasonable and prudent in light of the Assets and Business. To
the knowledge of Seller, if the Year 2000 Plan is completed in accordance with
its terms, all material Systems and Software will be Year 2000 Compliant.
4.36 SCHEDULES. The Schedules in this Agreement contain certain information
regarding Seller and are attached to and form a part of this Agreement, and all
information set forth in the Schedules is true and correct in all material
respects as of the date of this Agreement. The Schedules do not omit to state
any material fact necessary in order to make the statements therein not
misleading, and shall be deemed for all purposes of this Agreement to constitute
part of Seller's representations and warranties under this Agreement.
4.37 FULL DISCLOSURE. No representation or warranty made by Seller in this
Agreement contains any untrue statement of any material fact and such
representations and warranties do not omit to state any material fact necessary
in order to make such representations and warranties not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND ZALE
Each of Purchaser and Zale hereby represents and warrants to Seller as
follows and acknowledges that Seller is relying on such representations and
warranties in entering into this Agreement and in consummating the transactions
contemplated herein:
5.1 ORGANIZATION AND GOOD STANDING. Purchaser is a corporation organized and
existing under the laws of the Province of Nova Scotia and Zale is a corporation
organized and existing under the laws of the State of Delaware.
<PAGE> 34
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5.2 POWER AND AUTHORITY. It has the requisite power and authority to enter into
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary action on its part, and no other proceedings on its
part are necessary to authorize the execution, delivery and performance of this
Agreement by it.
5.3 BINDING EFFECT. This Agreement has been duly executed and delivered by it
and constitutes the legal, valid and binding obligation of it, enforceable in
accordance with its terms.
5.4 NO VIOLATION; CONSENTS. Neither the execution and delivery of this Agreement
by it nor the performance by it of its obligations hereunder will:
(a) violate or conflict with any provision of its articles or by-laws or
resolutions of its board of directors (or any committee thereof or
its shareholders);
(b) breach or otherwise constitute or give rise to a default under any
contract, commitment or other obligation to or by which it is a
party or by which it or its assets are bound; or
(c) violate any statute, ordinance, law, rule, regulation, judgement,
order or decree of any court or other governmental or regulatory
authority to which it is subject.
5.5 CONSENTS AND APPROVALS. There is no requirement for it to make any filing
with, give any notice to or obtain any licence, permit, certificate,
registration, authorization, consent or approval of, any governmental or
regulatory authority as a condition to the lawful consummation of the
transactions contemplated by this Agreement.
5.6 GST REGISTRATION. Purchaser is a GST registrant for purposes of the ETA
whose registration number is 86603 8425RT0001.
5.7 FULL DISCLOSURE. No representation or warranty made by it in this Agreement
contains any untrue statement of any material fact and such representations and
warranties do not omit to state any material fact necessary in order to make
such representations and warranties not misleading.
ARTICLE 6
COVENANTS OF SELLER PENDING CLOSING
Seller agrees that, unless it shall have obtained the prior written
approval of Purchaser, from the date hereof until the Closing, it shall comply
with the following:
6.1 CONDUCT OF THE BUSINESS PENDING CLOSING.
(a) Seller shall carry on the Business in the ordinary course of
business consistent with past practices, will preserve intact the
present organization of the Business,
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and will use all reasonable efforts to keep available the services
of the present officers and employees of the Business and to
preserve the Business's goodwill.
(b) Seller will maintain all of the tangible assets comprising the
Assets in good operating condition, having regard to their use and
age (ordinary wear and tear excepted).
(c) Seller will maintain and keep in full force and effect all of the
insurance coverage currently maintained by it on the Assets and the
Business.
(d) Seller will not sell, mortgage, pledge, lease, or otherwise transfer
or dispose of any of the Assets or enter into any agreement with
respect to the foregoing, other than in the ordinary course of
business consistent with past practices.
(e) Seller will not increase the benefits or other compensation payable
or to become payable to any of its employees, increase any payment
of or commitment to pay any bonus, profit sharing or other
extraordinary compensation to any of its employees, make any
severance payments or enter into any agreement with respect to the
foregoing, in each case other than in the ordinary course of
business consistent with past practices; provided, however, that in
no event shall Seller enter into any employment agreements nor any
amendments to existing employment agreements with any store manager,
any employee who works at Seller's head office or any officer of
Seller.
(f) Seller will maintain its books and records in the ordinary course of
business consistent with past practices.
(g) Seller will use reasonable commercial efforts to protect all
confidential information and trade secrets of the Business.
(h) Seller will not incur any indebtedness for any liabilities, or pay
for or prepay any liabilities incurred, other than in the ordinary
course of business consistent with past practices.
(i) Seller shall not enter into any lease, offer to lease or commitment
in respect of real property or any amendment, modification, renewal
or variation of any existing Facility Lease.
6.2 INTENTIONALLY DELETED.
6.3 ACCESS TO THE BUSINESS. Seller shall permit Purchaser and its
representatives, agents, counsel and accountants, to have full access at all
reasonable times to the Premises, Assets, financial statements, Contracts,
books, records and working papers of, and other relevant information pertaining
to, Seller and the Business and to cause its officers and employees to furnish
to Purchaser and its representatives, agents, counsel and accountants, such
financial and operating data and other information with respect to Seller and
the Business that is in the possession or under the control of Seller as
Purchaser may reasonably request.
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At Purchaser's request, Seller shall co-operate with Purchaser in arranging any
such meetings as Purchaser should reasonably request with:
(a) senior employees employed in the Business;
(b) customers, suppliers, distributors or others who have or have had a
business relationship with Seller in respect of the Business; and
(c) the auditors, solicitors or any other persons engaged or previously
engaged to provide services to Seller who have knowledge of matters
relating to the Business or Assets.
6.4 UPDATES. Seller shall promptly notify Purchaser by written updates (each a
"Supplement") to each of its representations and warranties contained herein of
any matters occurring after the date hereof which, if existing or occurring on
the date hereof, would have been required to be set forth on a Schedule to this
Agreement or which would render inaccurate any of the representations or
warranties made by Seller in this Agreement and shall identify in such notice
each such representation and warranty to which such Supplement applies. Upon
Purchaser's written acceptance of each such Supplement, which acceptance shall
be in the Purchaser's discretion, acting reasonably, the representations and
warranties (expressly identified in such Supplement) contained herein and in the
Schedules shall be deemed to have been amended as of the date of this Agreement
as set forth in such Supplement and for greater certainty each such Supplement
(as accepted) shall be deemed to have cured any breaches of any such
representation or warranty to the extent of the additional disclosure in such
Supplement for all purposes of this Agreement including, without limitation, for
purposes of Article 11 hereof.
6.5 DELIVERY OF BOOKS AND RECORDS. At the Time of Closing, there shall be
delivered to Purchaser by Seller all the books and records described in
subsection 2.1(k) that are included in the Assets. Purchaser agrees that it will
preserve the books and records so delivered to it for a period of three (3)
years from the Closing Date or, if longer, for the period referred to in any
applicable statute of limitations, or for such longer period as is required by
any applicable law, and will permit Seller or its authorized representatives
reasonable access thereto in connection with the affairs of Seller relating to
its matters, but Purchaser shall not be responsible or liable to Seller for or
as result of any accidental loss or destruction of or damage to any such books
or records unless such loss, destruction or damage resulted from Purchaser's
gross negligence or wilful misconduct.
6.6 CHANGE THE USE OF NAME. Seller agrees that contemporaneously with the
Closing it shall change its name and the names of any of its Affiliates that
include the words "Peoples Jewellers" to a name that does not include the words
"Peoples Jewellers" or any part thereof or any similar words. Seller agrees that
from and after the Closing Date neither Seller nor any of its Affiliates will
use the words "Peoples Jewellers" or any other trade name or trademark set forth
in Schedule 4.13 or any part thereof or any similar words.
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ARTICLE 7
CONDITIONS TO OBLIGATIONS OF PURCHASER
The purchase and sale of the Assets pursuant to this Agreement is subject
to the fulfilment prior to or at the Time of Closing of each of the following
terms and conditions which are for the exclusive benefit of Purchaser, any of
which may be waived in writing by Purchaser in its sole discretion:
7.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of Seller
contained in this Agreement shall be true and correct in all material respects
as of the date hereof, and such representations and warranties (as amended
pursuant to any Supplement accepted by Purchaser by section 6.4) shall be true
and correct in all material respects as of the Time of Closing (as if made at
and as of such time).
7.2 PERFORMANCE OF AGREEMENTS. Seller shall have performed and complied with all
agreements and covenants required by this Agreement to be performed or complied
with by it prior to or at the Time of Closing including, without limitation, the
deliveries pursuant to section 3.4.
7.3 APPROVALS. Any and all governmental authorities, bodies or agencies having
jurisdiction over the transactions contemplated by this Agreement shall have
granted such consents, authorizations and approvals as are necessary for the
consummation thereof, and all applicable waiting or similar periods required by
law shall have expired including, without limitation, those described in
Schedule 4.6, in each case in form and substance satisfactory to Purchaser,
acting reasonably.
7.4 CONSENTS AND APPROVALS OF THIRD PARTIES. All consents, authorizations,
notices and approvals to the transactions contemplated by this Agreement that
are required from any third party pursuant to the terms of any Contract
described in Schedule 4.6 or any Facility Leases shall have been duly obtained
and all such consents, authorizations, notices and approvals shall be in form
and substance reasonably satisfactory to Purchaser.
7.5 NO INJUNCTIONS. No preliminary or permanent injunction or other order by any
federal, provincial or local court which acts to prevent the consummation of the
transactions contemplated by this Agreement shall have been issued at the
request of any person (other than Purchaser) and remain in effect, and no action
to obtain any such injunction or order shall have been filed by any person
(other than Purchaser) and remain pending.
7.6 ORDINARY COURSE OF BUSINESS. Except as set forth in Schedule 4.16, Seller
shall have operated the Business in the ordinary course consistent with past
practices since December 31, 1998, and there shall not have occurred any
material adverse change in the Business or the Assets since such date.
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ARTICLE 8
CONDITIONS TO OBLIGATIONS OF SELLER
The purchase and sale of the Assets pursuant to this Agreement is subject
to the fulfilment prior to or at the Time of Closing of each of the following
terms and conditions which are for the exclusive benefit of Seller, any of which
may be waived in writing by Seller in its sole discretion:
8.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of
Purchaser and Zale contained in this Agreement shall be true and correct in all
material respects as of the date hereof, and such representations and warranties
shall be true and correct in all material respects as of the Time of Closing (as
if made at and as of such time).
8.2 PERFORMANCE OF AGREEMENTS. Purchaser shall have fully performed and complied
with all agreements and covenants required by this Agreement to be performed or
complied with by it prior to or at the Time of Closing including, without
limitation, the deliveries pursuant to section 3.7.
8.3 APPROVALS. Any and all governmental authorities, bodies or agencies having
jurisdiction over the transactions contemplated by this Agreement shall have
granted such consents, authorizations and approvals as are necessary for the
consummation thereof, and all applicable waiting or similar periods required by
law shall have expired.
8.4 CONSENTS AND APPROVALS OF THIRD PARTIES. All consents, authorizations and
approvals to the transactions contemplated by this Agreement that are required
from any third party pursuant to the terms of any Material Contract or any
Facility Lease shall have been duly obtained.
8.5 NO INJUNCTIONS. No preliminary or permanent injunction or other order by any
federal, provincial or local court which acts to prevent the consummation of the
transactions contemplated by this Agreement shall have been issued at the
request of any person (other than Seller) and remain in effect, and no action to
obtain any such injunction or order shall have been filed by any person (other
than Seller) and remain pending.
ARTICLE 9
TERMINATION
9.1 TERMINATION. This Agreement and the transactions contemplated hereby may be
terminated as follows:
(a) At any time prior to the Closing, by the mutual written consent of
the Parties.
(b) By Purchaser at the Time of Closing by notice in writing to the
other Parties, if Purchaser is prepared to close and all conditions
of Seller's obligations to close pursuant to Article 8 have been
satisfied and Seller fails to deliver the documents referred to in
section 3.4 or fails to satisfy any of the conditions to Closing set
forth in Article 7 hereof.
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(c) By Purchaser on the Cut-Off Date by notice in writing to the other
Parties, if Seller fails to cure any material breach of this
Agreement by such date, after receiving written notice thereof on or
before the Closing Date from Purchaser.
(d) By Seller at the Time of Closing, by notice in writing to the other
Parties, if Seller is prepared to close and all conditions to
Purchaser's obligations to close pursuant to Article 7 have been
satisfied and Purchaser fails to deliver the documents referred to
in section 3.6 or fails to satisfy any of the conditions to Closing
set forth in Article 8 hereof.
(e) By Seller on the Cut-Off Date, by notice in writing to the other
Parties, if Purchaser fails to cure any material breach of this
Agreement by such date after receiving written notice thereof on or
before the Closing Date from Seller.
9.2 CUT-OFF DATE. If the Closing shall not have occurred on or before June 15,
1999 or such other date as the parties may agree (the "Cut-Off Date"), either
Party may terminate this Agreement by delivering written notice thereof to the
other Party.
9.3 EFFECT OF TERMINATION. Each Party's right of termination under section 9.1
is in addition to any other rights it may have under this Agreement or
otherwise, and the exercise of a right of termination hereunder shall not be an
election of remedies.
ARTICLE 10
OTHER AGREEMENTS OF THE PARTIES
10.1 COMMERCIALLY REASONABLE EFFORTS. From the date hereof until the Closing
Date, upon the terms and subject to the conditions of this Agreement, each Party
shall use all commercially reasonable efforts to take or cause to be taken all
actions and to do or cause to be done all things necessary to consummate the
transactions contemplated by this Agreement.
10.2 BROKERS; EXPENSES. Except for the liability incurred by Seller for
compensation owing to ScotiaMcLeod Inc. in connection with the transactions
contemplated by this Agreement which compensation is $872,934.58 in the
aggregate, the Parties hereby represents and warrants to the others that it has
not incurred any liability for brokerage fees, finder's fees, agent's
commissions or other similar forms of compensation in connection with or in any
way related to the transactions contemplated by this Agreement. Each Party
hereto shall pay its own fees and expenses (including the fees and expenses of
its attorneys, accountants, investment bankers, brokers, financial advisors and
other professionals) incurred in connection with this Agreement and the
transactions contemplated hereby; provided, however, that if any fees and
expenses of Seller in respect of this Agreement and the transaction contemplated
hereby are paid by Seller prior to the Closing, such fees and expenses shall be
identified by Seller to Purchaser prior to the Closing and the Purchase Price
shall accordingly be reduced by the amount of such fees and expenses before any
applicable GST in respect thereof.
10.3 PUBLICITY AND CONFIDENTIALITY. No Party shall issue any press release,
written public statement or announcement relating to this Agreement or the
transactions contemplated hereby
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without the written prior approval of the other Parties in each instance, except
to the extent such disclosure is required by law (in which case such Party shall
use all reasonable efforts to give the other Parties prior notice thereof). The
Parties hereby agree to be bound by the terms of the confidentiality agreement
entered into between Seller and Zale dated March 2, 1998 as if Purchaser was a
party thereto in addition to Zale.
10.4 TRANSFERRED EMPLOYEES.
(a) Purchaser shall, with effect from and after the Effective Time but
conditional upon the Closing, offer employment to all Seller's
employees (the "Transferred Employees"), on substantially the same
terms and conditions as such Transferred Employees are presently
employed by Seller, and Purchaser shall recognize and preserve, for
all purposes (including for purposes of section 10.4(b)), the
Transferred Employees' years of service with Seller and Peoples
Jewellers Limited and any Affiliates thereof as set forth on
Schedule 4.22. Without limiting the scope of the foregoing,
Purchaser shall provide to the Transferred Employees employment
conditions, benefits, responsibilities and duties which are
substantially the same as those upon which the Transferred Employees
are presently employed by Seller including, without limitation, the
employment conditions and benefits set out in Schedules 4.22 and
4.23 and Purchaser shall, with respect to each Transferred Employee,
honour his/her outstanding vacation entitlement. Such offers of
employment shall be given to all of the Transferred Employees at
least two (2) Business Days prior to Closing and shall be in form
and substance satisfactory to Seller, acting reasonably.
(b) Purchaser shall be responsible for all expenses, costs and other
liabilities and obligations of any kind whatsoever arising out of or
in connection with (i) the termination of employment of those
Transferred Employees who do not accept Purchaser's offer of
employment referred to in section 10.4(a), except for those
Transferred Employees set forth in Schedule 4.22B and Tanya
Boyd-Saffran and Euan McGrath and (ii) the employment or the
termination of employment, subsequent to the Closing Date of those
Transferred Employees who accept Purchaser's offer of employment
referred to in section 10.4(a) above.
(c) Purchaser shall assume the obligations of Seller pursuant to the
Contracts set forth in Schedule 4.23A and shall upon termination of
employment pursuant to such Contracts pay to such employees the
amounts set forth in Schedule 4.23A, provided such employees provide
a full and final release of any claims they may have under such
agreements, substantially in the form of Exhibit J.
10.5 EXCLUSIVITY. Seller hereby agrees that, from March 16, 1999 until the
Cut-Off Date, neither Seller nor any of its officers, directors, employees,
representatives, attorneys, investment bankers, advisors or agents will directly
or indirectly: (a) discuss, negotiate or enter into any agreements or
understandings with, or solicit offers from or enter into negotiations with, any
person or entity other than Purchaser (whether solicited or unsolicited) for the
purchase and sale, regardless of structure, of any of the stock in the capital
of Seller or any of the assets of Seller other than in the ordinary course of
business, whether by merger, sale of shares or otherwise
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(each a "Prohibited Transaction"); (b) participate in any discussions or
negotiations regarding, or furnish to any person or entity (other than
Purchaser) any information with respect to, or otherwise assist, participate in,
co-operate with, facilitate or encourage, any Prohibited Transaction; or (c)
consummate or agree to consummate any Prohibited Transaction. In the event
Seller breaches the provisions of this Section 10.5, then Seller shall
immediately make a cash payment to Purchaser (as liquidated damages) in the
amount of Canadian $5,000,000.
10.6 BULK SALES ACT. Purchaser agrees to waive compliance with the requirements
of the Bulk Sales Act (Ontario) (and such other similar provincial legislation)
(collectively, the "Bulk Sales Legislation") and Seller hereby indemnifies and
agrees to promptly defend and hold harmless Purchaser, its Affiliates, and their
respective directors, officers, employees and agents from any and all claims,
demands, actions, causes of action, damages, losses, costs or expenses
(including reasonable legal fees and disbursements) which any of them may suffer
or incur by virtue of non-compliance with provisions of the Bulk Sales
Legislation in connection with the transactions contemplated herein.
10.7 TAX RETURNS AND AUDITS. After the Closing, each of the Parties agrees to
provide timely notice to all relevant taxing authorities of such Party's current
address(es) and any changes thereto and:
(a) provide the others with such assistance as may be reasonably
requested by such others in connection with the preparation of any
tax return, election, filing or report relating to liability for
taxes, in respect of the Business or the Assets for taxable periods
for which the requesting Party may have a liability under this
Agreement;
(b) make available to the requesting Party any records or information
which may be relevant to such tax return, election, filing or report
or any audit or examination referred to in section 10.7(c);
(c) provide the others with such assistance as may be reasonably
requested by such others in connection with any audit or examination
by any taxing authority, or any judicial or administrative
proceedings relating to liability for taxes in respect of the
Business or the Assets; provided, however, if providing such
assistance would otherwise unduly interfere with the Business of the
Purchaser, the Purchaser may in its reasonable discretion charge the
Seller with a reasonable fee for the provision of such assistance
or, with the prior approval of Seller, temporarily hire such
additional staff, at the expense of Seller, to provide such
assistance;
(d) use commercially reasonable efforts to provide timely notice in
writing of any pending or threatened tax audits or assessments
relating to the Business or the Assets for taxable periods for which
the other may have a liability under this Agreement; and
(e) use commercially reasonable efforts to furnish the other with copies
of all correspondence received from or information requested by any
taxing authority in
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connection with any tax audit with respect to any taxable period,
for which the other may have a liability under this Agreement.
The Parties must keep confidential (unless otherwise required by law or
necessary for purposes of operating the Business in the ordinary course) any
information obtained pursuant to this section 10.7.
10.8 LITIGATION. After the Closing, each of the Parties agrees to:
(a) provide the others with such assistance as may be reasonably
requested by such others in connection with any litigation, action,
suit, proceeding, arbitration, mediation, hearing or governmental
investigation (hereinafter called "Proceeding") relating to the
Business or the Assets and for which the other Party may have a
liability including, without limitation, making available to such
other employees whose assistance, testimony or presence may be of
assistance to such other in connection with evaluating, defending or
preparing for any such Proceeding;
(b) make available to the requesting Party all documents, records and
other materials which may be relevant in connection with such
Proceeding;
(c) use commercially reasonable efforts to provide timely notice in
writing of any pending or threatened Proceeding relating to the
Business or the Assets for the periods prior to Closing; and
(d) use commercially reasonable efforts to furnish the others with all
copies of correspondence received from any governmental authority in
connection with any governmental investigation or proceeding
relating to the Business or the Assets for the periods prior to
Closing.
For purposes of (a) above, Seller shall make available such directors or
officers of Seller that would have knowledge of the facts pertaining to any such
Proceeding. The Parties must keep confidential (unless otherwise required by law
or necessary for purposes of operating the Business in the ordinary course) any
information obtained pursuant to this section 10.8.
10.9 REIMBURSEMENT OF EXPENSES FOR SELLER POST-CLOSING. Purchaser hereby
covenants and agrees to reimburse Seller forthwith upon request for all
reasonable out-of-pocket fees and expenses incurred in connection with the
necessary operations of Seller relating to the period after Closing of Seller
(other than any legal fees incurred by Seller in respect of a dispute between
Seller and Purchaser regarding a Purchaser Claim) or the wind-up and/or
dissolution of Seller (provided Seller is not engaged in any active business
after Closing) up to a maximum of $50,000 in each of the two years following
Closing, provided Seller provides Purchaser copies of all invoices for such fees
and expenses.
10.10 ACKNOWLEDGEMENT. Notwithstanding anything contained herein to the
contrary, each of Purchaser and Zale hereby acknowledge and agree that it shall
not make any claim for indemnification pursuant to Article 11 of the Agreement
in respect of any Losses (other than a
<PAGE> 43
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Third Party Claim) suffered or incurred by Purchaser, its Affiliates or their
respective directors, officers, employees or agents as a result of or arising
directly or indirectly out of, or in connection with, (i) the allocation by
Seller of the fixed assets portion of the purchase price paid by Seller for the
acquisition of certain property and assets of Peoples Jewellers Limited/Les
Bijoutiers Diamantaires Peoples Limitee pursuant to an agreement made as of
September 2, 1993 between Seller and Peat Marwick Thorne Inc., Receiver and
Manager of the undertaking, property and assets of Peoples Jewellers Limited/Les
Bijoutiers Diamantaires Peoples Limitee or (ii) Seller's accounting policies for
depreciation or amortization of such fixed assets.
ARTICLE 11
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
INDEMNIFICATION
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Parties contained in this Agreement and in all certificates
and documents delivered pursuant to or contemplated by this Agreement shall
survive the closing of the transactions contemplated hereby and shall continue
for a period of eighteen (18) months from the Time of Closing and
notwithstanding such Closing nor any investigation made by or on behalf of the
Party entitled to the benefit thereof shall continue in full force and effect
for the benefit of the Party entitled to the benefit thereof during such period
except that:
(a) the representations and warranties set out in section 4.20 (and the
corresponding representations and warranties set out in the
officer's certificate to be delivered on Closing) shall survive the
closing of the transactions contemplated hereby and continue in full
force and effect until 10 days after the expiration of the period,
if any, during which an assessment, reassessment or other form of
recognized document assessing liability for tax, interest or
penalties under applicable tax legislation in respect of any
taxation year to which such representations and warranties extend
could be issued under such tax legislation to Seller;
(b) the representations and warranties set out in section 4.13A (and the
corresponding representations and warranties set out in the
officer's certificate to be delivered on Closing) shall survive the
closing of the transactions contemplated hereby and continue in full
force and effect until 10 days after the expiration of the period,
if any, during which any liability for environmental matters under
applicable Environmental Law to which such representations and
warranties extend could be issued under such environmental
legislation applicable to Seller, provided Seller did not file at
any time prior to Closing any waiver or other document extending
such period; and
(c) any claim for any breach of any representation and warranty
contained in this Agreement or in any agreement, instrument,
certificate or any other document executed or delivered pursuant
hereto involving fraud or fraudulent misrepresentation may be made
at any time following the Closing Date, subject only to applicable
limitation periods imposed by law.
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11.2 NON-WAIVER. No investigations made by or on behalf of a Party at any time
shall have the effect of waiving, diminishing the scope of or otherwise
affecting any representation or warranty made by the other Party herein or
pursuant hereto.
11.3 INDEMNIFICATION BY SELLER. Seller hereby indemnifies and agrees to promptly
defend and hold harmless Purchaser, its Affiliates and their respective
directors, officers, employees and agents from all Losses (hereinafter called a
"Purchaser Claim") suffered or incurred by any of them as a result of or arising
directly or indirectly out of or in connection with:
(a) any breach by Seller of or any inaccuracy of any representation or
warranty of Seller contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto (provided
that Seller shall not be required to indemnify or save harmless
Purchaser, its Affiliates and their respective directors, officers,
employees or agents in respect of any breach or inaccuracy of any
representation or warranty unless Purchaser, its Affiliates or their
respective directors, officers, employees or agents shall have
provided notice to Seller in accordance with section 12.1 on or
prior to the expiration of the applicable time period related to
such representation and warranty as set out in section 11.1);
(b) any breach or non-performance by Seller of any covenant to be
performed by it that is contained in this Agreement or in any
agreement, certificate or other document delivered pursuant hereto;
and
(c) any failure by Seller to pay, satisfy, discharge, perform or fulfil
any of the Excluded Liabilities.
11.4 INDEMNIFICATION BY PURCHASER. Purchaser hereby indemnifies and agrees to
promptly defend and hold harmless Seller and its directors, officers, employees
and agents from all Losses suffered or incurred by any of them as a result of or
arising directly or indirectly out of or in connection with:
(a) any breach by Purchaser or Zale of or any inaccuracy of any
representation or warranty contained in this Agreement or in any
agreement, instrument, certificate or other document delivered
pursuant hereto (provided that Purchaser shall not be required to
indemnify or save harmless Seller, and its directors, officers,
employees or agents in respect of any breach or inaccuracy of any
representation or warranty unless Seller, or its directors,
officers, employees or agents shall have provided notice to
Purchaser in accordance with section 12.1 on or prior to the
expiration of the applicable time period related to such
representation and warranty as set out in section 11.1);
(b) any breach or non-performance by Purchaser of any covenant to be
performed by it that is contained in this Agreement or in any
agreement, certificate or other document delivered pursuant hereto;
and
(c) any failure by Purchaser to pay, satisfy, discharge, perform or
fulfil any of the Assumed Liabilities.
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11.5 ADMINISTRATION OF THIRD PARTY CLAIMS.
(a) Whenever any claim shall arise for indemnification under this
Article 11, the Party entitled to indemnification (the "Indemnified
Party") shall promptly notify the other Party (the "Indemnifying
Party") of the claim and, when known, the facts constituting the
basis for such claim.
(b) In the event of any claim for indemnification hereunder resulting
from or in connection with any claim or legal proceeding by a person
who is not a party to this Agreement (a "Third Party Claim"), such
notice shall also specify, if known, the amount or a good faith
estimate of the amount of the Losses arising therefrom.
(c) The Indemnified Party shall not settle or compromise or enter into
any agreement to settle or compromise, or consent to entry of any
judgement arising from, any Third Party Claim except in accordance
with this section. With respect to any Third Party Claim, the
Indemnifying Party shall undertake the defense thereof by
representatives of its own choosing. The Indemnified Party shall
have the right to participate (in a manner acceptable to the
Indemnifying Party, acting reasonably) in any such defense of a
Third Party Claim with advisory counsel of its own choosing at its
own expense. Assuming it has received reasonably adequate advance
notice of a Third Party Claim, in the event the Indemnifying Party,
after two-thirds of the period for the presentation of a defense
against any such Third Party Claim (taking into account any
extensions to such period received by the Indemnifying Party
pursuant to any order of a court of competent jurisdiction or
otherwise), fails to begin to diligently defend it (or at any time
thereafter ceases to diligently defend it), the Indemnified Party
will have the right to undertake the defense, compromise or
settlement of such Third Party Claim on behalf of, and for the
account of, the Indemnifying Party, at the expense and risk of the
Indemnifying Party.
11.6 MONETARY LIMITATIONS.
(a) Seller shall not be liable to Purchaser in respect of a Purchaser
Claim under section 11.3 unless the aggregate amount finally
adjudicated or agreed as being payable under section 11.3 in respect
of any one or more Purchaser Claims exceeds $100,000 in the
aggregate, in which case Seller will be liable for the full amount
with first dollar coverage.
(b) The maximum aggregate amount which Purchaser may recover under this
Agreement is an amount equal to $25,000,000.
(c) Notwithstanding anything contained herein to the contrary, the
monetary limitation contained in this section 11.6 does not apply to
any Purchaser Claim for indemnification for Losses arising out of or
relating to section 11.3(c).
<PAGE> 46
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11.7 INSURANCE AND TAX LIMITATION.
(a) Seller shall not be liable to Purchaser for any Losses arising in
respect of a Purchaser Claim to the extent recovered by Purchaser or
any Affiliate under a policy of insurance; provided, however,
Purchaser shall not be obliged to commence an action, claim, suit or
proceeding against any person issuing such a policy of insurance in
order to recover any such Losses.
(b) If Purchaser suffers Losses and actually receives a monetary tax
benefit or tax credit, solely arising out of or by virtue of the
matters to which the Losses relate, any liability of Seller under
section 11.6 will be reduced by the net amount of such tax benefit
or credit actually received.
11.8 SET-OFF UNDER ESCROW AGREEMENT. The Parties hereby acknowledge and agree
that the Purchaser may from time to time set-off amounts owing in respect of
Purchaser Claim(s) against the amount held by the Escrow Agent from time to
time, all in accordance with the terms and conditions set forth in the Escrow
Agreement, provided however, the Seller shall be responsible for any shortfall
or deficiency in respect of any Purchaser Claim(s).
11.9 EXCLUSION OF OTHER RIGHTS. No Party has the right to bring any proceeding
(except for any claim for fraud, specific performance or injunctive relief)
against any other party for a breach of any representation, warranty, covenant
or agreement contained in this Agreement whether in contract, tort or otherwise,
except pursuant to Article 11.
11.10 OBLIGATIONS OF ZALE. In consideration of Seller entering into this
Agreement with Purchaser rather than with Zale as contemplated in the letter of
intent referred to in section 1.6, Zale agrees to duly and punctually pay,
satisfy, perform, discharge and fulfil all of the liabilities and obligations of
Purchaser arising pursuant to this Agreement, the Escrow Agreement, the
Assumption Agreement or any other agreement, document, or instrument delivered
pursuant to this Agreement, as if Zale was a party to any such agreement,
document, or instrument in the place of Purchaser.
ARTICLE 12
MISCELLANEOUS
12.1 NOTICES.
(a) All notices, consents, requests and other communications hereunder
shall be in writing and shall be sent by hand delivery, by certified
or registered mail (return-receipt requested), by a recognized
national overnight courier service or by telecopy addressed as set
forth below:
(i) If to Purchaser or Zale:
Zale Corporation
901 Walnut Hill Lane
Irving, Texas 75038-1003
U.S.A.
<PAGE> 47
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Attention: Alan P. Shor, Esq.
Facsimile: (972) 580-5238
and a copy to:
Morris/Rose/Ledgett
161 Bay Street, Suite 2600
Toronto, Ontario M5J 2S1
Canada
Attention: Chris J. Eustace, Esq.
Facsimile: (416) 863-9500
(ii) If to Seller:
Peoples Jewellers Corporation
1440 Don Mill Road
Don Mills, Ontario M3B 3M1
Canada
Attention: E. Duff Scott, Esq.
Facsimile: (416) 391-7871
and after Closing:
with a copy to:
Stikeman, Elliott
Commerce Court West
53rd Floor
Toronto, Ontario M5L 1B9
Canada
Attention: Mihkel E. Voore, Esq.
Facsimile: (416) 947-0866
(b) Notices delivered pursuant to section 12.1(a) shall be deemed
given: (i) at the time delivered, if personally delivered or
if delivered by overnight courier; (ii) at the time received,
if mailed; and (iii) one (1) Business Day after transmission
by telecopy.
(c) Either Party hereto may change the address to which notice is
to be sent by written notice to the other Party in accordance
with this section 12.1.
<PAGE> 48
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12.2 REASONABLE EFFORTS TO SETTLE DISPUTES. In the event that a dispute, claim
(save for a claim for fraud, specific performance or injunctive relief),
question or difference (a "Dispute") arises out of or relating to this Agreement
or the breach thereof, or relating to the interpretation or implementation of
any of the provisions hereof or any document, agreement or instrument delivered
hereunder (other than a Third Party Claim which shall be resolved in the manner
set forth in section 11.5), the Parties shall use their reasonable endeavours to
settle the Dispute. To this effect, they shall consult and negotiate with each
other, in good faith and understanding of their mutual interest, to reach a just
and equitable solution satisfactory to all Parties.
12.3 ARBITRATION. If the Parties do not reach a solution pursuant to section
12.2 within a period of 60 days following the first notice of Dispute by any
Party to the others, then upon written notice by any Party to the other Parties,
the Dispute shall be finally settled by arbitration in accordance with the
provisions of the Arbitrations Act (Ontario) based upon the following:
(a) the arbitration tribunal shall consist of one arbitrator appointed
by mutual agreement of the Parties, or in the event of failure to
agree within 10 Business Days following delivery of the written
notice to arbitrate, any Party may apply to a judge of the Ontario
Court (General Division) to appoint an arbitrator. The arbitrator
shall be qualified by education and training to pass upon the
particular matter to be decided;
(b) the arbitrator shall be instructed that time is of the essence in
the arbitration proceeding and, in any event, the arbitration award
must be made within 30 days of the submission of the Dispute to
arbitration;
(c) after written notice is given to refer any Dispute to arbitration,
the Parties will meet within 15 Business Days of delivery of the
notice and will negotiate in good faith any changes in these
arbitration provisions or the rules of arbitration which are herein
adopted, in an effort to expedite the process and otherwise ensure
that the process is appropriate given the nature of the Dispute and
the values at risk;
(d) the arbitration shall be conducted in English and shall take place
in Toronto, Ontario;
(e) the arbitration award shall be given in writing and shall be final
and binding on the Parties, not subject to any appeal and the costs
of any such arbitration shall be borne equally between Seller and
Purchaser;
(f) judgement upon any award may be entered in any court having
jurisdiction or application may be made to the court for a judicial
recognition of the award or an order of enforcement, as the case may
be;
(g) all Disputes referred to arbitration (including the scope of the
agreement to arbitrate, any statute of limitations, set-off claims,
conflict of laws rules, tort claims and interest claims) shall be
governed by the substantive law of Ontario; and
<PAGE> 49
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(h) the Parties agree that the arbitration shall be kept
confidential and that the existence of the proceeding and any
element of it (including any pleadings, briefs or other
documents submitted or exchanged, any testimony or other oral
submissions and any awards) shall not be disclosed beyond the
arbitrator, the Parties, their counsel and any person
necessary to the conduct of the proceeding, except as may
lawfully be required in judicial proceedings relating to the
arbitration or otherwise.
12.4 WAIVER; AMENDMENT. No waiver, termination or discharge of this Agreement,
or any of the terms or provisions hereof, shall be binding upon any Party unless
confirmed in writing. No waiver by any Party of any term or provision of this
Agreement or of any default hereunder shall affect such Party's rights
thereafter to enforce such term or provision or to exercise any right or remedy
in the event of any other default, whether or not similar. This Agreement may
not be modified or amended except by a writing executed by each Party.
12.5 FURTHER ASSURANCES. Each Party covenants and agrees that it will at all
times after the Closing, at the expense and upon the request of the other Party,
promptly execute and deliver all such documents, including, without limitation,
all such additional conveyances, transfers, consents and other assurances and do
all such other acts and things as the other Party, acting reasonably, may from
time to time request be executed or done in order to better evidence or perfect
or effectuate any provision of this Agreement or of any agreement or other
document executed pursuant to this Agreement.
<PAGE> 50
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12.6 COUNTERPARTS; FAX SIGNATURES. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute the same Agreement. Any signature page of any such
counterpart, or any electronic facsimile thereof, may be attached or appended to
any other counterpart to complete a fully executed counterpart of this
Agreement, and any telecopy or other facsimile transmission of any signature
shall be deemed an original and shall bind each Party.
IN WITNESS WHEREOF, the undersigned have caused their respective duly
authorized representatives to execute this Agreement as of the day and year
first above written.
ZALE CANADA CO.
Per: /s/ ROBERT J. DINICOLA
--------------------------------------
Name: Robert J. DiNicola
Title: Chairman and
Chief Executive Officer
ZALE CORPORATION
Per: /s/ ALAN P. SHOR
--------------------------------------
Name: Alan P. Shor
Title: Executive Vice-President,
Chief Logistics Officer
and Secretary
PEOPLES JEWELLERS CORPORATION
Per: /s/ CLARE R. COPELAND
--------------------------------------
Name: Clare R. Copeland
Title: Chief Executive Officer
<PAGE> 1
EXHIBIT 4.3
EXECUTION COPY
================================================================================
INDENTURE
Dated as of July 15, 1999
Between
ZALE FUNDING TRUST,
as Issuer
And
THE BANK OF NEW YORK,
as Indenture Trustee and Securities Intermediary
================================================================================
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS................................................................................1
Section 1.01. Definitions.......................................................................1
ARTICLE II ISSUE, EXECUTION, FORM, REGISTRATION AND PAYMENT OF NOTES..................................2
Section 2.01. [Reserved]........................................................................2
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..................................................................2
Section 2.06. Legends...........................................................................3
Section 2.07. Notices to Clearing Agency........................................................4
Section 2.08. Letter of Representations.........................................................4
Section 2.09. Definitive Notes..................................................................4
Section 2.10. Note Register; Persons Deemed Registered Noteholders..............................5
Section 2.11. [Reserved]........................................................................5
Section 2.12. [Reserved]........................................................................5
Section 2.13. [Reserved]........................................................................5
Section 2.14. Exchange and Transfer.............................................................5
Section 2.15. Mutilated, Defaced, Destroyed, Lost or Stolen Notes...............................7
Section 2.16. Cancellation of Notes, Disposition Thereof........................................8
Section 2.17. Temporary Notes...................................................................8
Section 2.18. Appointment of Indenture Trustee..................................................9
Section 2.19. Issuer and Affiliate..............................................................9
Section 2.20. [Reserved]........................................................................9
Section 2.21. Certain Certificates..............................................................9
Section 2.22. Issuance of Notes.................................................................9
Section 2.23. Uncertificated Classes...........................................................10
ARTICLE III SECURITY INTEREST.........................................................................12
Section 3.01. Security Interest................................................................12
Section 3.02. [Reserved].......................................................................13
Section 3.03. License..........................................................................13
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Section 3.04. The Issuer Remains Liable........................................................13
Section 3.05. Delivery of Certain Collateral...................................................13
ARTICLE IV BANK ACCOUNTS AND COLLECTIONS.............................................................15
Section 4.01. Post Office Boxes and Collection Deposit Accounts................................15
Section 4.02. Rights of Noteholders............................................................16
Section 4.03. Establishment of Collection Account and Excess Funding Account...................16
Section 4.04. Collections and Allocations......................................................19
Section 4.05. Shared Principal Collections.....................................................19
Section 4.06. Allocation of Trust Assets to Series or Groups...................................20
Section 4.07. Excess Finance Charge............................................................20
Section 4.08. Correction of Improper Deposits..................................................20
ARTICLE V DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS..................................................22
ARTICLE VI SERVICING OF PURCHASED RECEIVABLES........................................................23
Section 6.01. Servicing of Purchased Receivables...............................................23
ARTICLE VII REPRESENTATIONS AND WARRANTIES............................................................24
Section 7.01. Representations and Warranties of the Issuer.....................................24
ARTICLE VIII COVENANTS.................................................................................26
Section 8.01. Affirmative Covenants of the Issuer..............................................26
Section 8.02. Negative Covenants of the Issuer.................................................29
ARTICLE IX REDEMPTIONS...............................................................................32
Section 9.01. Optional Redemption of the Notes.................................................32
Section 9.02. Legal Final Maturity Date of the Notes...........................................32
ARTICLE X REMEDIES OF THE TRUSTEE AND NOTEHOLDERS...................................................33
Section 10.01. Early Amortization Events........................................................33
Section 10.02. Remedies.........................................................................33
Section 10.03. Indenture Trustee May Enforce Claims Without Possession of the Notes.............34
Section 10.04. Restoration of Rights............................................................34
Section 10.05. Limitations on Suits by Noteholders..............................................34
Section 10.06. Control by Noteholders...........................................................35
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Section 10.07. Indenture Trustee To Give Notice of Early Amortization Event, But May
Withhold in Certain Circumstances................................................35
ARTICLE XI CONCERNING THE TRUSTEE....................................................................36
Section 11.01. Duties and Responsibilities of the Indenture Trustee.............................36
Section 11.02. Certain Rights of the Indenture Trustee..........................................37
Section 11.03. Certificate of Authorized Officer and Opinion of Counsel.........................39
Section 11.04. Indemnification..................................................................39
Section 11.05. Fees and Expenses of the Indenture Trustee.......................................40
Section 11.06. Acts of Noteholders..............................................................40
Section 11.07. Payments on the Notes............................................................40
Section 11.08. Documents and Information........................................................40
Section 11.09. Application of Funds; Return of Unclaimed Funds..................................40
Section 11.10. Forwarding of Notices............................................................41
Section 11.11. Notes Held by the Indenture Trustee; Rights of Indenture Trustee.................41
Section 11.12. Inspection.......................................................................41
Section 11.13. Indenture Trustee; Resignation; Removal; Successors..............................41
Section 11.14. Merger and Consolidation.........................................................43
Section 11.15. Separate Indenture Trustees or Co-Trustees.......................................43
Section 11.16. The Securities Intermediary......................................................44
ARTICLE XII DISCHARGE OF INDENTURE....................................................................46
Section 12.01. Satisfaction and Discharge of Indenture..........................................46
ARTICLE XIII AMENDMENTS................................................................................47
Section 13.01. Modification of Terms without Consent of Noteholders.............................47
Section 13.02. Modifications of Terms with Consent of Noteholders...............................47
Section 13.03. Amendment of the Purchase and Servicing Agreement................................48
Section 13.04. Indenture Trustee................................................................48
Section 13.05. Notes............................................................................48
ARTICLE XIV MISCELLANEOUS.............................................................................49
Section 14.01. Notices..........................................................................49
Section 14.02. No Waiver; Remedies Cumulative...................................................50
Section 14.03. Binding Effect...................................................................50
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Section 14.04. GOVERNING LAW....................................................................51
Section 14.05. Headings.........................................................................51
Section 14.06. WAIVER OF JURY TRIAL.............................................................51
Section 14.07. Severability.....................................................................51
Section 14.08. No Petition in Bankruptcy........................................................51
Section 14.09. Counterparts.....................................................................51
Section 14.10. Jurisdiction; Consent to Service of Process......................................52
Section 14.11. No Recourse......................................................................52
Section 14.12. Limitation of Liability..........................................................52
Section 14.13. Independent Investigation........................................................53
Section 14.14. Institution of Insolvency Proceedings............................................53
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<PAGE> 6
Exhibits
- --------
Exhibit A [Reserved]
Exhibit B [Reserved]
Exhibit C [Reserved]
Exhibit D [Reserved]
Exhibit E Form of Notice of 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
- ---------
Schedule I Post Office Boxes, Collection Deposit Account Banks,
Collection Deposit Accounts, Collection Account, Excess
Funding Account, Optional Redemption Account
Schedule II Reserved
Schedule III UCC Filing Jurisdictions
Annexes
- -------
Annex I Glossary of Terms
Annex II Reserved
Annex III Calculation of Partial Redemption Premium
Annex IV Calculation of Pro Forma Net Yield
<PAGE> 7
This INDENTURE (this "Indenture"), dated as of July 15, 1999, between
ZALE FUNDING TRUST, a Delaware business trust (the "Issuer"), and THE BANK OF
NEW YORK, a banking corporation organized under the laws of the State of New
York, not in its individual capacity, but solely as Indenture Trustee (the
"Indenture Trustee") and Securities Intermediary (in such capacity, the
"Securities Intermediary").
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.
[END OF ARTICLE I]
<PAGE> 8
ARTICLE II
ISSUE, EXECUTION, FORM,
REGISTRATION AND PAYMENT OF NOTES
Section 2.01. [Reserved]
Section 2.02. Execution of Notes. The Notes of each Series shall be
signed on behalf of the Issuer by one of the Authorized Officers of the Owner
Trustee. 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. 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 the 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 applicable Indenture Supplement, 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. Unless otherwise specified in the
related Indenture Supplement for any Series or Class, 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 or
as otherwise specified in any related Indenture Supplement:
(a) the provisions of this Section 2.05 shall be in full force and
effect;
2
<PAGE> 9
(b) the Issuer, the Servicer and the Indenture Trustee may deal with
the Clearing Agency 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.
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 Clearing
Agency, and the Clearing Agency 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 Clearing
Agency, or shall impair, as between the Clearing Agency and the Clearing Agency
Participants, the operation of customary practices governing the exercise of the
rights of a Noteholder of any Notes issued pursuant to this Indenture. 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) Unless otherwise specified in the related
Indenture Supplement for any Series or Class, 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
3
<PAGE> 10
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) Unless otherwise specified in the related Indenture Supplement for any
Series or Class, the Definitive Notes shall bear a legend in substantially the
following form:
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 Indenture Supplement, the parties hereto
shall comply with the terms of each Letter of Representations.
Section 2.09. Definitive Notes. If Book-Entry Notes have been issued
with respect to any Series or Class and (a) the Issuer 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 Series or
Class, and the Issuer is unable to locate a qualified successor, or (b) after
the occurrence of a Servicer Default, Noteholders representing not less than 50%
of the aggregate outstanding principal amount of such Series or Class advise the
Indenture Trustee and the Clearing Agency (which notice may be made through
Clearing Agency Participants), in writing, that the continuation of a book-entry
system through the Clearing Agency 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 Clearing Agency
of the Notes representing any Series or Class and instructions by the Clearing
Agency to the Indenture Trustee for re-registration, the Indenture Trustee will
authenticate and deliver such Definitive Notes to the Registered Noteholders or
their respective nominees, and thereafter the Indenture Trustee will recognize
the holders of such Definitive Notes as Registered Noteholders under the
Transaction Documents. Neither the Issuer 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
4
<PAGE> 11
in relying on, such instructions. Upon the issuance of Definitive Notes, 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 Notes (the "Registered Noteholders") as
provided by the Noteholders by delivery by each Noteholder to the Indenture
Trustee of a completed noteholder data sheet containing such information,
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 such 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 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. [Reserved]
Section 2.12. [Reserved]
Section 2.13. [Reserved].
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.
(b) Transfers.
(i) 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 Clearing Agency. Unless and until Definitive Notes are issued
pursuant to Section 2.09, the Clearing Agency will make book-entry
transfers among the Clearing Agency Participants.
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(ii) 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 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)(ii)(1), 2.14(b)(ii)(2),
2.14(b)(ii)(3) or 2.14(b)(ii)(4) 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.
(1) Transfers at Least Two Years After Issuance or Pursuant to
an Effective Registration Statement. The date of the
requested transfer is at least two (2) years after the date
of original issuance of the Note being transferred or the
transfer is made under an effective Registration Statement
under the Act;
(2) 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
indicates on the form of assignment attached to this
Indenture as Exhibit H 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;
(3) 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
indicates on the form of assignment attached to this
Indenture as Exhibit H 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
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to the effect set forth in the form attached to this
Indenture as Exhibit J; or
(4) Other Transfers. The proposed transfer is not being made
within two (2) 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 Indenture Trustee, 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 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 selected, called or being called for redemption within three days of
the redemption date. 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 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
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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 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 any redemption 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, Disposition 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 disposed of by the Indenture Trustee in accordance with its
standard procedures, and if surrendered to the Indenture Trustee, shall be
promptly cancelled and disposed of by the Indenture Trustee in accordance with
its standard procedures; 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
disposition 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
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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.
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 at closing, and thereafter, upon request, 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 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 Notes. (a) Pursuant to any one or more
Indenture Supplements, the Issuer may, from time to time, issue a 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 in any such Indenture Supplement. The
terms of each Indenture 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.
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The Notes of all outstanding Series shall be equally and ratably entitled as
provided herein to the benefits of this Indenture without preference, priority
or distinction, all in accordance with the terms and provisions of this
Indenture and the applicable Indenture Supplement except, with respect to any
Series or Class, as provided in the related Indenture Supplement.
(b) On or before the Series Issuance Date relating to any new
Series, the parties hereto will execute and deliver an Indenture Supplement
which will specify the Principal Terms of such new Series. The Indenture Trustee
shall execute the Indenture Supplement and the Issuer shall execute the Notes of
such Series and deliver such Notes to the Indenture Trustee for authentication.
The issuance of any such Notes shall be subject to satisfaction of the following
conditions:
(i) on or before the fifth day immediately preceding the Series
Issuance Date, such Issuer shall have given the Indenture Trustee, the
Servicer and each Rating Agency notice (unless such notice requirement is
otherwise waived) of such issuance and the Series Issuance Date or such
Trust Certificate surrender and exchange, as the case may be;
(ii) such Issuer shall have delivered to the Indenture Trustee
any related Indenture Supplement in form satisfactory to the Indenture
Trustee, executed by each party hereto other than the Indenture Trustee;
(iii) such Issuer shall have delivered to the Indenture Trustee
any related Enhancement Agreement executed by each of the parties thereto,
other than the Indenture Trustee;
(iv) the Rating Agency Condition shall have been satisfied;
(v) such issuance will not result in any Adverse Effect and the
Issuer shall have delivered to the Indenture Trustee an Officer's
Certificate, dated the Series Issuance Date, to the effect that the Issuer
reasonably believes that such issuance will not, based on the facts at the
time of such certification, have an Adverse Effect;
(vi) the Issuer shall have delivered to the Indenture Trustee
(with a copy to each Rating Agency) a Tax Opinion, dated the Series
Issuance Date;
(vii) the aggregate amount of Principal Receivables plus the
principal amount of any Participation Interest theretofore conveyed to the
Trust as of the Series Issuance Date shall be greater than the Required
Minimum Principal Balance as of the Series Issuance Date and after giving
effect to such issuance; and
(viii) the Issuer shall deliver to the Indenture Trustee an
Officer's Certificate to the effect that all conditions precedent to the
execution of any Indenture Supplement and the authentication of the
corresponding Notes have been complied with.
Section 2.23. Uncertificated Classes. Notwithstanding anything to the
contrary contained in this Article II or in Article XII, unless otherwise
specified in any Indenture Supplement, any provisions contained in this Article
II and in Article XII relating to the
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registration, form, execution, authentication, delivery, presentation,
cancellation and surrender of Notes shall not be applicable to any
uncertificated Notes.
[END OF ARTICLE II]
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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 all
right, title and interest of the Issuer in and to 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) 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;
(d) the following (the "Account Collateral"):
(i) the Post Office Boxes, the Collection Deposit Accounts, the
Collection 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 Collection Account and
the Excess Funding Account;
(ii) all Eligible Investments of funds in the Collection 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;
(iii) 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;
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(iv) 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
(v) 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 loss of 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
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discretion and without notice to the Issuer, to transfer to or to register in
the name of the Indenture Trustee or any of its 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.
[END OF ARTICLE III]
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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 and
the Servicer access to the Post Office Boxes following the occurrence and during
the continuance of a Servicer Default (provided that, (i) no direction by the
Majority Noteholders to the Indenture Trustee to deny the Issuer and the
Servicer access to any Post Office Box shall be effective unless such Majority
Noteholders provide prior written certification to the Issuer, the Servicer and
the Indenture Trustee that a Servicer Default has occurred and is continuing and
(ii) until such time as the Issuer and the Servicer have been denied access to
any Post Office Box pursuant to this subsection, the Indenture Trustee shall
have no obligations with respect to the mail delivered to any Post Office Box)
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.
(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 or cause to be delivered 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
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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
Collection 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 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. Rights of Noteholders. The indebtedness represented by
the Notes shall include the right of the Noteholders to receive, to the extent
necessary to make the required payments with respect to the Notes of such Series
at the times and in the amounts specified in the related Indenture Supplement,
the portion of Collections allocable to Noteholders of such Series pursuant to
this Indenture and such Indenture Supplement, funds and other property credited
to the Collection Account and the Excess Funding Account (or any subaccount
thereof) allocable to Noteholders of such Series pursuant to this Indenture and
such Indenture Supplement, funds and other property credited to any related
Series Account and funds available pursuant to any related Series Enhancement
(collectively, with respect to all Series, the "Noteholders' Interest"), it
being understood that, except as specifically set forth in the Indenture
Supplement with respect thereto, the Noteholders of any Series or Class shall
not be entitled to any interest in any Series Account or Series Enhancement for
the benefit of any other Series or Class. The Trust Certificate shall represent
the ownership interest in the remainder of the Trust Assets not allocated
pursuant to this Indenture or any Indenture Supplement to the Noteholders'
Interest, including the right to receive Collections with respect to the
Receivables and other amounts at the times and in the amounts specified in any
Indenture Supplement to be paid to the Issuer on behalf of all holders of the
Trust Certificate (the "Issuer's Interest"); provided, however, that the Trust
Certificate shall not represent any interest in the Collection Account, any
Series Account or any Series Enhancement, except as specifically provided in
this Indenture or any Indenture Supplement.
Section 4.03. Establishment of Collection Account and Excess Funding
Account. The Issuer, for the benefit of the Noteholders, shall establish and
maintain with the Indenture Trustee or its nominee in the name of the Indenture
Trustee, on behalf of the Trust, a Qualified Account (including any subaccount
thereof) bearing a designation clearly indicating that the funds and other
property credited thereto are held for the benefit of the Noteholders (the
"Collection Account"). The Collection Account shall consist of two segregated
subaccounts: (a) the "Collection Account Securities Subaccount" to which
financial assets credited to the Collection Account shall be credited, and as to
which financial assets the Securities Intermediary
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undertakes to treat the Indenture Trustee as entitled to exercise the rights
that comprise such financial assets; and (b) the "Collection Account Cash
Subaccount" to which money or instruments deposited in the Collection Account
shall be credited. The Indenture Trustee shall possess all right, title and
interest in all monies, instruments, securities, documents, certificates of
deposit and other property credited from time to time to the Collection Account
and in all proceeds, earnings, income, revenue, dividends and distributions
thereof for the benefit of the Noteholders to the extent of any amounts owing
with respect to the Notes.
The Collection Account shall be under the sole dominion and control of
the Indenture Trustee for the benefit of the Noteholders to the extent of any
amounts owing with respect to the Notes. Except as expressly provided in this
Agreement, the Servicer agrees that it shall have no right of setoff or banker's
lien against, and no right to otherwise deduct from, any funds held in the
Collection Account for any amount owed to it by the Indenture Trustee, the
Trust, any Noteholder or any Series Enhancer. If, at any time, the Collection
Account ceases to be a Qualified Account, the Indenture Trustee (or the Servicer
on its behalf) shall within 10 Business Days (or such longer period, not to
exceed 30 calendar days, as to which each Rating Agency may consent) of its
obtaining actual knowledge that the Collection Account is no longer a Qualified
Account establish a new Collection Account meeting the conditions specified
above, transfer any monies, documents, instruments, securities, security
entitlements, certificates of deposit and other property to such new Collection
Account and from the date such new Collection Account is established, it shall
be the "Collection Account."
Funds on deposit in the Collection Account shall at the written
direction of the Servicer be invested by the Indenture Trustee or its nominee
(including the Securities Intermediary) in Eligible Investments selected by the
Servicer. All such Eligible Investments shall be held by the Indenture Trustee
for the benefit of the Noteholders. The Indenture Trustee shall cause each
Eligible Investment to be delivered to it or its nominee to the extent of any
amounts owing with respect to the Notes (including the Securities Intermediary)
and will be credited to the Collection Account Securities Subaccount maintained
by the Indenture Trustee with the Securities Intermediary. Investments of funds
representing Collections collected during any Settlement Period shall be
invested in Eligible Investments that will mature so that such funds will be
available no later than the close of business on each monthly Transfer Date
following such Settlement Period in amounts sufficient, to the extent of such
funds, to make the required distributions on the following Payment Date. No such
Eligible Investment shall be disposed of prior to its maturity; provided,
however, that the Indenture Trustee may sell, liquidate or dispose of any such
Eligible Investment before its maturity, at the written direction of the
Servicer, if such sale, liquidation or disposal 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. Unless directed by the Servicer in writing, funds deposited in the
Collection Account on a Transfer Date with respect to the immediately succeeding
Payment Date shall not be required to be invested overnight. On each Payment
Date, all interest and other investment earnings on funds on deposit in the
Collection Account shall be paid to the Issuer, except as otherwise specified in
any Indenture Supplement. The Indenture Trustee shall bear no responsibility or
liability for any losses resulting from investment or reinvestment of any funds
in accordance with this Section 4.03 nor for the selection of Eligible
Investments in
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<PAGE> 24
accordance with the provisions of this Agreement except to the extent of any
gross negligence or willful misconduct of the Indenture Trustee.
The Issuer, for the benefit of the Noteholders, shall establish and
maintain with the Indenture Trustee or its nominee in the name of the Indenture
Trustee, on behalf of the Trust, a Qualified Account (including any subaccounts
thereof) bearing a designation clearly indicating that the funds and other
property credited thereto are held for the benefit of the Noteholders (the
"Excess Funding Account"). The Excess Funding Account shall consist of two
segregated subaccounts: (a) the "Excess Funding Account Securities Subaccount"
to which financial assets credited to the Excess Funding Account shall be
credited, and as to which financial assets the Securities Intermediary
undertakes to treat the Indenture Trustee as entitled to exercise the rights
that comprise such financial assets; and (b) the "Excess Funding Account Cash
Subaccount" to which money or instruments deposited in the Excess Funding
Account shall be credited. The Indenture Trustee shall possess all right, title
and interest in all monies, instruments, securities, securities entitlements,
documents, certificates of deposit and other property credited from time to time
to the Excess Funding Account and in all proceeds, dividends, distributions,
earnings, income and revenue thereof for the benefit of the Noteholders to the
extent of any amounts owing with respect to the Notes. The Excess Funding
Account shall be under the sole dominion and control of the Indenture Trustee
for the benefit of the Noteholders. Except as expressly provided in this
Indenture, the Servicer agrees that it shall have no right of setoff or banker's
lien against, and no right to otherwise deduct from, any funds and other
property held in the Excess Funding Account for any amount owed to it by the
Indenture Trustee, the Trust, any Noteholder or any Series Enhancer. If, at any
time, the Excess Funding Account ceases to be a Qualified Account, the Indenture
Trustee (or the Servicer on its behalf) shall within 10 Business Days (or such
longer period, not to exceed 30 calendar days, as to which each Rating Agency
may consent) of its becoming aware that the Excess Funding Account is no longer
a Qualified Account, establish a new Excess Funding Account meeting the
conditions specified above, transfer any monies, documents, instruments,
securities, securities entitlements, certificates of deposit and other property
to such new Excess Funding Account and from the date such new Excess Funding
Account is established, it shall be the "Excess Funding Account."
Funds on deposit in the Excess Funding Account shall at the written
direction of the Servicer be invested by the Indenture Trustee in Eligible
Investments selected by the Servicer. All such Eligible Investments shall be
held by the Indenture Trustee or its nominee (including the Securities
Intermediary) for the benefit of the Noteholders. The Indenture Trustee shall
cause each Eligible Investment to be delivered to it or its nominee (including
the Securities Intermediary) and will be credited to the Excess Funding Account
Securities Subaccount maintained by the Indenture Trustee with the Securities
Intermediary. Funds on deposit in the Excess Funding Account on any Payment Date
will be invested in Eligible Investments that will mature so that such funds
will be available no later than the close of business on the Transfer Date
following the related Settlement Period. No such Eligible Investment shall be
disposed of prior to its maturity; provided, however, that the Indenture Trustee
may sell, liquidate or dispose of an Eligible Investment before its maturity, at
the written direction of the Servicer, if such sale, liquidation or disposal
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. Unless directed by the Servicer, funds
deposited in the Excess Funding Account on a Transfer
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<PAGE> 25
Date with respect to the immediately succeeding Payment Date are not required to
be invested overnight. On each Payment Date, all interest and other investment
earnings (net of losses and investment expenses) on funds on deposit in the
Excess Funding Account shall be treated as Finance Charge Collections with
respect to the last day of the related Settlement Period except as otherwise
specified in the related Indenture Supplement. On each Business Day on which
funds are on deposit in the Excess Funding Account and on which no Series is in
an Accumulation Period or Amortization Period, the Servicer shall determine the
amount (if any) by which the Issuer's Interest exceeds the Required Issuer
Amount on such date and shall instruct in writing the Indenture Trustee to
withdraw any such excess from the Excess Funding Account and pay such amount to
the holders of the Trust Certificate; provided, however, that, if an
Accumulation Period or Amortization Period has commenced and is continuing with
respect to one or more outstanding Series, any funds on deposit in the Excess
Funding Account shall be treated as Shared Principal Collections and shall be
allocated and distributed in accordance with Section 4.05 and the terms of each
Indenture Supplement.
Section 4.04. Collections and Allocations.
(a) The Servicer will apply or will instruct in writing the Indenture
Trustee to apply all funds on deposit in the Collection Account as described in
this Article IV and in each Indenture Supplement. The Servicer shall deposit
Collections into the Collection Account.
(b) Collections of Finance Charges, Principal Receivables and Defaulted
Receivables will be allocated to each Series on the basis of the Series
Allocable Finance Charge Collections of such Series, Series Allocable Principal
Collections of such Series and Series Allocable Defaulted Amount of such Series
and amounts so allocated to any Series will not, except as specified in the
related Indenture Supplement, be available to the Noteholders of any other
Series. Allocations of the foregoing amounts between the Noteholders' Interest
and the Issuer's Interest, among the Series and among the Classes in any Series,
shall be set forth in the related Indenture Supplement or Indenture Supplements.
Section 4.05. Shared Principal Collections. On each Payment Date, (a)
the Servicer shall allocate Shared Principal Collections (as described below) to
each Principal Sharing Series, pro rata, in proportion to the Principal
Shortfalls, if any, with respect to each such Series and (b) the Servicer shall
withdraw from the Collection Account and pay to the holder of the Trust
Certificate an amount equal to the excess, if any, of (x) the aggregate amount
for all outstanding Series of Collections of Principal Receivables which the
related Supplements specify are to be treated as "Shared Principal Collections"
for such Payment Date over (y) the aggregate amount for all outstanding Series
which the related Indenture Supplements specify are "Principal Shortfalls" for
such Series and for such Payment Date; provided, however, that if the Issuer's
Interest as of such Payment Date (determined after giving effect to the
Principal Receivables or Participation Interests transferred to the Trust on
such date) is less than the Required Issuer Amount, the Servicer will not
distribute to the holder of the Trust Certificate any such amounts that
otherwise would be distributed to the holder of the Trust Certificate to the
extent such amounts would cause the Issuer's Interest to be less than the
Required Issuer Amount, but shall deposit such funds in the Excess Funding
Account. The Issuer may, at its option, instruct the Indenture Trustee to
deposit Shared Principal Collections which are
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otherwise payable to the holder of the Trust Certificate pursuant to the
provisions set forth above into the Excess Funding Account.
Section 4.06. Allocation of Trust Assets to Series or Groups. To the
extent so provided in the Indenture Supplement for any Series or in an amendment
to this Indenture executed pursuant to Article XIII, Receivables conveyed to the
Trust pursuant to the Purchase and Servicing Agreement and Receivables or
Participation Interests conveyed to the Trust pursuant to the Purchase and
Servicing Agreement or any Participation Interest Supplement, and all
Collections received with respect thereto may be allocated or applied in whole
or in part to one or more Series or Groups as may be provided in such Indenture
Supplement or amendment, provided, however, that any such provision for
allocation or application shall be effective only upon satisfaction of the
following conditions:
(i) on or before the fifth Business Day immediately preceding the
effectiveness of such provision for such allocation, the Servicer shall
have given the Indenture Trustee and each Rating Agency written notice of
such provision;
(ii) the Rating Agency Condition shall have been satisfied with
respect to such provision; and
(iii) the Servicer shall have delivered to the Indenture Trustee
an Officer's Certificate, dated the date of the effectiveness of such
provision, to the effect that the Servicer reasonably believes that such
allocation will not have an Adverse Effect.
Any such Indenture Supplement or amendment may provide that (i) such
allocation to one or more particular Series or Groups may terminate upon the
occurrence of certain events specified therein and (ii) upon the occurrence of
any such event, such Receivables or Participation Interests, as the case may be,
and any Collections with respect thereto, shall be reallocated to other Series
or Groups or to all Series, all as shall be provided in such Indenture
Supplement or amendment.
Section 4.07. Excess Finance Charge. On each Payment Date, (a) the
Servicer shall allocate Excess Finance Charge Collections (as described below)
to each Excess Allocation Series pro rata, in proportion to the Finance Charge
Shortfalls (as described below), if any, with respect to each such Series and
(b) the Servicer shall withdraw from the Collection Account and pay to the
holder of the Trust Certificate an amount equal to the excess, if any, of (x)
the aggregate amount for all outstanding Series of Finance Charge Collections
which the related Indenture Supplements specify are to be treated as "Excess
Finance Charge Collections" for such Payment Date over (y) the aggregate amount
for all outstanding Series which the related Indenture Supplements specify are
"Finance Charge Shortfalls" for such Series and such Payment Date.
Section 4.08. 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 Account, 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.
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[END OF ARTICLE IV]
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ARTICLE V
DISTRIBUTIONS AND REPORTS TO
NOTEHOLDERS
Distributions shall be made to, and reports shall be provided to,
Noteholders as set forth in the applicable Indenture Supplement. The identity of
the Noteholders with respect to distributions and reports shall be determined
according to the immediately preceding Record Date.
[END OF ARTICLE V]
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ARTICLE VI
SERVICING OF PURCHASED RECEIVABLES
Section 6.01. Servicing of Purchased Receivables. The Noteholders of
all Series are deemed to have consented to the appointment of JNB as Servicer of
the Purchased Receivables pursuant to, and in accordance with the terms of, the
Purchase and Servicing Agreement.
[END OF ARTICLE VI]
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.01. Representations and Warranties of the Issuer. On and as
of the Initial Cut-Off 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 an Adverse Effect and (4) has the power and authority to
execute, deliver and perform its obligations under the Purchase and Servicing
Agreement, this Indenture, each Indenture Supplement, and each other agreement
or instrument contemplated thereby to which it is a party (collectively, the
"Transaction Documents") 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 Issuer
and (2) shall not (A) violate (i) any provision of law, statute, rule or
regulation, which violation would have an 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 an Adverse Effect, (B) 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 an 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.
(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
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. No default, breach, violation or event permitting
acceleration under the terms of any Purchased Receivable exists.
(g) No Fraudulent Transfer. The assignment or 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.
(h) No Proceedings. There are no proceedings or investigations, pending
or, to the best knowledge of the Issuer, threatened against the Issuer before
any Governmental Authority (i) asserting the invalidity of any of the
Transaction Documents to which it is a party or the Notes, (ii) seeking to
prevent the issuance of any of the Notes or the consummation of any of the
transactions contemplated by any of the Transaction Documents to which it is a
party or the Notes, (iii) seeking any determination or ruling that, in the
reasonable judgment of the Issuer, would materially and adversely affect the
performance by the Issuer of its obligations under any of the Transaction
Documents to which it is a party or (iv) seeking any determination or ruling
that would materially and adversely affect the validity or enforceability of any
of the Transaction Documents to which it is a party or the Notes or (v) seeking
to materially adversely affect the income or franchise tax attributes of the
Trust under the United States federal or any state income or franchise tax
systems.
[END OF ARTICLE VII]
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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, rights and
franchises as a Delaware Business Trust under the laws of the State of Delaware
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. Upon notice thereof, furnish to the
Indenture Trustee prompt written notice of the following:
(i) any Early Amortization Event, specifying the nature and
extent thereof and the corrective action (if any) proposed to be taken with
respect thereto;
(ii) the filing or commencement of, or receipt by the Issuer of
any written 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 an Adverse Effect;
(iii) any notices received by the Issuer under the Purchase and
Servicing Agreement (together with copies thereof); and
(iv) 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 upon receipt
thereof from the Servicer, forward to the Indenture Trustee for distribution to
each Noteholder of each Series subject to Rule 144A the Monthly Settlement
Statement and for so long as any of such Notes are "restricted securities"
within the meaning of Rule 144, to provide to such Noteholder and to any
prospective purchaser of such Notes, upon the request of such Noteholder or
prospective purchaser, any information in its possession required to be provided
to such
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<PAGE> 33
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 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 an 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.
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(k) Purchase and Servicing Agreement. Upon request of the Indenture
Trustee, acting at the written direction of the Majority Noteholders, contact
any party to the Purchase and Servicing Agreement to demand and request
information and reports or action that the Issuer is entitled to under the
Purchase and Servicing Agreement.
(l) 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 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 acting at the written direction of the Majority
Noteholders 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).
(m) 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.
(n) Compliance with Trust Agreement. At all times observe and comply in
all material respects with the provisions of the Trust Agreement and conduct its
business in accordance with the terms of the Trust Agreement.
(o) Separate Corporate Existence.
(i) Obtain and preserve its qualification to do business in each
jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of any Transaction Document to
which it is a party and each other instrument or agreement necessary or
appropriate to proper administration hereof and permit and effectuate the
transactions contemplated hereby.
(ii) Maintain its own deposit, securities and other account or
accounts, separate from those of any Affiliate of the Issuer. Except as
permitted or contemplated by the Transaction Documents, the funds of the
Issuer will not be diverted to any other Person or for other than the
corporate use of the Issuer, and the funds of the Issuer shall not be
commingled with those of any Affiliate of the Issuer.
(iii) Ensure that, to the extent that it shares the same officers
or other employees with any of the owners of beneficial interests in or
Affiliates of the Issuer, the
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salaries of and the expenses related to providing benefits to such officers
and other employees shall, in the judgment of the Issuer, be fairly
allocated among such entities.
(iv) Ensure that, to the extent that it jointly contracts with
any of its owners of beneficial interests in or Affiliates of the Issuer to
do business with vendors or service providers or to share overhead
expenses, the costs incurred in so doing shall, in the judgment of the
Issuer, be allocated fairly among such entities. Except as permitted in or
contemplated by the Transaction Documents, all material transactions
between the Issuer and any of its Affiliates shall be only on an
arm's-length basis.
(v) Observe all necessary formalities to authorize all trust
action and maintain accurate and separate books, records and accounts,
including, but not limited to, intercompany transaction accounts.
(vi) Ensure that decisions with respect to its business and daily
operations shall be independently made by the Issuer (although the officer
making any particular decision may also be an officer or director of an
Affiliate of the Issuer) and shall not be dictated by an Affiliate of the
Issuer.
(vii) Act solely in its own name and through its own authorized
officers, employees and agents.
(viii) Other than as permitted or contemplated by the Transaction
Documents, ensure that no Affiliate of the Issuer shall advance funds to
the Issuer, and no Affiliate of the Issuer will otherwise guaranty debts
of, the Issuer; provided, however, that an Affiliate of the Issuer may
provide funds to the Issuer in connection with the capitalization of the
Issuer, including capital necessary to assure that the Issuer has
"substantial assets" as described in Treasury Regulation Section
301.7701-2(d)(2) as in existence prior to amendment by Treasury Decision
8697 on December 17, 1996.
(ix) Other than organizational expenses and as expressly provided
herein or contemplated hereby, pay all expenses, indebtedness and other
obligations incurred by it using its own funds.
(x) Not become liable with respect to any obligation of any
Affiliate of the Issuer nor shall the Issuer make any loans to any Person.
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 any
Enhancement provided by the Issuer pursuant to the terms of any Indenture
Supplement; (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.
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(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 and/or Participation
Interests pursuant to the Purchase and Servicing Agreement, the activities
incidental to the purchase and ownership of such Receivables and/or
Participation Interests, the issuance of the Notes, the Transactions, the making
of any investments permitted under this Indenture, the other incidental and
related transactions expressly permitted 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 (i) the acquisition of Receivables and
the sale of Purchased Receivables pursuant to the Purchase and Servicing
Agreement, (ii) the repayment of the Notes pursuant to this Indenture and the
Purchase and Servicing Agreement and (iii) the re-payment of any Indebtedness
incurred pursuant to any Enhancement provided pursuant to the terms of any
Indenture Supplement.
(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.
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(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.
[END OF ARTICLE VIII]
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ARTICLE IX
REDEMPTIONS
Section 9.01. Optional Redemption of the Notes. To the extent provided
in the Indenture Supplement for any Series or Class, the Notes may be redeemed
at the option of the Issuer, in whole or in part, on such date, in such manner
and at such price, all as set forth in such Indenture Supplement.
Section 9.02. Legal Final Maturity Date of the Notes. If the Issuer
shall not have given notice by 30 days prior to the Legal Final Maturity Date of
any Series that it will redeem the Notes of such Series in full on or before
such Legal Final Maturity Date, the Servicer, on behalf of the Indenture Trustee
and the Noteholders of such Series, 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 Collection Account and the Excess Funding Account and
any Series Account available for payment of such Notes on the Legal Final
Maturity Date, will be sufficient to pay in full (a) the outstanding principal
balance of such Notes and (b) accrued and unpaid interest on such Notes payable
on the Legal Final Maturity 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 Legal
Final Maturity 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 Collection Account and treated as
Collections and shall be paid to the Noteholders of the Series being redeemed on
the Legal Final Maturity Date to the extent necessary to pay such Notes.
[END OF ARTICLE IX]
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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":
(i) 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;
(ii) 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(a) 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;
(iii) the Issuer becomes subject to the requirement to register
as an "investment company" under the Investment Company Act; and
(iv) with respect to any Series, the occurrence of any other
event determined to be an Early Amortization Event for such Series in the
applicable Indenture Supplement.
If any event described in clause (iv) of Section 10.01 occurs with
respect to any Series, an Early Amortization Event shall be deemed to have
occurred with respect to such Series only if an Early Amortization Event is
declared to have occurred in the manner set forth in the applicable Indenture
Supplement. If any event described in clauses (i) through (iii) 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.
Section 10.02. Remedies.
(a) Following the occurrence of an Early Amortization Event specified
in clauses (i) through (iii) of Section 10.01(a), 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,
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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.
Section 10.03. 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 a 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 10.04. 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 10.05. 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, 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
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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 10.06. 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
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 Holders.
Section 10.07. 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 actually known to an Authorized Officer of the Indenture
Trustee, such notice to be transmitted within fifteen (15) days after obtaining
actual knowledge of 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.
[END OF ARTICLE X]
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ARTICLE XI
CONCERNING THE TRUSTEE
Section 11.01. Duties and Responsibilities of the Indenture Trustee.
Except as otherwise required by law, the Indenture Trustee, prior to the
occurrence of a Servicer Default and prior to 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. 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 a Servicer Default of which an Authorized Officer
has actual knowledge 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 exercise or use under the circumstances in the conduct of
his own affairs. 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 willful misconduct, provided that:
(a) prior to the occurrence of a Servicer Default and after the curing
or waiving of any Servicer Default which may have may occurred:
(i) 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
(ii) 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
(but need not conform or investigate the accuracy of mathematical
calculations or other facts set forth therein).
(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 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 Indenture Supplement;
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(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 a
Servicer Default or 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 Indenture 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 Indenture 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.
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 or
the Servicer;
(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 of its selection,
and the advice of such counsel and any Opinion of Counsel shall be full and
complete authorization and
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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 security or
indemnity against the costs, expenses and liabilities which might be incurred by
it in compliance with such request or direction;
(f) the Indenture Trustee shall not be bound to make any investigation
into the facts or matters stated in any 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 and the
Indenture Trustee shall incur no liability or additional liability of any kind
by reason of such inquiry or investigation;
(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, not involving its gross
negligence and reasonably believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture or any
Supplement;
(i) except as otherwise provided in this Indenture or any Indenture
Supplement, 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;
(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;
(k) the Indenture Trustee shall not be responsible for filing any
financing or continuation statements or recording any documents or instruments
in any public office at any time or times or otherwise perfecting or maintaining
the perfection of any security interest in the Collateral; and
(l) the rights, privileges, protections and benefits given to the
Indenture Trustee,
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including, without limitation, its rights to be indemnified, are extended to,
and shall be enforceable by, the Indenture Trustee in each of its capacities
hereunder, and to each agent, custodian and other Persons employed by it to act
hereunder including but not limited to the Securities Intermediary.
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 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 and employees
from and against any and all liabilities, losses, claims, damages, actions,
suits, judgments, demands, costs and expenses (including reasonable legal fees
and expenses) (i) in any way relating to or arising out of this Indenture, any
Indenture Supplement or the other Transaction Documents or (ii) sustained by
reason of any acts, omissions or alleged acts or omissions relating to or
arising out of the activities of the Issuer or the Indenture Trustee pursuant to
this Indenture any Indenture Supplement or the Purchase and Servicing Agreement
or in connection with the Issuer's performance under this Indenture, any
Indenture Supplement 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 willful
misconduct of the Indenture Trustee or any Noteholder or any of their respective
directors, officers or employees. Payments to the Indenture Trustee in respect
of such indemnification shall be payable solely from amounts available for
distribution to the Issuer pursuant to this Indenture and Section 8.01(b)(xii)
of the Purchase and Servicing Agreement. The Indenture Trustee's rights and
remedies in respect of 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, discharge or termination of this
Indenture.
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Section 11.05. Fees and Expenses of the Indenture Trustee. The fees and
expenses of the Indenture Trustee will be paid by Z Del pursuant to Section
10.06 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.
Section 11.07. Payments on the Notes. On each Payment Date 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.
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
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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.
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.
Section 11.13. Indenture Trustee; Resignation; Removal; Successors. The
Issuer agrees, for the benefit of the Noteholders, that there shall at all times
be an 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 any state thereof with a
combined capital and surplus of at least $50 million and (2) shall have a
long-term debt rating not less than Baa3 and BBB- by Moody's and Standard &
Poor's, respectively, or shall otherwise be acceptable to Moody's and Standard &
Poor's. 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 thirty (30) 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
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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) (i) so long as no Servicer Default 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 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
(ii) so long as a Servicer Default 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 the 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.
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If no successor Indenture Trustee shall have been so appointed and
shall have accepted such appointment within thirty (30) days after the receipt
by the Issuer of the predecessor Indenture Trustee's notice of resignation or
the removal of the predecessor Indenture Trustee, 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 11.13 or
petition any court of competent jurisdiction for the appointment of a successor
trustee. 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.
The Indenture Trustee shall have the power and may execute and deliver
all instruments necessary to appoint one or more Persons to act as such
co-trustee or co-trustees, or separate trustee or separate trustees, of all or
any part of the Trust and to vest in such Person or Persons, in such capacity
and for the benefit of the Noteholders, such title to the Trust or any part
hereof, and subject to the other provisions of this Section, such powers,
duties, obligations, rights and trusts as the Indenture Trustee may reasonably
consider necessary to perform its obligations hereunder. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
a successor or trustee under Section 11.13 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 11.13.
(b) Every separate trustee or co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon
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the Indenture Trustee shall be conferred or imposed upon and exercised or
performed by the Indenture Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Indenture Trustee joining in such act),
except to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed or to the extent the Indenture
Trustee shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations (including the holding
of title to the Trust or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee, but
solely at the direction of the Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason of
any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Indenture and
the conditions of this Article 11.15. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, subject to all
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee and a copy thereof furnished by the Indenture Trustee to
the Seller.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Indenture on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 11.16. The Securities Intermediary.
(a) The Bank of New York is appointed as the initial Securities
Intermediary hereunder and The Bank of New York accepts such appointment.
(b) The Bank of New York represents and warrants that it is as of the
date hereof and shall be for so long as it is the Securities Intermediary
hereunder a corporation that (i) in the ordinary course of its business
maintains securities accounts for others and is acting in that capacity
hereunder, and (ii) maintains a Participant's Securities Account (as defined in
the United States Regulations) with a Federal Reserve Bank. The Bank of New York
agrees with the parties hereto that, as of the date hereof and for so long as it
is the Securities Intermediary hereunder, the Collection Account Securities
Subaccount and the Excess Funding Account Securities Subaccount
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shall be an account to which financial assets may be credited. The Bank of New
York undertakes that for so long as it is the Securities Intermediary it will
treat the Indenture Trustee as entitled to exercise rights that comprise such
financial assets, and to exercise the ordinary rights of an entitlement holder,
in the fashion contemplated by the UCC. The Bank of New York agrees with the
parties hereto that for so long as it is the Securities Intermediary hereunder
each item of property credited to the Collection Account Securities Subaccount
and the Excess Funding Account Securities Subaccount shall be treated as a
"financial asset" within the meaning of the UCC. The Bank of New York covenants
that so long as it is the Securities Intermediary hereunder it will not take any
action inconsistent with the provisions of this Indenture applicable to it as
Securities Intermediary and agrees that as long as it is the Securities
Intermediary hereunder no item of property credited to the Collection Account or
the Excess Funding Account shall be subject to any security interest, lien, or
right of setoff in favor of the Securities Intermediary or anyone claiming
through the Securities Intermediary (other than the Indenture Trustee).
(c) It is the intent of the Indenture Trustee and the Issuer that each
of the Collection Account and the Excess Funding Account shall be an account of
the Indenture Trustee and not an account of the Issuer. If, despite such intent,
either the Collection Account or the Excess Funding Account is determined to be
an account of the Issuer, then (i) the Securities Intermediary shall agree to
comply with entitlement orders originated by the Indenture Trustee without
further consent by the Issuer, and (ii) The Bank of New York, as initial
Securities Intermediary agrees that for so long as it is the Securities
Intermediary hereunder, it will comply with entitlement orders originated by the
Indenture Trustee without further consent by the Issuer.
[END OF ARTICLE XI]
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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 cancelled or delivered to the
Indenture Trustee for cancellation, and the Issuer has paid all sums payable by
it under this Indenture, any Indenture 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 or 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.
[END OF ARTICLE XII]
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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 (i) 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 this Indenture or the Notes
or in any other manner which the Issuer may deem necessary or desirable and
which shall not, as evidenced by an Officer's Certificate of the Issuer
delivered to the Indenture Trustee, adversely affect the interests of the
Noteholders or (ii) modifying, eliminating or adding to the provisions of this
Indenture to such extent as shall be necessary, as evidenced by an Opinion of
Counsel, to effect the qualification of this Indenture under the Trust Indenture
Act or under any similar federal statute hereafter enacted and to add to this
Indenture such other provisions as may be expressly required by the Trust
Indenture Act to the extent such modifications and amendments do not adversely
affect the interests of the Noteholders as evidenced by an Officer's Certificate
of the Issuer delivered to the Indenture Trustee. 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 has
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 avoid a reduction in or a removal of
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.
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 affected by such
modification, amendment or waiver; 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, (A) without the consent of the
Noteholder of each such Note affected thereby, (1) change the scheduled maturity
date or a Legal Final Maturity Date or the method of determining the required
amounts of principal payments on, any Note, (2) reduce the amount of 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 any
redemption price, (8) change any provision with respect to the redemption of the
Notes or (9) change any provision regarding the law governing the Transaction
Documents or (B) without the consent of 66 2/3% of the holders of the
outstanding principal amount of the Notes of all Series, change Section 14.14 of
this Indenture. 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
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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 and shall be conclusive and binding on all
subsequent Noteholders of such Note. Any amendment, waiver or modification
consented to by the Noteholders shall not be effective unless each of the Rating
Agencies has provided confirmation to the Issuer and the Indenture Trustee that
such amendment, waiver or modification shall not result in the reduction or
removal of the rating of any Class of the Notes affected by such amendment,
waiver or modification.
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 affected thereby 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 (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 the 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.
Section 13.04. 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 13.05. 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 the form approved by the Indenture Trustee and the
Issuer as to any matter provided for in connection with such 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.
[END OF ARTICLE XIII]
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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 Owner Trustee
Rodney Square North
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: (972) 580-4576
Telecopy: (972) 580-5238
(b) If to The Bank of New York, to it at:
101 Barclay Street
12th Floor East
New York, New York 10286
Attention: Corporate Trust - Asset Backed Finance Unit,
Telephone: (212) 815-2793
Telecopy: (212) 815-5544
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(c) If to Moody's, to it at:
Moody's Investor Services Inc.
ABS Monitoring Department
99 Church Street
New York, New York 10007
(d) If to Standard & Poor's, to it at:
Standard & Poor's Ratings Group
55 Water Street
New York, New York 10041
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 on the date of receipt. Except
as set forth in Section 10.07 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 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 or
11.14 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
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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 IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS.
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 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.
51
<PAGE> 58
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 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.
52
<PAGE> 59
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.
Section 14.14. Institution of Insolvency Proceedings. The Issuer shall
not, without the written consent of the Indenture Trustee, to be given only at
the direction of not less than 66 2/3% of the holders of the outstanding
principal amount of the Notes of all Series, institute proceedings to be
adjudicated insolvent, or consent to the institution of any bankruptcy or
insolvency case or proceedings against it, or file or consent to a petition
under any applicable federal or state law relating to bankruptcy, seeking the
Issuer's liquidation or reorganization or any other relief for the Issuer as
debtor, or consent to the appointment of a receiver, liquidator, assignee,
trustee, custodian or sequestrator (or other similar official) of the Issuer or
a substantial part of its property, or make any assignment for the benefit of
creditors, or admit in writing its inability to pay its debts generally as they
become due, or take any action in furtherance of any such action.
[END OF ARTICLE XIV]
[SIGNATURE PAGE FOLLOWS]
53
<PAGE> 60
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 15, 1999
By /s/ JAMES P. LAWLER
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
THE BANK OF NEW YORK, as Indenture
Trustee and Securities Intermediary
By /s/ ERWIN SORIANO
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
[Signature page - Indenture]
54
<PAGE> 61
EXHIBIT A
Form of Class A 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 (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[ ]% ASSET BACKED NOTES
No. 1
PRINCIPAL AMOUNT: $
ISSUANCE DATE: July 15, 1999
SERIES TERMINATION DATE: [ ]
CLASS A NOTE RATE [ ]% 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 [ ]
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
A-1
<PAGE> 62
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 [ ]% per annum (the "Class
A 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, 1999, 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 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 [ ], 1999 (the "Indenture"), between the Issuer and The Bank of New York,
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.
A-2
<PAGE> 63
EXHIBIT B
[Reserved]
B-1
<PAGE> 64
EXHIBIT C
[Reserved]
C-1
<PAGE> 65
EXHIBIT D
[Reserved]
D-1
<PAGE> 66
EXHIBIT E
to the Indenture
[FORM OF NOTICE TO NOTEHOLDERS PURSUANT TO
SECTION 10.03 OF THE INDENTURE]
ZALE FUNDING TRUST
TO: Holders of Zale Funding Trust Asset Backed Notes, Series [_______]
Re: Event of Default Relating to Zale Funding Trust and Disposition of
Trust Property
THIS NOTICE CONTAINS IMPORTANT INFORMATION REGARDING ZALE FUNDING TRUST
AND ZALE DELAWARE, INC. PLEASE READ THIS NOTICE CAREFULLY AND RETURN
THE ATTACHED NOTEHOLDER INSTRUCTION TO THE INDENTURE TRUSTEE BY [DATE].
UNLESS THE TRUSTEE IS INSTRUCTED BY SUCH DATE BY HOLDERS OF A MAJORITY
IN AGGREGATE PRINCIPAL AMOUNT OF THE ZALE FUNDING TRUST ASSET BACKED
NOTES, SERIES [__] TO DISPOSE OF THE TRUST PROPERTY ALLOCABLE TO YOUR
SERIES, THE TRUST PROPERTY WILL BE RETAINED AND NOT LIQUIDATED.
[Describe circumstances of Zale Funding Trust Event of Default].
Section 10.03 of the Indenture under which the Notes were issued provides that
the Trustee will sell the Trust Property allocable to a Series and distribute
the proceeds thereof to the Noteholders of such Series if so instructed by a
majority in principal amount of the Notes of such Series in the manner provided
in the Indenture. If the net proceeds of the sale of such portion of the Trust
Property are not sufficient to pay the Notes of your Series in full, Holders of
one or more of the classes of Notes of your Series will fail to recover the
outstanding principal amount of their Notes.
Option A on the attached Noteholder Election Form is an instruction to
the Trustee to retain the Trust Property.
Option B on the attached Noteholder Election Form is an instruction to
the Trustee to sell the Trust Property allocable to your Series and distribute
the proceeds of such sale to the Noteholders of your Series in the manner
provided in the Indenture. FAILURE TO RETURN THE ATTACHED NOTEHOLDER ELECTION
FORM TO THE TRUSTEE BY [DATE], OR FAILURE TO SELECT EITHER OPTION A OR B ON THE
ATTACHED NOTEHOLDER ELECTION FORM, WILL BE DEEMED TO BE A SELECTION OF OPTION A.
E-1
<PAGE> 67
NOTEHOLDER ELECTION FORM
[ ] Option A -- The undersigned holder of Zale Funding Trust Asset
Backed Notes, [Series 199_ - _] [20__-_] hereby instructs the
Trustee to retain the Trust Property allocable to the Noteholder's
Series.
[ ] Option B -- The undersigned holder of Zale Funding Trust Asset
Backed Notes, [Series 199__ - __] [20__-_] hereby instructs the
Trustee to sell the Trust Property allocable to the Noteholder's
Series and to distribute the net proceeds of such sale to the
Noteholders of such Series in the manner provided in the
Indenture.
By:
----------------------------
Name of Noteholder
E-2
<PAGE> 68
EXHIBIT F
[Reserved]
F-1
<PAGE> 69
EXHIBIT G
[Reserved]
G-1
<PAGE> 70
EXHIBIT H
to the Indenture
(FORM OF ASSIGNMENT OF NOTE)
ASSIGNMENT
FOR VALUE RECEIVED, _______________ hereby sells, assigns, and
transfers unto _____________________
Please insert Social
Security or other
identifying number of
assignee:
-------------------------
the attached Note of ZALE FUNDING TRUST (the "Issuer") standing in the name(s)
of the undersigned in the Note Register maintained by the Indenture Trustee for
the Issuer and does hereby irrevocably constitute and appoint _____________
Attorney to transfer such Note in such Note Register, with full power of
substitution in the premises. This sale, assignment and transfer is made
pursuant to an exemption from registration under the Securities Act of 1933, as
amended (the "Act"), pursuant to Rule 144A promulgated thereunder, to a
"qualified institutional buyer" as defined in such Rule 144A or pursuant to an
exemption from registration under the Act pursuant to Rule 904 of Regulation S
promulgated thereunder.
Date:
------------------- ------------------------------
[Signature]
Notice: The signature(s) to
this assignment must
correspond with the name(s) as
written upon the face of the
Note to be transferred in
every particular without
alteration or any change
whatsoever. The signature(s)
must be guaranteed by a
commercial bank or trust
company located, or having a
correspondent location, in the
City of New York or the city
in which the corporate trust
office of the Indenture
Trustee is located, or by a
member firm of a national
securities exchange. Notarized
or witnessed signatures are
not acceptable as guaranteed
signatures.
H-1
<PAGE> 71
Signature Guarantee:
- ------------------------------------
Name of Institution
- ------------------------------------
Authorized Officer
H-2
<PAGE> 72
[FORM OF TRANSFEROR LETTER]
EXHIBIT I
to the Indenture
The Bank of New York,
as Indenture Trustee
under the Indenture
Re: Zale Funding Trust
Asset Backed Notes, Series [_____]
Ladies and Gentlemen:
In connection with our sale of the above-referenced notes (the "Notes")
of Zale Funding Trust (the "Issuer"), we confirm that:
(a) We reasonably believe that the purchaser of the Notes is a
"qualified institutional buyer" as defined in Rule 144A under the
Securities Act of 1933, as amended (the "Act").
(b) We, and any person acting on our behalf, have taken reasonable
steps to ensure that the purchaser of the Notes is aware that we may rely
on the exemption from the provisions of Section 5 of the Act provided by
Rule 144A thereunder.
(c) If the purchaser has made a request to us for information pursuant
to Rule 144A(d)(4) under the Act, we confirm that the purchaser has
received such information as has been provided by the Issuer in response to
such request; it being understood that we make no representation as to
whether such information complies with the requirements of such Rule.
Very truly yours,
[NAME OF INVESTOR]
By:
---------------------------
Name:
Title:
<PAGE> 73
[FORM OF TRANSFEREE LETTER]
EXHIBIT J
to the Indenture
The Bank of New York,
as Indenture Trustee
under the Indenture
Re: Zale Funding Trust
Asset Backed Notes, Series [_______]
Ladies and Gentlemen:
In connection with our purchase of the above-referenced notes (the
"Notes") of Zale Funding Trust (the "Issuer"), we hereby confirm that we are not
an Affiliate (as such term is defined in the Indenture governing the Notes) of
the Issuer.
Very truly yours,
[NAME OF TRANSFEREE)
By:
---------------------------
Name:
Title:
<PAGE> 74
EXHIBIT K
Form of Certificate of Transferor
(NonRule 144A/Rule 904 Transfer of Notes)
[to come]
<PAGE> 75
EXHIBIT L
Form of Certificate of Transferee
(NonRule 144A/Rule 904 Transfer of Notes)
[to come]
<PAGE> 76
EXHIBIT N
Form of Collection Deposit Account Letter
[to come]
<PAGE> 77
SCHEDULE I
[TO BE UPDATED]
P.O. Boxes
Zale Delaware, Inc.
(Zales, Bailey & Outlet) P.O. Box 78102 Phoenix, AZ 85062-8102
(Gordon's) P.O. Box 78101 Phoenix, AZ 85062-8101
Collection Deposit Accounts
Bank One, AZ 6010011963144
Collection Deposit Banks
Bank One, AZ Phoenix, AZ
Collection Account [TBD]
Interest Sub-Account [TBD]
Excess Funding Account [TBD]
Optional Redemption Account [TBD]
Concentration Accounts
First Union Philadelphia, PA 2100012953658
Bank Boston Boston, MA 551-49011
<PAGE> 78
SCHEDULE III
UCC Filing Jurisdictions
Texas Secretary of State
Delaware Secretary of State
<PAGE> 1
EXHIBIT 4.4
EXECUTION COPY
-------------------------------------------------------------------
ZALE FUNDING TRUST
Issuer
and
THE BANK OF NEW YORK
Indenture Trustee and Securities Intermediary
on behalf of the Series 1999-A Noteholders
---------------------------------------------
SERIES 1999-A INDENTURE SUPPLEMENT
Dated as of July 15, 1999
to
INDENTURE
Dated as of July 15, 1999
---------------------------------------------
ZALE FUNDING TRUST
Floating Rate Class A Asset Backed
Variable Funding Notes, Series 1999-A
Class B Asset Backed Notes, Series 1999-A
-------------------------------------------------------------------
<PAGE> 2
SERIES 1999-A INDENTURE SUPPLEMENT, dated as of July 15, 1999 (this
"Supplement"), by and between ZALE FUNDING TRUST, a Delaware business trust
(the "Issuer"), and THE BANK OF NEW YORK, a banking corporation organized and
existing under the laws of the State of New York, not in its individual
capacity, but solely as Indenture Trustee (the "Indenture Trustee") and
Securities Intermediary (in such capacity, the "Securities Intermediary") under
the Indenture, dated as of July 15, 1999 (the "Indenture"), by and between the
Issuer, the Indenture Trustee and the Securities Intermediary.
Section 2.22 of the Indenture provides, among other things, that the
Issuer and the Indenture Trustee may at any time and from time to time enter
into a supplement to the Indenture for the purpose of authorizing the issuance
by the Issuer, for execution and redelivery to the Indenture Trustee for
authentication, of one or more Series of Notes.
Pursuant to this Supplement, the Issuer shall create a new Series of
Investor Notes and shall specify the Principal Terms thereof.
ARTICLE I
CREATION OF THE SERIES 1999-A NOTES
Section 1.01. Designation. There is hereby created a Series of
Investor Notes to be issued pursuant to the Indenture and this Supplement to be
known generally as the "Series 1999-A Notes." The Series 1999-A Notes shall be
issued in two Classes, which shall be designated generally as the Floating Rate
Class A Asset Backed Variable Funding Notes, Series 1999-A (the "Class A
Notes") and the Class B Asset Backed Notes, Series 1999-A (the "Class B
Notes"). The Class A Notes shall be substantially in the form of Exhibit A-1,
and the Class B Notes shall be substantially in the form of Exhibit A-2.
[END OF ARTICLE I]
<PAGE> 3
ARTICLE II
DEFINITIONS
Section 2.01. Definitions. In the event that any term or provision
contained herein shall conflict with or be inconsistent with any provision
contained in the Indenture, the terms and provisions of this Supplement shall
govern with respect to the Series 1999-A Notes. All Article, Section or
subsection references herein shall mean Article, Section or subsections of this
Supplement except as otherwise provided herein. All capitalized terms used
herein and not otherwise defined herein shall have the meanings ascribed to
them in the Indenture. Each capitalized term defined herein shall relate only
to the Series 1999-A Notes and no other Series of Notes issued by the Trust.
"Additional Interest" shall mean, at any time of determination, the
sum of Class A Additional Interest and Class B Additional Interest.
"Adjustment Payment Shortfall" shall mean, (a) with respect to any day
during a Settlement Period, an amount equal to the product of (i) any
adjustment payments which the Seller was required to make on such day pursuant
to Section 2.06 of the Purchase and Servicing Agreement, times (ii) the
Floating Allocation Percentage for such Settlement Period, and (b) with respect
to any Settlement Period, an amount equal to the product of (i) any adjustment
payments which the Seller was required to make during such Settlement Period
pursuant to Section 2.06 of the Purchase and Servicing Agreement but failed to
make on or prior to the last day of such Settlement Period, times (ii) the
Floating Allocation Percentage as of the related Payment Date.
"Administrative Agent" shall have the meaning specified in the Class A
Purchase Agreement.
"Agent" shall have the meaning specified in the Class A Purchase
Agreement.
"Amortization Date" shall mean the earliest to occur of (i) the date
after [July 13], 2000 designated by the Issuer as the Amortization Date at any
time upon seven (7) Business Days' written notice to the Agents, the
Administrative Agent, the Indenture Trustee and the Servicer, (ii) the Early
Amortization Commencement Date and (iii) the latest Purchase Termination Date,
as such term is defined in the Class A Purchase Agreement.
"Amortization Period" shall mean, with respect to Series 1999-A, an
Early Amortization Period or a Controlled Amortization Period.
"Available Series 1999-A Finance Charge Collections" shall have the
meaning specified in subsection 4.06(a).
"Base Rate" shall mean, with respect to any Settlement Period, the sum
of (i) the average of the Class A Interest Rate and the Class B Interest Rate
weighted by the unpaid principal amount of each respective Class of Notes, plus
(ii) the Servicing Fee Rate, plus (iii) the Senior Class A Increased Costs Rate
(if any).
2
<PAGE> 4
"Carryover Class A Interest" shall mean, with respect to any Payment
Date, (a) any Class A Interest due but not paid on any previous Payment Date
plus (b) any Class A Additional Interest which is due and unpaid.
"Carryover Class B Interest" shall mean, with respect to any Payment
Date, (a) any Class B Interest due but not paid on any previous Payment Date
plus (b) any Class B Additional Interest.
"Carryover Interest" shall mean, with respect to any Payment Date, the
sum of Carryover Class A Interest and Carryover Class B Interest.
"Class A Additional Interest" shall have the meaning specified in
subsection 4.03(b).
"Class A Adjustment Payment Shortfall" shall mean, with respect to
each Payment Date, an amount equal to the product of (a) the Class A Percentage
for the related Settlement Period and (b) the Adjustment Payment Shortfall for
such Settlement Period.
"Class A Floating Allocation Percentage" shall mean, with respect to
any Settlement Period, the percentage equivalent of a fraction, the numerator
of which is the Class A Invested Amount as of (x) during a Revolving Period,
the close of business on the last day of the immediately preceding Settlement
Period (or, in the case of the first Settlement Period, the Class A Initial
Invested Amount) and (y) during an Amortization Period or Partial Amortization
Period (i) with respect to Collections of Finance Charges, the close of
business on the last day of the most recent Revolving Period and (ii) with
respect to the Investor Defaulted Amount, Invested Defaulted Amount Shortfall
or the Adjustment Payment Shortfall, the close of business on the last day of
the immediately preceding Settlement Period; provided, that with respect to any
Settlement Period in which a Class A Note Principal Balance Increase or a Class
A Special Reduction occurs, such numerator, on and after the date of such Class
A Note Principal Balance Increase or a Class A Special Reduction, shall be the
Class A Invested Amount on such date (after giving effect to the Class A Note
Principal Balance Increase or the Class A Special Reduction, as applicable),
and the denominator of which is the greater of (a) the total amount of
Principal Receivables in the Trust and the amounts on deposit in the Excess
Funding Account as of the close of business on such date (or, in the case of
the first Settlement Period, the total amount of Principal Receivables in the
Trust on the Closing Date) and (b) when used with respect to (x) Collections of
Finance Charges during an Amortization Period or (y) Collections of Principal
Receivables, the sum of the numerators with respect to all Classes of all
Series then outstanding used to calculate the applicable allocation percentage.
"Class A Increased Cost Amount" shall mean the aggregate amount, if
any, payable by the Issuer pursuant to Sections 2.4 or 2.5 or subsection 2.6(c)
of the Class A Purchase Agreement, together with any accrued and unpaid
interest on such amount as provided therein.
"Class A Initial Invested Amount" shall mean the aggregate initial
principal amount of the Class A Notes, which is $250,000,000.
"Class A Interest" shall mean the interest distributable in respect of
the Class A Notes as calculated in accordance with subsection 4.03(a).
3
<PAGE> 5
"Class A Interest Rate," with respect to any Interest Accrual Period,
shall have the meaning specified in the Class A Purchase Agreement.
"Class A Interest Shortfall" shall have the meaning specified in
subsection 4.03(b).
"Class A Invested Amount" shall mean, when used with respect to any
date of determination, an amount equal to (a) the Class A Initial Invested
Amount, plus (b) the aggregate amount of Class A Note Principal Balance
Increases on or prior to such date, minus (c) the aggregate amount of principal
payments made to Class A Noteholders prior to such date, minus (d) the
aggregate amount of Class A Investor Charge-Offs for all prior Payment Dates,
and plus (e) the sum of the aggregate amount allocated with respect to Class A
Investor Charge-Offs and available on all prior Payment Dates pursuant to
subsection 4.06(a)(vii) for the purpose of reinstating amounts reduced pursuant
to the foregoing clause (d).
"Class A Investor Charge-Offs" shall have the meaning specified in
subsection 4.09(b).
"Class A Investor Defaulted Amount" shall mean, with respect to each
Payment Date, an amount equal to the product of (a) the Class A Percentage for
the related Settlement Period and (b) the Defaulted Amount Shortfall for such
Settlement Period.
"Class A Mandatory Partial Amortization Amount" shall have the meaning
specified in the Class A Purchase Agreement.
"Class A Monthly Interest" shall have the meaning specified in the
Class A Purchase Agreement.
"Class A Note Principal Balance Increase" shall have the meaning set
forth in subsection 7.04(a).
"Class A Noteholder" shall mean the Person in whose name a Class A
Note is registered in the Note Register.
"Class A Noteholders' Interest" shall mean, with respect to any date,
the portion of the Series 1999-A Noteholders' Interest evidenced by the Class A
Notes.
"Class A Notes" shall have the meaning specified in Section 1.01.
"Class A Partial Amortization Principal" shall have the meaning
specified in subsection 4.04(d).
"Class A Percentage" shall mean (i) for any specified day, a fraction
the numerator of which is the Class A Invested Amount and the denominator of
which is the Series Invested Amount and (ii) for any specified period, a
fraction, the numerator of which is the Weighted Average Class A Invested
Amount for such period and the denominator of which is the Weighted Average
Invested Amount for such period.
"Class A Principal" shall have the meaning specified in subsection
4.04(b).
4
<PAGE> 6
"Class A Principal Allocation Percentage" shall mean, with respect to
any Settlement Period, the percentage equivalent of a fraction, the numerator
of which is (a) during a Revolving Period, the Class A Invested Amount as of
the close of business on the last day of the immediately preceding Settlement
Period (or, in the case of the first Settlement Period, the Closing Date);
provided, that with respect to any Settlement Period in which a Class A Note
Principal Balance Increase or Class A Special Reduction occurs, such numerator,
on and after the date of such Class A Note Principal Balance Increase or Class
A Special Reduction, shall be the Class A Invested Amount on such date (after
giving effect to the Class A Note Principal Balance Increase or Class A Special
Reduction on such date), and (b) during an Amortization Period or Partial
Amortization Period, the Class A Invested Amount as of the close of business on
the last day of the most recent Revolving Period, and the denominator of which
is the greater of (x) the sum of the total amount of Principal Receivables in
the Trust and the principal amount on deposit in the Excess Funding Account as
of the close of business on the last day of the immediately preceding
Settlement Period (or, in the case of the first Settlement Period, the Closing
Date) and (y) during an Amortization Period, the sum of the numerators used to
calculate the principal allocation percentages for all Series outstanding as of
the date as to which such determination is being made.
"Class A Purchase Agreement" shall mean that certain Note Purchase
Agreement dated as of July 15, 1999, among the Issuer, the Seller, the
Servicer, the Agents, Class A Purchasers and the Administrative Agent named
therein, as the same may be amended, supplemented, or modified from time to
time. The Indenture Trustee shall not be bound by the provisions of the Class A
Purchase Agreement and shall not be obligated to monitor the performance of or
compliance with any of the terms of the Class A Purchase Agreement by any party
thereto.
"Class A Purchaser" shall have the meaning specified in the Class A
Purchase Agreement.
"Class A Required Amount" shall mean, with respect to each Payment
Date, the amount determined by the Servicer equal to the excess, if any, of (a)
the sum of (i) Class A Interest for the related Settlement Period, (ii) any
Carryover Class A Interest, (iii) Senior Class A Increased Costs for the
related Settlement Period and any Senior Class A Increased Costs previously due
but not paid to the Class A Noteholders or the Agents on a prior Payment Date,
(iv) the unpaid portion of the Indenture Trustee Fee for the related Settlement
Period, (v) if JNB or an Affiliate of JNB is no longer the Servicer, the Class
A Servicing Fee for the related Settlement Period, (vi) the Class A Investor
Defaulted Amount Shortfall and (vii) the Class A Adjustment Payment Shortfall,
over (b) the sum of (i) the Available Series 1999-A Finance Charge Collections
plus (ii) any Excess Finance Charge Collections from other Series allocable to
Series 1999-A (less, in each case, amounts allocated as Shared Principal
Collections pursuant to 4.06(a)(v) or 4.06(a)(vi)), plus (iii) the amount
applied to fund amounts described in clause (a) above on such Payment Date from
the Reserve Account pursuant to Section 4.11.
"Class A Servicing Fee" shall have the meaning specified in Section
3.01.
"Class A Special Reduction Date" shall have the meaning specified in
subsection 7.05(a).
"Class A Special Reduction Notice" shall have the meaning specified in
subsection 7.05(b).
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<PAGE> 7
"Class A Special Reduction Amount" shall have the meaning specified in
subsection 7.05(b).
"Class B Additional Interest" shall mean the amount of interest, if
any, distributable in respect of the Class B Notes as calculated pursuant to a
supplemental agreement entered into in accordance with Section 7.03.
"Class B Adjustment Payment Shortfall" shall mean, with respect to
each Payment Date, an amount equal to the product of (a) the Class B Percentage
for the related Settlement Period and (b) the Adjustment Payment Shortfall for
such Settlement Period.
"Class B Enhancement Percentage" shall mean 33%.
"Class B Floating Allocation Percentage" shall mean, with respect to
any Settlement Period, the percentage equivalent of a fraction, the numerator
of which is the Class B Invested Amount as of (x) during a Revolving Period,
the close of business on the last day of the immediately preceding Settlement
Period (or, in the case of the first Settlement Period, the Class B Initial
Invested Amount) and (y) during an Amortization Period or Partial Amortization
Period (i) with respect to Collections of Finance Charges, the close of
business on the last day of the most recent Revolving Period and (ii) with
respect to the Investor Defaulted Amount, Investor Defaulted Amount Shortfall
or Adjustment Payment Shortfall, the close of business on the last day of the
immediately preceding Settlement Period; provided, that with respect to any
Settlement Period in which a Class B Note Principal Balance Increase or a Class
B Special Reduction occurs, such numerator, on and after the date of such Class
B Note Principal Balance Increase or date of such Class B Special Reduction,
shall be the Class B Invested Amount on such date (after giving effect to the
Class B Note Principal Balance Increase or the application of the Class B
Special Reduction Amount on such date, as applicable), and the denominator of
which is the greater of (a) the total amount of Principal Receivables in the
Trust and the amounts on deposit in the Excess Funding Account as of the close
of business on such date (or, in the case of the first Settlement Period, the
total amount of Principal Receivables in the Trust on the Closing Date) and (b)
when used with respect to (x) Collections of Finance Charges during an
Amortization Period or (y) Collections of Principal Receivables, the sum of the
numerators with respect to all Classes of all Series then outstanding used to
calculate the applicable allocation percentage.
"Class B Initial Invested Amount" shall mean the aggregate initial
principal amount of the Class B Notes, which is $123,134,328.36.
"Class B Interest" shall mean the interest, if any, distributable in
respect of the Class B Notes as may be calculated pursuant to a supplemental
agreement entered into in accordance with Section 7.03.
"Class B Interest Rate" shall mean, with respect to any Interest
Accrual Period, a per annum rate equal to 0%; provided, however such interest
rate may be increased pursuant to the terms of a supplemental agreement entered
into in accordance with Section 7.03.
"Class B Interest Shortfall" shall have the meaning specified in
Section 7.03.
"Class B Invested Amount" shall mean, when used with respect to any
date of determination, an amount equal to (a) the Class B Initial Invested
Amount, minus (b) the
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<PAGE> 8
aggregate amount of principal payments made to Class B Noteholders prior to
such date, minus (c) the aggregate amount of Class B Investor Charge-Offs for
all prior Payment Dates, minus (d) the aggregate amount of Reallocated Class B
Principal Collections for which the Class B Invested Amount has been reduced
for all prior Payment Dates, and plus (e) the sum of the aggregate amount
allocated with respect to Class B Investor Charge-Offs and available on all
prior Payment Dates pursuant to subsection 4.06(a)(xi) for the purpose of
reinstating amounts reduced pursuant to the foregoing clauses (c) and (d).
"Class B Investor Charge-Offs" shall have the meaning specified in
subsection 4.09(a).
"Class B Investor Defaulted Amount" shall mean, with respect to each
Payment Date, an amount equal to the product of (a) the Class B Percentage for
the related Settlement Period and (b) the Investor Defaulted Amount Shortfall
for such Settlement Period.
"Class B Note Principal Balance Increase" shall have the meaning set
forth in subsection 7.04(d).
"Class B Noteholder" shall mean the Person in whose name a Class B
Note is registered in the Note Register.
"Class B Noteholders' Interest" shall mean, with respect to any date,
the portion of the Series 1999-A Noteholders' Interest evidenced by the Class B
Notes.
"Class B Notes" shall have the meaning specified in Section 1.01.
"Class B Partial Amortization Principal" shall have the meaning
assigned in Section 4.04(e).
"Class B Percentage" shall mean (i) for any specified day, a fraction
the numerator of which is the Class B Invested Amount and the denominator of
which is the Series Invested Amount and (ii) for any specified period, a
fraction, the numerator of which is the Weighted Average Class B Invested
Amount for such period and the denominator of which is the Weighted Average
Invested Amount for such period.
"Class B Principal" shall have the meaning specified in subsection
4.04(c).
"Class B Principal Allocation Percentage" shall mean with respect to
any Settlement Period, the percentage equivalent of a fraction, the numerator
of which is (a) during a Revolving Period, the Class B Invested Amount as of
the close of business on the last day of the immediately preceding Settlement
Period (or, in the case of the first Settlement Period, the Closing Date);
provided, that with respect to any Settlement Period in which a Class B Note
Principal Balance Increase or a Class B Special Reduction occurs, such
numerator, on and after the date of such Class B Note Principal Balance
Increase or a Class B Special Reduction Date, shall be the Class B Invested
Amount on such date (after giving effect to the Class B Note Principal Balance
Increase or the application of the Class B Special Reduction Amount on such
date, as applicable), and (b) during an Amortization Period or Partial
Amortization Period, the Class B Invested Amount as of the close of business on
the last day of the most recent Revolving Period, and the denominator of which
is the greater of (x) the sum of the total amount of Principal Receivables in
the Trust and the principal amount on deposit in the Excess Funding
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<PAGE> 9
Account as of the close of business on the last day of the immediately
preceding Settlement Period (or, in the case of the first Settlement Period,
the Closing Date) and (y) during an Amortization Period, the sum of the
numerators used to calculate the principal allocation percentages for all
Series outstanding as of the date as to which such determination is being made.
"Class B Servicing Fee" shall have the meaning specified in Section
3.01.
"Class B Special Reduction Date" shall mean the date of the first
Class A Special Reduction, if such Class A Special Reduction occurs on or prior
to October 15, 1999.
"Class B Special Reduction Amount" shall mean the product of (i) the
lesser of (A) the Class A Special Reduction Amount and (B) the excess, if any,
of the Class A Invested Amount on the Class B Special Reduction Date
(determined prior to giving effect to any reduction of the Invested Amount on
such date) over $150,000,000, times (ii) a fraction, the numerator of which
equals the Class B Enhancement Percentage and the denominator of which equals
100% minus the Class B Enhancement Percentage.
"Closing Date" shall mean July 15, 1999.
"Controlled Amortization Period" shall, unless the Early Amortization
Commencement Date shall have occurred prior thereto, mean the period commencing
with the Amortization Date and ending on the first to occur of (a) the date on
which the Series Invested Amount is paid in full and (ii) the Series 1999-A
Termination Date.
"Early Amortization Commencement Date" shall mean the date on which an
Early Amortization Event occurs or is deemed to have occurred pursuant to
Section 10.01 of the Indenture or a Series 1999-A Early Amortization Event is
deemed to occur pursuant to Section 6.01.
"Early Amortization Period" shall mean the period beginning on the
Early Amortization Commencement Date, and ending on the earlier of (i) the date
on which the Series Invested Amount has been paid in full and (ii) the Series
1999-A Termination Date.
"Excess Finance Charge Collections" shall mean, with respect to any
Payment Date, as the context requires, either (x) the amount described in
subsection 4.06(a)(xv) allocated to the Series 1999-A Notes but available to
cover shortfalls in amounts paid from Collections of Finance Charges for other
Series, if any or (y) the aggregate amount of Collections of Finance Charges
allocable to other Series in excess of the amounts necessary to make required
payments with respect to such Series, if any, and available to cover shortfalls
with respect to the Series 1999-A Notes.
"Floating Allocation Percentage" shall mean, with respect to any date
of determination, the sum of the Class A Floating Allocation Percentage and the
Class B Floating Allocation Percentage on such date.
"Increase Date" shall have the meaning set forth in subsection
7.04(b).
"Increase Notice" shall have the meaning set forth in subsection
7.04(b).
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<PAGE> 10
"Indenture Trustee Fee" shall have the meaning specified in Section
3.02.
"Initial Invested Amount" shall mean the sum of the Class A Initial
Invested Amount and the Class B Initial Invested Amount.
"Interest Accrual Period" shall mean, with respect to a Payment Date,
the period from and including the preceding Payment Date to and excluding such
Payment Date; provided, however, that the initial Interest Accrual Period shall
be the period from the Closing Date to and excluding the first Payment Date.
"Investor Charge-Offs" shall mean the sum of Class A Investor
Charge-Offs and Class B Investor Charge-Offs.
"Investor Defaulted Amount" shall mean, with respect to any Settlement
Period, an amount equal to the product of the Defaulted Amount and the Floating
Allocation Percentage as of the related Payment Date.
"Investor Defaulted Amount Shortfall" shall mean, (a) with respect to
any day during a Settlement Period, an amount equal to the product of (i) the
excess, if any, of the Defaulted Amount for such day over the Issuer Amount on
such day (after giving effect to any changes in the Issuer Amount on such day),
times (ii) the Floating Allocation Percentage for such Settlement Period, and
(b) with respect to a Settlement Period, the excess, if any, of the Defaulted
Amount for such Settlement Period over the Issuer Amount on the last day of
such Settlement Period (after giving effect to any changes in the Issuer Amount
on such day), times (ii) the Floating Allocation Percentage for such Settlement
Period.
"Investor Noteholder" shall mean the holder of record of an Investor
Note.
"Investor Notes" shall mean the Class A Notes and the Class B Notes.
"Issuance Date" shall mean the Closing Date.
"Issuer Retained Notes" shall mean investor Notes of any Series,
including the Class B Notes, which the Issuer retains, but only to the extent
that and for so long as the Issuer is the holder of such Notes.
"Issuer's Percentage" shall mean 100% minus (a) the Floating
Allocation Percentage, when used at any time with respect to Finance Charge
Collections and Defaulted Receivables, and (b) the Principal Allocation
Percentage, when used at any time with respect to Principal Receivables.
"Legal Final Maturity Date" shall mean the seventy-second Payment Date
which follows the Amortization Date.
"Monthly Servicing Fee" shall have the meaning specified in Section
3.01.
"Partial Amortization Amount" shall have the meaning specified in
Section 7.02.
"Partial Amortization Notice" shall have the meaning specified in
Section 7.02.
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<PAGE> 11
"Partial Amortization Period" shall mean the period from and including
the date specified in the first sentence of Section 7.02, to and including the
earlier to occur of (a) the day during a Settlement Period on which Collections
of Principal Receivables have been allocated to the Investor Noteholders (after
taking into account the aggregate amount of Collections of Principal
Receivables allocated to Investor Noteholders during any previous Settlement
Period in the related Partial Amortization Period) in an amount equal to the
Partial Amortization Amount during such Partial Amortization Period and (b) the
day immediately preceding the Amortization Date.
"Partial Expiration Event" shall have the meaning specified in the
Class A Purchase Agreement.
"Payment Date" shall mean August 16, 1999 and the fifteenth day of
each month thereafter, or if such day is not a Business Day, the next
succeeding Business Day.
"Portfolio Yield" shall mean for the Series 1999-A Notes, with respect
to any Settlement Period, the annualized percentage equivalent of a fraction,
the numerator of which is an amount equal to the sum of (i) the aggregate
amount of Available Series 1999-A Finance Charge Collections for such
Settlement Period, (ii) Investment Proceeds and (iii) Recoveries, including
without limitation, sales tax recoveries, minus the aggregate Investor
Defaulted Amount for such Settlement Period and the Series Allocation
Percentage of any adjustment payments required to be made by the Issuer
pursuant to Section 2.06 of the Purchase and Servicing Agreement but not made
on or prior to the related Payment Date, and the denominator of which is the
Weighted Average Invested Amount as of the last day of the preceding Settlement
Period.
"Principal Allocation Percentage" shall mean, with respect to any date
of determination, the sum of the Class A Principal Allocation Percentage and
the Class B Principal Allocation Percentage on such date.
"Principal Shortfalls" shall mean, on any Payment Date, (i) for Series
1999-A, the Class A Invested Amount if the Class A Notes are then receiving
principal payments after the application of Collections of Principal
Receivables on such Payment Date, plus the Class B Invested Amount if the Class
B Notes are then receiving principal payments after the application of
Collections of Principal Receivables on such Payment Date or (ii) for any other
Series, the amounts specified as such in the Indenture Supplement for such
other Series; provided that (a) for any Payment Date during a Revolving Period,
the Principal Shortfall for Series 1999-A shall be zero, and (b) for any
Payment Date during a Partial Amortization Period, the Principal Shortfall for
Series 1999-A shall equal (x) the Class A Mandatory Partial Amortization
Amount, if any, and otherwise (y) zero or such higher amount, not exceeding the
Class A Invested Amount, as shall have been specified as the Principal
Shortfall for Series 1999-A by the Issuer by notice to the Servicer and the
Indenture Trustee not later than the Business Day preceding the Determination
Date for such Payment Date.
"Rating Agency" shall mean Standard & Poor's and Moody's.
"Reallocated Principal Collections" shall have the meaning specified
in Section 4.08.
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"Reassignment Amount" shall mean, with respect to any Payment Date,
after giving effect to any deposits and distributions otherwise to be made on
such Payment Date, the sum of (i) the Series Invested Amount on such Payment
Date, plus (ii) the sum of the Class A Interest and Class B Interest for such
Payment Date, plus (iii) the amount of Carryover Interest, if any, plus (iv)
the Class A Increased Cost Amount.
"Required Amount" shall have the meaning specified in Section 4.07.
"Required Issuer Percentage" shall mean 0%.
"Reserve Account" means the account established pursuant to Section
4.11.
"Reserve Account Funding Event" shall mean a reduction of Moody's
senior implied issuer rating (if such rating is being maintained at such time)
of Zale Corporation to below "B1."
"Reserve Account Required Balance" shall mean, on any date of
determination, (i) if a Reserve Account Funding Event shall have occurred and
be continuing, 0.50% of the Series Invested Amount on such date, and (ii)
otherwise, zero.
"Revolving Period" shall mean (a) the period from and including the
Closing Date to, but not including, the earlier of (i) the commencement of a
Partial Amortization Period and (ii) the Amortization Date, and (b) each
period, if any, from, but not including, the last day of the immediately
preceding Partial Amortization Period which did not end on the Amortization
Date to, but not including, the earlier of (i) the commencement of a Partial
Amortization Period and (ii) the Amortization Date.
"Senior Class A Increased Costs" shall mean, with respect to a Payment
Date, the Class A Increased Costs for such Payment Date, to the extent such
Class A Increased Costs may be paid pursuant to subsection 4.06(a)(ii) hereof
without regard to any insufficiency of the amount of Available Series 1999-A
Finance Charge Collections.
"Senior Class A Increased Costs Rate" shall mean, with respect to a
Settlement Period, the annualized percentage equivalents of a fraction, the
numerator of which equals the Senior Class A Increased Costs for the related
Payment Date, and the denominator of which is the Weighted Average Class A
Investor Interest for such Settlement Period.
"Series Allocable Finance Charge Collections" shall mean, with respect
to the Series 1999-A Notes for any Settlement Period, the product of the Series
Allocation Percentage and the amount of the Finance Charge Collections with
respect to such Settlement Period.
"Series Allocable Principal Collections" shall mean, with respect to
the Series 1999-A Notes for any Settlement Period, the product of the Series
Allocation Percentage and the amount of the Principal Collections with respect
to such Settlement Period.
"Series Allocation Percentage" shall mean, as of any date of
determination, the percentage equivalent of a fraction, the numerator of which
is the Series Invested Amount and the denominator of which is the invested
amounts of all then outstanding Series.
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"Series Invested Amount" shall mean, when used with respect to any
date of determination, an amount equal to the sum of (a) the Class A Invested
Amount as of such date and (b) the Class B Invested Amount as of such date.
"Series Required Issuer Amount" shall mean an amount equal to the
product of the Series Invested Amount and the Required Issuer Percentage.
"Series 1999-A" shall mean the Series of the Zale Funding Trust
represented by the Series 1999-A Notes.
"Series 1999-A Early Amortization Event" shall have the meaning
specified in Section 6.01.
"Series 1999-A Noteholder" shall mean the holder of record of any
Series 1999-A Investor Note.
"Series 1999-A Noteholders' Interest" shall have the meaning specified
in Section 4.01.
"Series 1999-A Notes" shall have the meaning specified in Section
1.01.
"Series 1999-A Termination Date" shall mean the earlier to occur of
(i) the day after the Payment Date on which the Series 1999-A Notes are paid in
full, and (ii) the Legal Final Maturity Date.
"Servicing Base Amount" shall have the meaning specified in Section
3.01.
"Servicing Fee Rate" shall mean 2% per annum.
"Shared Principal Collections" shall mean, as the context requires,
either (a) the amount allocated to the Series 1999-A Notes which, in accordance
with Section 4.04 and subsection 4.06(b), may be applied in accordance with
Section 4.05 of the Indenture or (b) the amounts allocated to the Notes (other
than Issuer Retained Notes) of other Series which the applicable Supplements
for such Series specify are to be treated as "Shared Principal Collections" and
which may be applied to cover Principal Shortfalls with respect to the Series
1999-A Notes.
"Special Reduction" shall have the meaning specified in subsection
7.05(a).
"Weighted Average Class A Invested Amount" shall mean, with respect to
any period, the sum of the Class A Invested Amount outstanding at the close of
business on each day during such period divided by the actual number of days in
such period.
"Weighted Average Class B Invested Amount" shall mean, with respect to
any period, the sum of the Class B Invested Amount outstanding at the close of
business on each day during such period divided by the actual number of days in
such period.
"Weighted Average Invested Amount" shall mean, with respect to any
period, the sum of the Series Invested Amount outstanding at the close of
business on each day during such period divided by the actual number of days in
such period.
[END OF ARTICLE II]
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ARTICLE III
SERVICER
Section 3.01. Servicing Compensation. The share of the Servicing Fee
allocable to the Series 1999-A Noteholders with respect to any Payment Date
(the "Monthly Servicing Fee") shall be equal to one-twelfth of the product of
(a) the Servicing Fee Rate and (b) (i) the Weighted Average Invested Amount for
the Settlement Period preceding such Payment Date, minus (ii) the product of
(A) the sum of the amount, if any, on deposit in the Excess Funding Account as
of the close of business on each day during such Settlement Period divided by
the actual number of days in such Settlement Period and (B) the Floating
Allocation Percentage with respect to such Settlement Period (the amount
calculated pursuant to this clause (b) is referred to as the "Servicing Base
Amount"), provided, however, that with respect to the first Payment Date, the
Monthly Servicing Fee shall be equal to the product of (a) the Servicing Fee
Rate, (b) the Servicing Base Amount and (c) a fraction, the numerator of which
is 16 and the denominator of which is 360. The share of the Monthly Servicing
Fee allocable to the Class A Noteholders with respect to any Payment Date (the
"Class A Servicing Fee") shall be equal to one-twelfth of the product of (a)
the Class A Percentage for the Settlement Period immediately preceding such
Payment Date, (b) the Servicing Fee Rate and (c) the Servicing Base Amount;
provided, however, that with respect to the first Payment Date, the Class A
Servicing Fee shall be equal to the product of (a) the Class A Percentage for
the Settlement Period preceding such Payment Date, (b) the Servicing Fee Rate,
(c) the Servicing Base Amount and (d) a fraction, the numerator of which is 16
and the denominator of which is 360. The share of the Monthly Servicing Fee
allocable to the Class B Noteholders with respect to any Payment Date (the
"Class B Servicing Fee") shall be equal to one-twelfth of the product of (a)
the Class B Percentage for the Settlement Period preceding such Payment Date,
(b) the Servicing Fee Rate and (c) the Servicing Base Amount; provided,
however, that with respect to the first Payment Date, the Class B Monthly
Servicing Fee shall be equal to the product of (a) the Class B Percentage for
the Settlement Period preceding such Payment Date, (b) the Servicing Fee Rate,
(c) the Servicing Base Amount and (d) a fraction, the numerator of which is 16
and the denominator of which is 360. The remainder of the Servicing Fee shall
be paid by the Issuer or the Noteholders of other Series (as provided in the
related Indenture Supplements) and in no event shall the Indenture Trustee or
the Series 1999-A Noteholders be liable for the share of the Servicing Fee to
be paid by the Issuer or the Noteholders of any other Series. The Monthly Class
A Servicing Fee shall be payable to the Servicer solely to the extent amounts
are available for distribution in respect thereof pursuant to subsection
4.06(a)(iv) and (xiv).
Section 3.02. Indenture Trustee Fee. The share of the regular annual
fee of the Indenture Trustee allocable to the Series 1999-A Noteholders with
respect to any Payment Date (the "Indenture Trustee Fee") shall be equal to
one-twelfth of such regular annual fee (as agreed upon in writing from time to
time by the Issuer, the Seller and the Indenture Trustee), times the Floating
Allocation Percentage with respect to such Settlement Period, provided,
however, that with respect to the first Payment Date, the Indenture Trustee Fee
shall be equal to (a) such regular annual fee, times (b) the Floating
Allocation Percentage with respect to such Settlement Period, times (c) a
fraction, the numerator of which is 16 and the denominator of which is 360. The
share of the Indenture Trustee Fee allocable to the Class A Noteholders with
respect to any Payment Date shall be equal to the Indenture Trustee Fee for
such Payment Date times the Class A Percentage for the Settlement Period
immediately preceding such Payment Date, and the share
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<PAGE> 15
of the Indenture Trustee Fee allocable to the Class B Noteholders with respect
to any Payment Date shall be equal to the Indenture Trustee Fee for such
Payment Date times the Class B Percentage for the Settlement Period immediately
preceding such Payment Date. The remainder of the Servicing Fee shall be paid
by the Issuer or the Noteholders of other Series (as provided in the related
Indenture Supplements) and in no event shall the Series 1999-A Noteholders be
liable for the share of the portion of the annual fee payable to the Indenture
Trustee to be paid by the Issuer or the Noteholders of any other Series. The
Indenture Trustee Fee shall be payable to the Indenture Trustee solely to the
extent amounts are available for distribution in respect thereof pursuant to
subsection 4.06(a)(iii), and otherwise no Series 1999-A Noteholder shall have
any liability with respect thereto.
[END OF ARTICLE III]
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ARTICLE IV
RIGHTS OF NOTEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
Section 4.01. Rights of Noteholders. The indebtedness represented by
the Series 1999-A Notes shall include the right of the Series 1999-A
Noteholders to receive, to the extent necessary to make the required payments
with respect to such Series 1999-A Notes at the times and in the amounts
specified in this Supplement, the sum of (a) the Floating Allocation Percentage
and the Principal Allocation Percentage (as applicable from time to time) of
amounts available in the Collection Account and (b) funds allocable to the
Series 1999-A Notes on deposit in the Excess Funding Account (such sum, the
"Series 1999-A Noteholders' Interest"). The Class B Invested Amount shall be
subordinated to the Class A Notes, to the extent provided in this Article IV.
The Class B Notes will not have the right to receive payments of principal
until the Class A Invested Amount has been paid in full, other than payments of
the Class B Special Reduction Amount during a Partial Amortization Period as
provided in this Supplement.
Section 4.02. Collections and Allocation; Payments on Trust
Certificate.
(a) Collections. The Servicer will apply, or will instruct
the Indenture Trustee to apply, all funds on deposit in the Collection
Account and the Excess Funding Account allocable to the Series 1999-A
Notes as described in this Article IV.
(b) Payments to the Issuer. On each day funds are deposited
into the Collection Account, the Servicer shall withdraw from the
Collection Account and pay to the Issuer the following amounts:
(i) an amount equal to the Issuer's Percentage for
the related Settlement Period of Series Allocable Finance
Charge Collections to the extent such amount is deposited in
the Collection Account; and
(ii) an amount equal to the Issuer's Percentage for
the related Settlement Period of Series Allocable Principal
Collections deposited in the Collection Account, if the
Issuer's Interest on such day is greater than the Series
Required Issuer Amount (after giving effect to all Principal
Receivables Transferred to the Trust on such day).
The withdrawals to be made from the Collection Account pursuant to
this Section 4.02(b) do not apply to deposits into the Collection Account that
do not represent Collections, including proceeds from the sale, disposition or
liquidation of Receivables pursuant to Section 9.02 or 10.03 of the Indenture.
(c) Allocations. The Servicer will apply, or will instruct
the Indenture Trustee to apply, all collections and other funds on
deposit in the Collection Account that are allocated to the Investor
Notes as follows:
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(i) Daily Allocations During a Revolving Period.
During a Revolving Period, the Servicer shall, prior to the
close of business on any Date of Processing, allocate the
following amounts as set forth below:
(x) Allocate to the Investor Noteholders and
retain in the Collection Account an amount equal to
the product of (i) the Floating Allocation
Percentage and (ii) the aggregate amount of
Collections of Finance Charges on such Date of
Processing, provided, however, that, with respect to
each Settlement Period, such amount shall only be
allocated until such time as the amount retained in
the Collection Account equals the amount of (i)
Class A Interest (based on the rate on which Class A
Interest is calculated on such day), Class B
Interest and Carryover Interest, if any, (ii) the
Class A Increased Cost Amount, if any (based, if
applicable, on the rate at which the Class A
Increased Cost Amount is calculated on such day),
(iii) at any time that JNB or an Affiliate of JNB is
not the Servicer, the Servicing Fee, due on the next
Payment Date, (iv) the Investor Defaulted Amount
Shortfall due on the next Payment Date and (v) the
Investor Uncovered Dilution Amount due on the next
Payment Date; provided further, however, that if any
rate at which any amounts described in clause (i) or
(ii) of the preceding proviso shall change during
such Settlement Period, the amount required to be
allocated and retained pursuant to this subsection
4.02(c)(i)(x) shall be appropriately adjusted.
(y) Allocate to the Investor Noteholders an
amount equal to the product of (A) the Principal
Allocation Percentage on such Date of Processing and
(B) the aggregate amount of Collections of Principal
Receivables on such Date of Processing and, after
satisfaction of any requirements of Section 4.08, if
any other Principal Sharing Series are outstanding
and in their Accumulation Period or Amortization
Period, apply such amount as Shared Principal
Collections to the extent necessary, and then pay
any remaining amount to the Trust; provided,
however, that the amount to be paid to the Trust
pursuant to this subsection 4.02(c)(i)(y) on any
Date of Processing shall be paid to the Trust only
if the Issuer's Interest on such Date of Processing
is greater than the Series Required Issuer Amount
(after giving effect to all Principal Receivables
transferred to the Trust on such day) and otherwise
shall be deposited in the Excess Funding Account to
the extent of the difference between the Issuer's
Interest and the Series Required Issuer Amount.
(ii) Daily Allocations During an Amortization Period
or Partial Amortization Period. During an Amortization Period
or any Partial Amortization Period, the Servicer shall, prior
to the close of business on any Date of Processing, allocate
the following amounts as set forth below:
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(x) Allocate to the Investor Noteholders and
retain in the Collection Account an amount equal to
the product of (A) the Floating Allocation
Percentage on such Date of Processing and (B) the
aggregate amount of Collections of Finance Charges
on such Date of Processing.
(y) Allocate to the Investor Noteholders and
retain in the Collection Account an amount equal to
the product of (A) the Principal Allocation
Percentage on such Date of Processing and (B) the
aggregate amount of Collections of Principal
Receivables on such Date of Processing; provided,
however, that (I) during a Partial Amortization
Period so long as the Amortization Date has not
occurred, after the date on which an amount of such
Collections equal to the sum of the Partial
Amortization Amount plus the Class B Special
Reduction Amount (if any) has been deposited into
the Collection Account and allocated to the Investor
Noteholders and any requirements of Section 4.08 are
satisfied, and (II) from and after the Amortization
Date, after the date on which an amount of such
Collections equal to the Series Invested Amount has
been deposited into the Collection Account and
allocated to the Investor Noteholders and any
requirements of Section 4.08 are satisfied, the
amount determined in accordance with this subsection
4.02(c)(ii)(y) shall be first, if any other
Principal Sharing Series is outstanding and in its
Accumulation Period or Amortization Period, retained
in the Collection Account for application, to the
extent necessary, as Shared Principal Collections on
the related Payment Date, and, second, shall be paid
to the Trust only if the Issuer's Interest on such
Date of Processing is greater than the Series
Required Issuer Amount (after giving effect to all
Principal Receivables transferred to the Trust on
such day) and otherwise shall be deposited in the
Excess Funding Account to the extent of the
difference between the Issuer's Interest and the
Series Required Issuer Amount.
(d) Notwithstanding anything to the contrary in this Section
4.02, if on any date the aggregate amount of Principal Receivables is
less than the Required Minimum Principal Balance, all Collections of
Principal Receivables on such date shall, unless such Collections are
to be retained in the Collection Account, be deposited in the Excess
Funding Account in a sufficient amount such that, after giving effect
to such deposits, the aggregate amount of Principal Receivables plus
the amount so deposited equals or exceeds the Required Minimum
Principal Balance on such date.
The allocations to be made pursuant to this Section 4.02 also apply to
deposits into the Collection Account that are treated as Collections, including
adjustment payments made in accordance with Section 2.06 of the Purchase and
Servicing Agreement, payment of the reassignment price pursuant to Section 2.05
or subsection 6.10(c) of the Purchase and Servicing Agreement and proceeds from
the sale, disposition or liquidation of the Receivables pursuant to
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Sections 9.02 of the Indenture. Such deposits to be treated as Collections will
be allocated as Finance Charges or Principal Receivables as provided in the
Purchase and Servicing Agreement.
Section 4.03. Determination of Monthly Interest for the Series 1999-A
Notes.
(a) The amount of monthly interest allocable to the Class A
Notes with respect to any Interest Accrual Period shall be the Class A
Monthly Interest.
(b) On the Determination Date preceding each Payment Date,
the Servicer shall determine an amount (the "Class A Interest
Shortfall") equal to the excess, if any, of (x) the Class A Monthly
Interest for the Interest Accrual Period applicable to the Payment
Date over (y) the amount available to be paid to the Class A
Noteholders in respect of interest on such Payment Date. If there is a
Class A Interest Shortfall with respect to any Payment Date, an
additional amount ("Class A Additional Interest") shall be payable as
provided herein with respect to the Class A Notes on each Payment Date
following such Payment Date, to and including the Payment Date on
which such Class A Interest Shortfall is paid to Class A Noteholders,
at the applicable rate or rates specified in the Class A Purchase
Agreement. Notwithstanding anything to the contrary herein, Class A
Additional Interest shall be payable or distributed to Class A
Noteholders only to the extent permitted by applicable law.
Section 4.04. Determination of Principal Amounts.
(a) No later than 1:00 p.m. (New York City time) on the Legal
Final Maturity Date, the Issuer shall deposit funds into the
Collection Account in the amounts required to pay to the Series 1999-A
Noteholders the Series Invested Amount in accordance with Section
5.01.
(b) The amount of principal (the "Class A Principal") to be
deposited into the Collection Account with respect to the Class A
Notes on each Payment Date with respect to an Amortization Period
shall be equal to an amount calculated by the Servicer as follows: the
sum of (i) an amount equal to the product of the Principal Allocation
Percentage and the aggregate amount of Collections of Principal
Receivables with respect to the preceding Settlement Period, (ii) any
amount on deposit in the Excess Funding Account allocated to the Class
A Notes pursuant to subsection 4.06(d) with respect to the preceding
Settlement Period, (iii) the amount, if any, allocated to the Class A
Notes pursuant to subsections 4.06(a)(v), (vi) and (vii), and (iv) the
amount of Shared Principal Collections allocated to the Class A Notes
with respect to the preceding Settlement Period pursuant to Section
4.05 of the Indenture; provided, however, that (i) with respect to any
Payment Date, Class A Principal shall not exceed the Class A Invested
Amount and (ii) with respect to the Legal Final Maturity Date, the
Class A Principal shall be an amount equal to the Class A Invested
Amount.
(c) The amount of principal (the "Class B Principal") to be
deposited into the Collection Account with respect to the Class B
Notes on each Payment Date with respect to an Amortization Period
shall equal an amount calculated by the Servicer as follows: the sum
of (i) an amount equal to the product of the Class B
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<PAGE> 20
Principal Allocation Percentage and the aggregate amount of
Collections of Principal Receivables with respect to the preceding
Settlement Period, (ii) any amount on deposit in the Excess Funding
Account allocated to the Class B Notes pursuant to subsection 4.06(d)
with respect to the preceding Settlement Period, (iii) the amount, if
any, allocated to the Class B Notes pursuant to subsections
4.06(a)(xi), (xii) and (xiii) with respect to such Payment Date, and
(iv) the amount of Shared Principal Collections allocated to the Class
B Notes with respect to the preceding Settlement Period pursuant to
Section 4.05 of the Indenture on and after the date on which the Class
A Invested Amount is paid in full; provided, however, that (i) prior
to the date on which the Class A Invested Amount is paid in full, the
Class B Principal shall equal zero, (ii) with respect to any Payment
Date, Class B Principal shall not exceed the Class B Invested Amount
and (iii) with respect to the Legal Final Maturity Date, the Class B
Principal shall be an amount equal to the Class B Invested Amount.
(d) The amount of principal (the "Class A Partial
Amortization Principal") to be deposited into the Collection Account
with respect to the Class A Notes on each Payment Date with respect to
a Partial Amortization Period shall be equal to the lesser of (i) the
Partial Amortization Amount for such Partial Amortization Period, and
(ii) an amount calculated by the Servicer as follows: the sum of (A)
an amount equal to the product of the Principal Allocation Percentage
and the aggregate amount of Collections of Principal Receivables with
respect to the preceding Settlement Period, (B) any amount on deposit
in the Excess Funding Account allocated to the Class A Notes pursuant
to subsection 4.06(d) with respect to the preceding Settlement Period,
(C) the amount, if any, allocated to the Class A Notes pursuant to
subsections 4.06(a)(v), (vi) and (vii), and (D) the amount of Shared
Principal Collections allocated to the Class A Notes with respect to
the preceding Settlement Period pursuant to Section 4.05 of the
Indenture, over (B) the Class B Special Reduction Amount (if any);
provided, however, that with respect to any Payment Date, the Class A
Partial Amortization Principal shall not exceed the Class A Invested
Amount.
(e) The amount of principal (the "Class B Partial
Amortization Principal") to be deposited into the Collection Account
with respect to the Class B Notes on each Payment Date with respect to
a Partial Amortization Period shall be equal to the lesser of (i) the
Class B Special Reduction Amount, if any, for such Partial
Amortization Period, and (ii) an amount calculated as follows: the sum
of (A) an amount equal to the product of the Class B Principal
Allocation Percentage and the aggregate amount of Collections of
Principal Receivables with respect to the preceding Settlement Period,
(B) any amount on deposit in the Excess Funding Account allocated to
the Class B Notes pursuant to subsection 4.06(d) with respect to the
preceding Settlement Period, (C) the amount, if any, allocated to the
Class B Notes pursuant to subsections 4.06(a)(xi), (xii) and (xiii),
and (D) the amount of Shared Principal Collections allocated to the
Class B Notes with respect to the preceding Settlement Period pursuant
to Section 4.05 of the Indenture; provided, however, that with respect
to any Payment Date, the Class B Partial Amortization Principal shall
not exceed the Class B Invested Amount.
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Section 4.05. Shared Principal Collections. Shared Principal
Collections allocated to the Series 1999-A Notes and to be applied pursuant to
subsections 4.04(b), (c) and (d) shall mean an amount equal to the product of
(x) Shared Principal Collections for all Series for such date and (y) a
fraction, the numerator of which is the Principal Shortfall for the Series
1999-A Notes for such date (determined after giving effect to reduction of the
Invested Amount otherwise occurring on such date) and the denominator of which
is the aggregate amount of Principal Shortfalls for all Series for such date.
For any Payment Date with respect to any Revolving Period, Shared Principal
Collections allocated to the Series 1999-A Notes shall be zero.
Section 4.06. Application of Funds on Deposit in the Collection
Account for the Notes.
(a) On each Payment Date, the Servicer shall instruct the
Indenture Trustee to withdraw, and the Indenture Trustee, acting in
accordance with such instructions, shall withdraw, to the extent of
the Floating Allocation Percentage of Collections of Finance Charges
available in the Collection Account with respect to the preceding
Settlement Period (the "Available Series 1999-A Finance Charge
Collections"), in the following priority:
(i) Class A Interest. An amount equal to the lesser
of (x) the Available Series 1999-A Finance Charge Collections
and (y) the sum of Class A Interest and Carryover Class A
Interest shall be paid to the Class A Noteholders in
accordance with Section 5.01.
(ii) Senior Class A Increased Costs. To the extent
of any Available Series 1999-A Finance Charge Collections
remaining after giving effect to the withdrawal pursuant to
subsection 4.06(a)(i), an amount equal to the lesser of (x)
any such remaining Available Series 1999-A Finance Charge
Collections and (y) the Class A Increased Costs shall be paid
to the applicable Agents for the account of the parties under
the Class A Purchase Agreement to which such Class A
Increased Costs are payable; provided, the amount determined
pursuant to this subsection 4.06(a)(ii) shall not exceed
one-twelfth of the product of (x) 0.50% and (y) the Weighted
Average Class A Invested Amount for such Settlement Period.
(iii) Indenture Trustee Fee. To the extent of any
Available Series 1999-A Finance Charge Collections remaining
after giving effect to the withdrawals pursuant to
subsections 4.06(a)(i) and (ii), an amount equal to the
lesser of (x) any such remaining Available Series 1999-A
Finance Charge Collections and (y) the excess of (i) the
Indenture Trustee Fee, if any, for such Settlement Period
plus any unpaid portion of the Indenture Trustee Fee from
prior Settlement Periods over (ii) any amounts with respect
thereto previously distributed to the Indenture Trustee
during such Settlement Period shall be paid to the Indenture
Trustee; provided that the aggregate amount determined
pursuant to this subsection 4.06(a)(iii) for any calendar
year shall not exceed $20,000.
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(iv) Servicing Fee. On each Payment Date on which
JNB or an Affiliate of JNB is not the Servicer, to the extent
of any Available Series 1999-A Finance Charge Collections
remaining after giving effect to the withdrawals pursuant to
subsections 4.06(a)(i) and (iii), an amount equal to the
lesser of (x) any such remaining Available Series 1999-A
Finance Charge Collections and (y) the excess of (i) the
Monthly Servicing Fee for such Settlement Period plus any
unpaid Monthly Servicing Fees from prior Settlement Periods
over (ii) any amounts with respect thereto previously
distributed to the Servicer during such Settlement Period
shall be paid to the Servicer.
(v) Class A Investor Defaulted Amount Shortfalls. To
the extent of any Available Series 1999-A Finance Charge
Collections remaining after giving effect to the withdrawals
pursuant to subsections 4.06(a)(i) through (iv), an amount
equal to the lesser of (x) any such remaining Available
Series 1999-A Finance Charge Collections and (y) the
aggregate Class A Investor Defaulted Amount Shortfall for
such Settlement Period, shall be treated as Shared Principal
Collections and applied in accordance with Section 4.05 of
the Indenture and Section 4.05 of this Supplement.
(vi) Class A Adjustment Payment Shortfalls. To the
extent of any Available Series 1999-A Finance Charge
Collections remaining after giving effect to the withdrawals
pursuant to subsections 4.06(a)(i) through (v), an amount
equal to the lesser of (x) any such remaining Available
Series 1999-A Finance Charge Collections and (y) the Class A
Adjustment Payment Shortfall for such Settlement Period,
shall be treated as Shared Principal Collections and applied
in accordance with Section 4.05 of the Indenture and Section
4.05 of this Supplement.
(vii) Reimbursement of Class A Investor Charge-Offs.
To the extent of any Available Series 1999-A Finance Charge
Collections remaining after giving effect to the withdrawals
pursuant to subsections 4.06(a)(i) through (vi), an amount
equal to the lesser of (x) any such remaining Available
Series 1999-A Finance Charge Collections and (y) the
unreimbursed Class A Investor Charge-Offs, if any, will be
applied to reimburse Class A Investor Charge-Offs and shall
be treated as Shared Principal Collections and applied in
accordance with Section 4.05 of the Indenture and Section
4.05 of this Supplement.
(viii) Reserve Account. To the extent of any
Available Series 1999-A Finance Charge Collections remaining
after giving effect to the withdrawals pursuant to
subsections 4.06(a)(i) and (vii), an amount equal to the
lesser of (x) any such remaining Available Series 1999-A
Finance Charge Collections and (y) the excess, if any, of (i)
the Reserve Account Required Balance over (ii) the amount on
deposit in the Reserve Account.
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(ix) Remaining Class A Increased Costs. To the
extent of any Available Series 1999-A Finance Charge
Collections remaining after giving effect to the withdrawals
pursuant to subsection 4.06(a)(i) through (viii), an amount
equal to the lesser of (x) any such remaining Available
Series 1999-A Finance Charge Collections and (y) any Class A
Increased Costs remaining unpaid shall be paid to the
applicable Agents for the account of the parties under the
Class A Purchase Agreement to which such Class A Increased
Costs are payable.
(x) Unpaid Class B Interest. To the extent of any
Available Series 1999-A Finance Charge Collections remaining
after giving effect to the withdrawals pursuant to
subsections 4.06(a)(i) through (ix), an amount equal to the
lesser of (x) any such remaining Available Series 1999-A
Finance Charge Collections and (y) the sum of (1) the amount
of interest which has accrued with respect to the outstanding
aggregate principal amount of the Class B Notes at the Class
B Interest Rate but which has not been paid to the Class B
Noteholders and (2) any Class B Additional Interest shall be
paid to the Class B Noteholders in accordance with Section
5.01.
(xi) Class B Investor Defaulted Amount Shortfalls.
To the extent of any Available Series 1999-A Finance Charge
Collections remaining after giving effect to the withdrawals
pursuant to subsections 4.06(a)(i) through (x), an amount
equal to the lesser of (x) any such remaining Available
Series 1999-A Finance Charge Collections and (y) the Class B
Investor Defaulted Amount Shortfall for such Settlement
Period, shall be treated as Shared Principal Collections and
applied in accordance with Section 4.05 of the Indenture and
Section 4.05 of this Supplement.
(xii) Class B Adjustment Payment Shortfalls. To the
extent of any Available Series 1999-1 Finance Charge
Collections remaining after giving effect to the withdrawals
pursuant to subsections 4.06(a)(i) through (xi), an amount
equal to the lesser of (x) any such remaining Available
Series 1999-1 Finance Charge Collections and (y) the Class B
Adjustment Payment Shortfall for such Settlement Period,
shall be treated as Shared Principal Collections and applied
in accordance with Section 4.05 of the Indenture and Section
4.05 of this Supplement.
(xiii) Reimbursement of Class B Investor
Charge-Offs. To the extent of any Available Series 1999-A
Finance Charge Collections remaining after giving effect to
the withdrawals pursuant to subsections 4.06(a)(i) through
(xii), an amount equal to the lesser of (x) any such
remaining Available Series 1999-A Finance Charge Collections
and (y) the unreimbursed amount by which the Class B Invested
Amount has been reduced on prior Payment Dates pursuant to
clauses (c) and (d) of the definition of Class B Invested
Amount, if any, shall be treated as Shared
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Principal Collections and applied in accordance with Section
4.05 of the Indenture and Section 4.05 of this Supplement.
(xiv) Servicing Fee. On each Payment Date on which
JNB or an Affiliate of JNB is the Servicer, to the extent of
Available Series 1999-A Finance Charge Collections for such
Payment Date (after giving effect to the withdrawals pursuant
to subsections 4.06(a)(i) through (xiii)), the Servicing Fee
accrued since the preceding Payment Date plus any Servicing
Fee due with respect to any prior Payment Date but not
distributed to the Servicer shall be paid to the Servicer.
(xv) Excess Finance Charge Collections. Any
Available Series 1999-A Finance Charge Collections remaining
after giving effect to the withdrawals pursuant to subsection
4.06(a)(i) through (xiv), shall be treated as Excess Finance
Charge Collections, and the Servicer shall direct the
Indenture Trustee in writing on each Payment Date to withdraw
such amounts from the Collection Account and to first make
such amounts available to pay to Noteholders of other Series
to the extent of shortfalls, if any, in amounts payable to
such Noteholders from Collections of Finance Charges
allocated to such other Series, and then pay any remaining
Excess Finance Charge Collections to the Issuer.
(b) For each Payment Date with respect to a Revolving Period,
the product of (i) the Floating Allocation Percentage and (ii)
Collections of Principal Receivables with respect to such Payment Date
(subtracting from such product the amount of Reallocated Class B
Principal Collections on such Payment Date) will be treated as Shared
Principal Collections and applied, for such Payment Date, as provided
in Section 4.05 of the Indenture.
(c) For each Payment Date during an Amortization Period, the
Indenture Trustee, acting pursuant to the Servicer's instructions,
will distribute the amount of funds on deposit in the Collection
Account available for payment of principal to Series 1999-A
Noteholders in accordance with Section 4.04 in the following priority:
(i) to the Class A Noteholders, an amount equal to
Class A Principal, subject to the proviso in subsection
4.04(b);
(ii) to the Class B Noteholders, on and after the
Class A Invested Amount has been reduced to zero, an amount
equal to Class B Principal, subject to the proviso in
subsection 4.04(c);
(iii) an amount equal to the excess, if any, of (A)
the sum of the amounts described in subsections 4.04(b)(i)
and (iii) and 4.04(c)(i) and (iii) over (B) the sum of Class
A Principal and Class B Principal shall be treated as Shared
Principal Collections and applied as provided in Section 4.05
of the Indenture.
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(d) On the first Payment Date of an Amortization Period,
funds on deposit in the Excess Funding Account allocable to Series
1999-A will be deposited in the Collection Account. Such amounts will
be allocated in the following order of priority:
(i) to the Class A Noteholders an amount equal to
Class A Principal, subject to the proviso in subsection
4.04(b); and
(ii) to the Class B Noteholders, on and after the
Class A Invested Amount has been reduced to zero, an amount
equal to Class B Principal, subject to the proviso in
subsection 4.04(c).
(e) On each Payment Date during a Partial Amortization
Period, the Indenture Trustee, acting pursuant to the Servicer's
instructions, will distribute the amount of funds on deposit in the
Collection Account available for the payment of principal to the
Series 1999-A Noteholders in accordance with Section 4.04 in the
following priority:
(i) to the Class A Noteholders, an amount equal to
Class A Partial Amortization Principal, subject to the
proviso in subsection 4.04(b); and
(ii) to the Class B Noteholders, an amount equal to
Class B Partial Amortization Principal, subject to the
proviso in subsection 4.04(c); and
(iii) an amount equal to the excess, if any, of (A)
the sum of (x) the Principal Allocation Percentage and the
aggregate amount of Collections of Principal Receivables with
respect to the preceding Settlement Period, plus (y) the
amount, if any, allocated to the Series 1999-A Notes pursuant
to subsections 4.06(a)(v), (vi), (vii), (viii), (xi), (xii),
and (xiii), over (B) the sum of Class A Partial Amortization
Principal and Class B Partial Amortization Principal shall be
treated as Shared Principal Collections and applied as
provided in Section 4.05 of the Indenture.
Section 4.07. Coverage of Required Amount for the Series 1999-A Notes.
To the extent that on any Payment Date payments are being made pursuant to any
of subsections 4.06(a)(i) through (xiv), respectively, and the full amount to
be paid pursuant to any such subsection on such Payment Date is not paid in
full on such Payment Date, the Servicer shall apply all or a portion of the
Excess Finance Charge Collections from other Series with respect to such
Payment Date allocable to the Series 1999-A Notes in an amount equal to the
excess of the full amount to be allocated or paid pursuant to the applicable
subsection over the amount applied with respect thereto from Available Series
1999-A Finance Charge Collections on such Payment Date (the "Required Amount").
Excess Finance Charge Collections allocated to the Series 1999-A Notes for any
Payment Date shall mean an amount equal to the product of (x) Excess Finance
Charge Collections available from all other Series for such Payment Date and
(y) a fraction, the numerator of which is the Required Amount for such Payment
Date and the denominator of
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which is the aggregate amount of shortfalls in required amounts or other
amounts to be paid from Collections of Finance Charges for all Series for such
Payment Date.
Section 4.08. Reallocated Principal Collections for the Series 1999-A
Notes On each Payment Date, the Servicer will apply or cause the Indenture
Trustee to apply an amount equal to the lesser of (i) the Class B Invested
Amount, (ii) the product of (x)(I) during a Revolving Period, the Class B
Floating Allocation Percentage or (II) during an Amortization Period or Partial
Amortization Period, the Class B Principal Allocation Percentage and (y) the
amount of Collections of Principal Receivables with respect to such Payment
Date and (iii) an amount equal to the Class A Required Amount for such Payment
Date (such amount called "Reallocated Class B Principal Collections") in the
same priority as amounts are applied to such components from Available Series
1999-A Finance Charge Collections pursuant to subsection 4.06(a).
Section 4.09. Investor Charge-Offs.
(a) If, on any Determination Date, the aggregate Investor
Defaulted Amount Shortfall plus the aggregate Investor Adjustment
Payment Shortfall for the related Settlement Period exceeded the
Available Series 1999-A Finance Charge Collections applied to the
payment thereof pursuant to subsections 4.06(a)(v), (vi), (xi), and
(xii) and the amount of Excess Finance Charge Collections allocated
thereto pursuant to Section 4.07, and the amount of Reallocated
Principal Collections applied with respect thereto pursuant to Section
4.08(a), the Class B Invested Amount will be reduced by the amount by
which the remaining aggregate Investor Defaulted Amount Shortfall plus
the aggregate Investor Adjustment Payment Shortfall for the related
Settlement Period exceed the amount applied with respect thereto
during such preceding Settlement Period (a "Class B Investor
Charge-Off").
(b) In the event that any such reduction of the Class B
Invested Amount would cause the Class B Invested Amount to be a
negative number, the Class B Invested Amount will be reduced to zero,
and, the Class A Invested Amount will be reduced by the amount by
which the Class B Invested Amount would have been reduced below zero,
but not more than the remaining aggregate Investor Defaulted Amount
Shortfall plus the aggregate Investor Adjustment Payment Shortfall for
the related Settlement Period (a "Class A Investor Charge-Off").
Section 4.10. Discount Option Percentage. The Issuer may increase,
reduce or withdraw the Discount Percentage applicable to Receivables arising
after the date of such change, at any time and from time to time. Any such
increase, reduction or withdrawal shall become effective on the date designated
therein only if:
(a) the Issuer shall have delivered to the Indenture Trustee
an Officer's Certificate of the Issuer stating that the Issuer
reasonably believes that such increase, reduction or withdrawal will
not, based on the facts at the time of such certification, cause an
Early Amortization Event or any event that, after the giving of notice
or the lapse of time, would constitute an Early Amortization Event
with respect to any Series;
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(b) if such designation would cause the Discount Percentage
to be less than 6% or more than 8%, the Rating Agency Condition shall
have been satisfied; and
(c) with respect to any reduction of the Discount Option
Percentage, the Issuer shall have delivered to the Indenture Trustee
an Officer's Certificate stating that the Issuer reasonably believes
that such reduction of the Discount Option Percentage will not, based
on the facts known to such officer at the time of such certification,
cause the Servicing Fee to exceed Available Series 1999-A Finance
Charge Collections allocable to the Servicing Fee.
Section 4.11. Establishment of Reserve Account . Within five Business
Days following the occurrence of a Reserve Account Funding Event, the Issuer,
for the benefit of the Series 1999-A Noteholders, shall establish and maintain
with the Indenture Trustee or its nominee in the name of the Indenture Trustee,
on behalf of the Trust, a Qualified Account (including any subaccount thereof)
bearing a designation clearly indicating that the funds and other property
credited thereto are held for the benefit of the Series 1999-A Noteholders (the
"Reserve Account"). The Reserve Account shall consist of two segregated
subaccounts: (a) the "Reserve Account Securities Subaccount" to which financial
assets credited to the Reserve Account shall be credited, and as to which
financial assets the Securities Intermediary undertakes to treat the Indenture
Trustee as entitled to exercise the rights that comprise such financial assets;
and (b) the "Reserve Account Cash Subaccount" to which money or instruments
deposited in the Reserve Account shall be credited. The Indenture Trustee shall
possess all right, title and interest in all monies, instruments, securities,
documents, certificates of deposit and other property credited from time to
time to the Reserve Account and in all proceeds, earnings, income, revenue,
dividends and distributions thereof for the benefit of the Series 1999-A
Noteholders to the extent of any amounts owing with respect to the Series
1999-A Notes.
The Reserve Account shall be under the sole dominion and control of
the Indenture Trustee for the benefit of the Series 1999-A Noteholders to the
extent of any amounts owing with respect to the Series 1999-A Notes. Except as
expressly provided in this Supplement, the Servicer agrees that it shall have
no right of setoff or banker's lien against, and no right to otherwise deduct
from, any funds held in the Reserve Account for any amount owed to it by the
Indenture Trustee, the Trust, or any Series 1999-A Noteholder. If, at any time,
the Reserve Account ceases to be a Qualified Account, the Indenture Trustee (or
the Servicer on its behalf) shall within 10 Business Days (or such longer
period, not to exceed 30 calendar days, as to which each Rating Agency may
consent) of its obtaining actual knowledge that the Reserve Account is no
longer a Qualified Account establish a new Reserve Account meeting the
conditions specified above, transfer any monies, documents, instruments,
securities, security entitlements, certificates of deposit and other property
to such new Reserve Account and from the date such new Reserve Account is
established, it shall be the "Reserve Account."
Funds on deposit in the Reserve Account shall at the written direction
of the Servicer be invested by the Indenture Trustee or its nominee (including
the Securities Intermediary) in Eligible Investments selected by the Servicer.
All such Eligible Investments shall be held by the Indenture Trustee for the
benefit of the Series 1999-A Noteholders. The Indenture Trustee shall cause
each Eligible Investment to be delivered to it or its nominee to the extent of
any amounts owing with respect to the Series 1999-A Notes (including the
Securities
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Intermediary) and will be credited to the Reserve Account Securities Subaccount
maintained by the Indenture Trustee with the Securities Intermediary. Funds in
the Reserve Account shall be invested in Eligible Investments that will mature
so that such funds will be available no later than the close of business on
each monthly Transfer Date following such Settlement Period in amounts
sufficient, to the extent of such funds, to make the required distributions on
the following Payment Date. No such Eligible Investment shall be disposed of
prior to its maturity; provided, however, that the Indenture Trustee may sell,
liquidate or dispose of any such Eligible Investment before its maturity, at
the written direction of the Servicer, if such sale, liquidation or disposal
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. Unless directed by the Servicer in
writing, funds deposited in the Reserve Account on a Transfer Date with respect
to the immediately succeeding Payment Date shall not be required to be invested
overnight. The Indenture Trustee shall bear no responsibility or liability for
any losses resulting from investment or reinvestment of any funds in accordance
with this Section 4.11 nor for the selection of Eligible Investments in
accordance with the provisions of this Supplement except to the extent of any
gross negligence or willful misconduct of the Indenture Trustee.
On each Determination Date, the Servicer shall direct the Indenture
Trustee to withdraw from the Reserve Account and apply and, in accordance with
such directions, the Indenture Trustee on the related Payment Date shall
withdraw from the Reserve Account and apply, an amount equal to the lesser of
(a) amounts then on deposit in the Reserve Account and (b) the amount
determined by the Servicer equal to the excess, if any, of (x) the sum of (i)
Class A Interest for the related Settlement Period, (ii) any Carryover Class A
Interest, (iii) Senior Class A Increased Costs for the related Settlement
Period and any Senior Class A Increased Costs previously due but not paid to
the Class A Noteholders or the Agents on a prior Payment Date, (iv) the
Indenture Trustee Fee for the related Settlement Period, (v) if JNB or an
Affiliate of JNB is no longer the Servicer, the Class A Servicing Fee for the
related Settlement Period, (vi) the Class A Investor Defaulted Amount and (vii)
the Class A Adjustment Payment Shortfall, over (y) the Available Series 1999-A
Finance Charge Collections plus any Excess Finance Charge Collections from
other Series allocable to Series 1999-A (less, in each case, amounts allocated
as Shared Principal Collections pursuant to subsection 4.06(a)(v) or
4.06(a)(vi)), in the same priority as amounts are applied to such components
from Available Series 1999-A Finance Charge Collections pursuant to subsection
4.06(a). In addition, on each Determination Date with respect to a Payment Date
prior to the Early Amortization Commencement Date, the Servicer shall direct
the Indenture Trustee to withdraw from the Reserve Account and apply and, in
accordance with such directions, the Indenture Trustee on the related Payment
Date shall withdraw from the Reserve Account and apply, an amount equal to the
excess, if any, of (i) the amount remaining on deposit in the Reserve Account
after giving effect to withdrawals therefrom pursuant to the preceding sentence
on such Payment Date, over (ii) the Reserve Account Required Balance.
[END OF ARTICLE IV]
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ARTICLE V
DISTRIBUTIONS AND REPORTS TO SERIES 1999-A INVESTOR
NOTEHOLDERS
Section 5.01. Distributions.
(a) On each Payment Date, the Indenture Trustee, at the
direction of the Servicer, shall distribute to each Class A Noteholder
of record on the related Record Date such Class A Noteholder's share,
as determined pursuant to the Class A Purchase Agreement, of the
amounts that are allocated and available on such Payment Date to pay
interest on the Class A Notes pursuant to this Supplement.
(b) On each Payment Date, the Indenture Trustee shall, at the
direction of the Servicer, distribute to each Class A Noteholder of
record on the related Record Date or to each Agent, such Class A
Noteholder's or such Agent's share, as determined pursuant to the
Class A Purchase Agreement, of the amounts that are allocated and
available on such Payment Date to pay Class A Increased Costs pursuant
to this Supplement.
(c) On each Payment Date during a Partial Amortization Period
until the Payment Date on which the aggregate amount paid pursuant to
this subsection 5.01(c) with respect to such Partial Amortization
Period shall have equaled the Partial Amortization Amount for such
Partial Amortization Period, the Indenture Trustee shall, at the
direction of the Servicer, distribute the amounts on deposit in the
Collection Account or otherwise held by the Indenture Trustee that are
allocated and available on such date to pay principal of the Class A
Notes pursuant to this Supplement up to a maximum amount on any such
date equal to the unpaid portion of such Partial Amortization Amount
on such date, to the Class A Noteholders of record on the related
Record Date which are entitled to receive such payments in accordance
with the Class A Purchase Agreement; provided that, if there has been
an optional redemption of the Series 1999-A Noteholders' Interest
pursuant to Section 7.01, the provisions of this subsection 5.01(c)
shall not apply to such Payment Date.
(d) On each Payment Date following the Amortization Date or
in respect of which there has been an optional redemption of the
Series 1999-1 Noteholders' Interest pursuant to Section 7.01, the
Indenture Trustee, at the direction of the Servicer, shall distribute
to each Class A Noteholder of record on the related Record Date the
amounts on deposit in the Collection Account and Excess Funding
Account or otherwise held by the Indenture Trustee that are allocated
and available on such date to pay principal of the Class A Notes
pursuant to this Supplement up to a maximum amount on any such date
equal to the Class A Invested Amount on such date (unless there has
been an optional redemption of the Series 1999-A Noteholders' Interest
pursuant to Section 7.01, in which event the foregoing limitation will
not apply).
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(e) On each Payment Date, the Indenture Trustee shall, at the
direction of the Servicer, distribute to each Class B Noteholder of
record on the related Record Date such Class B Noteholder's pro rata
share of the amounts that are allocated and available on such Payment
Date to pay interest on the Class B Notes pursuant to this Supplement.
(f) On each Payment Date during a Partial Amortization Period
as to which there is a Class B Special Reduction Amount until the
Payment Date on which the aggregate amount paid pursuant to this
subsection 5.01(f) with respect to such Partial Amortization Period
equals the Class B Special Reduction Amount, the Indenture Trustee, at
the direction of the Servicer, shall distribute to the Class B
Noteholder of record on the related Record Date the amounts on deposit
in the Collection Account or otherwise held by the Indenture Trustee
that are allocated and available on such date to pay principal of the
Class B Notes pursuant to this Supplement up to a maximum amount on
any such date equal to the unpaid portion of such Class B Special
Reduction Amount on such date; provided that, if there has been an
optional redemption of the Series 1999-A Noteholders' Interest
pursuant to Section 7.01, the provisions of this subsection 5.01(f)
shall not apply to such Payment Date.
(g) On each Payment Date (i) which follows the Amortization
Date or in respect of which there has been an optional redemption of
the Series 1999-A Noteholders' Interest pursuant to Section 7.01 and
(ii) prior to which the Class A Invested Amount was paid in full, the
Indenture Trustee shall, at the direction of the Servicer, distribute
to each Class B Noteholder of record on the related Record Date the
amounts on deposit in the Collection Account and Excess Funding
Account or otherwise held by the Indenture Trustee that are allocated
and available on such date to pay principal of the Class B Notes
pursuant to this Supplement up to a maximum amount on any such date
equal to the Class B Invested Amount on such date (unless there has
been an optional redemption of the Series 1999-A Noteholders' Interest
pursuant to Section 7.01, in which event the foregoing limitation will
not apply).
(h) The distributions to be made pursuant to this Section
5.01 are subject to the provisions of Section 10.03 of the Indenture
and Section 8.01.
(i) The Servicer shall direct that distributions to Class A
Noteholders or the Agents hereunder shall be made as provided in the
Class A Purchase Agreement. Distributions to Class B Noteholders
hereunder shall be made by check mailed to each Class B Noteholder at
such Class B Noteholder's address appearing in the Note Register
without presentation or surrender of any Class B Note or the making of
any notation thereon or as otherwise agreed between the Indenture
Trustee and such Class B Noteholder.
Section 5.02. Reports and Statements to Series 1999-A Noteholders.
(a) On each Payment Date, the Indenture Trustee shall forward
to each Class A Noteholder and each Class B Noteholder, a statement
substantially in the form of Exhibit B prepared by the Servicer.
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(b) Not later than each Determination Date, the Servicer
shall deliver to the Indenture Trustee and each Rating Agency (i)
statements substantially in the form of Exhibit B prepared by the
Servicer and (ii) a certificate of a Servicing Officer substantially
in the form of Exhibit C.
(c) On or before January 31 of each calendar year, beginning
with calendar year 2000, the Indenture Trustee shall furnish or cause
to be furnished to each Person who at any time during the preceding
calendar year was a Series 1999-A Noteholder, a statement prepared by
the Servicer containing such information as is required to be provided
by an issuer of indebtedness under the Code with respect to such
calendar year; provided, however, that such information need not be
provided with respect to the Class B Notes prior to any transfer
thereof pursuant to Section 7.03(b). Such obligation of the Servicer
shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the
Indenture Trustee pursuant to any requirements of the Code as from
time to time in effect.
[END OF ARTICLE V]
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ARTICLE VI
EARLY AMORTIZATION EVENTS
Section 6.01. Series 1999-A Early Amortization Events. If any one of
the following events shall occur with respect to the Series 1999-A Notes:
(a) failure on the part of the Issuer (i) to make any payment
or deposit required to be made by the Issuer by the terms of the
Indenture or this Supplement, on or before the date occurring two
Business Days after the date such payment or deposit is required to be
made herein, (ii) to perform in all material respects the Issuer's
covenant not to sell, pledge, assign, or transfer to any person, or
grant any unpermitted lien on, any Purchased Receivable; or (iii) duly
to observe or perform in any material respect any covenants or
agreements of the Issuer set forth in the Indenture or this
Supplement, which failure has a material adverse effect on the Series
1999-A Noteholders or the Class A Noteholders and which continues
unremedied for a period of 30 days after the date on which written
notice of such failure, requiring the same to be remedied, shall have
been given to the Issuer by the Indenture Trustee, or to the Issuer
and the Indenture Trustee by Series 1999-A Noteholders evidencing
undivided interests aggregating more than 40% of the Series Invested
Amount;
(b) any representation or warranty made by the Issuer in the
Purchase and Servicing Agreement, Indenture or this Supplement (i)
shall prove to have been incorrect in any material respect when made,
which continues to be incorrect in any material respect for a period
of 30 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Issuer
by the Indenture Trustee, or to the Issuer and the Indenture Trustee
by Series 1999-A Noteholders evidencing undivided interests
aggregating more than 40% of the Series Invested Amount and (ii) as a
result of which the interests of the Series 1999-A Noteholders or the
Class A Noteholders are materially and adversely affected; provided,
however, that a Series 1999-A Early Amortization Event pursuant to
this subsection 6.01(b) shall not be deemed to have occurred hereunder
if the Issuer has accepted reassignment of the related Receivable, or
all of such Receivables, if applicable, during such period in
accordance with the provisions of the Purchase and Servicing Agreement
or a purchase price adjustment has been made pursuant to Section 2.05
of the Purchase and Servicing Agreement during such period;
(c) failure on the part of the Servicer to make any payment
or deposit or to give any instruction relating to payments required to
be made by the Servicer by the terms of the Indenture, this Supplement
or the Purchase and Servicing Agreement, on or before the date
occurring two Business Days after the date such payment or deposit is
required to be made or such instruction is required to be given herein
or therein,
(d)(i) failure on the part of the Issuer, the Servicer or the
Seller duly to observe or perform in any material respect any of the
covenants set forth in
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subsections (k), (l), (m), (o) or (s) of Section 5.1 of the Class A
Purchase Agreement or subsection 5.02(a) of the Purchase and Servicing
Agreement, or (iii) failure on the part of the Issuer, the Servicer or
the Seller duly to observe or perform in any material respect any
other covenants or agreements of the Issuer, the Servicer or the
Seller set forth in the Class A Purchase Agreement or the Purchase and
Servicing Agreement, which failure has a material adverse effect on
the Series 1999-A Noteholders and which continues unremedied for a
period of 30 days after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to
the Issuer, the Seller and the Servicer by Class A Noteholders holding
undivided interests aggregating more than 40% of the Class A Invested
Amount;
(e) any representation or warranty made by the Issuer, the
Servicer or the Seller in the Class A Purchase Agreement (i) shall
prove to have been incorrect in any material respect when made, which
continues to be incorrect in any material respect for a period of 30
days after the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to the Issuer by Class
A Noteholders holding undivided interests aggregating more than 40% of
the Class A Invested Amount, and (ii) as a result of which the
interests of the Class A Noteholders are materially and adversely
affected;
(f) the average of the Portfolio Yields for any three
consecutive Settlement Periods is reduced to a rate which is less than
the average of the Base Rates for such three consecutive Settlement
Periods;
(g) any Servicer Default shall occur which would have a
material adverse effect on the Series 1999-A Noteholders or the Class
A Noteholders;
(h) the failure or inability of Z Del to transfer Receivables
to the Trust in accordance with the Purchase and Servicing Agreement;
(i) the Issuer Amount shall be less than the Required Issuer
Amount for a period of more than two consecutive Business Days; or
(j) the occurrence and continuation of any event of default
or other circumstance (and the expiration of any applicable grace
period with respect thereto), the result of which will permit the
acceleration of any outstanding indebtedness of Zale Corporation or
its consolidated subsidiaries in an amount greater than $10,000,000;
then, the Indenture Trustee shall, within five Business Days of obtaining
knowledge of such event, provide to the Series 1999-A Noteholders written
notification of such Early Amortization Event and in the case of any event
described in subparagraph (a), (b), (c), (d) or (e), after the applicable grace
period, if any, set forth in such subparagraphs, the Series 1999-A Noteholders
evidencing undivided interests aggregating more than 50% of the Series Invested
Amount by notice then given in writing to the Indenture Trustee, the Issuer and
the Servicer may declare that an early amortization event (a "Series 1999-A
Early Amortization Event") has occurred with respect to Series 1999-A as of the
date of such notice, and in the case of any event described in subparagraphs
(f) or (h), a Series 1999-A Early Amortization Event shall occur without any
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notice or other action on the part of the Indenture Trustee or the Series
1999-A Noteholders immediately upon the occurrence of such event.
[END OF ARTICLE VI]
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ARTICLE VII
OPTIONAL REDEMPTION; PARTIAL AMORTIZATION;
PRINCIPAL BALANCE INCREASES
Section 7.01. Optional Redemption. The Series 1999-A Notes shall be
subject to redemption in full by the Issuer at its option on any Payment Date
on or after July 13, 2000, upon notice delivered to the Indenture Trustee, the
Servicer and the Agents not later than 5:00 p.m. (New York City time) on the
second Business Day prior to the redemption date. The deposit required in
connection with any such redemption and final distribution shall be equal to
(i) the sum of the Class A Invested Amount and the Class B Invested Amount,
plus (ii) accrued and unpaid interest and (without duplication) Carryover
Interest on the Series 1999-A Notes through the day prior to the Payment Date
on which the final distribution occurs, plus (iii) all unpaid Class A Increased
Costs.
Section 7.02. Partial Amortization. A Partial Amortization Period
shall commence (i) subject to the terms and conditions of the Class A Purchase
Agreement, on any date specified by the Seller prior to the Amortization Date
at its election by notice given to each of the Indenture Trustee, the Issuer,
the Servicer, the Administrative Agent and each Agent not more than 30 days,
and not later than 5:00 p.m. (New York City time) on the second Business Day,
prior to such date, (ii) on the date on which any Partial Expiration Event
shall occur and (iii) on any date specified by the Seller prior to the
Amortization Date at its election by not less than five Business Days' prior
notice given to each of the Indenture Trustee, the Issuer, the Servicer, the
Administrative Agent and each Agent if, on or prior to such date the Class B
Special Reduction Date (if any) has occurred and the Class B Special Reduction
Amount exceeds zero; provided that the Seller may designate only one Partial
Amortization Period pursuant to this clause (iii). The Seller shall give notice
to each of the Indenture Trustee, the Servicer, the Administrative Agent and
each Agent on or before each date on which any Partial Expiration Event shall
occur (such notice and any notice given pursuant to clause (i) or clause (iii)
of the preceding sentence, a "Partial Amortization Notice"). Each Partial
Amortization Notice shall specify (A) the date on which the related Partial
Amortization Period commenced or will commence, (B) the Partial Amortization
Amount for such Partial Amortization Period, (C) the Class B Special Reduction
Amount, if any, and (D) whether a Partial Expiration Event shall have occurred
upon the commencement of such Partial Amortization Period. The "Partial
Amortization Amount" for a Partial Amortization Period shall be equal to the
amount by which the Class A Invested Amount is to be reduced in respect of such
Partial Amortization Period, as specified by the Issuer in the related Partial
Amortization Notice, which shall equal at least $5,000,000 and be an integral
multiple of $1,000,000; provided that if a Partial Expiration Event shall have
occurred, the Partial Amortization Amount shall at least equal the Class A
Mandatory Partial Amortization Amount specified in or pursuant to the Class A
Note Purchase Agreement in respect of such Partial Expiration Event. The Issuer
shall have the right from time to time to increase or decrease the Partial
Amortization Amount with respect to a Partial Amortization Period by giving at
least two Business Day's prior notice to the Indenture Trustee, the Servicer
and each Agent; provided that the Partial Amortization Amount shall not be
reduced below the applicable Class A Mandatory Partial Amortization Amount, if
any.
Section 7.03. Designation of Class B Note Terms; Sale of Class B
Notes. The Issuer may at any time, subject to the provisions of the Class A
Purchase Agreement, (i) sell or
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transfer all or a portion of the Class B Notes and (ii) in connection with any
such sale or transfer, enter into a supplemental agreement with the Indenture
Trustee pursuant to which the Issuer may amend the Class B Interest Rate, set
forth the amount of monthly interest due Class B Noteholders (the "Class B
Interest"), provide for the payment of additional amounts to the Class B
Noteholders (the "Class B Additional Interest") with respect to any shortfall
in such Class B Interest (the "Class B Interest Shortfall") and provide for
such other provisions with respect to the Class B Notes as may be specified in
each such supplemental agreement, provided that in each such case (A) the
Issuer shall have given notice to the Indenture Trustee, the Servicer and the
Rating Agencies of such proposed sale or transfer of the Class B Notes and each
such supplemental agreement at least five Business Days prior to the
consummation of each such sale or transfer and the execution of such proposed
supplemental agreement; (B) the Rating Agency Condition shall have been
satisfied; (C) no Early Amortization Event shall have occurred prior to the
consummation of such proposed sale or transfer of Class B Notes or the
execution of either such supplemental agreement; (D) the Issuer shall have
delivered an Officer's Certificate, dated the date of the consummation of
either such sale or transfer and the effectiveness of either such supplemental
agreement, to the effect that, in the reasonable belief of the Issuer, such
action will not, based on the facts at the time of such certification, cause an
Early Amortization Event to occur with respect to any Series, (E) the Issuer
will have delivered a Tax Opinion, dated the date of such certificate with
respect to such action; provided, further, as a condition to the sale or
transfer of all or a portion of the Class B Notes the transferee shall be
required to agree not to institute against, or join any other Person in
instituting against, the Issuer any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceeding, or other proceeding under any federal or
state bankruptcy or similar law, for one year and one day after all Investor
Notes are paid in full and (F) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel to the effect that
all conditions precedent to the execution of such supplemental agreement have
been complied with.
Section 7.04. Note Principal Balance Increases.
(a) Subject to the terms and conditions of the Indenture,
this Supplement and the Class A Purchase Agreement, the Seller may
from time to time request an increase on any Payment Date during the
Revolving Period in the outstanding principal balance of the Class A
Notes to an amount not exceeding the Class A Purchase Limit then in
effect, (any such increase being referred to herein as a "Class A Note
Principal Balance Increase").
(b) A request for a Class A Note Principal Balance Increase
shall be made by notice (an "Increase Notice") from the Seller to each
Agent, with a copy thereof concurrently delivered to the Servicer and
the Indenture Trustee, no later than 5:00 p.m. (New York City time) on
the fourth Business Day prior to the Payment Date on which such
increase is to occur (an "Increase Date"), which notice shall be
irrevocable unless waived in accordance with the Class A Purchase
Agreement. Any Increase Notice shall be substantially in the form of
Exhibit D, and shall specify (i) the aggregate amount of the requested
Class A Note Principal Balance Increase, which shall equal $5,000,000
or an integral multiple of $1,000,000 in excess of such amount, (ii)
the Purchaser Group or Purchaser Groups (as defined in the Class A
Purchase Agreement) which are requested to purchase such requested
Class A Note Principal Balance Increase, and the portion
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thereof requested from each such Purchaser Group, as determined by the
Issuer; provided that the portion of such Class A Note Principal
Balance Increase requested from any Purchaser Group shall equal
$5,000,000 or an integral multiple of $1,000,000 in excess of such
amount, (iii) the date on which such Class A Note Principal Balance
Increase is to occur (an "Increase Date"), which shall be the next
following Payment Date, and (iv) the payment instructions for
remittance of the proceeds of such requested Class A Note Principal
Balance Increase, in each case subject to the provisions of the Class
A Purchase Agreement.
(c) On the Increase Date for such Class A Note Principal
Balance Increase, after satisfaction of all conditions to such Class A
Note Principal Balance Increase herein and in the Class A Purchase
Agreement, the Class A Noteholders shall remit the amount of such
Class A Note Principal Balance Increase, to the extent it has
otherwise agreed or committed to fund such Class A Note Principal
Balance Increase, no later than 4:00 p.m. (New York City time) in
immediately available funds in accordance with the payment
instructions specified in the request with respect to such Class A
Note Principal Balance Increase, and upon such remittance the
aggregate outstanding principal balance of the Class A Notes shall be
increased by the amount of such remittance in respect of the Class A
Note Principal Balance Increase. Nothing in this Supplement or any
Series 1999-A Note shall be construed as constituting a commitment on
the part of the Series 1999-A Noteholders to fund any Note Principal
Balance Increase, except as otherwise set forth in, and subject to the
terms and conditions of, the Class A Purchase Agreement.
(d) Subject to the terms and conditions of the Indenture,
this Supplement, the Issuer may from time to time request an increase
on any Payment Date during the Revolving Period in the outstanding
principal balance of the Class B Notes (any such increase being
referred to herein as a "Class B Note Principal Balance Increase"). A
request for a Class B Note Principal Balance Increase shall be made by
notice from the Seller to the Issuer and the Indenture Trustee, with a
copy thereof concurrently delivered to the Servicer, the
Administrative Agent and each Agent, no later than 5:00 p.m. (New York
City time) on the Business Day prior to the Payment Date on which such
increase is to occur. Any Increase Notice shall specify the aggregate
amount of the requested Class B Note Principal Balance Increase and
the requested date thereof. On the requested date for such Class B
Note Principal Balance Increase, the Class B Noteholders may elect
(but shall not be obligated) to remit the amount of such Class B Note
Principal Balance Increase in immediately available funds as agreed
upon among the Issuer, the the Seller and the Indenture Trustee. It
shall be a condition to any Class B Note Principal Balance Increase
that the sum of the Class B Note Principal Balance Increase, plus the
amount of any Class A Note Principal Balance Increase to be purchased
on the date thereof, shall not exceed an amount equal to the excess of
the aggregate amount of Principal Receivables in the Trust over the
Required Minimum Principal Balance.
Section 7.05. Special Reduction of Class A Invested Amount.
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(a) The outstanding principal amount of Class A Notes may be
prepaid in whole or in part, without premium or penalty, but together
with accrued and unpaid interest on the principal amount prepaid, from
time to time during the Revolving Period at the option of the Trust
(each, a "Class A Special Reduction"), on any Business Day (a "Class A
Special Reduction Date") occurring not earlier than three Business
Days after the related Special Reduction Notice has been given in
accordance with this Section 7.05 from the proceeds of the issuance by
the Trust of one or more other Series of Notes. In the event of a
prepayment in part, the aggregate principal amount to be prepaid shall
be allocated pro rata in accordance with the outstanding principal
amount of each Class A Note. It shall be a condition to any Class A
Special Reduction that, after giving effect to the payments being made
on the applicable Class A Special Reduction Date by the Issuer
pursuant to Section 5.01 or by the Seller pursuant to the Class A
Purchase Agreement, (i) there shall be no Early Amortization Event,
Series 1999-A Early Amortization Event or Servicer Default, or the
occurrence of an event or condition which would be an Early
Amortization Event, Series 1999-A Early Amortization Event or Servicer
Default, and (ii) the Seller shall concurrently pay with such Special
Reduction any related amount payable pursuant to subsection 2.6(c) of
the Class A Purchase Agreement.
(b) The Issuer, at its expense, shall provide a written
notice thereof to the Indenture Trustee and each Agent not less than
three Business Days prior to the Class A Special Reduction Date (a
"Class A Special Reduction Notice"), which Special Reduction Notice
shall be irrevocable and shall specify the principal amount of Class A
Notes to be prepaid on the Class A Special Reduction Date (the "Class
A Special Reduction Amount").
(c) Not later than 10:00 a.m. (New York City time) on the
Class A Special Reduction Date, the Issuer shall deposit or cause to
be deposited with the Indenture Trustee, an amount of immediately
available funds equal to the Class A Special Reduction Amount, and the
Trustee shall distribute to each Class A Noteholder of record on the
related Record Date such Class A Noteholders' pro rata share thereof
as determined pursuant to subsection 7.05(a) above.
[END OF ARTICLE VII]
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ARTICLE VIII
FINAL DISTRIBUTION
Section 8.01. Sale of Receivables or Noteholders' Interest pursuant to
Section 2.05 of the Purchase and Servicing Agreement and Section 10.03 of the
Indenture.
(a) The amount to be paid by the Issuer or the Seller with
respect to Series 1999-A in connection with a purchase of the
Receivables pursuant to Section 6.10(c) of the Purchase and Servicing
Agreement shall equal the Reassignment Amount for the first Payment
Date following the Settlement Period in which the reassignment
obligation arises under the Purchase and Servicing Agreement.
(b) With respect to the Reassignment Amount deposited into
the Collection Account pursuant to this Section 8.01, the Issuer
shall, not later than 10:00 a.m., New York City time, on the related
Payment Date, make deposits or distributions of the following amounts
(in the priority set forth below and, in each case after giving effect
to any deposits and distributions otherwise to be made on such date)
in immediately available funds: (i) (x) the Class A Invested Amount on
such Payment Date will be distributed to the Indenture Trustee for
payment to the Class A Noteholders and (y) an amount equal to the sum
of (A) Class A Interest for such Payment Date, and (B) any Class A
Carryover Interest will be distributed to the Indenture Trustee for
payment to the Class A Noteholders, and (z) an amount equal to all
unpaid Class A Increased Costs will be distributed to the Indenture
Trustee for payment to the Class A Noteholders or the Agents, as
applicable, at the direction of the Servicer in accordance with the
Class A Purchase Agreement; (ii) (x) the Class B Invested Amount on
such Payment Date will be distributed to the Indenture Trustee for
payment to the Class B Noteholders and (y) an amount equal to the sum
of (A) Class B Interest for such Payment Date, and (B) any Class B
Carryover Interest will be distributed to the Indenture Trustee for
payment to the Class B Noteholders, and (iii) the balance, if any,
will be distributed to the Trust.
(c) Notwithstanding anything to the contrary in this
Supplement or the Agreement, all amounts distributed to the Indenture
Trustee pursuant to subsection 8.01(b) for payment to the Series
1999-A Noteholders shall be deemed distributed in full to the Series
1999-A Noteholders on the date on which such funds are distributed to
the Indenture Trustee pursuant to this Section and shall be deemed to
be a final distribution pursuant to Section 12.01 of the Indenture.
[END OF ARTICLE VIII]
38
<PAGE> 40
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.01. Delivery and Payment for the Series 1999-A Notes. The
Issuer shall execute and deliver the Series 1999-A Notes to the Indenture
Trustee for authentication in accordance with Section 2.03 of the Indenture.
The Indenture Trustee shall deliver the Series 1999-A Notes to or upon the
order of the Issuer when authenticated in accordance with Section 2.03 of the
Indenture.
Section 9.02. Legend on Series 1999-A Notes.
Each Series 1999-A Note will bear a legend substantially in the
following form:
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OR ANY APPLICABLE STATE SECURITIES LAW OF ANY STATE AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT
TO OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY OTHER
APPLICABLE SECURITIES LAW.
Section 9.03. Ratification of Indenture. As supplemented by this
Supplement, the Indenture is in all respects ratified and confirmed and the
Indenture as so supplemented by this Supplement shall be read, taken, and
construed as one and the same instrument.
Section 9.04. Counterparts. This Supplement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all of such counterparts shall together constitute but one and
the same instrument.
Section 9.05. GOVERNING LAW. THIS SUPPLEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
39
<PAGE> 41
Section 9.06. Instructions in Writing. All instructions, notices or
other communications given by the Servicer, the Issuer or any other Person to
the Indenture Trustee pursuant to this Supplement shall be in writing and shall
be effective upon actual receipt by an Authorized Officer of the Indenture
Trustee.
Section 9.07. Tax Treatment. The Issuer has entered into this
Supplement with the intention that, for federal, state and local income and
franchise tax purposes, the Class A Notes will be characterized as indebtedness
of the Seller secured by the Receivables, and, prior to the occurrence of a
transfer under Section 7.03 hereof, the Class B Notes will not be treated as
having been issued. Clauses (a) and (c) of the definitions of Tax Opinion shall
be inapplicable with respect to such Class B Notes prior to any such issuance.
40
<PAGE> 42
IN WITNESS WHEREOF, the Issuer has caused this Note to be duly
executed.
ZALE FUNDING TRUST
Issuer
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, 1999
By: /s/ JAMES P. LAWLER
-----------------------------------
Name:
Title:
THE BANK OF NEW YORK
Indenture Trustee and Securities Intermediary
By: /s/ ERWIN SORIANO
-----------------------------------
Name:
Title:
<PAGE> 43
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I CREATION OF THE SERIES 1999-A NOTES............................1
Section 1.01. Designation..........................................1
ARTICLE II DEFINITIONS....................................................2
Section 2.01. Definitions..........................................2
ARTICLE III SERVICER......................................................13
Section 3.01. Servicing Compensation..............................13
Section 3.02. Indenture Trustee Fee...............................13
ARTICLE IV RIGHTS OF NOTEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS................................15
Section 4.01. Rights of Noteholders...............................15
Section 4.02. Collections and Allocation; Payments on Trust
Certificate.........................................15
Section 4.03. Determination of Monthly Interest for the Series
1999-A Notes........................................18
Section 4.04. Determination of Principal Amounts..................18
Section 4.05. Shared Principal Collections........................20
Section 4.06. Application of Funds on Deposit in the Collection
Account for the Notes...............................20
Section 4.07. Coverage of Required Amount for the Series
1999-A Notes........................................24
Section 4.08. Reallocated Principal Collections for the Series
1999-A Notes........................................25
Section 4.09. Investor Charge-Offs................................25
Section 4.10. Discount Option Percentage..........................25
Section 4.11. Establishment of Reserve Account....................26
ARTICLE V DISTRIBUTIONS AND REPORTS TO SERIES 1999-A INVESTOR
NOTEHOLDERS...................................................28
Section 5.01. Distributions.......................................28
Section 5.02. Reports and Statements to Series 1999-A
Noteholders.........................................29
ARTICLE VI EARLY AMORTIZATION EVENTS.....................................31
Section 6.01. Series 1999-A Early Amortization Events.............31
ARTICLE VII OPTIONAL REDEMPTION; PARTIAL AMORTIZATION; PRINCIPAL
BALANCE INCREASES.............................................34
Section 7.01. Optional Redemption.................................34
Section 7.02. Partial Amortization................................34
Section 7.03. Designation of Class B Note Terms; Sale of Class B
Notes...............................................34
Section 7.04. Note Principal Balance Increases....................35
</TABLE>
<PAGE> 44
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 7.05. Special Reduction of Class A Invested Amount........36
ARTICLE VIII FINAL DISTRIBUTION............................................38
Section 8.01. Sale of Receivables or Noteholders' Interest pursuant
to Section 2.05 of the Purchase and Servicing
Agreement and Section 10.03 of the
Indenture...........................................38
ARTICLE IX MISCELLANEOUS PROVISIONS......................................39
Section 9.01. Delivery and Payment for the Series 1999-A Notes....39
Section 9.02. Legend on Series 1999-A Notes.......................39
Section 9.03. Ratification of Indenture...........................39
Section 9.04. Counterparts........................................39
Section 9.05. GOVERNING LAW.......................................39
Section 9.06. Instructions in Writing.............................40
Section 9.07. Tax Treatment.......................................40
</TABLE>
-II-
<PAGE> 45
CLASS A NOTE
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAW OF ANY STATE AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO OR EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT AND ANY OTHER APPLICABLE SECURITIES LAW.
ZALE FUNDING TRUST
SERIES 1999-A
FLOATING RATE CLASS A
ASSET BACKED VARIABLE FUNDING NOTE
REGISTERED
No. RA-1
ZALE FUNDING TRUST, a Delaware business trust (the "Issuer") hereby
promises to pay to the order of CREDIT SUISSE FIRST BOSTON, NEW YORK BRANCH, AS
AGENT, or registered assigns (the "Noteholder"), the outstanding principal
balance of this Note, as determined pursuant to Indenture, dated as of July 15,
1999 (as amended or otherwise modified from time to time, the "Base
Indenture"), as supplemented by the Series 1999-A Indenture Supplement, dated
as of July 15, 1999 (as amended or otherwise modified from time to time, the
"Supplement;" the Base Indenture, as so supplemented, the "Indenture") between
the Issuer and The Bank of New York, as Indenture Trustee (in such capacity,
the "Indenture Trustee"), and to pay interest on the outstanding principal
balance of this Note at the rate or rates and at the times specified in the
Indenture. The outstanding principal balance of this Note shall be repaid from
time to time on the dates and in the manner set forth in the Indenture, and in
any event on Legal Final Maturity Date (as defined in the Indenture).
The Class A Initial Invested Amount of this Note is set forth on the
grid attached hereto. The Noteholder or its agent is authorized from time to
time to record the amount and date of each Class A Note Principal Balance
Increase and each payment of principal of this Note on such grid or on a
continuation thereof which shall be attached thereto and made a part thereof,
and any such notation shall constitute prima facie evidence of the accuracy of
the information so recorded; provided that the failure to make any such
notations shall not affect the validity of the Issuer's obligations hereunder
or under the Indenture Note or the validity of any payment or prepayment
hereof.
This Note does not purport to summarize the Indenture and reference is
made to that Agreement for information with respect to the interests, rights,
benefits, obligations, proceeds, and duties evidenced hereby and the rights,
duties and obligations of the Issuer and the
<PAGE> 46
Indenture Trustee. To the extent not defined herein, the capitalized terms used
herein have the meanings ascribed to them in the Indenture. This Note is one of
a series and class of Notes entitled "Zale Funding Trust Floating Rate Class A
Asset Backed Variable Funding Notes, Series 1999-A" (the "Class A Notes"),
issued under and is subject to the terms, provisions and conditions of the
Indenture, to which Indenture the Noteholder by virtue of the acceptance hereof
assents and by which the Noteholder is bound. The Issuer has also issued its
"Zale Funding Trust Class B Asset Backed Notes, Series 1999-A" (the "Class B
Notes" and collectively with the Class A Notes, the "Series 1999-A Notes")
pursuant to the Indenture. The Class B Notes are subordinated to the Class A
Notes as and to the extent provided in the Indenture.
The indebtedness represented by the Series 1999-A Notes shall include
the right of the Series 1999-A Noteholders to receive, to the extent necessary
to make the required payments with respect to such Series 1999-A Notes at the
times and in the amounts specified in the Supplement, the Series 1999-A
Noteholders' Interest. In general, payments of principal with respect to the
Class A Notes are limited to the Class A Invested Amount, which may be less
than the unpaid principal balance of the Class A Notes. The Class B Notes are
subordinated to the Class A Notes, to the extent provided in the Supplement.
The Class B Notes will not have the right to receive payments of principal
until the Class A Invested Amount has been paid in full, other than payments of
the Class B Special Reduction Amount during a Partial Amortization Period as
provided in the Supplement.
The Seller has structured the Indenture and the Series 1999-A Notes
and with the intention that the Class A Notes will qualify under applicable tax
law as debt, and the Seller, the Issuer and each holder of a Note or of any
interest therein by acceptance of its Note or any interest therein, agrees to
treat the Class A Notes for purposes of federal, state and local income or
franchise taxes and any other tax imposed on or measured by income, as debt.
The obligations of the Issuer under this Note, the Indenture or any
other agreement, instrument, document or certificate executed and delivered or
issued by the Issuer in connection herewith 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 Note, the Indenture or any other agreement, instrument, document or
certificate executed and delivered or issued by the Issuer in connection
herewith against any holder of a Trust Certificate, employee, officer,
director, incorporator, agent or trustee of the Issuer or any Affiliate of the
Issuer.
It is expressly understood and agreed by the parties hereto that (i)
this Note and the Indenture are 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, (ii) each of the representations, undertakings and
agreements made on the part of the Issuer in this Note or the Indenture 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, (iii) nothing herein or in the Indenture contained shall be
construed as creating any liability on Wilmington
-2-
<PAGE> 47
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 (iv) 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 Note, the Indenture or the other Transaction Documents.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICTS OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE ISSUER AND THE NOTEHOLDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Unless the Note of authentication hereon has been executed by or on
behalf of the Trustee, by manual signature, this Note shall not be entitled to
any benefit under the Indenture, or be valid for any purpose.
[Remainder of page intentionally left blank]
-3-
<PAGE> 48
IN WITNESS WHEREOF, the Issuer has caused this Note to be duly
executed.
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, 1999
By: /s/ JAMES P. LAWLER
-----------------------------------
Name:
Title:
Dated: July 15, 1999
-4-
<PAGE> 49
CERTIFICATE OF AUTHENTICATION
This is one of the Class A Notes referred to in the within-mentioned Indenture.
THE BANK OF NEW YORK
By: /s/ ERWIN SORIANO
-----------------------------------
Name:
Title:
-5-
<PAGE> 50
GRID TO CLASS A NOTE NO. RA-1
<TABLE>
<CAPTION>
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Class A Note Principal
Date of Transaction Balance Increase Amount of Payment Notation Made By
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
July 15, 1999 $250,000,000 (Class A N/A N/A
Initial Invested Amount)
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-6-
<PAGE> 51
CLASS B NOTE
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAW OF ANY STATE AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO OR EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT AND ANY OTHER APPLICABLE SECURITIES LAW.
ZALE FUNDING TRUST
SERIES 1999-A
CLASS B
ASSET BACKED NOTE
REGISTERED
No. RB-1
ZALE FUNDING TRUST, a Delaware business trust (the "Issuer") hereby
promises to pay to the order of ZALE FUNDING TRUST, or registered assigns (the
"Noteholder"), the outstanding principal balance of this Note, as determined
pursuant to Indenture, dated as of July 15, 1999 (as amended or otherwise
modified from time to time, the "Base Indenture"), as supplemented by the
Series 1999-A Indenture Supplement, dated as of July 15, 1999 (as amended or
otherwise modified from time to time, the "Supplement;" the Base Indenture, as
so supplemented, the "Indenture") between the Issuer and The Bank of New York,
as Indenture Trustee (in such capacity, the "Indenture Trustee"), and to pay
interest on the outstanding principal balance of this Note at the rate or rates
and at the times specified in the Indenture. The outstanding principal balance
of this Note shall be repaid from time to time on the dates and in the manner
set forth in the Indenture, and in any event on Legal Final Maturity Date (as
defined in the Indenture).
The Class B Initial Invested Amount of this Note is set forth on the
grid attached hereto. The Noteholder or its agent is authorized from time to
time to record the amount and date of each payment of principal of this Note on
such grid or on a continuation thereof which shall be attached thereto and made
a part thereof, and any such notation shall constitute prima facie evidence of
the accuracy of the information so recorded; provided that the failure to make
any such notations shall not affect the validity of the Issuer's obligations
hereunder or under the Indenture Note or the validity of any payment or
prepayment hereof.
This Note does not purport to summarize the Indenture and reference is
made to that Agreement for information with respect to the interests, rights,
benefits, obligations,
<PAGE> 52
proceeds, and duties evidenced hereby and the rights, duties and obligations of
the Issuer and the Indenture Trustee. To the extent not defined herein, the
capitalized terms used herein have the meanings ascribed to them in the
Indenture. This Note is one of a series and class of Notes entitled "Zale
Funding Trust Class B Asset Backed Notes, Series 1999-A" (the "Class B Notes"),
issued under and is subject to the terms, provisions and conditions of the
Indenture, to which Indenture the Noteholder by virtue of the acceptance hereof
assents and by which the Noteholder is bound. The Issuer has also issued its
"Zale Funding Trust Floating Rate Class A Asset Backed Variable Funding Notes,
Series 1999-A" (the "Class A Notes" and collectively with the Class B Notes,
the "Series 1999-A Notes") pursuant to the Indenture. The Class B Notes are
subordinated to the Class A Notes as and to the extent provided in the
Indenture.
The indebtedness represented by the Series 1999-A Notes shall include
the right of the Series 1999-A Noteholders to receive, to the extent necessary
to make the required payments with respect to such Series 1999-A Notes at the
times and in the amounts specified in the Supplement, the Series 1999-A
Noteholders' Interest. In general, payments of principal with respect to the
Class B Notes are limited to the Class B Invested Amount, which may be less
than the unpaid principal balance of the Class B Notes. The Class B Notes are
subordinated to the Class A Notes, to the extent provided in the Supplement.
The Class B Notes will not have the right to receive payments of principal
until the Class A Invested Amount has been paid in full, other than payments of
the Class B Special Reduction Amount during a Partial Amortization Period as
provided in the Supplement.
The Seller has structured the Indenture and the Series 1999-A Notes
and with the intention that the Class A Notes will qualify under applicable tax
law as debt, and the Seller, the Issuer and each holder of a Note or of any
interest therein by acceptance of its Note or any interest therein, agrees to
treat the Class A Notes for purposes of federal, state and local income or
franchise taxes and any other tax imposed on or measured by income, as debt.
The obligations of the Issuer under this Note, the Indenture or any
other agreement, instrument, document or certificate executed and delivered or
issued by the Issuer in connection herewith 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 Note, the Indenture or any other agreement, instrument, document or
certificate executed and delivered or issued by the Issuer in connection
herewith against any holder of a Trust Certificate, employee, officer,
director, incorporator, agent or trustee of the Issuer or any Affiliate of the
Issuer.
It is expressly understood and agreed by the parties hereto that (i)
this Note and the Indenture are 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, (ii) each of the representations, undertakings and
agreements made on the part of the Issuer in this Note or the Indenture 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, (iii) nothing
2
<PAGE> 53
herein or in the Indenture 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 (iv) 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 Note, the Indenture or the other
Transaction Documents.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICTS OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE ISSUER AND THE NOTEHOLDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Unless the Note of authentication hereon has been executed by or on
behalf of the Trustee, by manual signature, this Note shall not be entitled to
any benefit under the Indenture, or be valid for any purpose.
[Remainder of page intentionally left blank]
3
<PAGE> 54
IN WITNESS WHEREOF, the Issuer has caused this Note to be duly executed.
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, 1999
By: /s/ JAMES P. LAWLER
-----------------------------------
Name:
Title:
Dated: July 15, 1999
4
<PAGE> 55
CERTIFICATE OF AUTHENTICATION
This is one of the Class B Notes referred to in the within-mentioned Indenture.
THE BANK OF NEW YORK
By: /s/ ERWIN SORIANO
-----------------------------------
Name:
Title:
5
<PAGE> 56
GRID TO CLASS B NOTE NO. RB-1
<TABLE>
<CAPTION>
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Class B Initial
Date of Transaction Invested Amount Amount of Payment Notation Made By
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
July 15, 1999 $123,134,328.36 N/A N/A
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</TABLE>
6
<PAGE> 1
EXHIBIT 4.5
EXECUTION COPY
================================================================================
PURCHASE AND SERVICING AGREEMENT
Dated as of July 15, 1999
Among
ZALE FUNDING TRUST,
ZALE DELAWARE, INC.,
And
JEWELERS NATIONAL BANK
================================================================================
<PAGE> 2
PURCHASE AND SERVICING AGREEMENT (this "Agreement"), dated as of July
15, 1999, among ZALE FUNDING TRUST, a Delaware statutory business trust (the
"Issuer"), ZALE DELAWARE, INC., a Delaware corporation (the "Seller"), and
JEWELERS NATIONAL BANK, a national banking association ("JNB" or the
"Servicer").
W I T N E S S E T H:
WHEREAS, the Issuer, the Seller and the Servicer desire to enter into
a receivables financing facility pursuant to which, inter alia, (1) the Issuer
will purchase Receivables with a combination of net cash proceeds received by
the Issuer from the issuance and sale of one or more Series of Notes, cash
collections on the Purchased Receivables and increases to the value of the
Certificate of Beneficial Interest, (2) 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 (3) the Servicer will
service the Purchased Receivables, in each case in accordance with the terms
and conditions set forth in the Transaction Documents;
WHEREAS, this Agreement will replace the Purchase and Servicing
Agreement (the "Prior Agreement"), dated as of July 1, 1994, as amended, among
the Issuer, the Seller, Jewelers Financial Services, Inc., as prior servicer
(the "Prior Servicer") and Diamond Funding Corp. as seller of original
Receivables.
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.
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
each 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 (i) all
Eligible Receivables (other than (A) Eligible Receivables arising under Removed
Accounts, (B) following a New Accounts Termination Date, Eligible Receivables
under newly originated Accounts which the Seller has elected to exclude
pursuant to subsection 2.12(c) hereof and (C) following the imposition by
either Rating Agency of an Aggregate Addition Limit, Eligible Receivables in
newly originated Accounts which either
<PAGE> 3
Rating Agency has elected to exclude pursuant to subsection 2.12(d)) of the
Seller now existing and hereafter originated by the Originator and all payment
and enforcement rights (but not any obligations) to, in and under the related
Credit Card Agreements, (ii) all Collections in respect of such Receivables
credited to the related Account and all monies due or to become due with
respect to the foregoing and all collateral security therefor, (iii) all
proceeds of the foregoing, including without limitation Insurance Proceeds
relating thereto and (iv) all Recoveries (collectively, the "Trust Assets").
Subject to subsections 2.12(c) and 2.12(d), after the Initial Cut-off Date, all
the Seller's right, title and interest in and to all Eligible Receivables
(other than Eligible Receivables arising under Removed Accounts) newly
originated by the Originator, including, without limitation, all Eligible
Receivables set forth in the most recent 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 the Seller.
(b) All sales of Receivables hereunder shall be without recourse to,
or representation or warranty of any kind (express or implied) by, the Seller,
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 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 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) (such
date of Termination, the "Purchase Termination Date").
Section 2.03. Purchase Price. On any Purchase Date, the amount payable
by the Issuer (the "Purchase Price") for Eligible Receivables sold to the
Issuer by the Seller on such date shall be equal to the fair market value of
the aggregate amount of such Receivables, in each case as adjusted pursuant to
Sections 2.05, 2.06, 2.13 and 2.14 of this Agreement.
Section 2.04. Payments.
(a) Payment of Purchase Price. The Purchase Price for Receivables
shall be paid to the Seller on each day 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"). On each Purchase Date, the Purchase Price shall be
paid by the Issuer to the Seller with a combination of net cash proceeds
received by the Issuer from the issuance and sale of one or more Series of
Notes, cash collections on the Purchased Receivables and to the extent the
Purchase Price exceeds such cash proceeds and cash collections, increases to
the value of the Certificate of Beneficial Interest.
(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, to the
bank account designated in writing by the Seller to the Issuer and
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(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 or
any successor publication thereto or, if The Wall Street Journal is not then
published, as reported in any similar publication with national circulation 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.
Section 2.05. Adjustments for Ineligible Receivables. In the event of
a breach of (i) the representation and warranty set forth in subsection 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, or (ii) the representations and warranties
set forth in subsection 4.03(b) through 4.03(o), and such breach has a material
adverse effect on the Noteholders, unless cured within 60 days of receipt of
notice by the Seller or Servicer, or (iii) the Seller shall fail to deliver on
or before the January 2000 Payment Date and the Payment Date in each July and
January thereafter an Opinion of Counsel with respect to the perfection of the
transfer of Receivables in Eligible Accounts designated to the Issuer during
the six month period preceding such month (or in the case of the first such
period, since the Closing Date), substantially similar to the perfection
opinions delivered to the Rating Agency on the Closing Date, 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 (which, in the case of clause (iii), consists of all
Receivables in Eligible Accounts designated during the period referred to
therein) and the Servicer shall deduct the outstanding principal amount of such
Receivables from the aggregate balance of Principal Receivables. In the event
such reduction would cause the Issuer Amount to be less than the Required
Issuer Amount, on the date of such reduction the Seller shall make a deposit
(the "Transfer Deposit Amount") to the Collection Account in immediately
available funds in an amount equal to the amount by which the Issuer Amount
would otherwise be reduced below the Required Issuer 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 Servicer or 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"); provided, however,
that Credit Adjustments may not be utilized for the intended purpose of
mitigating losses to the Trust. Each Credit Return and Credit Adjustment
(including any Credit Adjustment required by any Requirement of Law) shall be
made by the Servicer or 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 or Seller shall deduct the Return Amount from the
aggregate balance of Principal Receivables outstanding on such Date of
Processing. To the extent such
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reduction reduces the Issuer Amount below the Required Issuer 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), the Seller shall deposit a
cash amount equal to such deficiency into the Collection 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. [Reserved].
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 Affiliate of Zale Corporation
may sell, directly or indirectly, its Receivables hereunder to the Issuer if
the Rating Agency Condition is satisfied with respect to such addition. Zale
Corporation or its Affiliate that proposes 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 Affiliate as a seller of
Receivables. Once such notice has been given, any addition of an Affiliate of
Zale Corporation 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),
provided that (i) the Rating Agency Condition has been satisfied and (ii) such
Affiliate 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 to effect such addition.
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Section 2.11 Addition of Participation Interests.
(a) The Seller may (but shall not be required to) convey to the Issuer
participations (including 100% participations) representing undivided interests
in a pool of assets primarily consisting of revolving credit card receivables,
consumer loan receivables (secured and unsecured), charge card receivables, and
any interests in any of the foregoing, including securities representing or
backed by such receivables, and other self-liquidating financial assets
including any "Eligible Assets" as such term is defined in Rule 3a-7 (or any
successor to such Rule) under the Investment Company Act and collections,
together with all earnings, revenue, dividends, distributions, income, issues
and profits thereon ("Participation Interests"). Receivables shall not be
treated as a Participation Interest for purposes of this Agreement. The addition
of Participation Interests in the Trust shall be effected by a Participation
Interest Supplement, dated the applicable addition date and entered into
pursuant to Subsection 13.01(a) of the Indenture.
(b) Any Participation Interests designated to be conveyed to the
Issuer pursuant to clause (a) above may only be so included if each Rating
Agency shall have notified the Issuer, the Servicer and the Indenture Trustee
in writing that such addition will not result in a reduction or withdrawal of
the then existing rating of any outstanding Series or Class.
Section 2.12. Removal of Accounts and Participation Interests;
Termination of Automatic Addition of Accounts.
(a) On any day of any Settlement Period, the Seller shall have the
right to require the reassignment to it or its designee of all the Trust's
right, title and interest in, to and under the Receivables then existing and
thereafter created, all monies due or to become due and all amounts received
thereafter with respect thereto and all proceeds thereof in or with respect to
the Accounts (the "Removed Accounts") or Participation Interests (the "Removed
Participation Interests") (unless otherwise set forth in the applicable
Participation Interest Supplement or Indenture Supplement) and designated for
removal by the Seller, upon satisfaction of the conditions set forth in clauses
(i) through (v) below; provided, however, that the conditions listed in clauses
(iv), (v), (vi) and (vii) below need not be satisfied if the Removed Accounts
relate to a terminated affinity agreement and the related merchant or
co-branding participant has elected to purchase the Receivables in such Removed
Accounts:
(i) on or before the eighth Business Day immediately preceding the
Removal Date, the Seller shall have given written notice to the Indenture
Trustee, the Servicer, the Issuer, the Rating Agency and each Series
Enhancer (unless such notice requirement is otherwise waived) of such
removal and specifying the date for removal of the Removed Accounts and
Removed Participation Interests (the "Removal Date");
(ii) on or prior to the date that is five Business Days on or before
the Removal Date, the Seller shall deliver to the Indenture Trustee a
computer file or microfiche list (in a format compatible with the
Indenture Trustee's systems) containing a true and complete list of the
Removed Accounts specifying for each such Account, as of the date notice
of the Removal Date is given, its account number, the aggregate amount
outstanding in such Account and the aggregate amount of Principal
Receivables outstanding in such Account;
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(iii) the Seller shall have represented and warranted to the
Indenture Trustee, as of the Removal Date, that the list of Removed
Accounts delivered pursuant to paragraph (ii) above, as of the Removal
Date, is true and complete in all material respects;
(iv) the Rating Agency Condition shall have been satisfied with
respect to the removal of the Removed Accounts and Removed Participation
Interests;
(v) the Seller shall have delivered to the Indenture Trustee an
Officer's Certificate, dated the Removal Date, to the effect that the
Seller reasonably believes that (A) such removal will not have an Adverse
Effect, (B) such removal will not result in the occurrence of an Early
Amortization Event, (C) no selection procedures believed by such Seller to
be materially adverse to the interests of the Noteholders have been used
in selecting the Removed Accounts and (D) all conditions precedent to the
removal of the Removed Accounts have been complied with;
(vi) all Removed Accounts shall be purchased by the Seller at fair
market value; and
(vii) the Seller shall not utilize a selection procedure solely
intended to include a disproportionately higher level of Defaulted
Receivables in the Removed Accounts than exist in the Accounts and shall
not remove such Accounts for the intended purpose of mitigating losses to
the Trust.
Upon satisfaction of the above conditions, the Indenture Trustee shall
execute and deliver to such Issuer a written reassignment in substantially the
form of Exhibit D (the "Reassignment") and shall, without further action, be
deemed to transfer, assign, set over and otherwise convey to such Issuer or its
designee, effective as of the Removal Date, without recourse, representation or
warranty, all the right, title and interest of the Trust in and to the
Receivables arising in the Removed Accounts and Removed Participation
Interests, all monies due and to become due and all amounts received with
respect thereto and all proceeds thereof and any Insurance Proceeds relating
thereto. The Indenture Trustee may conclusively rely on the Officer's
Certificate delivered pursuant to this Section 2.12 and shall have no duty to
make inquiries with regard to the matters set forth therein and shall incur no
liability in so relying. Further, the Issuer shall deliver to the Indenture
Trustee, and the Indenture Trustee shall execute, copies of UCC termination
statements and any other documents, if any, required to release the security
interest in the Removed Accounts, and the Issuer shall file such financing
statements in the appropriate jurisdictions on the Removal Date.
In addition to the foregoing, on the date when any Receivable in an
Account becomes a Defaulted Receivable, the Issuer shall automatically and
without further action or consideration be deemed to transfer, set over and
otherwise convey to the Seller with respect to such Account, without recourse,
representation or warranty, all right, title and interest of the Trust in and
to the Defaulted Receivables in such Account, all monies due or to become due
with respect thereto, all proceeds thereof and any Insurance Proceeds relating
thereto; provided, that Recoveries of such Account shall be applied as provided
herein.
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(b) Anything to the contrary herein notwithstanding, the Seller shall
be entitled to purchase all Receivables in Accounts designated for purchase or
re-purchase by a merchant or co-branding participant pursuant to the
termination of an affinity agreement to which such merchant or co-branding
participant is a party; provided, however, that the Issuer shall use its best
efforts to ensure that any such removal shall not result in the occurrence of
an Early Amortization Event hereunder. Any repurchase of Receivables pursuant
to this Subsection 2.12(b) shall be effected in the manner, and at a price
determined in accordance with Section 2.05 as if the Receivables being
repurchased were Ineligible Receivables. Further, the Issuer shall deliver to
the Indenture Trustee, and the Indenture Trustee shall execute, copies of UCC
termination statements and any other documents, if any, required to release the
security interest in the Removed Accounts, and the Issuer shall file such
financing statements in the appropriate jurisdictions on the Removal Date.
Amounts deposited in the Collection Account in connection therewith shall be
deemed to be Collections of Principal Receivables and shall be applied in
accordance with Article IV of the Indenture and the terms of each Indenture
Supplement.
(c) On any day of any Settlement Period, the Seller shall have the
right to terminate its obligation to transfer all or less than all newly
originated Eligible Accounts to the Issuer (such date, the "New Account
Termination Date"), upon satisfaction of the conditions set forth in clauses
(i) through (iv) below:
(i) on or before the eighth Business Day immediately preceding the
New Account Termination Date, the Seller shall have given written notice
to the Indenture Trustee, the Servicer, the Issuer, the Rating Agency and
each Series Enhancer (unless such notice requirement is otherwise waived)
of such termination and specifying the New Account Termination Date;
(ii) on or prior to the date that is five Business Days on or before
the New Account Termination Date, such Transferor shall deliver to the
Indenture Trustee a written notice specifying the New Account Termination
Date;
(iii) the Rating Agency Condition shall have been satisfied with
respect to the termination of such obligation; and
(iv) the Seller shall have delivered to the Indenture Trustee an
Officer's Certificate, dated the New Account Termination Date, to the
effect that the Seller reasonably believes that (A) such termination will
not have an Adverse Effect, (B) such termination will not result in the
occurrence of an Early Amortization Event, and (C) if such termination
relates to less than all newly originated Eligible Accounts, no selection
procedures believed by the Seller to be materially adverse to the
interests of the Noteholders have been used in selecting such Accounts.
(d) Standard & Poor's consent shall be required to the designation,
subsequent to the Closing Date, of Eligible Accounts to the Issuer if the
number of such Accounts either (x) with respect to any three consecutive months
commencing in January, April, July and October of each calendar year commencing
in July 1999 equal or exceed 15% of the number of Accounts as of the first day
of the calendar year during which such periods commence (or the Cut-Off Date in
the case of 1999) or (y) with respect to any twelve-month period, equal or
exceed 20% of the
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number of accounts as of the first day of such twelve-month period (the
"Aggregate Addition Limit"). Within ten Business Days of exceeding the
Aggregate Addition Limit, the Seller or Servicer shall provide written
notification of such event to Standard & Poor's. Upon receipt of such notice,
Standard & Poor's shall provide written notification as to (i) whether it
consents, and (ii) if it consents, such higher Aggregate Addition Limit to
which it consents for such period.
Section 2.13. Discount Option.
(a) Subject to the satisfaction of any conditions set forth in any
related Indenture Supplement, the Seller shall have the option to designate at
any time and from time to time a percentage or percentages, which may be a
fixed percentage or a variable percentage based on a formula (the "Discount
Percentage"), of all or any specified portion of Principal Receivables created
after the Discount Option Date to be treated as Finance Charge Receivables
("Discount Option Receivables"). The initial Discount Percentage shall be 6%
and the initial Discount Option Date shall be the Initial Issuance Date. The
Seller shall also have the option of increasing, reducing or withdrawing the
Discount Percentage, at any time and from time to time, on and after such
Discount Option Date, subject to the satisfaction of any conditions set forth
in any related Indenture Supplement.
(b) After any Discount Option Date, Discount Option Receivable
Collections shall be treated as Collections of Finance Charge Receivables.
Section 2.14. Premium Option.
(a) Subject to the satisfaction of any conditions set forth in any
related Indenture Supplement, the Seller shall have the option to designate at
any time and from time to time a percentage or percentages, which may be a
fixed percentage or a variable percentage based on a formula (the "Premium
Percentage"), of all or any specified portion of Finance Charge Receivables
created after the Premium Option Date to be treated as Principal Receivables
("Premium Option Receivables"). The Seller shall also have the option of
reducing or withdrawing the Premium Percentage, at any time and from time to
time, on and after such Premium Option Date, subject to the satisfaction of any
conditions set forth in any related Indenture Supplement.
(b) After any Premium Option Date, Premium Option Receivable
Collections shall be treated as Collections of Principal Receivables.
Section 2.15. Account Allocations.
In the event that the Seller is unable for any reason to transfer
Receivables to the Trust in accordance with the provisions of this Agreement,
(a) the Seller and the Servicer agree to allocate and pay to the Trust, after
the date of such inability, all Collections, including Collections of
Receivables transferred to the Trust prior to the occurrence of such event, and
all amounts which would have constituted Collections but for the Seller's
inability to transfer Receivables (up to an aggregate amount equal to the
amount of Receivables transferred to the Trust by the Seller in the Trust on
such date), (b) the Seller and the Servicer agree that such amounts will be
applied as Collections in accordance with Article IV of the Indenture and the
terms of each Indenture Supplement and (c) for so long as the allocation and
application of all
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collections and all amounts that would have constituted Collections are made in
accordance with clauses (a) and (b) above, Principal Receivables and all
amounts which would have constituted Principal Receivables but for the Seller's
inability to transfer Receivables to the Trust which are written off as
uncollectible in accordance with this Agreement shall continue to be allocated
in accordance with Article IV of the Indenture and the terms of each Indenture
Supplement. For the purpose of the immediately preceding sentence, the Seller
and the Servicer shall treat the first received Collections with respect to the
Accounts as allocable to the Trust until the Trust shall have been allocated
and paid Collections in an amount equal to the aggregate amount of Principal
Receivables in the Trust as of the date of the occurrence of such event. If the
Seller and the Servicer are unable pursuant to any Requirement of Law to
allocate Collections as described above, the Seller and the Servicer agree
that, after the occurrence of such event, payments on each Account with respect
to the principal balance of such Account shall be allocated first to the oldest
principal balance of such Account and shall have such payments applied as
Collections in accordance with Article IV of the Indenture and the terms of
each Indenture Supplement. The parties hereto agree that Finance Charges,
wherever created, accrued in respect of Principal Receivables which have been
conveyed to the Trust shall continue to be a part of the Trust notwithstanding
any cessation of the transfer of additional Principal Receivables to the Trust
and Collections with respect thereto shall continue to be allocated and paid in
accordance with Article IV of the Indenture and the terms of each Indenture
Supplement.
Section 2.16. Assumption of JNB's Obligations as Owner of the
Accounts. Notwithstanding the provisions of Section 6.12, JNB may assign,
convey or transfer all of its right, title and interest in, to and under the
Accounts in which it has an interest (collectively, the "Assigned Assets"),
together with all servicing functions and other obligations, if any, under this
Agreement or relating to the transactions contemplated hereby (collectively,
the "Assumed Obligations"), to another entity (the "Assuming Entity") which may
be an entity that is not affiliated with JNB, and JNB may assign, convey and
transfer the Assigned Assets and the Assumed Obligations to the Assuming
Entity, without the consent or approval of the holders of any Notes, upon
satisfaction of the following conditions:
(a) the Assuming Entity, JNB and the Indenture Trustee shall have
entered into a supplement to this Purchase and Servicing Agreement or an
assumption agreement (either, the "Assumption Agreement") providing for the
Assuming Entity to assume the Assumed Obligations, including the obligation
under this Agreement to transfer the Receivables arising under the Accounts and
the Receivables arising under any Additional Accounts to the Trust, and such
Transferor shall have delivered to the Indenture Trustee an Officer's
Certificate and an Opinion of Counsel each stating that such transfer and
assumption comply with this Section 2.16, that such Assumption Agreement is a
valid and binding obligation of such Assuming Entity enforceable against such
Assuming Entity in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
receivership, conservatorship or other similar laws affecting creditors' rights
generally from time to time in effect and except as such enforceability may be
limited by general principles of equity (whether considered in a suit at law or
in equity), and that all conditions precedent herein provided for relating to
such transaction have been complied with;
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(b) all UCC filings required to perfect the interest of the Indenture
Trustee, on behalf of the Trust, in the Receivables to be conveyed by the
Assuming Entity shall have been duly made and copies thereof shall have been
delivered to the Indenture Trustee;
(c) JNB shall have delivered copies of each such written notice to the
Servicer and the Indenture Trustee and the Rating Agency Condition shall have
been satisfied; and
(d) the Indenture Trustee shall have received one or more Opinions of
Counsel to the effect that (i) the transfer of such Receivables by the Assuming
Entity shall constitute either a sale of, or the granting of a security
interest in, such Receivables by the Assuming Entity to the Trust, (ii) the
condition specified in paragraph (b) shall have been satisfied, and (iii) if
the Assuming Entity shall be subject to the FDIA, the interest of the Trust in
such Receivables should not be subject to avoidance by the FDIC if the FDIC
were to become the receiver or conservator of the Assuming Entity.
Notwithstanding such assumption, JNB shall continue to be liable for
all representations and warranties and covenants made by it and all obligations
performed or to be performed by it in its capacity as Owner of the Accounts
prior to such transfer.
ARTICLE III
CONDITIONS TO PURCHASES OF RECEIVABLES
Section 3.01. [Reserved].
Section 3.02. Conditions Precedent to the Issuer's Purchases of
Receivables. The obligation of the Issuer to purchase each Receivable on each
Purchase Date from the Seller shall be subject to the following conditions
precedent:
(a) The following statement shall be true (and delivery by the Seller
or the Servicer of the Daily Report and the acceptance by the Seller 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 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 Cut-Off
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 satisfactory in
order to permit the identification, purchase, administration and collection of
the
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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 in connection with the purchase
and sale of Receivables hereunder.
(e) The Seller and the Servicer shall have complied in all material
respects with their respective covenants and obligations under this Agreement
required to be complied with as of such date.
Section 3.03. [Reserved].
Section 3.04. Conditions Precedent to the Seller's Obligations on
Purchase Dates. The obligations of the Seller on any 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 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 and the Servicer represents and warrants as to itself, as
follows:
(a) Organization and Good Standing. (1) (i) the Seller 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 and (ii) the Servicer is a
national banking association duly organized and validly existing in good
standing under the laws of the United States, (2) the Seller and the Servicer
each have 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) the Seller and the Servicer each have 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
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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 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) 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 breach or default 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 (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 and (4) do not require compliance on its part with
any bulk sales act or similar law.
(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 and the rights of
creditors of national banking associations from time to time in effect.
(d) No Proceedings. 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 in any material respect 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
and the Servicer. Each of the Seller 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 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
material 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.
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(b) Location of Office and Records. The chief place of business and
chief executive office of the Seller is located at 901 West Walnut Hill Lane,
Irving, Texas 75038; and the offices where the Seller keeps all its 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 stores. The chief place of business and chief executive
office of JNB and the offices where JNB keeps all its original books, records
and documents evidencing the Purchased Receivables is located at 2035 West 4th
Street, Tempe, Arizona 85281. The respective locations set forth in this
subsection (b) for the Seller and JNB 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 the Seller or
Servicer 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 collection of the
Purchased Receivables by the Indenture Trustee in accordance with the terms of
such Receivables, without the participation of the Seller, 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.
(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, the Collection 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 or the
Servicer, other than (i) such as have been made or obtained and are in full
force and effect and (ii) such actions, authorizations, qualifications,
licenses, permits, consents, approvals, registrations or filings for which the
failure to make or obtain would not have a material adverse effect to the
rights and remedies of the Indenture Trustee or Noteholders of any Series under
any Transaction Documents.
(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.
The Seller additionally represents and warrants as follows:
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(a) Eligible Receivables. As of the Purchase Date with respect to each
Purchased 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 each Purchase Date, 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 to the Issuer, the Issuer will
become the sole legal and 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 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
Corporation and its consolidated subsidiaries for the fiscal year ended July
31, 1998.
(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. As of the date of this Agreement, no
material adverse change in the business, assets, operations or condition
(financial or otherwise) of Zale Corporation and its subsidiaries taken as a
whole has occurred from that set forth in Zale Corporation's audited
consolidated financial statements for the fiscal year ended July 31, 1998.
(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 or microfiche list listing all of the Purchased
Accounts was true and correct in all material respects as of the Initial
Issuance Date.
(h) Account Schedule. Schedule III to this Agreement sets forth all
Accounts as of the Initial Issuance Date.
(i) Valid Transfer and Assignment. The transfer of Receivables by the
Seller to the Issuer under this Agreement constitutes a valid transfer and
assignment to the Issuer of all right, title and interest of the Seller 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).
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(j) Return Policy. The Seller currently has a 30-day return policy.
The Seller shall notify the Rating Agencies of any material change in such
policy no later than seven Business Days prior to such change.
(k) Valid Reasons for Sale. It has valid business reasons for selling
its interests in the Purchased Receivables rather than obtaining a loan with
such Receivables as collateral.
(l) Receivables Not Satisfied, Etc. Each Purchased Receivable has not
been satisfied, subordinated or rescinded and no material provision of such
Receivable has been waived, altered or modified in any respect.
(m) No Fraudulent Transfer. No purchase of an interest in any
Purchased 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.
(n) Chattel Paper. With respect to any document constituting "chattel
paper", only one original of any such document exists.
(o) Receivables Not To Be Evidenced by Promissory Notes or
Instruments. Except in connection with its enforcement or collection of an
Account, the Seller or Servicer will take no action to cause any Receivable
conveyed by it to the Trust to be evidenced by any promissory note or
instrument (as defined in the UCC).
Section 4.04. Representations and Warranties of the Issuer. The Issuer
represents and warrants to the Seller and the Servicer as follows:
(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 an 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 Issuer and (2) will not (A)
violate (i) any material provision of law, statute, rule or regulation, which
violation would have an Adverse Effect, (ii) any provision of the Trust
Agreement, (iii) any order of any Governmental Authority, which violation would
have an Adverse Effect 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 an 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 an Adverse
Effect or (C) result in the creation or imposition of any
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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 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 an 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 Corporation, the consolidated Balance Sheet and related
Statements of Income and Cash Flows of Zale Corporation and its consolidated
subsidiaries, showing the financial condition of Zale Corporation and its
consolidated subsidiaries as of the close of such fiscal year and the results
of the operations of Zale Corporation and its consolidated subsidiaries during
such year, all audited by Arthur Andersen LLP 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 Corporation, (A) the unaudited
consolidated Balance Sheet and related Statement of Income and Cash Flows of
Zale Corporation and its consolidated subsidiaries, showing the financial
condition of Zale Corporation and its consolidated subsidiaries as of the close
of such fiscal quarter and the results of the operations of Zale Corporation
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 Corporation certifying that such financial statements fairly
present in all material respects the financial condition and results of
operations of Zale Corporation and its consolidated subsidiaries on a
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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 Corporation (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 end
of the first fiscal month following the Initial Issuance Date, (A) the
unaudited consolidated Balance Sheet and related Statements of Income and Cash
Flows of Zale Corporation and its consolidated subsidiaries, showing the
financial condition of Zale Corporation and its consolidated subsidiaries as of
the close of such fiscal month and the results of the operations of Zale
Corporation and its consolidated subsidiaries during such fiscal month and the
then elapsed portion of the fiscal year of Zale Corporation and (B) a
certificate of a Financial Officer of Zale Corporation certifying that such
financial statements fairly present in all material respects the financial
condition and results of operations of Zale Corporation 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 an Adverse
Effect.
(c) Preservation of 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 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 and
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
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transfer, identification, 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 (other than the Credit Card Agreements and substantially all charge
slips for each Account) at the addresses specified in subsection 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 subsection 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 or any off-site storage facility maintained by the
Servicer or Seller.
(g) Computer Files. The Seller shall direct the Servicer to, and the
Servicer shall, at its own cost and expense, 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 custodian for the Issuer and
the Indenture Trustee and other Persons with interests in the Purchased
Receivables. The Seller and the Servicer shall indicate in the appropriate
computer files by an identifiable code all Accounts the Receivables of which
have been conveyed to the Issuer. If the Seller or the Servicer at any time
alters the code by which Purchased Accounts have been so designated, the Seller
or the Servicer shall be obligated to indicate the revised code to the
Indenture Trustee in a written statement to accompany the Monthly Settlement
Statement due on the Determination Date immediately following the alteration of
such code.
(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 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 and to each Rating Agency 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 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 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 JNB is not the Servicer, JNB shall provide the
Servicer with such information as may be required by the Servicer to furnish)
the Seller, the Issuer, and 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
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Receivables 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, 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, in any material
respect, the rights of the Issuer in the Purchased Receivables or under the
underlying 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
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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
and 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 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 and the Servicer 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 and to be sold to the Issuer hereunder (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. JNB shall (1)
maintain its facilities from which it services the Purchased Receivables in
substantially its present condition, ordinary wear and tear excepted, or in
better condition, or such other facility of similar quality, security and
safety as JNB may select from time to time, (2) make all property tax payments,
lease payments and all other payments with respect to such facility, including
any indebtedness secured by such facility, whether JNB 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 JNB'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 ARCUS, 7430 Whitehall Street,
Richland Hills, Texas 76118, or such other storage facility of similar quality,
security and safety as JNB 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 of the principal and interest of the
Notes of all Series payable in
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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 JNB.
(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 in
all material respects 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 substantively
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 or contemplated by 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
provision hereof 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 (other than the Purchased Receivables) 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 Initial Issuance
Date that 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) 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.
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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 JNB as Servicer of the
Purchased Receivables. JNB 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) except as otherwise provided in the Transaction Documents, 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, with respect to any Series, performing any other services required
pursuant to the related Indenture Supplement. Although physical possession of
the agreements, documents and files relating to the Receivables may 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 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. In the ordinary course of business, the Servicer
may at any time delegate or subcontract 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 or subcontract 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) from any funds available for such payment, the Monthly Servicing Fee
payable with respect to each Series, pursuant to the applicable Indenture
Supplement and (ii) from the Issuer, an amount equal to one-twelfth of the
Servicing
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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 independent
accountants, fees and expenses incurred in collecting Purchased Receivables and
generating Recoveries, and all 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 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
Collection 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 of such activity for
the preceding Business Day and such non-Business Days). 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 not produced 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 missed 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 material 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 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. With respect to each Series, 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 and each
Rating Agency, the Monthly Settlement Statement for the related Settlement
Period, 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
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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 September 30 of each year (commencing September
30, 2000), cause either Arthur Andersen LLP, PricewaterhouseCoopers LLP,
Deloitte Touche Tohmatsu, Ernst & Young LLP or KPMG LLP (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 July 31 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 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 September 30 of each year (beginning
September 30, 2000) a certificate signed by a Financial Officer of the Servicer
stating that (1) a review of its activities relating to the servicing of the
Accounts during the prior year ending July 31 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 material 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 Initial
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
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to be transferred, such Mail Payments to the Collection 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
Seller or the Servicer and (B) deposited in the 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 and (2) no
later than two local (with respect to the location of the applicable Local
Store Bank Account) business days following such initial receipt by such store,
transfer, or cause to be transferred, such Store Payments to the Collection
Account (excluding, with certain exceptions, certain portions thereof allocable
to the Seller).
(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 Collection 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.
(e) Waiver of Set-off. The Seller and the Servicer irrevocably waive
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 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
Collection Deposit Accounts.
Section 6.05. Allocations and Applications of Collections. Collections
deposited into the Collection Account shall be allocated, transferred and
distributed in accordance with the Indenture.
Section 6.06. Maintenance of Property; Insurance. The Servicer shall
(1) maintain all property and assets necessary to its business as Servicer in
good working order and condition (normal wear and tear excepted), (2) furnish
to the Issuer such information as may be reasonably requested by the Issuer as
to the insurance carried by the Servicer with respect to its
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business, (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) promptly, furnish the
Issuer with notice of any cancellation or nonrenewal of such insurance
coverage, (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, all relevant 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 of the Servicer
to so maintain such property and assets would not have an Adverse Effect.
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 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, 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
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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, 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 either (i) upon a
determination that the performance of its duties hereunder is no longer
permissible under applicable law or (ii) upon satisfaction of the Rating Agency
Condition. Any such determination permitting the resignation of the Servicer
pursuant to clause (i) of the immediately preceding sentence shall be evidenced
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 this Section 6.10 of this Agreement.
(b) Servicer Default. Any of the following events shall constitute a
"Servicer Default":
(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 Indenture Supplement and the continuation of such
failure for five Business Days after it became aware or should have become
aware of such failure;
(ii) failure on the part of the Servicer duly to observe or perform
in any respect any other covenants or agreements of the Servicer hereunder
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 hereunder;
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(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(a)(i) or (ii)
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
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 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 the 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, or if no such direction is received the Indenture Trustee may
appoint an Eligible Servicer as 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, execute and deliver, on behalf of the predecessor Servicer as
attorney-in-fact or otherwise, all documents and other instruments upon
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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 authority,
power and obligations of the Servicer under this Agreement shall pass to and be
vested in the Indenture Trustee. As compensation therefor, the Indenture
Trustee shall be entitled to such compensation as the Servicer would have been
entitled to under this Agreement if no such notice of termination or
resignation had been given. The Successor Servicer shall not be liable in any
respect for any duties, responsibilities, obligations or liabilities of any
predecessor Servicer except as set forth in this Section. In the event the
Indenture Trustee becomes the Successor Servicer, the prior Servicer must agree
to indemnify the Indenture Trustee against any claims or expenses arising out
of such prior servicing performance. 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, but in no event less than an amount equal
to the Invested Amount on the date of such purchase plus all interest accrued
but unpaid on all of the outstanding Notes at the applicable interest rate
through the date of such purchase; provided, however, that no such purchase by
the Seller shall occur unless the Seller shall deliver to the Indenture Trustee
and each Rating Agency an Opinion of Counsel reasonably acceptable to the
Indenture Trustee that such purchase would not constitute a fraudulent
conveyance of the Seller. The proceeds of such sale shall be deposited in the
Collection Account for distribution to the holders of each outstanding Series
of Notes. Notwithstanding the above, the Indenture Trustee shall, if it is
legally unable so to act, petition a court of competent jurisdiction to appoint
any established financial institution qualifying as an Eligible Servicer as the
Successor Servicer hereunder.
(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
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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
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.
Section 6.12. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer. The Servicer shall not consolidate with or merge
into any other corporation or convey or transfer its properties and assets
substantially as an entirety to any Person, unless:
(i) the corporation formed by such consolidation or into which the
Servicer is merged or the Person which acquires by conveyance or transfer
the properties and assets of the Servicer substantially as an entirety
shall be a corporation organized and existing under the laws of the United
States of America or any State or the District of Columbia, or shall be a
state or national banking association or other entity which is not subject
to the bankruptcy laws of the United States of America and, if the
Servicer is not the surviving entity, shall expressly assume, by an
agreement supplemental hereto, executed and delivered to the Indenture
Trustee in form satisfactory to the Indenture Trustee, the performance of
every covenant and obligation of the Servicer hereunder (to the extent
that any right, covenant or obligation of the Servicer, as applicable
hereunder, is inapplicable to the successor entity, such successor entity
shall be subject to such
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<PAGE> 32
covenant or obligation, or benefit from such right, as would apply, to the
extent practicable, to such successor entity);
(ii) the Servicer shall have delivered to the Indenture Trustee an
Officer's Certificate that such consolidation, merger, conveyance or
transfer and such supplemental agreement complies with this Section 6.12
and that all conditions precedent herein provided for relating to such
transaction have been complied with and an opinion of counsel that such
supplemental agreement is legal, valid and binding with respect to the
Servicer; and
(iii) the Servicer shall have delivered notice to the Rating Agency
of such consolidation, merger, conveyance or transfer;
provided, however, that the sale of Receivables by JNB to JCC shall not
constitute the conveyance or transfer of properties and assets substantially as
an entirety.
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;
and (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
(c) The Seller hereby irrevocably authorizes the Issuer and its
designee or assignees to take any and all steps in the Seller's name and on the
Seller'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
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<PAGE> 33
representing Collections, enforcing the Purchased Receivables and the
underlying Credit Card Agreements and exercising all rights and remedies in
respect thereof.
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Indemnification
(a) In accordance with subsections (b) or (c) below, the Seller or 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 acts or omissions of
the Seller or the Servicer in performing its duties hereunder; provided,
however, that the Seller or 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, the Seller
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 "Seller Indemnified Amounts") and all Seller
Indemnified Amounts relating to or resulting from:
(i) the sale of any Receivable of the Seller 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 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;
(iii) the failure by the Seller 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 to have filed, or any delay by the
Seller 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
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<PAGE> 34
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 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;
(x) the payment by the Issuer of any taxes owed by the Seller,
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 or the Seller or used by the Issuer or the Seller 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, the Seller shall not under any
circumstances indemnify the Issuer (or its designees or assignees) for any
Seller 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) Without limiting or being limited by the foregoing, 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 "Servicer Indemnified Amounts") and all
Servicer Indemnified Amounts relating to or resulting from:
(i) reliance on any written representation or warranty made or deemed
made by 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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<PAGE> 35
(ii) any failure of the Servicer to perform its duties or obligations
in all material respects under this Agreement, the Indenture and each
Credit Card Agreement;
(iii) 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;
(iv) any investigation, litigation or proceeding in respect of this
Agreement, any Purchased Receivable or any Credit Card Agreement;
(v) the payment by the Issuer of any taxes owed by 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 Servicer; or
(vi) any claim arising under any patent, trademark or license or any
interest therein (including without limitation any software license) owned
or used by the Servicer in connection with the Purchased Receivables.
Notwithstanding the foregoing, the Servicer shall not under any
circumstances indemnify the Issuer (or its designees or assignees) for any
Servicer 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 (ii) above.
(d) 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.
(e) Except as provided in Section 8.01(a), (b) and (c), none of the
Seller, the Servicer or any of their directors, officers, employees or agents
shall be under any other liability to the Indenture Trustee, the Issuer, 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, 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.
(f) 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.
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ARTICLE IX
INSOLVENCY EVENTS
Section 9.01. Rights upon the Occurrence of an Insolvency Event. If
the Seller shall consent or fail to object to the appointment of a bankruptcy
Indenture Trustee or conservator, receiver or liquidator in any bankruptcy
proceeding or other insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Seller of, or relating
to all or substantially all of the Seller's property, or the commencement of an
action seeking a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a bankruptcy
Indenture Trustee or conservator, receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up, insolvency, bankruptcy, reorganization,
conservatorship, receivership or liquidation of such entity's affairs, or
notwithstanding an objection by the Seller any such action shall have remained
undischarged or unstayed for a period of 60 days or upon entry of any order or
decree providing for such relief; or the Seller shall admit in writing its
inability to pay its debts generally as they become due, file, or consent or
fail to object (or object without dismissal of any such filing within 60 days
of such filing) to the filing of, a petition to take advantage of any
applicable bankruptcy, insolvency or reorganization, receivership or
conservatorship statute, make an assignment for the benefit of its creditors or
voluntarily suspend payment of its obligations (any such act or occurrence
being an "Insolvency Event"), the Seller shall, on the day any such Insolvency
Event occurs (the "Appointment Date"), immediately cease to transfer Principal
Receivables to the Issuer and shall promptly give notice to the Issuer and the
Indenture Trustee thereof. Notwithstanding any cessation of the transfer to the
Trust of additional Principal Receivables, Principal Receivables transferred to
the Trust prior to the occurrence of such Insolvency Event, Collections in
respect of such Principal Receivables and Finance Charge Receivables (whenever
created) accrued in respect of such Principal Receivables shall continue to be
a part of the Collateral and shall be allocated and distributed to Noteholders
in accordance with the terms of each Indenture Supplement.
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 Section 13.03 of the Indenture, the
Majority Noteholders have consented or agreed to consent thereto and the Rating
Agency Condition shall have been satisfied. 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 by overnight
courier, telegraphed, telexed, transmitted, telecopied or cabled:
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(a) If to the Issuer, to it at:
Zale Funding Trust
c/o Wilmington Trust Company, as Owner Trustee
Rodney Square North
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 (972) 580-4576
Telecopy (972) 580-5238
(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 (972) 580-4576
Telecopy (972) 580-5238
(c) If to JNB, to it at:
2035 West 4th Street
Tempe, Arizona 85281
Attention: President
Telephone (972) 580-4965
Telecopy (972) 580-4673
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with separate copies to:
General Counsel and Secretary
and
Treasurer, Finance Department
Zale Corporation
901 West Walnut Hill Lane
Irving, Texas 75038
Telephone (972) 580-4576
Telecopy (972) 580-5238
(d) If to Moody's, to it at:
99 Church Street
New York, New York 10007
Attention: ABS Monitoring Department
Telephone (212) 285-4082
Telecopy (212) 553-4600
(e) If to Standard & Poor's, to it at:
55 Water Street
New York, New York 10041
Attention: Asset Backed Group
Telephone (212) 438-2000
Telecopy (212) 412-0323
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 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 and the Servicer, and their
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respective successors and assigns (including without limitation the Indenture
Trustee), except that neither the Seller 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 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; 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 LAWS OF THE STATE OF NEW
YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS; AND OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE
WITH SUCH LAWS.
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, (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 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) and
(4) all fees, expenses and disbursements of the Indenture Trustee (including
the reasonable fees and expenses of its counsel).
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. To the extent so provided in any Indenture
Supplement, upon the occurrence and during the continuance of certain Early
Amortization Events specified in such Indenture Supplement, each of the Seller
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 I 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
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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.
Section 10.10. Acknowledgment of Assignment. Each of the Seller 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 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 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 of each Series it shall not (notwithstanding that the Seller or the
Servicer may at such time be holder of record or beneficial owner of any
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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 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
and the Owner Trustee, including in its individual capacity, 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 right, title and interest in, to and under the property set
forth in such Section 2.01, in each case and at all times shall be treated
under applicable law as a sale by the Seller 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 then the Seller 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
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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 or the Servicer and by any Person claiming
by, through or under the Seller 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.
Section 10.19. Duties of Owner Trustee. The Servicer shall monitor the
performance of the Issuer and the Owner Trustee and shall advise the Owner
Trustee in writing when action is necessary to comply with the Issuer's or the
Owner Trustee's duties under the Indenture and the Trust Agreement.
The Servicer shall prepare or shall cause to be prepared, all
documents, reports, filings, instruments, certificates and opinions as shall be
required to be prepared, filed or delivered by the Issuer or the Owner Trustee
pursuant to the Indenture, the Trust Agreement or this Agreement.
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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, 1999
By:/s/ JAMES P. LAWLER
----------------------------------------
Name:
Title:
ZALE DELAWARE, INC.
By:/s/ STEPHEN C. MASSANELLI
----------------------------------------
Name:
Title:
JEWELERS NATIONAL BANK
By:/s/ SUE E. GOVE
----------------------------------------
Name:
Title:
Agreed to and accepted:
THE BANK OF NEW YORK, not in its
individual capacity but solely as
Indenture Trustee
By:/s/ ERWIN SORIANO
---------------------------------
Name:
Title:
[Signature page - Purchase and Servicing Agreement]
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SCHEDULE I
TRADENAMES OF THE SELLER
A Bailey Banks & Biddle Jeweler
Advisory & Replacement Services
Aaron Rose
Argenzio Brothers
Bailey Banks & Biddle
Bohm-Allen
Boswell's of Vandevers
Brodnax
Corrigan's
Cowell & Hubbard
Daniel's
Daniel's Jewelers
Diamond Park
Diamond Park Fine Jewelers
Dobbins
D.P. Paul
Feder's
Fine Jewelers Guild
Gertzberg's
Gordon's
Gordon's Jewelers
Gordon's Joyeros
Granat Bros.
Hershberg's
Hertzberg's
Hess & Culbertson
Jaccard's
Jacobs
J. Herbert Hall
Jobe-Rose
Koerber & Barber
Lawton's
Levitts
Linz
L. Litwin & Design
Mindlin
Morgan's
Rider's
Rosenfields
Rosenzweig's
Rost
Slavick's
Stelfox
Stifft's
Stowell's
Sweeney's
Wagners
Wiss & Lambert
Wolf's
Wright-Kay
Zale
Zales
Zales Jewelers
Zales the Online Diamond Store
Zales the Diamond Store Outlet
Zell Brothers
43
<PAGE> 45
SCHEDULE III
P.O. Boxes
Zale Delaware, Inc.
(Zales, Bailey & Outlet) P.O. Box 78102 Phoenix, AZ 85062-8102
(Gordon's) P.O. Box 78101 Phoenix, AZ 85062-8101
Collection Deposit Accounts
Bank One, AZ 6010011963144
Collection Deposit Banks
Bank One, AZ Phoenix, AZ
Collection Account 708102
Interest Sub-Account 708103
Excess Funding Account 708104
Optional Redemption Account 708105
Concentration Accounts
First Union Philadelphia, PA 2100012953658
Bank Boston Boston, MA 551-49011
44
<PAGE> 46
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I DEFINITIONS................................................................................1
Section 1.01. Definitions........................................................................1
ARTICLE II PURCHASE OF RECEIVABLES; CONSIDERATION AND PAYMENT.........................................1
Section 2.01. Purchase of Receivables............................................................1
Section 2.02. Termination........................................................................2
Section 2.03. Purchase Price.....................................................................2
Section 2.04. Payments...........................................................................2
Section 2.05. Adjustments for Ineligible Receivables.............................................3
Section 2.06. Returns............................................................................3
Section 2.07. Finance Charges....................................................................4
Section 2.08. [Reserved].........................................................................4
Section 2.09. Recovery of Sales Tax..............................................................4
Section 2.10. Addition of Sellers................................................................4
Section 2.11. Addition of Participation Interests................................................5
Section 2.12. Removal of Accounts and Participation Interests; Termination of Automatic
Addition of Accounts...............................................................5
Section 2.13. Discount Option....................................................................8
Section 2.14. Premium Option.....................................................................8
Section 2.15. Account Allocations................................................................8
Section 2.16. Assumption of JNB's Obligations as Owner of the Accounts...........................9
ARTICLE III CONDITIONS TO PURCHASES OF RECEIVABLES....................................................10
Section 3.01. [Reserved]........................................................................10
Section 3.02. Conditions Precedent to the Issuer's Purchases of Receivables.....................10
Section 3.03. [Reserved]........................................................................11
Section 3.04. Conditions Precedent to the Seller's Obligations on Purchase Dates................11
ARTICLE IV REPRESENTATIONS AND WARRANTIES............................................................11
Section 4.01. Certain Representations and Warranties of the Parties.............................11
Section 4.02. Additional Representations and Warranties of the Seller and the Servicer..........12
Section 4.03. Additional Representations and Warranties of the Seller...........................13
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 4.04. Representations and Warranties of the Issuer......................................15
ARTICLE V COVENANTS.................................................................................16
Section 5.01. Affirmative Covenants of the Seller and Servicer..................................16
Section 5.02. Negative Covenants of the Seller and Servicer.....................................21
ARTICLE VI ADMINISTRATION AND SERVICING OF PURCHASED RECEIVABLES.....................................22
Section 6.01. Appointment of and Acceptance by the Servicer of Servicing Obligations............22
Section 6.02. Servicing Compensation............................................................22
Section 6.03. Reports and Statements............................................................23
Section 6.04. Collection Procedures.............................................................24
Section 6.05. Allocations and Applications of Collections.......................................25
Section 6.06. Maintenance of Property; Insurance................................................25
Section 6.07. Access to Certain Documentation Regarding the Purchased Receivables...............26
Section 6.08. Certain Responsibilities of the Servicer and the Seller...........................26
Section 6.09. Limitation on Liability of the Seller and Others..................................26
Section 6.10. Successor Servicer................................................................27
Section 6.11. Termination of Authority..........................................................30
Section 6.12. Merger or Consolidation of, or Assumption of the Obligations of, the
Servicer..........................................................................30
ARTICLE VII ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE PURCHASED RECEIVABLES.................31
Section 7.01. Collection of Receivables; Rights of the Issuer and its Assignees.................31
ARTICLE VIII INDEMNIFICATION...........................................................................32
Section 8.01. Indemnification...................................................................32
ARTICLE IX INSOLVENCY EVENTS.........................................................................35
Section 9.01. Rights upon the Occurrence of an Insolvency Event.................................35
ARTICLE X MISCELLANEOUS.............................................................................35
Section 10.01. Amendments, etc...................................................................35
Section 10.02. Notices, etc......................................................................35
Section 10.03. No Waiver; Cumulative Remedies....................................................37
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 10.04. Binding Effect....................................................................37
Section 10.05. GOVERNING LAW.....................................................................38
Section 10.06. Costs, Expenses and Taxes.........................................................38
Section 10.07. Headings..........................................................................38
Section 10.08. License...........................................................................38
Section 10.09. Merger or Consolidation...........................................................39
Section 10.10. Acknowledgment of Assignment......................................................39
Section 10.11. WAIVER OF JURY TRIAL..............................................................39
Section 10.12. Severability......................................................................39
Section 10.13. No Petition in Bankruptcy.........................................................39
Section 10.14. Counterparts......................................................................40
Section 10.15. Third Party Beneficiaries.........................................................40
Section 10.16. Jurisdiction; Consent to Service of Process.......................................40
Section 10.17. Confirmation of Intent............................................................40
Section 10.18. Limitation of Liability...........................................................40
Section 10.19. Duties of Owner Trustee...........................................................41
</TABLE>
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Exhibits
Exhibit A [Reserved]
Exhibit B [Reserved]
Exhibit C Form of Assignment
Exhibit D Form of Reassignment
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
-iv-
<PAGE> 1
EXHIBIT 10.1
EXECUTION COPY
-------------------------------------------------------------------------
CLASS A NOTE PURCHASE AGREEMENT
Dated as of July 15, 1999
among
ZALE FUNDING TRUST,
Issuer,
ZALE DELAWARE, INC.,
Seller,
JEWELERS NATIONAL BANK,
Servicer,
THE CLASS A PURCHASERS PARTIES HERETO,
CREDIT SUISSE FIRST BOSTON, NEW YORK BRANCH,
Administrative Agent and Agent,
and
THE OTHER AGENTS PARTIES HERETO
------------------------------
Relating to
Zale Funding Trust
Class A Floating Rate Asset Backed Variable Funding Notes
Series 1999-A
------------------------------
-------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS........................................................2
1.1 Definitions................................................2
1.2 Other Definitional Provisions.............................11
ARTICLE 2 AMOUNT AND TERMS OF COMMITMENTS....................................11
2.1 Purchases.................................................11
2.2 Reductions and Extensions of Commitments..................14
2.3 Interest, Fees, Expenses, Payments, Etc...................16
2.4 Requirements of Law.......................................20
2.5 Taxes.....................................................21
2.6 Indemnification...........................................23
ARTICLE 3 CONDITIONS PRECEDENT...............................................25
3.1 Condition to Initial Purchase.............................25
3.2 Condition to Additional Purchases.........................29
ARTICLE 4 REPRESENTATIONS AND WARRANTIES.....................................30
4.1 Representations and Warranties of Z Del...................30
4.2 Representations and Warranties of JNB.....................32
4.3 Representations and Warranties of the Issuer..............34
4.4 Representations and Warranties of the Class A Purchasers..36
ARTICLE 5 COVENANTS..........................................................36
5.1 Covenants of Z Del........................................37
ARTICLE 6 MUTUAL COVENANTS REGARDING CONFIDENTIALITY.........................40
6.1 Covenants of the Zale Parties.............................40
6.2 Covenants of Class A Purchasers...........................40
ARTICLE 7 THE AGENTS........................................................41
7.1 Appointment...............................................41
7.2 Delegation of Duties......................................41
7.3 Exculpatory Provisions....................................42
7.4 Reliance by Agents........................................42
7.5 Notices...................................................43
7.6 Non-Reliance on Agents and Other Class A Purchasers.......43
7.7 Indemnification...........................................44
7.8 Agents in their Individual Capacity.......................44
7.9 Successor Agents..........................................44
(i)
<PAGE> 3
ARTICLE 8 SECURITIES LAWS; TRANSFERS........................................45
8.1 Transfers of Class A Notes............................45
8.2 Tax Characterization..................................50
ARTICLE 9 MISCELLANEOUS.....................................................50
9.1 Amendments and Waivers................................50
9.2 Notices...............................................51
9.3 No Waiver; Cumulative Remedies........................53
9.4 Successors and Assigns................................53
9.5 Successors to Servicer................................53
9.6 Counterparts..........................................54
9.7 Severability..........................................54
9.8 Integration...........................................54
9.9 Governing Law.........................................54
9.10 Jurisdiction; Consent to Service of Process...........54
9.11 Termination...........................................55
9.12 Limited Recourse; No Proceedings......................55
9.13 Survival of Representations and Warranties............56
9.14 Waiver of Jury Trial..................................56
(ii)
<PAGE> 4
LIST OF EXHIBITS
EXHIBIT A Form of Investment Letter
EXHIBIT B Form of Transfer Supplement
EXHIBIT C Form of Joinder Supplement
(iii)
<PAGE> 5
CLASS A NOTE PURCHASE AGREEMENT, dated as of July 15, 1999, by
and among ZALE FUNDING TRUST, a Delaware business trust (together with its
successors and assigns, the "Issuer"), ZALE DELAWARE, INC., a Delaware
corporation ("Z Del"), individually and as Seller (as defined in the Indenture
referred to below), JEWELERS NATIONAL BANK, a national banking association
("JNB"), as Servicer (as defined in the Indenture referred to below), the CLASS
A PURCHASERS (as hereinafter defined) from time to time parties hereto, the
AGENTS for the Purchaser Groups from time to time parties hereto (each such
party, together with their respective successors in such capacity, an "Agent"),
and CREDIT SUISSE FIRST BOSTON, a Swiss banking corporation acting through its
New York Branch ("CSFB"), as administrative agent for the Class A Purchasers
(together with its successors in such capacity, the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Issuer, the Seller and the Servicer are parties
to a certain Purchase and Servicing Agreement, dated as of July 15, 1999 (as the
same may from time to time be amended or otherwise modified, the "Purchase and
Servicing Agreement"), pursuant to which, among other things, the Seller has
sold, assigned, transferred and conveyed, and has agreed to sell, assign,
transfer and convey, certain Receivables (as defined therein) to the Issuer, and
the Servicer has agreed to service such Receivables;
WHEREAS, the Issuer and The Bank of New York, as trustee
(together with its successors in such capacity, the "Indenture Trustee") are
parties to a certain Indenture, dated as of July 15, 1999 (as the same may from
time to time be amended or otherwise modified, the "Base Indenture"), providing
a receivables financing facility in connection with the Purchase and Servicing
Agreement and the other Transaction Documents (as defined in the Indenture);
WHEREAS, the Issuer proposes to issue its Class A Floating
Rate Asset Backed Variable Funding Notes, Series 1999-A (the "Class A Notes")
pursuant to the Indenture and a supplement thereto, dated as of July 15, 1999
(as the same may from time to time be amended or, otherwise modified, the
"Supplement" and the Base Indenture, as supplemented by the Supplement, the
"Indenture");
WHEREAS, the Issuer also proposes to issue its Class B Asset
Backed Notes, Series 1999-A (the "Class B Notes") pursuant to the Indenture,
which Class B Notes are subordinate to the Class A Notes and initially will be
retained by the Issuer;
WHEREAS, the Class A Purchasers are willing to purchase the
Class A Notes on the Closing Date and from time to time thereafter to purchase
Class A Note Principal Balance Increases (as defined in the Supplement) on the
terms and conditions provided for herein;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and adequacy
of which are hereby expressly acknowledged, the parties hereto agree as follows:
<PAGE> 6
ARTICLE 1 DEFINITIONS
1.1 Definitions. All capitalized terms used herein as defined terms
and not defined herein shall have the meanings given to them in the Indenture.
Each capitalized term defined herein shall relate only to the Series 1999-A and
to no other Series issued pursuant to the Indenture.
"Adjusted Commitment" shall mean on any date of determination, with
respect to a Liquidity Purchaser for a CP Conduit, such Liquidity Purchaser's
Commitment minus the aggregate outstanding principal amount of its Support
Advances to such CP Conduit.
"Adjusted Eurodollar Rate" shall mean, for any Interest Accrual
Period or portion thereof, a rate per annum (rounded upwards, if necessary, to
the nearest 1/100th of 1%) equivalent to the rate determined pursuant to the
following formula:
Adjusted Eurodollar Rate = LIBOR Rate
-----------------------------
1-LIBOR Reserve Percentage
on the first day of such Interest Accrual Period.
"Administrative Agent" has the meaning specified in the preamble to
this Agreement.
"Affected Party" shall mean, with respect to any CP Conduit, any
Support Party of such CP Conduit.
"Agreement" shall mean this Class A Note Purchase Agreement, as
amended, supplemented or otherwise modified from time to time.
"Alternative Rate" shall mean, for any Interest Accrual Period, an
interest rate per annum equal to the lesser of (i) 0.50% per annum above the
Adjusted Eurodollar Rate for such Interest Accrual Period, and (ii) the daily
average Prime Rate in effect during such Interest Accrual Period.
"Assignee" and "Assignment" have the respective meanings specified
in subsection 8.1(e) of this Agreement.
"Agent" has the meaning specified in the preamble to this Agreement.
"Class A Agent" has the meaning specified in Section 7.1 of this
Agreement.
"Class A Interest Rate" has the meaning specified in subsection
2.3(a) of this Agreement.
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<PAGE> 7
"Class A Mandatory Partial Amortization Amount" shall mean, (a)
with respect to a Partial Commitment Expiration Date other than the Step-Down
Date, (i) the aggregate Percentage Interest held by Class A Purchasers having
Commitments which expire on such date, times (ii) the Class A Invested Amount on
such date and (b) with respect to the Step-Down Date, the excess, if any, of (i)
the aggregate Percentage Interests of Class A Purchasers in the Initial
Purchaser Group times the Class A Invested Amount, over (ii) the aggregate
Commitments of Class A Purchasers in the Initial Purchaser Group(after giving
effect to reductions thereof on the Step-Down Date pursuant to subsection
2.2(b)).
"Class A Monthly Interest" shall mean, for any Interest Accrual
Period, the sum of (i) interest on the Class A Principal Balance for such
Interest Accrual Period computed pursuant to subsections 2.3(a) or 2.3(b), as
applicable, of this Agreement, plus or minus (as the case may be) (ii) any
Estimated Interest Adjustment for the immediately preceding Interest Accrual
Period.
"Class A Notes" has the meaning specified in the recitals to this
Agreement.
"Class A Owners" shall mean the Class A Purchasers that are
owners of record of the Class A Notes or, with respect to any Class A Note held
by an Agent hereunder as nominee on behalf of Class A Purchasers in a Purchaser
Group, the Class A Purchasers that are owners of the Class A Noteholders'
Interest represented by such Class A Note as reflected on the books of such
Agent in accordance with this Agreement.
"Class A Principal Balance" shall mean, on any date of
determination, an amount equal to (i) the Class A Initial Invested Amount, plus
(ii) the aggregate amount of Class A Note Principal Balance Increases made on or
prior to such date, minus (iii) the aggregate amount of principal payments made
to the Class A Owners prior to such date.
"Class A Program Commitment Fee" shall mean, with respect to a
Purchaser Group, the ongoing program fees payable to Class A Purchasers in such
Purchaser Group in respect of the unutilized portion of the aggregate
Commitments of such Class A Purchasers, in the amounts and on the dates set
forth in the Supplemental Fee Letter for such Purchaser Group.
"Class A Program Utilization Fee Rate" shall mean, with respect
to a Purchaser Group, the applicable rate or rates identified as the "Class A
Program Utilization Fee Rate" in the Supplemental Fee Letter for such Purchaser
Group.
"Class A Purchase Limit" shall mean, for any day, the lesser of
(i) $350,000,000 and (ii) the Total Commitment on such day.
"Class A Purchasers" shall mean, collectively, the CP Conduits,
the Liquidity Purchasers and the Committed Purchasers.
"Class B Notes" has the meaning specified in the recitals to this
Agreement.
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<PAGE> 8
"Closing Date" shall mean July 15, 1999.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commercial Paper Notes" shall mean, with respect to a CP
Conduit, the short-term promissory notes issued by such CP Conduit which are
allocated by such CP Conduit as its funding for its purchasing or maintaining
its Percentage Interest of the Class A Principal Balance hereunder.
"Commercial Paper Rate" shall mean, with respect to a CP Conduit,
the rate identified as its "Commercial Paper Rate" in the Supplemental Fee
Letter to which such CP Conduit or its agent is a party.
"Commitment" shall mean, for any Committed Purchaser or Liquidity
Purchaser, the maximum amount of such Class A Purchaser's commitment to purchase
a portion of the Class A Noteholders' Interest, as set forth in the Joinder
Supplement or the Transfer Supplement by which such Committed Purchaser became a
party to this Agreement or assumed the Commitment (or a portion thereof) of
another Class A Purchaser, as such amount may be adjusted from time to time
pursuant to Section 2.2 of this Agreement or pursuant to Transfer Supplement(s)
executed by such Class A Purchaser and its Assignee(s) and delivered pursuant to
Section 8.1 of this Agreement. In the event that a Class A Purchaser is both a
Committed Purchaser and a Liquidity Purchaser, or is a Liquidity Purchaser which
maintains a portion of its Commitment hereunder in relation to more than one CP
Conduit, such Class A Purchaser shall be deemed to hold separate Commitments
hereunder in each such capacity.
"Commitment Expiration Date" shall mean July 13, 2000, as such
date may be extended from time to time in accordance with subsection 2.2(d)
hereof.
"Committed Purchaser" shall mean any Class A Purchaser which is
designated as a Committed Purchaser in the Joinder Supplement or the Transfer
Supplement pursuant to which it became a party to this Agreement, and any
Assignee of such Class A Purchaser to the extent of the portion of such
Commitment assumed by such Assignee pursuant to its respective Transfer
Supplement.
"Covered Portion" shall mean the portion of the Class A Principal
Balance equal to the Class A Invested Amount.
"CP Conduit" shall mean any Class A Purchaser which is designated
as a CP Conduit in the Joinder Supplement or the Transfer Supplement pursuant to
which it became a party to this Agreement.
"CSFB" has the meaning specified in the preamble to this
Agreement.
-4-
<PAGE> 9
"Dissenting Purchaser" has the meaning specified in subsection
2.2(d) of this Agreement.
"Downgraded Purchaser" has the meaning specified in subsection
8.1(j) of this Agreement.
"Election Period" has the meaning specified in subsection 2.2(d)
of this Agreement.
"Estimated Interest Adjustment" has the meaning specified in
subsection 2.3(k) of this Agreement.
"Excluded Taxes" has the meaning specified in subsection 2.5(a)
of this Agreement.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Increase Notice" shall mean a notice delivered by the Issuer to
the Administrative Agent and each Agent pursuant to Section 7.04 of the
Supplement requesting a Class A Note Principal Balance Increase.
"Indemnitee" has the meaning specified in subsection 2.6(a) of
this Agreement.
"Indenture Trustee" has the meaning specified in the recitals to
this Agreement.
"Initial Purchaser Group" shall mean the Purchaser Group which
includes the initial CP Conduit which is a party to this Agreement.
"Investing Office" shall mean initially, the office of any Class
A Purchaser (if any) designated as such, in the Joinder Supplement or the
Transfer Supplement by which it became a party to this Agreement, and
thereafter, such other office of such Class A Purchaser or such Assignee as may
be designated in writing to the applicable Agent, the Administrative Agent, the
Issuer, the Servicer and the Indenture Trustee by such Class A Purchaser or
Assignee.
"Investment Letter" has the meaning specified in subsection
8.1(a) of this Agreement.
"JCC" shall mean Jewelers Credit Corporation, a Delaware
corporation which is a subsidiary of Z Del.
"JNB" has the meaning specified in the preamble to this
Agreement.
"LIBOR Rate" shall mean, with respect to any Interest Accrual
Period or portion thereof, the rate per annum shown on page 3750 of the Dow
Jones & Company Telerate screen or
-5-
<PAGE> 10
any successor page as the composite offered rate for London interbank deposits
for a period equal to such Interest Accrual Period (or portion) thereof, as
shown under the heading "USD" as of 11:00 a.m., London time, two London Business
Days prior to the first day of such Interest Accrual Period; provided that in
the event no such rate is shown, the LIBOR Rate shall be the rate per annum
(rounded upwards, if necessary, to the nearest 1/100th of one percent) based on
the rates at which Dollar deposits for a period equal to such Interest Accrual
Period (or portion thereof) are displayed on page "LIBOR" of the Reuters Monitor
Money Rates Service or such other page as may replace the LIBOR page on that
service for the purpose of displaying London interbank offered rates of major
banks as of 11:00 a.m., London time, two London Business Days prior to the first
day of such Interest Accrual Period (it being understood that if at least two
such rates appear on such page, the rate will be the arithmetic mean of such
displayed rates); provided further that in the event fewer than two such rates
are displayed, or if no such rate is relevant, the LIBOR Rate shall be the rate
per annum equal to the average of the rates at which deposits in Dollars are
offered by the Reference Banks at approximately 11:00 a.m., London time, two
London Business Days prior to the first day of such Interest Accrual Period to
prime banks in the London interbank market for a period equal to such Interest
Accrual Period (or portion thereof), it being understood that if at least two
such quotations are provided, the rate shall be the arithmetic mean of such
provided rates; provided further that if fewer than two such rates are provided,
the rate shall be the arithmetic mean of the rates quoted by major banks in New
York City, selected by the Administrative Agent, at approximately 11:00 a.m.,
New York City time, on the first day of such Interest Accrual Period to leading
European banks for Dollar deposits for a period equal to such Interest Accrual
Period (or portion thereof); provided further that if the LIBOR Rate is not
established for any such Interest Accrual Period as otherwise provided above,
the LIBOR Rate for such Interest Accrual Period shall equal the LIBOR Rate for
the immediately preceding Interest Accrual Period.
"LIBOR Reserve Percentage" shall mean, with respect to any
Interest Accrual Period or portion thereof, a percentage (expressed as a
decimal) equal to the weighted average of the percentages in effect during such
Interest Accrual Period, as prescribed by the Board of Governors of the Federal
Reserve System (or any successor thereto) for determining the maximum reserve
requirements applicable to "Eurocurrency liabilities" pursuant to Regulation D
or any other applicable regulation of the Federal Reserve Board (or any
successor thereto) which prescribes reserve requirements applicable to
"Eurocurrency liabilities" as currently defined in Regulation D.
"Liquidity Percentage" shall mean, for a Liquidity Purchaser for
a CP Conduit, such Liquidity Purchaser's Adjusted Commitment with respect to
such CP Conduit as a percentage of the aggregate Adjusted Commitments of all
Liquidity Purchasers for such CP Conduit.
"Liquidity Purchaser" shall mean, with respect to a CP Conduit,
each Class A Purchaser identified as a Liquidity Purchaser for such CP Conduit
in the Joinder Supplement or the Transfer Supplement pursuant to which such CP
Conduit became a party hereto, and any Assignee of such Class A Purchaser to the
extent such Assignee has assumed, pursuant to a Transfer Supplement, the
Commitment of such Class A Purchaser. In the event that a Liquidity Purchaser
acquires a portion of the Class A Principal Balance from its related CP Conduit
by Assignment, such
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<PAGE> 11
Liquidity Purchaser shall thereupon become a Committed Purchaser holding a
Commitment as such in an amount equal to the Class A Principal Balance so
acquired and cease to be a Liquidity Purchaser in respect of such Commitment.
"Maximum Purchase Amount" shall mean, for any CP Conduit, the
aggregate Commitments of its Liquidity Purchasers.
"Nonextending Class A Purchaser" shall mean, after its respective
Commitment Expiration Date, each Committed Purchaser or Liquidity Purchaser
which has declined to extend such Commitment Expiration Date in accordance with
subsection 2.2(d) hereof, to the extent not replaced pursuant to subsection
2.2(e).
"Note Rate Determination Date" shall mean, for any Interest
Accrual Period, the third Business Day prior to the Payment Date which follows
the end of such Interest Accrual Period.
"Partial Commitment Expiration Date" shall mean the date of the
occurrence of a Partial Expiration Event.
"Partial Expiration Event" has the meaning specified in
subsection 2.2(d) of this Agreement and shall include the occurrence of the
Step-Down Date.
"Participant" has the meaning specified in subsection 8.1(d) of
this Agreement.
"Participation" has the meaning specified in subsection 8.1(d) of
the Agreement.
"Percentage Interest" shall mean, for a Class A Purchaser on any
day, the percentage equivalent of (a) the sum of (i) the portion of the Class A
Initial Invested Amount (if any) purchased by such Class A Purchaser, plus (ii)
the aggregate portion of Class A Note Principal Balance Increases (if any)
purchased by such Class A Purchaser prior to such day pursuant to Section 7.04
of the Supplement, plus (iii) any portion of the Class A Principal Balance
acquired by such Class A Purchaser as an Assignee from another Class A Purchaser
pursuant to a Transfer Supplement executed and delivered pursuant to Section 8.1
of this Agreement, minus (iv) the aggregate amount of principal payments made to
such Class A Purchaser prior to such day, minus (v) any portion of the Class A
Principal Balance assigned by such Class A Purchaser to an Assignee pursuant to
a Transfer Supplement executed and delivered pursuant to Section 8.1 of this
Agreement, divided by (b) the aggregate Class A Principal Balance on such day.
"Person" shall mean an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever nature.
"Prime Rate" shall mean, for any day, the higher of (i) the base
commercial lending rate per annum announced from time to time by CSFB in New
York in effect on such day, or (ii) the
-7-
<PAGE> 12
interest rate per annum quoted by CSFB at approximately 11:00 a.m., New York
City time, on such day, to dealers in the New York Federal funds market for the
overnight offering of Dollars by CSFB plus one-half of one percent (0.50%). (The
Prime Rate is not intended to represent the lowest rate charged by CSFB for
extensions of credit.)
"Purchase and Servicing Agreement" has the meaning specified in
the recitals to this Agreement.
"Purchase Date" shall mean the Closing Date and each Increase
Date.
"Purchase Termination Date" shall mean, for a Class A Purchaser,
the first to occur of (i) in the case of a Committed Purchaser or Liquidity
Purchaser, the Commitment Expiration Date for such Class A Purchaser or, in the
case of a CP Conduit, the latest Commitment Expiration Date for any of its
Liquidity Purchasers, or (ii) the Early Amortization Commencement Date.
"Purchaser Group" shall mean each group of Class A Purchasers
consisting of (i) a CP Conduit, (ii) the Liquidity Purchasers with respect to
such CP Conduit, and (iii) any Committed Purchasers which are assignees of such
CP Conduit or any such Liquidity Providers.
"Purchaser Percentage" shall mean, with respect to a Committed
Purchaser or CP Conduit, its Commitment or Maximum Purchase Amount, as the case
may be, as a percentage of the Total Commitment.
"Reference Banks" shall mean CSFB, and Bank One Texas, N.A.
"Regulatory Change" shall mean, as to each Class A Purchaser, any
change occurring after the date of the execution and delivery of this Agreement
or, if later, the date of the execution and delivery of the Transfer Supplement
by which it became party to this Agreement; in the case of a Participant, any
change occurring after the date on which its Participation became effective, or
in the case of an Affected Party, any change occurring after the date it became
such an Affected Party, in any (or the adoption after such date of any new):
(1) United States Federal or state law or foreign law applicable
to such Class A Purchaser, Affected Party or Participant; or
(2) regulation, interpretation, directive, guideline or request
(whether or not having the force of law) applicable to such Class A Purchaser,
Affected Party or Participant of any court or other judicial authority or any
Governmental Authority charged with the interpretation or administration of any
law referred to in clause (i) or of any fiscal, monetary or other Governmental
Authority or central bank having jurisdiction over such Class A Purchaser,
Affected Party or Participant.
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"Related Documents" shall mean, collectively, this Agreement
(including all effective Supplemental Fee Letters and Transfer Supplements), the
Base Indenture, the Supplement, the Purchase and Servicing Agreement, the Trust
Agreement, the Series 1999-A Notes and the Transaction Documents.
"Replacement Purchaser" has the meaning specified in subsection
8.1(l).
"Required Class A Owners" shall mean, at any time, Class A Owners
having more than two-thirds of the aggregate Percentage Interests of all Class A
Owners.
"Required Class A Purchasers" shall mean, at any time, Committed
Purchasers and Liquidity Purchasers having Commitments aggregating more than
two-thirds of the Total Commitment.
"Requirement of Law" shall mean, as to any Person, any law,
treaty, rule or regulation, or determination of an arbitrator or Governmental
Authority, in each case applicable to or binding upon such Person or to which
such Person is subject, whether federal, state or local (including usury laws,
the Federal Truth in Lending Act and Regulation Z and Regulation B of the Board
of Governors of the Federal Reserve System).
"Risk Portion" shall mean the portion of the Class A Principal
Balance equal to the excess thereof over Class A Invested Amount.
"Risk Rate" shall mean, for any day, a rate per annum equal to
the sum of (i) the Prime Rate in effect for such day, plus (ii) 2.00%.
"Step-Down Date" shall mean the first to occur of (i) October 15,
1999, or (ii) the date on which the Issuer shall have issued any additional
Series of Notes pursuant to the Base Indenture.
"Supplement" has the meaning specified in the recitals to this
Agreement.
"Supplemental Fee Letter" shall mean, with respect to each
Purchaser Group, the letter agreement, designated therein as a Supplemental Fee
Letter with respect to such Purchaser Group and then in effect, between the
Issuer and the Agent for such Purchaser Group, as such letter agreement may be
amended or otherwise modified from time to time.
"Support Advances" shall mean, with respect to a Liquidity
Purchaser and its related CP Conduit, any participation held by such Liquidity
Purchaser in such CP Conduit's Percentage Interest in the Class A Principal
Balance which was purchased from such CP Conduit pursuant to a Support Facility
and any loans or other advances made by such Liquidity Purchaser to such CP
Conduit pursuant to a Support Facility to fund such CP Conduit's making or
maintaining its purchases hereunder (but excluding any such loans or advances
made to fund such CP Conduit's obligations to
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pay interest, fees or other similar amounts relating to the funding of its
making or maintaining its purchases hereunder).
"Support Facility" shall mean any liquidity or credit support
agreement with a CP Conduit which relates to this Agreement (including any
agreement to purchase an assignment of or participation in Class A Notes).
"Support Party" shall mean any other bank, insurance company or
other financial institution extending or having a commitment to extend funds to
or for the account of a CP Conduit (including by agreement to purchase an
assignment of or participation in Class A Notes) under a Support Facility. Each
Liquidity Purchaser for a CP Conduit which is a CP Conduit shall be deemed to be
a Support Party for such CP Conduit.
"Taxes" has the meaning specified in subsection 2.5(a) of this
Agreement.
"Termination Event" shall mean the occurrence of an Early
Amortization Event, a Series 1999-A Early Amortization Event or a Servicer
Default, or the occurrence of an event or condition which would be an Early
Amortization Event, a Series 1999-A Early Amortization Event or a Servicer
Default but for a waiver of or failure to declare or determine such event by the
Noteholders or the Trustee; provided, however, that the occurrence of an event
or circumstance which constitutes or would constitute an Early Termination Event
solely under clause (iv) of Section 10.01 of the Indenture with respect to a
Series other than Series 1999-A shall not constitute a Termination Event.
"Total Commitment" shall mean, on any date of determination, the
aggregate Commitments of the Committed Purchasers and the Liquidity Purchasers.
"Transfer" has the meaning specified in subsection 8.1(c) of this
Agreement.
"Transferee" has the meaning specified in subsection 8.1(c) of
this Agreement.
"Transfer Supplement" has the meaning specified in subsection
8.1(e) of this Agreement.
"Trust" has the meaning specified in the recitals to this
Agreement.
"written" or "in writing" (and other variations thereof) shall
mean any form of written communication or a communication by means of telex,
telecopier device, telegraph or cable.
"Z Del" has the meaning specified in the preamble to this
Agreement.
"Zale" shall mean Zale Corporation, a Delaware corporation.
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"Zale Party" shall have the meaning specified in Section 5.1 of
this Agreement.
1.2 Other Definitional Provisions.
(2) Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto.
(3) The words "hereof", "herein", and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; and Section,
subsection and Exhibit references are to this Agreement, unless otherwise
specified. The words "including" and "include" shall be deemed to be followed by
the words "without limitation".
ARTICLE 2 AMOUNT AND TERMS OF COMMITMENTS
2.1 Purchases.
(a) On and subject to the terms and conditions of this Agreement,
(i) each CP Conduit may purchase Class A Notes on the Closing Date representing
a Class A Principal Balance equal to its Purchaser Percentage of the Class A
Initial Invested Amount and (ii) each Liquidity Purchaser for each Purchaser
Group, severally, agrees to purchase, to the extent not purchased by the CP
Conduit in its Purchaser Group, its Liquidity Percentage of the Class A Initial
Invested Amount, in either case for a purchase price equal to the portion of the
Class A Initial Invested Amount so purchased.
(b) On and subject to the terms and conditions of this Agreement
and prior to its Purchase Termination Date, (i) each CP Conduit may purchase its
Purchaser Percentage of any Class A Note Principal Balance Increase offered for
purchase pursuant to Section 7.04 of the Supplement, and (ii) each Committed
Purchaser (if any), severally, agrees to purchase its Purchaser Percentage of
the Class A Note Principal Balance Increase so offered for purchase, in each
case for a purchase price equal to the Class A Note Principal Balance Increase
so purchased.
(c) The purchase of the Class A Initial Invested Amount hereunder
shall be made on prior notice from the Issuer to the Administrative Agent and
each Agent received not later than 4:00 p.m., New York City time, on the
Business Day preceding the Closing Date. Each purchase of any Class A Note
Principal Balance Increase hereunder on the applicable Increase Date shall be in
accordance with the provisions of Section 7.04 of the Supplement. Each Increase
Notice shall be irrevocable. Each Agent shall promptly forward a copy of each
Increase Notice received by it to each Class A Purchaser in its Purchaser Group.
(d) Each CP Conduit shall notify the Agent for its Purchaser
Group by 10:00 a.m., New York City time, on the applicable Purchase Date whether
it has elected to make the purchase
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offered to it pursuant to subsection 2.1(a) or 2.1(b), as applicable, of this
Agreement. In the event that a CP Conduit shall not have timely provided such
notice, such CP Conduit shall be deemed to have elected not to make such
purchase. Such Agent shall notify each Liquidity Purchaser for such CP Conduit
on or prior to 11:00 a.m., New York City time, on the applicable Purchase Date
if such CP Conduit has not elected to purchase its entire Purchaser Percentage
of the Class A Initial Invested Amount or the Class A Note Principal Balance
Increase, as the case may be, which notice shall specify (i) the identity of
such CP Conduit, (ii) the portion of the Class A Initial Invested Amount or the
Class A Note Principal Balance Increase, as the case may be, which such CP
Conduit has not elected to purchase as provided above, and (iii) the respective
Liquidity Percentages of such Liquidity Purchasers on such Purchase Date (as
determined by such Agent in good faith; for purposes of such determination, such
Agent shall be entitled to rely conclusively on the most recent information
provided by such CP Conduit or its agent or by the agent for its Support
Parties). Subject to receiving such notice and to the satisfaction of the
applicable conditions set forth in Article 3 hereof, each of such CP Conduit's
Liquidity Purchasers shall make a purchase of Class A Notes on the applicable
Purchase Date in an amount equal to its Liquidity Percentage of the portion of
the Class A Initial Invested Amount or the Class A Note Principal Balance
Increase, as the case may be, which such CP Conduit has not elected to purchase,
for a purchase price equal to the Class A Initial Invested Amount or the Class A
Note Principal Balance Increase, as the case may be, so purchased.
(e) Each Class A Purchaser's purchase price payable pursuant to
subsection 2.1(a), 2.1(b) or 2.1(d) of this Agreement shall be made available to
the Agent for its Purchaser Group, subject to the fulfillment of the applicable
conditions set forth in Article 3 hereof, at or prior to 2:00 p.m., New York
City time, on the applicable Purchase Date, by deposit of immediately available
funds to an account of such Agent specified in subsection 9.2(b) of this
Agreement. Such Agent shall promptly notify the Issuer in the event that any
Class A Purchaser either fails to make such funds available to such Agent before
such time or notifies such Agent that it will not make such funds available to
such Agent before such time. Subject to (i) such Agent's receipt of such funds
and (ii) the fulfillment of the applicable conditions set forth in Article 3
hereof, as determined by such Agent, such Agent will not later than 4:00 p.m.,
New York City time, on such Purchase Date make such funds available, in the same
type of funds received, by wire transfer thereof to the account of Issuer in the
United States specified in the applicable Increase Notice or, in the case of the
purchase on the Closing Date, specified in writing by the Issuer to such Agent
not later than the Business Day prior to the Closing Date.
(f) In the event that notwithstanding the fulfillment of the
applicable conditions set forth in Article 3 hereof with respect to a purchase,
a CP Conduit elected to make a purchase on a Purchase Date but failed to make
its purchase price available to the Agent for its Purchaser Group when required
by subsection 2.1(e) of this Agreement, such CP Conduit shall be deemed to have
rescinded its election to make such purchase, and neither the Issuer, the Seller
nor any other party shall have any claim against such CP Conduit by reason for
its failure to timely make such purchase. In any such case, such Agent shall
give notice of such failure not later than 2:30 p.m., New York City time, on the
Purchase Date to each Liquidity Purchaser for such CP Conduit and to the Issuer,
which notice shall specify (i) the identity of such CP Conduit, (ii) the amount
of the purchase which
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it had elected but failed to make and (iii) the respective Liquidity Percentages
of such Liquidity Purchasers on such Purchase Date (as determined by such Agent
in good faith; for purposes of such determination, such Agent shall be entitled
to rely conclusively on the most recent information provided by such CP Conduit
or its agent or by the agent for its Support Parties). Subject to receiving such
notice, each of such CP Conduit's Liquidity Purchasers shall purchase a portion
of the Class A Principal Balance in an amount equal to its Liquidity Percentage
of the amount described in clause (ii) above at or before 4:00 p.m., New York
City time, on such Purchase Date and otherwise in accordance with subsection
2.1(d) of this Agreement. Subject to such Agent's receipt of such funds, such
Agent will not later than 5:00 p.m., New York City time, on such Purchase Date
make such funds available, in the same type of funds received, by wire transfer
thereof to the account of the Issuer described in subsection 2.1(e) of this
Agreement, which payment shall be deemed to be timely for purposes of subsection
7.04(c) of the Supplement.
(g) The Agent for each Purchaser Group shall notify the Issuer,
the Servicer, the Indenture Trustee and each Class A Purchaser in its Purchaser
Group on the Closing Date (in the case of the purchase of the Class A Initial
Invested Amount) or not later than the Business Day following the applicable
Increase Date (in the case of any purchases of Class A Note Principal Balance
Increases) of the identity of each Class A Purchaser in such Purchaser Group
which purchased any portion of the Class A Initial Invested Amount or any Class
A Note Principal Balance Increase on such Purchase Date, whether such Class A
Purchaser was a CP Conduit, a Committed Purchaser or a Liquidity Purchaser and
the portion of the Class A Initial Invested Amount or Class A Note Principal
Balance Increase purchased by such Class A Purchaser.
(h) In no event shall a Committed Purchaser be required on any
date to purchase a Class A Note Principal Balance Increase which would result in
its Percentage Interest of the Class A Principal Balance, determined after
giving effect to such purchase, exceeding its Commitment, and in no event shall
a Liquidity Purchaser be required on any date to purchase a Class A Note
Principal Balance Increase which would result in its Percentage Interest of the
Class A Principal Balance, determined after giving effect to such purchase,
exceeding its Adjusted Commitment. In no event may any Class A Note Principal
Balance Increase be offered for purchase hereunder or under Section 7.04 of the
Supplement, nor shall any Class A Purchaser be obligated to purchase any Class A
Note Principal Balance Increase, to the extent that, after giving effect to such
Class A Note Principal Balance Increase, the Class A Principal Balance would
exceed the lesser of the Total Commitment or the Class A Purchase Limit.
(i) The Class A Purchasers in each Purchaser Group hereby direct
that the Class A Notes be registered in the name of the Agent for such Purchaser
Group, as nominee on behalf of the Class A Purchasers in such Purchaser Group
from time to time hereunder.
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2.2 Reductions and Extensions of Commitments.
(a) At any time the Issuer may, upon at least five Business Days'
prior written notice to the Agent, reduce the Total Commitment. Each partial
reduction shall be in an aggregate amount of $5,000,000 or integral multiples of
$1,000,000 in excess thereof (or such other amount requested by the Issuer to
which the Agent consents). Reductions of the aggregate Commitments pursuant to
this subsection 2.2(a) of this Agreement shall be allocated (i) to the
Commitment of each Committed Purchaser and the Maximum Purchase Amount of each
CP Conduit, pro rata based on the Purchaser Percentage represented by such
Commitment or Maximum Purchase Amount, and (ii) to the aggregate Commitments of
Liquidity Purchasers for each CP Conduit pro rata based on their respective
Liquidity Percentages.
(b) On the Step-Down Date, the aggregate Commitments of all
Liquidity Purchasers and Committed Purchasers in the Initial Purchaser Group
shall automatically be reduced to the extent they exceed $150,000,000. Any such
reduction will be allocated (i) to the Commitment of each Committed Purchaser
(if any) in such Purchaser Group and to the Maximum Purchase Amount of the CP
Conduit in such Purchaser Group, pro rata based on the Purchaser Percentage
represented by such Commitment or Maximum Purchase Amount, and (ii) to the
aggregate Commitments of Liquidity Purchasers in the Initial Purchaser Group pro
rata based on their respective Liquidity Percentages.
(c) On the Purchase Termination Date for a Committed Purchaser or
Liquidity Purchaser, the Commitment of such Class A Purchaser shall be
automatically reduced to zero.
(d) So long as no Termination Event has occurred and is
continuing, no more than 120 and no less than 90 days prior to the applicable
Commitment Expiration Date, the Seller may request, through the Administrative
Agent, that each Committed Purchaser and Liquidity Purchaser extend its
Commitment Expiration Date for a 364-day period as herein provided, which
decision will be made by each Committed Purchaser and Liquidity Purchaser in its
sole discretion. Upon receipt of any such request, the Administrative Agent
shall promptly notify each Agent thereof, which shall notify each Committed
Purchaser and Liquidity Purchaser in its Purchaser Group thereof. At least 30
but not more than 60 days prior to the applicable Commitment Expiration Date
(the "Election Period"), each Committed Purchaser and Liquidity Purchaser shall
notify the Agent for its Purchaser Group of its willingness or refusal to so
extend its Commitment Expiration Date, and such Agent shall notify the Seller
and the Administrative Agent of such willingness or refusal by the Committed
Purchasers and Liquidity Purchasers not later than the Business Day following
the last day of the Election Period. No Liquidity Purchaser may consent to an
extension of its Commitment Expiration Date without the consent of each CP
Conduit, if any, for which it acts as a Liquidity Purchaser. Any Committed
Purchaser or Liquidity Purchaser which notifies the applicable Agent of its
refusal to extend or which does not expressly notify such Agent that it is
willing to extend its Commitment Expiration Date during the applicable Election
Period shall be deemed to be (x) a Nonextending Class A Purchaser after the
Commitment Expiration Date then in effect (such occurrence, unless such
Nonextending Class A Purchaser is replaced pursuant to subsection 2.2(e) of this
Agreement, a
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"Partial Expiration Event") and (y) a "Dissenting Purchaser" from the date of
its refusal notice or the end of the applicable Election Period. If (i) one or
more Committed Purchasers or Liquidity Purchasers have agreed to extend the
Commitment Expiration Date, and (ii) at the end of the applicable Election
Period, no Termination Event shall have occurred, the Commitment Expiration Date
then in effect for each such Committed Purchaser and Liquidity Purchaser shall
be extended to the date which is 364 days following the first day of the
Election Period or, if such day is not a Business Day, the next preceding
Business Day; provided that if not all Committed Purchasers and Liquidity
Purchasers have agreed to such extension, the Seller may elect, by notice to the
Administrative Agent, the Issuer and each Agent delivered not later than five
Business Days prior to the end of the Election Period, not to have such
extension become effective.
(e) Within two Business Days following the end of an Election
Period, the Agent for each Purchaser Group shall notify each other Class A
Purchaser in such Purchaser Group, the Administrative Agent, the Issuer, the
Seller and the Servicer of the identity of any Dissenting Purchaser and the
amount of its Commitment. Such Agent, the Seller and, if the Dissenting
Purchaser is a Liquidity Purchaser, the affected CP Conduit may (but shall not
be required to) request one or more other Class A Purchasers in such Purchaser
Group, with the consent of the Agent (which shall not be unreasonably withheld)
and, if the Dissenting Purchaser is a Liquidity Purchaser, the affected CP
Conduit in its sole discretion, or seek another financial institution reasonably
acceptable to such Agent and, if the Dissenting Purchaser is a Liquidity
Purchaser acceptable to the affected CP Conduit in its sole discretion, to
acquire all or a portion of the Commitment of the Dissenting Purchaser and all
amounts payable to it hereunder and under the Indenture in accordance with
Section 8.1 of this Agreement. Each Dissenting Purchaser hereby agrees to assign
all or a portion of its Commitment and the amounts payable to it hereunder and
under the Indenture to a replacement investor identified by the Agent for its
Purchaser Group in accordance with the preceding sentence, subject to ratable
payment of such Dissenting Purchaser's Percentage Interest of the Class A
Principal Balance, together with all accrued and unpaid interest thereon, and a
ratable portion of all fees and other amounts due to it hereunder.
(f) The Class A Purchasers in the Initial Purchaser Group and the
Agent therefor shall become parties to this Agreement by entering into Joinder
Supplements with the Issuer and the Administrative Agent, substantially in the
form of Exhibit C. The Total Commitment may be increased by the Issuer, at the
direction of the Seller, from time to time, to an amount not exceeding
$350,000,000, minus (unless the Administrative Agent otherwise consents) the
aggregate amount of the reductions of the Total Commitment pursuant to
subsection 2.2(a), by (i) with respect to a Purchaser Group, the increase of the
Commitment of one or more Liquidity Purchasers in such Purchaser Group or the
addition of one or more Liquidity Purchasers in such Purchaser Group, with the
consent of the CP Conduit and each affected Liquidity Purchaser in such
Purchaser Group, or (ii) by the addition of one or more Purchaser Groups with
the consent of the Administrative Agent (which consent shall not be unreasonably
withheld), each consisting of a CP Conduit and one or more Liquidity Purchasers;
provided, however, that no such increase shall become effective unless (A) such
increasing or new Liquidity Purchaser and, if applicable, such CP Conduit shall
have entered into an appropriate amendment or supplement to this Agreement (or
its Assignment) reflecting such
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increased or new Commitment or, in the case of a CP Conduit, its Maximum
Purchase Amount, (B) after giving effect to such increase and to any concurrent
increase in the Class B Invested Amount pursuant to the Supplement, the Class B
Invested Amount shall equal at least the Class B Enhancement Percentage times
the sum of the Total Commitment plus the Class B Invested Amount, and (C) such
conditions, if any, as the Administrative Agent shall have reasonably required
in connection with such increase or addition shall have been satisfied.
2.3 Interest, Fees, Expenses, Payments, Etc.
(a) Except as otherwise provided in subsection 2.3(b) of this
Agreement, each CP Conduit's Percentage Interest of the Covered Portion of the
Class A Principal Balance shall bear interest for each Interest Accrual Period
at a rate per annum equal to the sum of such CP Conduit's Commercial Paper Rate
plus the applicable Class A Program Utilization Fee Rate. Each CP Conduit's
commercial paper tranches will be selected by such CP Conduit or its
administrator, after consultation with the Seller, to the extent reasonably
practicable. Each Committed Purchaser's Percentage Interest and each Liquidity
Purchaser's Percentage Interest of the Covered Portion of the Class A Principal
Balance shall bear interest for each Interest Accrual Period at a rate per annum
equal to the sum of the Alternative Rate plus the applicable Class A Program
Utilization Fee Rate. Each Class A Purchaser's Percentage Interest of the Risk
Portion of the Class A Principal Balance shall bear interest for each Interest
Accrual Period at a rate per annum equal to the sum of the Risk Rate from time
to time in effect plus the applicable Class A Program Utilization Fee Rate. The
"Class A Interest Rate" for each Interest Accrual Period shall equal the dollar
weighted average (based on the respective applicable portions of the Class A
Principal Balance) of the interest rates for such Interest Accrual Period
determined as provided in this subsection 2.3(a) and in subsection 2.3(b) of
this Agreement.
(b) If and to the extent that, and only for so long as, a CP
Conduit at any time determines for any reason whatsoever that it is unable to
raise or is precluded or prohibited from raising, or that it is not advisable to
raise, funds through the issuance of Commercial Paper Notes in the commercial
paper market of the United States to finance its purchase or maintenance of its
Percentage Interest of the Covered Portion of the Class A Principal Balance or
any portion thereof (which determination may be based on any allocation method
employed in good faith by such CP Conduit), including by reason of market
conditions or by reason of insufficient availability under any of its Support
Facilities or the downgrading of any of its Support Parties, upon notice from
such CP Conduit to the Agent for its Purchaser Group and the Issuer, such
portion of such CP Conduit's Percentage Interest of the Class A Principal
Balance shall bear interest at a rate per annum equal to the sum of the
Alternative Rate plus the applicable Class A Program Utilization Fee Rate,
rather than as otherwise determined pursuant to subsection 2.3(a) of this
Agreement.
(c) The Class A Notes and interest thereon shall be paid as
provided in the Indenture, and each Agent shall allocate to the Class A Owners
in its Purchaser Group each payment in respect of the Class A Notes received by
such Agent in its capacity as Class A Noteholder as provided herein. Except as
otherwise provided in the Indenture, payments in reduction of the portion
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of the Class A Principal Balance evidenced by a Class A Note shall be allocated
and applied to Class A Owners of such Class A Note pro rata based on their
respective Percentage Interests of the Class A Principal Balance, or in any such
case in such other proportions as each affected Class A Purchaser may agree upon
in writing from time to time with such Agent and the Issuer; provided that from
and after the occurrence of a Partial Expiration Event until the earlier to
occur of (i) the Purchase Termination Date for all Class A Purchasers and (ii)
the date on which (A) the aggregate amount of payments in reduction of the Class
A Principal Balance made after the related Partial Commitment Expiration Date
equals (B) the related Class A Mandatory Partial Amortization Amount, payments
on a Class A Note in reduction of the portion of the Class A Principal Balance
evidenced by such Class A Note shall be allocated and applied to Nonextending
Class A Owners of such Class A Note pro rata based on their respective
Percentage Interests of the Class A Principal Balance; provided that in the case
of the Step-Down Date, the related Class A Mandatory Partial Amortization Amount
shall be allocated and applied to Class A Purchasers in the Initial Purchaser
Group pro rata based, for each such Class A Purchaser, on the amount by which
its Percentage Interest of the Class A Invested Amount exceeds its Commitment or
Maximum Purchase Amount (as applicable), after giving effect to the reduction
thereof on the Step-Down Date pursuant to subsection 2.2(b) hereof. Payments of
interest in respect of the portion of the Class A Principal Balance evidenced by
a Class A Note shall be allocated and applied to Class A Owners of such Class A
Note pro rata based upon the respective amounts of interest owed to them,
determined as provided above in this Section 2.3.
(d) The Seller agrees to pay to each Agent for the account of
Class A Purchasers in its Purchaser Group the Class A Program Commitment Fee and
other amounts set forth in the Supplemental Fee Letter for such Purchaser Group
at the times specified therein. Each Class A Purchaser in a Purchaser Group
shall be entitled to receive the share of the Class A Program Commitment Fee as
may be agreed upon from time to time between such Class A Purchaser and the
Agent for such Purchaser Group.
(e) The Seller agrees to pay on demand (i) to the Administrative
Agent and the initial Class A Purchasers all reasonable costs and expenses in
connection with the preparation, execution, delivery and initial syndication of
this Agreement and each related Support Facility, and the other documents to be
delivered hereunder or in connection herewith, (ii) to the Administrative Agent
and each Agent and Class A Purchaser all reasonable costs and expenses in
connection with the administration (including any requested amendments, waivers
or consents of any of the Related Documents) of this Agreement and the Related
Documents and Support Facilities, including in each case the reasonable fees and
out-of-pocket expenses of counsel with respect thereto, and (iii) to the
Administrative Agent and each Agent and Class A Purchaser, on demand, all
reasonable costs and expenses (including reasonable fees and expenses of
counsel), if any, in connection with the enforcement of any of the Related
Documents, and the other documents delivered thereunder or in connection
therewith.
(f) The Seller agrees to pay on demand any and all stamp,
transfer and other taxes (other than Taxes covered by Section 2.5 hereof) and
governmental fees payable in connection with
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the execution, delivery, filing and recording of any of the Related Documents
and each related Support Facility or the other documents and agreements to be
delivered hereunder and thereunder or otherwise in connection with the issuance
of Series 1999-A Notes, and agrees to save each Class A Purchaser and Agent and
the Administrative Agent harmless from and against any liabilities with respect
to or resulting from any delay in paying or any omission to pay such taxes and
fees.
(g) Any fees or other amounts payable hereunder (without regard
to any limitations set forth herein on the sources from which such amount may be
paid) which are not paid on the due date thereof (including interest payable
pursuant to this clause (g)) and Carryover Class A Interest shall accrue
interest (after as well as before judgment) at the Risk Rate from time to time
in effect from and including the due date thereof to but excluding the date such
amount is actually paid.
(h) Unless otherwise specified in an applicable Supplemental Fee
Letter, interest calculated by reference to the Commercial Paper Rate or the
Adjusted Eurodollar Rate shall be calculated on the basis of a 360-day year for
the actual days elapsed. Interest calculated by reference to the Prime Rate
shall be calculated on the basis of a 365- or 366-day year, as applicable, for
the actual days elapsed. Periodic fees or other periodic amounts payable
hereunder shall be calculated, unless otherwise specified in the Supplemental
Fee Letter, on the basis of a 360-day year and for the actual days elapsed.
(i) All payments to be made hereunder or under the Indenture,
whether on account of principal, interest, fees or otherwise, shall be made
without setoff or counterclaim and shall be made prior to 2:00 p.m., New York
City time, on the due date thereof to the Administrative Agent or the applicable
Agent, as the case maybe, at its account specified in subsection 9.2(b) hereof,
in United States dollars and in immediately available funds. Payments received
by such Agent after 2:00 p.m., New York City time, shall be deemed to have been
made on the next Business Day. Notwithstanding anything herein to the contrary,
if any payment due hereunder becomes due and payable on a day other than a
Business Day, the payment date thereof shall be extended to the next succeeding
Business Day and interest shall accrue thereon at the applicable rate during
such extension. To the extent that (i) the Issuer, the Indenture Trustee, the
Seller or the Servicer makes a payment to the Administrative Agent or an Agent
or Class A Purchaser or (ii) the Administrative Agent or an Agent or Class A
Purchaser receives or is deemed to have received any payment or proceeds for
application to an obligation, which payment or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy or insolvency law, state or Federal law, common law, or for equitable
cause, then, to the extent such payment or proceeds are set aside, the
obligation or part thereof intended to be satisfied shall be revived and
continue in full force and effect, as if such payment or proceeds had not been
received or deemed received by the Administrative Agent or such Agent or Class A
Purchaser, as the case may be.
(j) At or before 4:00 p.m., New York City time, on each Note Rate
Determination Date, each CP Conduit shall notify the Agent for its Purchaser
Group of (i) its Commercial Paper Rate, if applicable, in effect for the related
Interest Accrual Period, and (ii) if
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applicable, the date on which the Alternative Rate became applicable to its
Percentage Interest of the Class A Principal Balance or a portion thereof
pursuant to subsection 2.3(b) of this Agreement. Such notification may be based
on such CP Conduit's good faith estimate of the Commercial Paper Rate if the
actual rate is not then known to such CP Conduit, and in such case, such CP
Conduit shall notify such Agent at or before 4:00 p.m., New York City time, on
the following Note Rate Determination Date of the amount of any variation
between interest payable to such CP Conduit for the applicable Interest Accrual
Period based on such estimate and interest which should have been payable to
such CP Conduit for such Interest Accrual Period based on its final
determination of the applicable Commercial Paper Rate. The amount of any
shortfall in interest based on such variation shall be included in the portion
of Class A Monthly Interest payable to such CP Conduit for the following
Interest Accrual Period, and the amount of any overpayment of interest to such
CP Conduit based on such variation shall be credited, dollar for dollar, against
the portion of Class A Monthly Interest otherwise payable to such CP Conduit for
the following Interest Accrual Period. Each determination by a CP Conduit of its
applicable Commercial Paper Rate pursuant to this Agreement shall be conclusive
and binding on the Class A Purchasers, each Agent, the Issuer, the Seller, the
Servicer and the Indenture Trustee in the absence of manifest error.
(k) On each Note Rate Determination Date, (i) the Agent for each
Purchaser Group shall notify the Servicer, with respect to such Purchaser Group,
of the applicable Commercial Paper Rates and the Class A Program Utilization Fee
Rate for the related Interest Accrual Period, and, if applicable, the dates on
which the Alternative Rate was applicable to the Percentage Interest of the
Class A Principal Balance owed to any member of its Purchaser Group, and (ii)
the Administrative Agent shall notify the Servicer of the Alternative Rate and
the Risk Rate, if applicable, for the related Interest Accrual Period. For such
purposes, the Agents may rely conclusively on notices from CP Conduits as to the
interest rate or rates from time to time applicable to their respective
Percentage Interest of the Class A Principal Balance. Such notification from an
Agent may be based on such CP Conduit's estimate of the Commercial Paper Rate as
provided to such Agent pursuant to subsection 2.3(j) hereof, if the actual rate
and amount is not then known to such Agent. In any such case, such Agent shall
notify the Servicer and the Indenture Trustee on or before the following Note
Rate Determination Date of the amount of any variation between the estimated
amount of interest payable on Class A Notes accrued at the Commercial Paper Rate
and the actual amount thereof for the preceding Interest Accrual Period. The
amount of any shortfall in interest based on such variation shall be a positive
"Estimated Interest Adjustment" for such Interest Accrual Period, and the amount
of any overpayment of interest based on such variation shall be a negative
"Estimated Interest Adjustment" for such Interest Accrual Period. Any positive
Estimated Interest Adjustment for an Interest Accrual Period shall be deemed not
due on the Payment Date for such Interest Accrual Period, but shall be due on
the next following Payment Date. An Estimated Interest Adjustment shall not bear
interest, unless not paid when due as provided in the preceding sentence. Each
determination of the Commercial Paper Rate, the Alternative Rate, the Risk Rate
and the Class A Program Utilization Fee Rate by the Administrative Agent or an
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Class A Purchasers, the Issuer, the Servicer and the Indenture
Trustee in the absence of manifest error.
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2.4 Requirements of Law.
(a) In the event that any Class A Purchaser shall have reasonably
determined that any Regulatory Change shall:
(i) subject such Class A Purchaser to any tax of any kind
whatsoever with respect to this Agreement, its Commitment or its beneficial
interest in the Class A Notes, or change the basis of taxation of payments in
respect thereof(except for Taxes covered by Section 2.5 hereof and taxes
included in the definition of Excluded Taxes in subsection 2.5(a) hereof); or
(ii) impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by, deposits
or other liabilities in or for the account of, advances, loans or other
extensions of credit by, or any other acquisition of funds by, such Class A
Purchaser;
and the result of any of the foregoing is to increase the cost to such Class A
Purchaser, by an amount which such Class A Purchaser deems to be material, of
maintaining its Commitment or its interest in the Class A Notes or to reduce any
amount receivable in respect thereof, then, in any such case, after submission
by such Class A Purchaser to the Agent for its Purchaser Group of a written
request therefor and the submission by such Agent to the Issuer and the Servicer
of such written request therefor, the Issuer shall pay to such Agent for the
account of such Class A Purchaser any additional amounts necessary to compensate
such Class A Purchaser for such increased cost or reduced amount receivable, to
the extent not already reflected in the applicable interest rate, together with
interest on any such unpaid amount from the Payment Date following receipt by
the Issuer of such request for compensation under this subsection 2.4(a) of this
Agreement, if such request is received by the Issuer at least five Business Days
prior to the Determination Date related to such Payment Date, and otherwise from
the following Payment Date, until payment in full thereof (after as well as
before judgment) at the Prime Rate in effect from time to time.
(b) In the event that any Class A Purchaser shall have determined
that any Regulatory Change regarding capital adequacy has the effect of reducing
the rate of return on such Class A Purchaser's capital or on the capital of any
Person controlling such Class A Purchaser as a consequence of its obligations
hereunder or its maintenance of its Commitment or its interest in the Class A
Notes to a level below that which such Class A Purchaser or such Person could
have achieved but for such Regulatory Change (taking into consideration such
Class A Purchaser's or such Person's policies with respect to capital adequacy)
by an amount deemed by such Class A Purchaser or such Person to be material,
then, from time to time, after submission by such Class A Purchaser to the Agent
for its Purchaser Group of a written request therefor and submission by such
Agent to the Issuer and the Servicer of such written request therefor, the
Issuer shall pay to such Agent for the account of such Class A Purchaser such
additional amount or amounts as will compensate such Class A Purchaser or such
Person, as applicable, for such reduction, together with interest on any such
unpaid amount from the Payment Date following receipt by the Issuer of such
request for compensation under this subsection 2.4(b), if such request is
received by the Issuer at least five
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Business Days prior to the Determination Date related to such Payment Date, and
otherwise from the following Payment Date, until payment in full thereof (after
as well as before judgment) at the Prime Rate in effect from time to time.
Nothing in this subsection 2.4(b) shall be deemed to require the Issuer to pay
any amount to a Class A Purchaser to the extent such Class A Purchaser has been
compensated therefor under another provision of this Agreement or to the extent
such amount is already reflected in the applicable interest rate.
(c) Each Class A Purchaser agrees that it shall use its
reasonable efforts to reduce or eliminate any claim for compensation pursuant to
subsections 2.4(a) and 2.4(b) of this Agreement, including but not limited to
designating a different Investing Office for its Class A Notes (or any interest
therein) if such designation will avoid the need for, or reduce the amount of,
any increased amounts referred to in subsection 2.4(a) or 2.4(b) hereof and will
not, in the opinion of such Class A Purchaser, be unlawful or otherwise
disadvantageous to such Class A Purchaser or inconsistent with its policies or
result in any unreimbursed cost or expense to such Class A Purchaser or in an
increase in the aggregate amount payable under subsections 2.4(a) and 2.4(b)
hereof.
(d) Each Class A Purchaser claiming increased amounts described
in subsection 2.4(a) or 2.4(b) of this Agreement will furnish to the Agent for
its Purchaser Group (together with its request for compensation) a certificate
prepared in good faith setting forth the basis and the calculation of the amount
(in reasonable detail) of each request by such Class A Purchaser for any such
increased amounts referred to in subsection 2.4(a) or 2.4(b) hereof. Any such
certificate shall be conclusive absent manifest error, and such Agent shall
deliver a copy thereof to the Issuer and the Servicer. Failure on the part of
any Class A Purchaser to demand compensation for any amount pursuant to
subsection 2.4(a) or 2.4(b) hereof with respect to any period shall not
constitute a waiver of such Class A Purchaser's right to demand compensation
with respect to such period ; provided, however, that notwithstanding the
foregoing provisions of this Section 2.4, a Class A Purchaser shall not be
compensated for any such amount relating to any period ending, and of which such
Class A Purchaser has had knowledge, more than six months prior to the date that
such Class A Purchaser notifies the Issuer in writing thereof or for any amounts
resulting from a change by any Class A Purchaser of its Investing Office (other
than changes required by law).
2.5 Taxes.
(a) All payments made to the Class A Purchasers, the Agents or
the Administrative Agent under this Agreement and the Indenture (including all
amounts payable with respect to the Class A Notes) shall, to the extent allowed
by law, be made free and clear of, and without deduction or withholding for or
on account of, any present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any Governmental Authority
(collectively, "Taxes"), excluding (i) income taxes (including branch profit
taxes, minimum taxes and taxes computed under alternative methods, at least one
of which is based on or measured by net income), franchise taxes (imposed in
lieu of income taxes), or any other taxes based on or measured by the net income
of such Class A Purchaser or Agent or the Administrative Agent (as the case may
be) or the gross receipts
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or income of such Class A Purchaser or Agent or the Administrative Agent (as the
case may be); (ii) any Taxes that would not have been imposed but for the
failure of such Class A Purchaser or Agent or the Administrative Agent, as
applicable, to provide and keep current (to the extent legally able) any
certification or other documentation required to qualify for an exemption from,
or reduced rate of, any such Taxes or required by this Agreement to be furnished
by such Class A Purchaser or Agent or the Administrative Agent, as applicable;
and (iii) any Taxes imposed as a result of a change by any Class A Purchaser of
the Investing Office (other than changes mandated by this Agreement, including
subsection 2.4(c) hereof, or required by law) (all such excluded taxes being
hereinafter called "Excluded Taxes"). If any Taxes, other than Excluded Taxes,
are required to be withheld from any amounts payable to a Class A Purchaser or
Agent or the Administrative Agent hereunder or under the Indenture, then after
submission by any Class A Purchaser to the Agent for its Purchaser Group (in the
case of an amount payable to a Class A Purchaser) and by any Agent or the
Administrative Agent to the Issuer and the Servicer of a written request
therefor, the amounts so payable to such Class A Purchaser or Agent or the
Administrative Agent, as applicable, shall be increased, and the Issuer shall
pay to the applicable Agent for the account of such Class A Purchaser or for its
own account or to the Administrative Agent, as applicable, the amount of such
increase to the extent necessary to yield to such Class A Purchaser or Agent or
the Administrative Agent, as applicable (after payment of all such Taxes)
interest or any such other amounts payable hereunder or thereunder at the rates
or in the amounts specified in this Agreement and the Indenture; provided,
however, that the amounts so payable to such Class A Purchaser or Agent or the
Administrative Agent shall not be increased pursuant to this subsection 2.5(a)
if such requirement to withhold results from the failure of such Person to
comply with subsection 2.5(c) hereof. Whenever any Taxes are payable on or with
respect to amounts distributed to a Class A Purchaser or Agent or the
Administrative Agent, as promptly as possible thereafter the Servicer shall send
to the Agent, on behalf of such Class A Purchaser, or to such Agent or the
Administrative Agent, as applicable, a certified copy of an original official
receipt showing payment thereof. If the Issuer fails to pay any Taxes when due
to the appropriate taxing authority or fails to remit to the Agent, on behalf of
itself or such Class A Purchaser, or to such Agent or the Administrative Agent,
as applicable, the required receipts or other required documentary evidence, the
Issuer shall pay to such Agent on behalf of such Class A Purchaser or to such
Agent or the Administrative Agent for its own account, as applicable, any
incremental taxes, interest or penalties that may become payable by such Class A
Purchaser or Agent or the Administrative Agent, as applicable, as a result of
any such failure.
(b) A Class A Purchaser claiming increased amounts under
subsection 2.5(a) hereof for Taxes paid or payable by such Class A Purchaser
will furnish to the applicable Agent a certificate prepared in good faith
setting forth the basis and amount of each request by such Class A Purchaser for
such Taxes, and such Agent shall deliver a copy thereof to the Issuer and the
Servicer. An Agent or the Administrative Agent claiming increased amounts under
subsection 2.5(a) hereof for its own account for Taxes paid or payable by such
Agent or the Administrative Agent , as applicable, will furnish to the Issuer
and the Servicer a certificate prepared in good faith setting forth the basis
and amount of each request by the Agent or the Administrative Agent for such
Taxes. Any such certificate of a Class A Purchaser or Agent or the
Administrative Agent shall be conclusive absent manifest error. Failure on the
part of any Class A Purchaser or Agent or the Administrative
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Agent to demand additional amounts pursuant to subsection 2.5(a) of this
Agreement with respect to any period shall not constitute a waiver of the right
of such Class A Purchaser or Agent or the Administrative Agent, as the case may
be, to demand compensation with respect to such period. All such amounts shall
be due and payable to such Agent on behalf of such Class A Purchaser or to such
Agent or the Administrative Agent for its own account, as the case may be, on
the Payment Date following receipt by the Issuer of such certificate, if such
certificate is received by the Issuer at least five Business Days prior to the
Determination Date related to such Payment Date and otherwise shall be due and
payable on the following Payment Date (or, if earlier, on the Series 1999-A
Termination Date).
(c) Each Class A Purchaser and each Participant holding an
interest in Class A Notes agrees that prior to the date on which the first
interest or fee payment hereunder is due thereto, it will deliver to the Issuer,
the Servicer, the Indenture Trustee, the applicable Agent and the Administrative
Agent (i) if such Class A Purchaser or Participant is not incorporated under the
laws of the United States or any State thereof, two duly completed copies of the
U.S. Internal Revenue Service Form 4224 or successor applicable forms required
to evidence that the Class A Purchaser's or Participant's income from this
Agreement or the Class A Notes is "effectively connected" with the conduct of a
trade or business in the United States, and (ii) a duly completed U.S. Internal
Revenue Service Form W-9 or successor applicable or required forms. Each Class A
Purchaser or Participant holding an interest in Class A Notes also agrees to
deliver to the Issuer, the Servicer, the Indenture Trustee, the applicable Agent
and the Administrative Agent two further copies of such Form 4224 and Form W-9,
or such successor applicable forms or other manner of certification, as the case
may be, on or before the date that any such form expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent form
previously delivered by it hereunder, and such extensions or renewals thereof as
may reasonably be requested by the Servicer, an Agent or the Administrative
Agent, unless in any such case, solely as a result of a change in treaty, law or
regulation occurring prior to the date on which any such delivery would
otherwise be required, the Class A Purchaser is no longer eligible to deliver
the then-applicable form set forth above and so advises the Servicer and the
applicable Agent and the Administrative Agent. Each Class A Purchaser certifies,
represents and warrants as of the Closing Date, each Assignee and each
Participant (in either case other than a Support Party) shall certify, represent
and warrant as a condition of acquiring its Assignment or Participation as of
the effective date of the Transfer Supplement to which it is a party or of such
Participation, as the case may be, and each Support Party shall certify,
represent and warrant as of the effective date of its becoming a Support Party,
that (x) in the case of Form 4224 (if applicable), its income from this
Agreement or the Class A Notes is effectively connected with a United States
trade or business and (y) it is entitled to an exemption from United States
backup withholding tax. Further, each Class A Purchaser and each Participant
acquiring an interest in a Class A Note covenants that for so long as it shall
own Class A Notes or such Participation, such Class A Notes or Participation
shall be held in such manner that the income therefrom shall be effectively
connected with the conduct of a United States trade or business.
2.6 Indemnification.
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(a) The Seller agrees to indemnify and hold harmless the
Administrative Agent and each Agent and Class A Purchaser and any director,
officer, employee or agent thereof (each such Person being an "Indemnitee") from
and against any and all claims, damages, losses, liabilities, costs or expenses
(including reasonable fees and expenses of counsel) whatsoever (including claims
under federal or state securities laws, but excluding claims for repayment of
principal of or interest on, or other amounts due in respect of, the Class A
Notes or amounts payable by the Issuer under Section 2.4 or 2.5 hereto, which
the Indemnitee may incur (or which may be claimed against the Indemnitee) by
reason of or in connection with (i) the execution and delivery or assignment of,
or payment under, this Agreement or any Related Document or the Class A Notes,
(ii) the offer and sale by or on behalf of the Issuer, the Seller or any of
their affiliates of the Series 1999-A Notes or (iii) the other transactions
contemplated hereby, including the matters and circumstances described in any of
clauses (i) through (xii) of subsection 8.01(b) of the Purchase and Servicing
Agreement, except (A) to the extent that any such claim, damage, loss,
liability, cost or expense shall be caused by the willful misconduct or gross
negligence of the Indemnitee in performing its obligations under this Agreement,
(B) to the extent that any such claim, damage, loss, liability, cost or expense
relates to Taxes, and (C) to the extent limited by the last paragraph of
subsection 8.01(b) of the Purchase and Servicing Agreement. Subject to the
limitations set forth above, but without limiting the generality of the
foregoing, the Seller agrees to indemnify and hold harmless the Administrative
Agent and each Agent from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including at any
time following the payment of the obligations under this Agreement, including
the Class A Principal Balance) be imposed on, incurred by or asserted against
the Administrative Agent and such Agent in any way relating to or arising out of
this Agreement, or any documents contemplated by or referred to herein or the
transactions contemplated hereby or any action taken or omitted by the
Administrative Agent or any Agent under or in connection with any of the
foregoing; provided that the Seller shall not be liable under this sentence for
the payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of the
Administrative Agent or any Agent resulting from its own gross negligence or
willful misconduct. Promptly after receipt by the Administrative Agent or an
Agent or Class A Purchaser of notice of the commencement of any action, the
Administrative Agent or such Agent or Class A Purchaser, as the case may be,
will, if a claim in respect thereof is to be made under this subsection 2.6(a),
notify the Seller in writing of the commencement thereof; provided, however, the
omission to so notify the Seller will not relieve the Seller from any liability
which it may have to the Administrative Agent or such Agent or Class A Purchaser
under this subsection 2.6(a) except to the extent the Seller was actually
prejudiced by the failure to give such notices promptly.
(b) JNB and any Successor Servicer, by accepting its appointment
pursuant to the Purchase and Servicing Agreement, (i) shall agree to be bound by
the terms, covenants and conditions contained herein applicable to the Servicer
and to be subject to the duties and obligations of the Servicer hereunder, (ii)
as of the date of its acceptance, shall be deemed to have made with respect to
itself the representations and warranties made by the Servicer in subsections
4.1(a) through 4.1(e) hereof (in the case of subsection 4.1(a) with appropriate
factual changes) and (iii) shall agree on a recourse basis to indemnify and hold
harmless any Indemnitee from and against any and all claims,
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damages, losses, liabilities, costs or expenses (including the fees and expenses
of counsel) whatsoever which such Indemnitee may incur (or which may be claimed
against such Indemnitee) (i) by reason of the negligence or willful misconduct
of such Servicer in exercising its powers and carrying out its obligations under
this Agreement, the Purchase and Servicing Agreement or any Related Document or
(ii) by reason of or in connection with any of the matters and circumstances
described in any of clauses (i) through (vi) of subsection 8.01(c) of the
Purchase and Servicing Agreement, subject in the case of this clause (ii) to the
limitations set forth in the last paragraph of subsection 8.01(c) of the
Purchase and Servicing Agreement.
(c) In the event that for any reason, (i) the basis for
calculation of interest on any CP Conduit's Percentage Interest of the Class A
Principal Balance shall change from the Commercial Paper Rate to the Alternative
Rate, (ii) any CP Conduit receives any repayment of its share of the Class A
Principal Balance, and the date of such change or of such repayment is not the
maturity date for all Commercial Paper Notes allocated by such CP Conduit to
funding its purchase or maintenance of the affected portion of its Percentage
Interest of the Class A Principal Balance, or (iii) any Class A Purchaser
receives any repayment of its share of the Class A Principal Balance on a date
other than a Payment Date or upon fewer than two Business Days' prior (or, with
respect to amounts listed at the Alternative Rate based on the Adjusted
Eurodollar Rate, two Business Days') written notice, then in any such case the
Issuer agrees to indemnify each affected Class A Purchaser against, and to
promptly pay on demand directly to such Class A Purchaser the amount equal to
any loss or reasonable out-of-pocket expense suffered by such Class A Purchaser
as a result of such change or such repayment, including, in the case of a CP
Conduit, any loss, cost or expense suffered by such CP Conduit by reason of its
issuance of Commercial Paper Notes or its incurrence of other obligations
reasonably allocated by such CP Conduit to its funding or the maintenance of its
funding of its share of the Class A Principal Balance, or, in the case of any
Class A Purchaser, redeploying funds prepaid or repaid, in amounts which
correspond to its share of the Class A Principal Balance. A statement setting
forth in reasonable detail the calculations of any additional amounts payable
pursuant to this Section submitted by a Class A Purchaser or Agent or by the
Administrative Agent, as the case may be, to the Issuer and the Servicer and
shall be conclusive absent manifest error.
ARTICLE 3 CONDITIONS PRECEDENT
3.1 Condition to Initial Purchase. The following shall be
conditions precedent to the initial purchase by the Class A Purchasers of the
Class A Notes:
(a) the representations and warranties of the Issuer, Z Del and
JNB set forth or referred to in Sections 4.1, 4.2 and 4.3, respectively, hereof
shall be true and correct in all material respects on the Closing Date as though
made on and as of the Closing Date, and no event which of itself or with the
giving of notice or lapse of time, or both, would constitute a Termination Event
shall have occurred and be continuing on the Closing Date;
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(b) the Receivables Purchase Agreement, dated as of July 15,
1999, between JNB and JCC shall have been duly executed and delivered by all
parties thereto and shall be in form and substance satisfactory to the Class A
Purchasers;
(c) the Receivables Purchase Agreement, dated as of July 15,
1999, between JCC and Z Del shall have been duly executed and delivered by all
parties thereto and shall be in form and substance satisfactory to the Class A
Purchasers;
(d) the Purchase and Servicing Agreement shall have been duly
executed and delivered by all parties thereto and shall be in form and substance
satisfactory to the Class A Purchasers;
(e) the Base Indenture and Supplement shall have been duly
executed and delivered by all parties thereto and shall be in form and substance
satisfactory to the Class A Purchasers;
(f) the Supplemental Fee Letter for each Purchaser Group shall
have been executed and delivered by the Issuer to the Agent for such Group;
(g) the Class A Notes and the Class B Notes shall have been duly
issued in accordance with the Indenture, and the Class B Initial Invested Amount
shall equal at least the Class B Enhancement Percentage times the Initial
Invested Amount;
(h) there shall be no Originator other than JNB;
(i) Zale shall have executed and delivered to the Administrative
Agent, for the benefit of each Indemnitee, an agreement, in form and substance
satisfactory to the Class A Purchasers, the Administrative Agent and each Agent,
providing for indemnification of each Indemnitee on terms and conditions
substantially as set forth in subsection 2.6(a) hereof;
(j) the Seller shall have paid all fees payable on the Closing
Date to the Administrative Agent (for its own account or for the account of the
initial Class A Purchasers) described in the initial Supplemental Fee Letter and
all reasonable and appropriately invoiced costs and expenses of the
Administrative Agent and the initial Agent and Class A-1 Purchasers payable by
the Seller, to the extent provided herein, in connection with the transactions
contemplated hereby; and
(k) the Administrative Agent on behalf of the Class A Purchasers
shall have received on the Closing Date the following items, each of which shall
be in form and substance satisfactory to the Agent:
(i) an Officer's Certificate of Z Del confirming the
satisfaction of the conditions set forth in clauses (a) through (g), inclusive,
above;
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(ii) an Officer's Certificate of JNB confirming the satisfaction
of the conditions set forth in clauses (a) (as to representations and warranties
of JNB only), and (b) through (g), inclusive, above;
(iii) a certificate, in form and substance satisfactory to the
Class A Purchasers, of JCC confirming the satisfaction of the conditions set
forth in clauses (b) and (c) above and to the effect that the Administrative
Agent and each Agent and Class A Purchaser may rely on the representations and
warranties of JCC made in the Receivables Purchase Agreement described in clause
(c) above;
(iv) a copy of the Trust Agreement, in form and substance
satisfactory to the Class A Purchasers, certified as a true and complete copy
thereof by an authorized officer of Z Del;
(v) a copy of (A) the certificate of incorporation and by-laws
of, and an incumbency certificate with respect to its officers executing any of
the Related Documents on the Closing Date on behalf of Z Del, certified by its
authorized officer, and (B) resolutions of the Board of Directors (or an
authorized committee thereof) of Z Del with respect to the Related Documents to
which it is party, certified by its authorized officer;
(vi) a copy of (A) the certificate of incorporation and by-laws
of, and an incumbency certificate with respect to its officers executing any of
the Related Documents on the Closing Date on behalf of JCC, certified by its
authorized officer, and (B) resolutions of the Board of Directors (or an
authorized committee thereof) of JCC with respect to the Related Documents to
which it is party, certified by its authorized officer;
(vii) a copy of (A) the articles of association and by-laws of,
and an incumbency certificate with respect to its officers executing any of the
Related Documents on the Closing Date on behalf of JNB, certified by its
authorized officer, and (B) resolutions of the Board of Directors (or an
authorized committee thereof) of JNB with respect to the Related Documents to
which it is party, certified by its authorized officer;
(viii) a copy of (A) the certificate of incorporation and by-laws
of, and an incumbency certificate with respect to its officers executing any of
the Related Documents on the Closing Date on behalf of Zale, certified by its
authorized officer, and (B) resolutions of the Board of Directors (or an
authorized committee thereof) of Zale with respect to the Related Documents to
which it is party, certified by its authorized officer;
(ix) "long form" certificates issued on a recent date by the
Secretary of State of Delaware evidencing the legal existence and good standing
of Z Del, JCC and Zale as corporations under the laws of the State of Delaware;
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(x) certificates issued on a recent date by the appropriate
officer in (A) in the case of Z Del, Arizona, California, Florida, Louisiana,
Pennsylvania, Texas and Virginia, and (B) in the case of JCC, Texas, evidencing
the qualification of such Zale Parties to transact business as a foreign
corporation therein and the good standing of such Zale Parties therein;
(xi) a certificate issued on a recent date from the Comptroller
of the Currency of the United States evidencing the existence and good standing
of JNB;
(xii) the favorable written opinions of counsel for Z Del, JNB,
JCC and Zale addressed to the Administrative Agent and each Agent and Class A
Purchaser, or accompanied by a letter providing that the Administrative Agent
and each Agent and Class A Purchaser may rely on such opinions as if they were
addressed to them, and dated the Closing Date, covering general corporate
matters, the due execution and delivery of, and the enforceability of, each of
the Related Documents to which Z Del, JNB, JCC or Zale (individually or in any
other capacity) is party, sale/security interest matters, banking regulation,
tax matters and such other matters as the Administrative Agent may request;
(xiii) evidence of the due execution and delivery by the Owner
Trustee, on behalf of the Trust, and the Indenture Trustee of the Related
Documents to which it is party;
(xiv) an executed copy of each Receivables Purchase Agreement
described in clause (b) or (c) above, the Purchase and Servicing Agreement, the
Base Indenture and the Supplement;
(xv) a signed copy of a letter of Arthur Andersen LLP, in form
and substance satisfactory to the Administrative Agent;
(xvi) a certificate of the Owner Trustee as to the establishment
of certain accounts as provided in the Trust Agreement;
(xvii) the duly executed Class A Note(s) registered in the name
of each Agent as nominee on behalf of the Class A Owners in its Purchaser Group;
(xviii) evidence satisfactory to the Administrative Agent that
financing statements duly executed by JNB, JCC, Z Del and the Issuer or other,
similar instruments or documents, as may be necessary or, in the opinion of the
Administrative Agent or any Agent or Class A Purchaser, desirable under the
Uniform Commercial Code of all appropriate jurisdictions or any comparable law
to perfect the transfers (including grants of security interests) under the
Related Documents have been delivered and, if appropriate, have been duly filed
or recorded and that all filing fees, taxes or other amounts required to be paid
in connection therewith have been paid;
(xix) certified copies of requests for information or copies (or
a similar search report certified by a party acceptable to the Administrative
Agent), dated a date reasonably
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near to the Closing Date, listing all effective financing statements which name
JNB, JCC, Z Del or the Issuer (under its present name and any previous name) as
debtor and which are filed in the jurisdictions in which the statements referred
to in clause (xviii) above were or are to be filed, together with copies of such
financing statements (none of which, other than financing statements naming the
party under the Related Documents to which transfers (including grants of
security interests) thereunder purport to have been made) shall cover any of the
property purported to be conveyed thereunder;
(xx) evidence satisfactory to each Class A Purchaser that the
Class A Notes are rated at least "Aa2" and "AA" by Moody's and S&P,
respectively;
(xxi) evidence satisfactory to each initial CP Conduit that
its purchase of Class A Notes and Class A Note Principal Balance Increases
hereunder will not result in a reduction or withdrawal of the rating of its
Commercial Paper Notes by Moody's, S&P or any other nationally recognized rating
agency;
(xxii) evidence satisfactory to each Class A Purchaser that,
giving effect to the issuance of the Class A Notes and the purchase hereunder of
the Class A Initial Invested Amount, all of the Issuer's Series 1994-1 Notes
shall have been redeemed in full; and
(xxiii) such additional documents, instruments, certificates
or letters as the Administrative Agent or any Agent or Class A Purchaser may
reasonably request.
3.2 Condition to Additional Purchases. The following shall be
conditions precedent to each purchase hereunder by any Class A Purchasers of the
Class A Notes on the Closing Date and of each Class A Note Principal Balance
Increase thereafter:
(a) Except in the case of the initial purchase on the Closing
Date, each Agent shall have received a properly completed Increase Notice not
later than 5:00 p.m. on the fourth Business Day prior to such Increase Date;
(b) (i) No Termination Event, and no event that, after the giving
of notice or the lapse of time, would constitute a Termination Event, shall have
occurred and be continuing, (ii) as of such Purchase Date and after giving
effect to the distributions to be made on such date pursuant to the Supplement,
no unreimbursed Investor Charge-Offs shall remain outstanding, and (iii) except
in the case of the purchase on the Closing Date, the amount of funds then
available for distribution to the Administrative Agent, the Agents or the Class
A Purchasers pursuant to the Supplement shall equal or exceed the aggregate sum
of all interest, fees, expenses and all other amounts due and payable to the
Administrative Agent, the Agents and the Class A Purchasers hereunder (including
any amounts owed to the Administrative Agent, the Agents or the Class A
Purchasers under subsections 2.3, 2.4, 2.5 or 2.6 of this Agreement, but
excluding the Class A Principal Balance);
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(c) On the Purchase Date and after giving effect to the purchases
on such date of the Initial Invested Amount or of the Class A Note Principal
Balance Increase, if any, to be purchased on such date, as applicable, all
representations and warranties of Z Del or JNB (individually or in any other
capacity) or the Issuer contained herein or otherwise made in writing pursuant
to any of the provisions hereof shall be true and correct in all material
respects with the same force and effect as though such representations and
warranties had been made on and as of such date (unless such representations and
warranties specifically relate to an earlier date);
(d) After giving effect to the purchases on such date of the
Initial Invested Amount or of the Class A Note Principal Balance Increase to be
purchased on such date, (i) the Class A Invested Amount shall not exceed the
Class A Purchase Limit, and (ii) the Class A Note Principal Balance Increase on
such date plus the amount of any related increase in the Class B Invested Amount
shall not exceed an amount equal to the excess of the aggregate amount of
Principal Receivables in the Trust over the Required Minimum Principal Balance;
(e) After giving effect to the purchases on such date of the
Initial Invested Amount or of the Class A Note Principal Balance Increase to be
purchased on such date and any related increase in the Class B Invested Amount,
the Class B Invested Amount shall at least equal the Class B Enhancement
Percentage times the aggregate Invested Amount;
(f) The Initial Investor Interest (in the case of the Closing
Date) or the amount of the Class A Note Principal Balance Increase (in the case
of an Increase Date) to be purchased on such Purchase Date shall equal a minimum
amount of $5,000,000 and be shall be in an integral multiple of $1,000,000;
(g) Such Purchase Date shall not occur during a Partial
Amortization Period;
(h) Each CP Conduit's Support Facilities shall be in full force
and effect; and
(i) In the case of each Increase Date, the Seller shall have
delivered to the Administrative Agent and each Agent an Officer's Certificate
dated such Increase Date certifying (i) that the conditions described in clauses
(a) through (g) above have been satisfied and (ii) that based on the facts known
to the officer signing such Officer's Certificate at such time, in the
reasonable belief of the Seller, the purchases of the additional Invested Amount
to be purchased on such Increase Date will not cause an Early Amortization Event
or Series 1999-A Early Amortization Event or an event that, after the giving of
notice or the lapse of time, would constitute an Early Amortization Event or
Series 1999-A Early Amortization Event to occur.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Z Del. Z Del represents and
warrants to the Class A Purchasers, the Agents and the Administrative Agent that
the representations and warranties of Z Del (individually or as Seller) set
forth in the Purchase and Servicing Agreement, the
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Indenture and the other Related Documents are true and correct as of the date
hereof. Z Del further represents and warrants to, and agrees with, each Class A
Purchaser and Agent and the Administrative Agent that, as of the date hereof:
(a) Z Del is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with full power and
authority under such laws to own its properties and conduct its business as such
properties are presently owned and such business is presently conducted and to
execute, deliver and perform its obligations under this Agreement and the
Related Documents to which it is a party.
(b) Z Del has the power and authority to execute, deliver and
perform this Agreement and the Related Documents to which it is a party and all
the transactions contemplated hereby and thereby and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement
and such Related Documents. When executed and delivered, each of this Agreement
and each Related Document to which Z Del is a party will constitute the legal,
valid and binding agreement of Z Del, enforceable in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium and other laws of general applicability
relating to or affecting creditors' rights generally and the rights of creditors
from time to time in effect. The enforceability of Z Del's obligations under
such agreements is also subject to general principles of equity, regardless of
whether such enforceability is considered in a proceeding in equity or at law,
and indemnification sought in respect of securities laws violations may be
limited by public policy.
(c) No consent, license, approval or authorization of, or
registration with, any governmental authority, bureau or agency is required to
be obtained in connection with the execution, delivery or performance of each of
this Agreement or any Related Documents that has not been duly obtained and
which is not and will not be in full force and effect on the Closing Date,
except such that may be required by the blue sky laws of any state and except
those which the failure to obtain individually or in the aggregate, would not
have a material adverse effect on the Issuer or Z Del or the transactions
contemplated by, or the ability of the Issuer or Z Del to perform its respective
obligations under, this Agreement or the Related Documents.
(d) The execution, delivery and performance of each of this
Agreement and the Related Documents do not violate any provision of any existing
law or regulation applicable to Z Del, any order or decree of any court to which
Z Del is subject, its charter or by-laws or any mortgage, indenture, contract or
other agreement to which Z Del is a party or by which it or any significant
portion of Z Del's properties is bound (other than violations of such laws,
regulations, orders, decrees, mortgages, indentures, contracts and other
agreements which do not affect the legality, validity or enforceability of any
of such agreements or the Receivables and which, individually or in the
aggregate, would not have a material adverse effect on the Issuer or Z Del or
the transactions contemplated by, or the ability of the Issuer or Z Del to
perform its respective obligations under, this Agreement or the Related
Documents).
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(e) There is no litigation or administrative proceeding before
any court, tribunal or governmental body presently pending or, to the knowledge
of Z Del, threatened against Z Del with respect to this Agreement and the
Related Documents, the transactions contemplated hereby or thereby or the
issuance of the Series 1999-A Notes, and there is no such litigation or
proceeding against Z Del or any significant portion of Z Del properties, in each
case which would have a material adverse effect on the Issuer or Z Del or the
transactions contemplated by, or the ability of the Issuer or Z Del to perform
its respective obligations under, this Agreement or the Related Documents.
(f) Z Del has delivered to the Administrative Agent complete and
correct copies of (i) the audited balance sheet of Z Del as at July 31, 1998,
and the related audited statements of income, shareholders' equity and cash
flows for the fiscal year then ended, accompanied by the report thereon of
Arthur Andersen LLP, and (ii) the unaudited balance sheet of Z Del as at April
30, 1999, and the related unaudited statements of income, shareholders' equity
and cash flows for the fiscal quarter then ended. Such financial statements
fairly present in all material respects the financial condition of Z Del as at
such date and the results of the operations of Z Del for the period ended on
such dates, all in accordance with United States generally accepted accounting
principles, consistently applied, and since July 31, 1998 there has been no
material adverse change in any such condition or operations.
(g) Except as may have been consented to in writing by the
Administrative Agent or as provided in Section 6.1, such Agent or Class A
Purchaser, the identity of the Administrative Agent or any Agent or Class A
Purchaser as purchaser of the Class A Noteholders' Interest under this Agreement
or as an agent therefor has not been disclosed to any Person (other than any
director, officer, employee, representative or counsel of a party hereto and
each Rating Agency).
(h) The Indenture is not required to be qualified under the Trust
Indenture Act of 1939, and the Issuer is not required to be registered under the
Investment Company Act.
(i) The aggregate amount of the Receivables in the Accounts as of
July 12, 1999 was $587,515,901.79, consisting of $573,697,044.56 of Principal
Receivables and $13,818,857.23 of Finance Charge Receivables.
(j) On the Closing Date and after giving effect to the purchase
of the Class A Noteholders' Interest and the issuance of the Series 1999-A
Notes, no Early Amortization Event, Series 1999-A Early Amortization Event or
Servicer Default has occurred and is continuing, and no event, act or omission
has occurred and is continuing which, with the lapse of time, the giving of
notice or both, would constitute such an Early Amortization Event, Series 1999-A
Early Amortization Event or Servicer Default.
4.2 Representations and Warranties of JNB. JNB represents and
warrants to the Class A Purchasers, the Agents and the Administrative Agent that
the representations and warranties of JNB (individually or as Servicer or an
Originator) set forth in the Purchase and Servicing Agreement and the other
Related Documents are true and correct as of the date hereof. JNB further
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represents and warrants to, and agrees with, each Class A Purchaser and Agent
and the Administrative Agent that, as of the date hereof:
(a) JNB is a national banking association validly existing and in
good standing under the laws of the United States, with full power and authority
under such laws to own its properties and conduct its business as such
properties are presently owned and such business is presently conducted and to
execute, deliver and perform its obligations under this Agreement and the
Related Documents to which it is a party. JNB is subject to the supervision of
the Office of the Comptroller of the Currency.
(b) JNB has the power and authority to execute, deliver and
perform this Agreement and the Related Documents to which it is a party and all
the transactions contemplated hereby and thereby and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement
and such Related Documents. When executed and delivered, each of this Agreement
and each such Related Document will constitute the legal, valid and binding
agreement of JNB, enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium and other laws of general applicability relating to or
affecting creditors' rights generally and the rights of creditors of national
banking associations from time to time in effect. The enforceability of JNB's
obligations under such agreements is also subject to general principles of
equity, regardless of whether such enforceability is considered in a proceeding
in equity or at law, and indemnification sought in respect of securities laws
violations may be limited by public policy.
(c) No consent, license, approval or authorization of, or
registration with, any governmental authority, bureau or agency is required to
be obtained in connection with the execution, delivery or performance of each of
this Agreement or any Related Documents that has not been duly obtained and
which is not and will not be in full force and effect on the Closing Date,
except such that may be required by the blue sky laws of any state and except
those which the failure to obtain individually or in the aggregate, would not
have a material adverse effect on JNB or the transactions contemplated by, or
JNB's ability to perform its obligations under, this Agreement or the Related
Documents.
(d) The execution, delivery and performance of each of this
Agreement and the Related Documents do not violate any provision of any existing
law or regulation applicable to JNB, any order or decree of any court to which
JNB is subject, its charter or by-laws or any mortgage, indenture, contract or
other agreement to which JNB is a party or by which it or any significant
portion of JNB's properties is bound (other than violations of such laws,
regulations, orders, decrees, mortgages, indentures, contracts and other
agreements which do not affect the legality, validity or enforceability of any
of such agreements or the Receivables and which, individually or in the
aggregate, would not have a material adverse effect on JNB or the transactions
contemplated by, or JNB's ability to perform its obligations under, this
Agreement or the Related Documents).
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(e) There is no litigation or administrative proceeding before
any court, tribunal or governmental body presently pending or, to the knowledge
of JNB, threatened against JNB with respect to this Agreement and the Related
Documents, the transactions contemplated hereby or thereby or the issuance of
the Series 1999-A Notes, and there is no such litigation or proceeding against
JNB or any significant portion of JNB properties, in each case which would have
a material adverse effect on JNB or the transactions contemplated by, or the
ability of JNB to perform its respective obligations under, this Agreement or
the Related Documents.
(f) JNB has delivered to the Agent complete and correct copies of
the publicly available portions of (i) JNB's Consolidated Reports of Condition
and Income for the year ended December 31, 1998 and (ii) JNB's Consolidated
Reports of Condition and Income for the quarter ended March 31, 1999, and since
December 31, 1998 there has been no material adverse change in its condition or
operations as reflected in such Consolidated Reports of Condition and Income for
the year then ended.
(g) Except as may have been consented to in writing by the
Administrative Agent or as provided in Section 6.1, such Agent or Class A
Purchaser, the identity of the Administrative Agent or any Agent or Class A
Purchaser as purchaser of the Class A Noteholders' Interest under this Agreement
or as an agent therefor has not been disclosed by or on behalf of JNB to any
Person (other than any director, officer, employee, representative or counsel of
a party hereto and each Rating Agency).
(h) The aggregate amount of the Receivables in the Accounts as of
July 12, 1999 was $587,515,901.79, consisting of $573.697.044.56 of Principal
Receivables and $13,818,857.23 of Finance Charge Receivables.
(i) On the Closing Date and after giving effect to the purchase
of the Class A Noteholders' Interest and the issuance of the Series 1999-A
Notes, no Servicer Default has occurred and is continuing, and no event, act or
omission has occurred and is continuing which, with the lapse of time, the
giving of notice or both, would constitute such a Servicer Default.
4.3 Representations and Warranties of the Issuer. The Issuer
represents and warrants to the Class A Purchasers, the Agents and the
Administrative Agent that the representations and warranties of the Issuer set
forth in the Purchase and Servicing Agreement, the Indenture and the other
Related Documents are true and correct as of the date hereof. The Issuer further
represents and warrants to, and agrees with, each Class A Purchaser and Agent
and the Administrative Agent that, as of the date hereof:
(a) The Issuer is a business trust duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
power and authority under such laws to own its properties and conduct its
business as such properties are presently owned and such business is presently
conducted and to execute, deliver and perform its obligations under this
Agreement and the Related Documents to which it is a party.
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(b) The Issuer has the power and authority to execute, deliver
and perform this Agreement and the Related Documents to which it is a party and
all the transactions contemplated hereby and thereby and has taken all necessary
trust action to authorize the execution, delivery and performance of this
Agreement and such Related Documents. When executed and delivered, each of this
Agreement and each Related Document to which the Issuer is a party will
constitute the legal, valid and binding agreement of the Issuer, enforceable in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium and other laws of
general applicability relating to or affecting creditors' rights generally and
the rights of creditors from time to time in effect. The enforceability of the
Issuer's obligations under such agreements is also subject to general principles
of equity, regardless of whether such enforceability is considered in a
proceeding in equity or at law, and indemnification sought in respect of
securities laws violations may be limited by public policy.
(c) No consent, license, approval or authorization of, or
registration with, any governmental authority, bureau or agency is required to
be obtained in connection with the execution, delivery or performance of each of
this Agreement or any Related Documents that has not been duly obtained and
which is not and will not be in full force and effect on the Closing Date,
except such that may be required by the blue sky laws of any state and except
those which the failure to obtain individually or in the aggregate, would not
have a material adverse effect on the Issuer or Z Del or the transactions
contemplated by, or Issuer's ability to perform its obligations under, this
Agreement or the Related Documents.
(d) The execution, delivery and performance of each of this
Agreement and the Related Documents do not violate any provision of any existing
law or regulation applicable to the Issuer, any order or decree of any court to
which the Issuer is subject, its governing instrument or any mortgage,
indenture, contract or other agreement to which the Issuer is a party or by
which it or any significant portion of the Issuer's properties is bound (other
than violations of such laws, regulations, orders, decrees, mortgages,
indentures, contracts and other agreements which do not affect the legality,
validity or enforceability of any of such agreements or the Receivables and
which, individually or in the aggregate, would not have a material adverse
effect on the Issuer or the transactions contemplated by, or the Issuer's
ability to perform its respective obligations under, this Agreement or the
Related Documents.)
(e) There is no litigation or administrative proceeding before
any court, tribunal or governmental body presently pending or, to the knowledge
of the Issuer, threatened against the Issuer with respect to this Agreement and
the Related Documents, the transactions contemplated hereby or thereby or the
issuance of the Series 1999-A Notes, and there is no such litigation or
proceeding against the Issuer or any significant portion of the Issuer
properties, in each case which would have a material adverse effect on the
Issuer or the transactions contemplated by, or the ability of the Issuer to
perform its obligations under, this Agreement or the Related Documents.
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(f) Except as may have been consented to in writing by the
Administrative Agent or as provided in Section 6.1, such Agent or Class A
Purchaser, the identity of the Administrative Agent or any Agent or Class A
Purchaser as purchaser of the Class A Noteholders' Interest under this Agreement
or as an agent therefor has not been disclosed by or on behalf of the Issuer to
any Person (other than any director, officer, employee, representative or
counsel of a party hereto and each Rating Agency).
(g) The Indenture is not required to be qualified under the Trust
Indenture Act of 1939, and the Issuer is not required to be registered under the
Investment Company Act.
(h) The aggregate amount of the Receivables in the Accounts as of
July 12, 1999 was $587,515,901.79, consisting of $573,697,044.56 of Principal
Receivables and $13,818,857.23 of Finance Charge Receivables.
(i) On the Closing Date and after giving effect to the purchase
of the Class A Noteholders' Interest and the issuance of the Series 1999-A
Notes, no Early Amortization Event, Series 1999-A Early Amortization Event or
Servicer Default has occurred and is continuing, and no event, act or omission
has occurred and is continuing which, with the lapse of time, the giving of
notice or both, would constitute such an Early Amortization Event, Series 1999-A
Early Amortization Event or Servicer Default.
4.4 Representations and Warranties of the Class A Purchasers.
Each of the Class A Purchasers severally (each with respect to itself only)
represents and warrants to, and agrees with, the Issuer that:
(a) Such Class A Purchaser is duly authorized to enter into and
perform this Agreement and its respective Investment Letter and has duly
executed and delivered this Agreement and such Investment Letter;
(b) This Agreement constitutes the valid and binding obligation
of such Class A Purchaser, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, receivership and other laws relating to,
or affecting generally, the enforcement of creditors' rights and remedies as the
same may be applied in the event of the bankruptcy, insolvency, reorganization,
receivership or liquidation or a similar event of such Class A Purchaser or a
moratorium applicable to such Class A Purchaser and to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
at law or in equity); and
(c) No registration with, consent or approval of or other action
by any federal, state, or other governmental authority or regulatory body having
jurisdiction over such Class A Purchaser is required in connection with the
execution, delivery or performance by such Class A Purchaser of this Agreement.
ARTICLE 5 COVENANTS
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5.1 Covenants of Z Del. Z Del, JNB and the Servicer, on behalf of
the Issuer (each, individually or in its capacity as Seller, Servicer or an
Originator, as applicable, a "Zale Party"), severally covenants and agrees, in
each case as to itself individually or in such respective capacities, through
the Purchase Termination Date for all Class A Purchasers and thereafter so long
as any amount of the Class A Principal Balance shall remain outstanding or any
monetary obligation arising hereunder shall remain unpaid, unless the Required
Class A Owners and the Required Class A Purchasers shall otherwise consent in
writing, that:
(a) Each Zale Party shall perform in all material respects each
of the respective agreements, warranties and indemnities applicable to it and
comply in all material respects with each of the respective terms and provisions
applicable to it under the other Related Documents to which it is party, which
agreements, warranties and indemnities are hereby incorporated by reference into
this Agreement as if set forth herein in full; and each Zale Party shall take
all reasonable actions to enforce the obligations of each of the other parties
to each Receivables Purchase Agreement (as defined in the Trust Agreement) to
which it is a party which are contained therein;
(b) The Seller and the Servicer (in its capacity as such and on
behalf of the Issuer), shall furnish to the Administrative Agent and each Agent
a copy of each material written opinion, certificate, report, statement, notice
or other communication (other than investment instructions) relating to the
Investor Notes which is furnished by or on behalf of such Zale Party to
Noteholders, to any Rating Agency or to the Indenture Trustee and furnish to the
Administrative Agent and each Agent after receipt thereof, a copy of each
material written notice, demand or other communication relating to the Investor
Notes, this Agreement, the Indenture or the Purchase and Servicing Agreement
received by the Issuer, the Seller or the Servicer from the Indenture Trustee,
any Rating Agency or 10% or more of the Investor Noteholders (to the extent such
notice, demand or communication relates to the Accounts, the Receivables, any
Servicer Default, any Early Amortization Event or any Series 1999-A Early
Amortization Event); and (ii) such other information, documents records or
reports respecting the Accounts, the Receivables, the Issuer, the Seller, any
Originator or the Servicer as the Administrative Agent or any such Agent may
from time to time reasonably request;
(c) (i) The Seller shall furnish to the Administrative Agent and
each Agent copies of each of the financial statements, reports and certificates
required by Section 5.01(a) of the Purchase and Servicing Agreement, on or
before the date such financial statements, reports or certificates are due under
the Purchase and Servicing Agreement, (ii) JNB or the Servicer, as applicable,
shall furnish to the Administrative Agent and each Agent copies of each of the
financial statements, reports and certificates required by Section 5.01(i),
6.03(b), 6.03(c) or 6.03(d) of the Purchase and Servicing Agreement or, if
requested by the Administrative Agent or any Agent, Section 6.03(a) of the
Purchase and Servicing Agreement, on or before the date such financial
statements, reports or certificates are due under such Related Documents, and
(iii) the Servicer, on behalf of the Issuer, shall furnish to the Administrative
Agent and each Agent copies of each of the
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financial statements, reports and certificates required by Section 8.01(d) of
the Base Indenture, on or before the date such financial statements, reports or
certificates are due under the Base Indenture;
(d) The Servicer shall promptly furnish to the Administrative and
each Agent a copy, addressed to the Administrative and each Agent, of each
opinion of counsel delivered to the Indenture Trustee pursuant to clause (iii)
of Section 2.05 of the Purchase and Servicing Agreement;
(e) JNB shall furnish to the Administrative and each Agent
promptly when publicly available, the publicly available portions of its annual
and quarterly Consolidated Reports of Condition and Income;
(f) Each Zale Party shall furnish to the Administrative and each
Agent promptly after known to such Zale Party, information with respect to any
action, suit or proceeding involving such Zale Party or any of its Affiliates by
or before any court or any Governmental Authority which, if adversely
determined, would be reasonably likely to result in a material and adverse
effect on any Zale Party or Zale or the transactions contemplated by, or any
Zale Party's ability to perform its obligations under, this Agreement or the
Related Documents;
(g) Each Zale Party shall furnish to the Administrative Agent and
each Agent promptly upon request therefor any information or documents which
under the terms of the Indenture or the Purchase and Servicing Agreement it is
required to deliver upon request of the Indenture Trustee or any Noteholder or
group of Noteholders;
(h) The Servicer shall furnish to the Administrative and each
Agent a certificate concurrently with its delivery of its annual certificate
pursuant to Section 6.03(d) of the Purchase and Servicing Agreement stating that
no Termination Event or event or condition which with the passage of time or the
giving of notice, or both, would constitute a Termination Event has occurred or,
if such a Termination Event, event or condition has occurred, identifying the
same in reasonable detail;
(i) The Seller and the Servicer shall at any time from time to
time during regular business hours, on reasonable notice to the Seller or the
Servicer, as the case may be, and subject to the confidentiality requirements
set forth in Section 6.2, permit the Administrative Agent or any Agent, or its
respective agents or representatives to exercise the inspection and other rights
granted to the Issuer or the Indenture Trustee pursuant to Section 5.01(d) of
the Purchase and Servicing Agreement;
(j) The Issuer shall at any time from time to time during regular
business hours, on reasonable notice to the Issuer, and subject to the
confidentiality requirements set forth in Section 6.2, permit the Administrative
Agent or any Agent, or its respective agents or representatives to exercise the
inspection and other rights granted to the Indenture Trustee pursuant to Section
8.01(i) of the Base Indenture;
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(k) Except for New Issuances in accordance with Section 2.22 of
the Indenture and modifications to Supplements with respect to Series other than
Series 1999-A and except for terminations, amendments, waiver and modifications
of Related Document, no Zale Party shall take any action which, under the terms
of the Related Documents, requires the consent or approval of the Indenture
Trustee, the Majority Noteholders or other group of Noteholders or the
satisfaction of the Rating Agency Condition (or any similar condition), unless
such action has been consented to or approved, as the case may be, by the
Required Class A Owners and the Required Class A Purchasers;
(l) Neither the Seller nor the Issuer shall reduce or withdraw
any Discount Percentage (i) if the Early Amortization Commencement Date has
occurred or (ii) unless it shall have delivered to the Administrative Agent and
each Agent an Officer's Certificate of the Servicer stating that the Servicer
reasonably believes that such reduction or withdrawal will not (i) result in the
occurrence of an Early Amortization Event or Series 1999-A Early Amortization
Event or (ii) cause the Portfolio Yield to be less than the Base Rate. Neither
the Seller nor the Issuer shall designate, increase or withdraw the Discount
Percentage without the prior written consent of the Required Class A Owners and
the Required Class A Purchasers if, as a result thereof, the Discount Percentage
would be less than 6% or greater than 8%.
(m) Neither the Seller nor the Issuer shall designate, change or
withdraw a Premium Percentage without the prior written consent of all Class A
Purchasers.;
(n) Any determination to be made by a Zale Party pursuant to any
Related Document that a matter does not adversely or materially adversely affect
(within the meaning of such Related Document) the interests of Noteholders shall
not be made unless such matter does not adversely or materially adversely affect
the interests of the Class A Purchasers or Class A Owners;
(o) The Servicer shall not exercise its optional right to
purchase the Receivables pursuant to subsection 6.10(c) of the Purchase and
Servicing Agreement and the Issuer shall not exercise its optional right to
repay all Class A Notes pursuant to Section 7.01 of the Supplement, unless the
Class A Purchasers, the Administrative Agent and each Agent have been paid, or
will be paid upon such purchase or in connection with such optional repayment,
the Class A Principal Balance, all interest thereon and all other amounts owing
hereunder in full;
(p) Each Zale Party shall use reasonable efforts to cooperate
with each Agent in its effort to syndicate the Commitments of its Purchaser
Group;
(q) The Servicer shall furnish to the Administrative Agent and
each Agent, promptly after the occurrence of any Termination Event, a
certificate of an appropriate officer of the Servicer setting forth the
circumstances of such Termination Event and any action taken or proposed to be
taken by the Servicer or any other Zale Party with respect thereto;
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(r) Each Zale Party shall make all payments, deposits or
transfers and give all instructions to transfer required to be made or given by
it pursuant to this Agreement or Related Documents as provided herein or
therein; and
(s) No Zale Party shall terminate (except in accordance with the
terms thereof), amend, waive or otherwise modify any Related Document unless (i)
in the case of amendments and modifications of the Base Indenture pursuant to
the first sentence of Section 13.01 thereof which, as evidenced by an Officer's
Certificate of the Issuer delivered to the Administrative Agent and each Agent,
do not adversely affect in any material respect the interests of the
Administrative Agent or any Agent or Class A Purchaser hereunder or under any
Related Document, all of the applicable provisions of Section 13.01 of the Base
Indenture have been complied with, (ii) in the case of an amendment or
modification to or waiver under a Related Document other than the Base
Indenture, the Supplement and the Purchase and Servicing Agreement, such
amendment, modification or waiver will not have a material adverse effect on any
Class A Purchaser or Agent or the Administrative Agent or such Zale Party shall
have received the prior written consent thereto by the Required Class A
Purchasers and the Required Class A Owners, and (iii) in the case of any other
amendment, waiver or modification, such Zale Party shall have received the prior
written consent thereto by the Required Class A Purchasers and the Required
Class A Owners.
ARTICLE 6 MUTUAL COVENANTS REGARDING CONFIDENTIALITY
6.1 Covenants of the Zale Parties. Each Zale Party, severally and
with respect to itself only, covenants and agrees to hold in confidence, and not
disclose to any Person, the terms of any fees payable in connection with this
Agreement or the identity of any CP Conduit which is an agent, a purchaser or
beneficial owner of Class A Notes under this Agreement, except as the
Administrative Agent or such Agent or Class A Purchaser, as the case may be, may
have consented to in writing prior to any proposed disclosure (which consent, in
the case of disclosure of the terms of this Agreement (other than fees) and the
identity of any CP Conduit, shall not be unreasonably withheld in connection
with a proposed Assignment or amendment to include a new Purchaser Group) and
except it may disclose such information (i) to its officers, directors,
employees, agents, counsel, accountants, auditors, advisors or representatives
or (ii) to the extent it should be (A) required by law, rule or regulation or in
connection with any legal or regulatory proceeding or (B) requested by any
Governmental Authority to disclose such information; provided, that, in the case
of clause (ii)(A), such Zale Party will use all reasonable efforts to maintain
confidentiality and will (unless otherwise prohibited by law) notify the
affected Administrative Agent, Agent or Class A Purchaser of its intention to
make any such disclosure prior to making such disclosure.
6.2 Covenants of Class A Purchasers. The Administrative Agent and
each Agent and Class A Purchaser, severally and with respect to itself only,
covenants and agrees that any nonpublic information obtained by it pursuant to
this Agreement shall be held in confidence (it being understood that documents
provided to the Administrative Agent or any Agent or Class A Purchaser hereunder
may in all cases be distributed to the Administrative Agent or to any Agent or
Class A
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Purchaser) except that the Administrative Agent or such Agent or Class A
Purchaser may disclose such information (i) to its officers, directors,
employees, agents, counsel, accountants, auditors, advisors or representatives,
(ii) to the extent such information has become available to the public other
than as a result of a disclosure by or through the Administrative Agent or such
Agent or Class A Purchaser, (iii) to the extent such information was available
to the Agent or such Class A Purchaser on a nonconfidential basis prior to its
disclosure to the Administrative Agent or any Agent or Class A Purchaser
hereunder, (iv) with the consent of the affected Zale Party, (v) to the extent
permitted by Section 8.1 of this Agreement, (vi) in the case of any Class A
Purchaser that is a CP Conduit, to placement agents and providers of liquidity
and credit support who agree to hold such information in confidence or to rating
agencies, or (vii) to the extent the Agent or such Class A Purchaser should be
(A) required by law, rule or regulation or in connection with any legal or
regulatory proceeding or (B) requested by any Governmental Authority to disclose
such information; provided, that in the case of clause (vii)(A), the
Administrative Agent or such Agent or Class A Purchaser, as the case may be,
will use all reasonable efforts to maintain confidentiality and will (unless
otherwise prohibited by law) notify the affected Zale Party of its intention to
make any such disclosure prior to making any such disclosure.
ARTICLE 7 THE AGENTS
7.1 Appointment. Each Class A Purchaser hereby irrevocably
designates and appoints the Administrative Agent as the agent of such Class A
Purchaser under this Agreement, and each such Class A Purchaser irrevocably
authorizes the Administrative Agent, as the agent for such Class A Purchaser, to
take such action on its behalf under the provisions of the Related Documents and
to exercise such powers and perform such duties thereunder as are expressly
delegated to the Administrative Agent by the terms of the Related Documents,
together with such other powers as are reasonably incidental thereto. Each Class
A Purchaser in each Purchaser Group hereby irrevocably designates and appoints
the Agent for such Purchaser Group as the agent of such Class A Purchaser under
this Agreement, and each such Class A Purchaser irrevocably authorizes such
Agent, as the agent for such Class A Purchaser, to take such action on its
behalf under the provisions of the Related Documents and to exercise such powers
and perform such duties thereunder as are expressly delegated to such Agent by
the terms of the Related Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, neither the Administrative Agent nor any Agent (the
Administrative Agent and each Agent being referred to in this Article as a
"Class A Agent") shall have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Class A
Purchaser, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or otherwise exist
against any Class A Agent.
7.2 Delegation of Duties. Each Class A Agent may execute any
of its duties under any of the Related Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. No Class A Agent shall be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
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7.3 Exculpatory Provisions. Neither any Class A Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates
shall be (a) liable to any of the Class A Purchasers for any action lawfully
taken or omitted to be taken by it or such Person under or in connection with
any of the other Related Documents (except for its or such Person's own gross
negligence or willful misconduct) or (b) responsible in any manner to any of the
Class A Purchasers for any recitals, statements, representations or warranties
made by any Zale Party or the Indenture Trustee or any officer thereof contained
in any of the other Related Documents or in any certificate, report, statement
or other document referred to or provided for in, or received by a Class A Agent
under or in connection with, any of the other Related Documents or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any of the other Related Documents or for any failure of any
Zale Party or the Indenture Trustee to perform its obligations thereunder. No
Class A Agent shall be under any obligation to any Class A Purchaser to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, any of the other Related Documents,
or to inspect the properties, books or records of any Zale Party or the
Indenture Trustee.
7.4 Reliance by Agents. Each Class A Agent shall be entitled to
rely, and shall be fully protected in relying, upon any writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, written statement, order or other document or
conversation believed by it 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 (including counsel to the Agent), independent accountants and
other experts selected by such Class A Agent. Each Class A Agent shall be fully
justified in failing or refusing to take any action under any of the Related
Documents unless it shall first receive such advice or concurrence of the
Required Class A Owners and the Required Class A Purchasers as it deems
appropriate or it shall first be indemnified to its satisfaction by (i) in the
case of the Administrative Agent, the Class A Purchasers or by the Committed
Purchasers or (ii) in the case of an Agent, the Class A Purchasers or by the
Committed Purchasers in its Purchaser Group, 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 Administrative Agent shall in all cases be fully protected
in acting, or in refraining from acting, under any of the Related Documents in
accordance with a request of the Required Class A Owners and the Required Class
A Purchasers (or their Agents), and such request and any action taken or failure
to act pursuant thereto shall be binding upon all present and future Class A
Purchasers. Each Agent shall in all cases be fully protected in acting, or in
refraining from acting, under any of the Related Documents in accordance with a
request of (i) Class A Owners in its Purchaser Group having Percentage Interests
aggregating greater than 50% of the aggregate Percentage Interests of all Class
A Owners in such Purchaser Group, and (ii) Committed Purchasers and Liquidity
Purchasers in its Purchaser Group having Commitments aggregating greater than
50% of the aggregate Commitments of all Committed Purchasers and Liquidity
Purchasers in such Purchaser Group, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all present and future
Class A Purchasers in such Purchaser Group.
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7.5 Notices. No Class A Agent shall be deemed to have knowledge
or notice of the occurrence of any breach of this Agreement or the occurrence of
any Termination Event unless such Class A Agent has received notice from the
Issuer, the Servicer, the Indenture Trustee or any Class A Purchaser, referring
to this Agreement and describing such event. In the event that the
Administrative Agent receives such a notice, it shall promptly give notice
thereof to each Agent, and in the event any Agent receives such a notice, it
shall promptly give notice thereof to the Class A Purchasers in its Purchaser
Group. The Administrative Agent shall take such action with respect to such
event as shall be reasonably directed by the Required Class A Owners and the
Required Class A Purchasers, and each Agent shall take such action with respect
to such event as shall be reasonably directed by (i) Class A Owners in its
Purchaser Group having Percentage Interests aggregating greater than 50% of the
aggregate Percentage Interests of all Class A Owners in such Purchaser Group,
and (ii) Committed Purchasers and Liquidity Purchasers in its Purchaser Group
having Commitments aggregating greater than 50% of the aggregate Commitments of
all Committed Purchasers and Liquidity Purchasers in such Purchaser Group;
provided that unless and until such Class A Agent shall have received such
directions, such Class A Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such event as it
shall deem advisable in the best interests of the Class A Purchasers or of the
Class A Purchasers in its Purchaser Group, as applicable.
7.6 Non-Reliance on Agents and Other Class A Purchasers. Each
Class A Purchaser expressly acknowledges that no Class A Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any representations or warranties to it and that no act by any Class A Agent
hereafter taken, including any review of the affairs of any Zale Party or the
Indenture Trustee shall be deemed to constitute any representation or warranty
by any Class A Agent to any Class A Purchaser. Each Class A Purchaser represents
to each Class A Agent that it has, independently and without reliance upon any
Class A Agent or any other Class A Purchaser, 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 each Zale Party, the Accounts, the Receivables
and the Indenture Trustee and made its own decision to purchase its interest in
the Class A Notes hereunder and enter into this Agreement. Each Class A
Purchaser also represents that it will, independently and without reliance upon
any Class A Agent or any other Class A Purchaser, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis, appraisals and decisions in taking or not taking action under any
of the Related Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial and other
condition and creditworthiness of each Zale Party, the Accounts, the Receivables
and the Indenture Trustee. Except, in the case of a Class A Agent, for notices,
reports and other documents received by such Class A Agent under Section 5
hereof, no Class A Agent shall have any duty or responsibility to provide any
Class A Purchaser with any credit or other information concerning the business,
operations, property, condition (financial or otherwise), prospects or
creditworthiness of each Zale Party, the Accounts, the Receivables or the
Indenture Trustee which may come into the possession of such Class A Agent or
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
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7.7 Indemnification. (i) The Committed Purchasers and the
Liquidity Purchasers agree to indemnify the Administrative Agent in its capacity
as such (without limiting the obligation (if any) of any Zale Party to reimburse
the Administrative Agent for any such amounts), ratably according to their
respective Commitments (or, if the Commitments have terminated, Percentage
Interests), and (ii) the Committed Purchasers and the Liquidity Purchasers in
each Purchaser Group agree to indemnify the Agent for such Purchaser Group in
its capacity as such (without limiting the obligation (if any) of any Zale Party
to reimburse such Agent for any such amounts), ratably according to their
respective Commitments (or, if the Commitments have terminated, Percentage
Interests), in each case from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including at any
time following the payment of the obligations under this Agreement, including
the Class A Principal Balance) be imposed on, incurred by or asserted against
such Class A Agent in any way relating to or arising out of this Agreement, or
any documents contemplated by or referred to herein or the transactions
contemplated hereby or any action taken or omitted by the Agent under or in
connection with any of the foregoing; provided that no Class A Purchaser shall
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of a Class A Agent resulting from its own gross negligence or
willful misconduct. The agreements in this subsection shall survive the payment
of the obligations under this Agreement, including the Class A Principal
Balance.
7.8 Agents in their Individual Capacity. Each Class A Agent and
its Affiliates may make loans to, accept deposits from and generally engage in
any kind of business with any Zale Party as though such Class A Agent were not
an agent hereunder. In addition, the Class A Purchasers acknowledges that one or
more Persons which are Class A Agents may act (i) as administrator, sponsor or
agent for one or more CP Conduits and in such capacity acts and may continue to
act on behalf of each such CP Conduit in connection with its business, and (ii)
as the agent for certain financial institutions under the liquidity and credit
enhancement agreements relating to this Agreement to which any one or more CP
Conduits is party and in various other capacities relating to the business of
any such CP Conduit under various agreements. Any such Person, in its capacity
as Class A Agent, shall not, by virtue of its acting in any such other
capacities, be deemed to have duties or responsibilities hereunder or be held to
a standard of care in connection with the performance of its duties as a Class A
Agent other than as expressly provided in this Agreement. Any Person which is a
Class A Agent may act as a Class A Agent without regard to and without
additional duties or liabilities arising from its role as such administrator or
agent or arising from its acting in any such other capacity.
7.9 Successor Agents. The Administrative Agent may resign as
Administrative Agent upon ten days' notice to the Class A Purchasers, each
Agent, the Indenture Trustee, the Issuer and the Servicer with such resignation
becoming effective upon a successor agent succeeding to the rights, powers and
duties of the Agent pursuant to this Section 7.9. If the Administrative Agent
shall resign as Administrative Agent under this Agreement, then the Required
Class A Purchasers and the Required Class A Owners shall appoint from among the
Committed Purchasers a successor
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administrative agent. Any Agent may resign as Agent upon ten days' notice to the
Class A Purchasers in its Purchaser Group, the Administrative Agent and each
other Agent, the Indenture Trustee, the Issuer and the Servicer with such
resignation becoming effective upon a successor agent succeeding to the rights,
powers and duties of the Agent pursuant to this Section 7.9. If an Agent shall
resign as Agent under this Agreement, then (i) Class A Owners in its Purchaser
Group having Percentage Interests aggregating greater than 50% of the aggregate
Percentage Interests of all Class A Owners in such Purchaser Group, and (ii)
Committed Purchasers and Liquidity Purchasers in its Purchaser Group having
Commitments aggregating greater than 50% of the aggregate Commitments of all
Committed Purchasers and Liquidity Purchasers in such Purchaser Group shall
appoint from among the Committed Purchasers in such Purchaser Group a successor
agent for such Purchaser Group. Any successor administrative agent or agent
shall succeed to the rights, powers and duties of resigning Class A Agent, and
the term "Administrative Agent" or "Agent," as applicable, shall mean such
successor administrative agent or agent effective upon its appointment, and the
former Class A Agent's rights, powers and duties as Class A Agent shall be
terminated, without any other or further act or deed on the part of such former
Class A Agent or any of the parties to this Agreement. After the retiring Class
A Agent's resignation as Class A Agent, the provisions of this Section 7 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
ARTICLE 8 SECURITIES LAWS; TRANSFERS
8.1 Transfers of Class A Notes.
(a) Each Class A Purchaser shall execute and deliver to the
Issuer on the Closing Date an Investment Letter substantially in the form
attached hereto as Exhibit A (an "Investment Letter"). Each Class A Owner agrees
that the beneficial interest in the Class A Notes purchased by it will be
acquired for investment only and not with a view to any public distribution
thereof, and that such Class A Owner will not offer to sell or otherwise dispose
of any Class A Note acquired by it (or any interest therein) in violation of any
of the requirements of the Securities Act or any applicable state or other
securities laws. Each Class A Owner acknowledges that it has no right to require
the Issuer to register, under the Securities Act of 1933, as amended, or any
other securities law, the Class A Notes (or the beneficial interest therein)
acquired by it pursuant to this Agreement or any Transfer Supplement. Each Class
A Owner hereby confirms and agrees that in connection with any transfer or
syndication by it of an interest in the Class A Notes, such Class A Owner has
not engaged and will not engage in a general solicitation or general advertising
including advertisements, articles, notices or other communications published in
any newspaper, magazine or similar media or broadcast over radio or television,
or any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
(b) Each initial purchaser of a Class A Note or any interest
therein and any Assignee thereof or Participant therein shall certify to the
Issuer, the Servicer, the Indenture Trustee, the Administrative Agent and the
Agent for its Purchaser Group that it is either (A)(i) a citizen or resident of
the United States, (ii) a corporation or other entity organized in or under the
laws of the
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United States or any political subdivision thereof which, if such entity is a
tax-exempt entity, recognizes that payments with respect to the Class A Notes
may constitute unrelated business taxable income or (iii) a person not described
in (i) or (ii) whose income from the Class A Notes is and will be effectively
connected with the conduct of a trade or business within the United States
(within the meaning of the Code) and whose ownership of any interest in a Class
A Note will not result in any withholding obligation with respect to any
payments with respect to the Class A Notes by any Person (other than
withholding, if any, under Section 1446 of the Code) and who will furnish to the
Issuer, the Servicer, the Indenture Trustee, the Administrative Agent, the Agent
for its Purchaser Group, and to the Class A Owner making the Transfer a properly
executed U.S. Internal Revenue Service Form 4224 (and to agree (to the extent
legally able) to provide a new Form 4224 upon the expiration or obsolescence of
any previously delivered form and comparable statements in accordance with
applicable United States laws) or (B) an estate or trust the income of which is
includible in gross income for United States federal income tax purposes.
(c) Any sale, transfer, assignment, participation, pledge,
hypothecation or other disposition (a "Transfer") of a Class A Note or any
interest therein may be made only in accordance with this Section 8.1. Any
Transfer of an interest in a Class A Note, a Commitment or any Purchaser
Percentage by a Committed Purchaser or Liquidity Purchaser shall be in respect
of, at least $5,000,000 in the aggregate, which may be composed of (A) Class A
Principal Balance or (B) to the extent in excess of the Class A Principal
Balance subject to such Transfer, Commitment hereunder. Any Transfer of an
interest in a Class A Note otherwise permitted by this Section 8.1 will be
permitted only if it consists of a pro rata percentage interest in all payments
made with respect to the Class A Purchaser's beneficial interest in such Class A
Note. No Class A Note or any interest therein may be Transferred by Assignment
or Participation to any Person (each, a "Transferee") unless prior to the
transfer the Transferee shall have executed and delivered to the Agent and the
Issuer an Investment Letter.
Each Zale Party authorizes each Class A Purchaser to disclose to
any Transferee and Support Party and any prospective Transferee or Support Party
any and all confidential information in the Class A Purchaser's possession
concerning this Agreement or the Related Documents or concerning the Accounts,
the Receivables or such Zale Party which has been delivered to any Class A Agent
or such Class A Purchaser pursuant to this Agreement or the Related Documents
(including information obtained pursuant to rights of inspection granted
hereunder) or which has been delivered to such Class A Purchaser by or on behalf
of any Zale Party in connection with such Class A Purchaser's credit evaluation
of the Accounts, the Receivables or any Zale Party prior to becoming a party to,
or purchasing an interest in this Agreement or the Class A Notes; provided that
prior to any such disclosure, such Transferee or Support Party or prospective
Transferee or Support Party shall have agreed to be bound by the provisions of
Section 6.2 hereof.
(d) Each Class A Purchaser may, in accordance with applicable
law, at any time grant participations in all or part of its Commitment or its
interest in the Class A Notes, including the payments due to it under this
Agreement and the Related Documents (each, a "Participation"), to any Person
(each, a "Participant"); provided, however, that no Participation shall be
granted to any Person
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unless and until the Agent for such Class A Purchaser's Purchaser Group shall
have consented thereto and the conditions to Transfer specified in this
Agreement, including in subsection 8.1(c) hereof, shall have been satisfied and
that such Participation consists of a pro rata percentage interest in all
payments made with respect to such Class A Purchaser's beneficial interest (if
any) in the Class A Notes. In connection with any such Participation, each Agent
for a Purchaser Group shall maintain a register of each Participant of members
of its Purchaser Group and the amount of each related Participation. Each Class
A Purchaser hereby acknowledges and agrees that (A) any such Participation will
not alter or affect such Class A Purchaser's direct obligations hereunder, and
(B) neither the Indenture Trustee, the Issuer nor the Servicer shall have any
obligation to have any communication or relationship with any Participant. Each
Class A Purchaser and each Participant shall comply with the provisions of
subsection 2.5(c) of this Agreement. No Participant shall be entitled to
Transfer all or any portion of its Participation, without the prior written
consent of the Agent for its Purchaser Group. Each Participant shall be entitled
to receive additional amounts and indemnification pursuant to Sections 2.4, 2.5
and 2.6 hereof as if such Participant were a Class A Purchaser and such Sections
applied to its Participation; provided, in the case of Section 2.5, that such
Participant has complied with the provisions of subsection 2.5(c) hereof as if
it were a Class A Purchaser; and provided further that unless such Participant
has been consented to by the Seller, such Participant shall be entitled to
receive additional amounts pursuant to Sections 2.4 or 2.5 only to the extent
that its transferor Class A Purchaser would have been entitled to such receive
such additional amounts in the absence of such Participation. Each Class A
Purchaser shall give the Agent for its Purchaser Group notice of the
consummation of any sale by it of a Participation.
(e) Each Class A Purchaser may, with the consent of the Agent for
its Purchaser Group and the consent of the Seller (which consents shall not be
unreasonably withheld) and in accordance with applicable law, sell or assign
(each, an "Assignment"), to any Person (each, an "Assignee") all or any part of
its Commitment (if any) or its interest in the Class A Notes and its rights and
obligations under this Agreement and the Related Documents pursuant to an
agreement substantially in the form attached hereto as Exhibit B hereto (a
"Transfer Supplement"), executed by such Assignee and the Class A Purchaser and
delivered to the Agent for its Purchaser Group for its acceptance and consent;
provided, however, that (i) no such assignment or sale shall be effective unless
and until the conditions to Transfer specified in this Agreement, including in
subsection 8.1(c) hereof, shall have been satisfied, (ii) no assignment or sale
by a Liquidity Purchaser shall be effective without the consent of the CP
Conduit in its Purchaser Group, (iii) no assignment or sale which results in the
addition of a new Purchaser Group shall be effective without the consent of the
Administrative Agent, and (iv) in no event shall the consent of an Agent be
required in the case of an assignment by a CP Conduit of its interest in the
Class A Notes and its rights and obligations under this Agreement and the
Related Documents to any one or more of its Liquidity Purchasers in its
Purchaser Group. From and after the effective date determined pursuant to such
Transfer Supplement, (x) the Assignee thereunder shall be a party hereto and, to
the extent provided in such Transfer Supplement, have the rights and obligations
of a Class A Purchaser hereunder as set forth therein and (y) the transferor
Class A Purchaser shall, to the extent provided in such Transfer Supplement, be
released from its Commitment and other obligations under this Agreement;
provided, however, that after giving effect to each such Assignment, the
obligations released by any such
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Class A Purchaser shall have been assumed by an Assignee or Assignees. Such
Transfer Supplement shall be deemed to amend this Agreement to the extent, and
only to the extent, necessary to reflect the addition of such Assignee and the
resulting adjustment of Percentage Interests, Purchaser Percentages or Liquidity
Percentages arising from the Assignment. Upon its receipt and acceptance of a
duly executed Transfer Supplement, the Agent for the applicable Purchaser Group
(or, in the case of an Assignment by which a new Purchaser Group is added to
this Agreement, the Administrative Agent) shall on the effective date determined
pursuant thereto give notice of such acceptance to the Issuer, the Servicer and
the Indenture Trustee.
Upon instruction to register a transfer of a Class A Purchaser's
beneficial interest in the Class A Notes (or portion thereof) and surrender for
registration of transfer of such Class A Purchaser's Class A Note(s) (if
applicable) and delivery to the Issuer and the Indenture Trustee of an
Investment Letter, executed by the registered owner (and the beneficial owner if
it is a Person other than the registered owner), and receipt by the Indenture
Trustee of a copy of the duly executed related Transfer Supplement and such
other documents as may be required under this Agreement, such beneficial
interest in the Class A Notes (or portion thereof) shall be transferred in the
records of the Indenture Trustee and the applicable Agent and, if requested by
the Assignee, new Class A Notes shall be issued to the Assignee and, if
applicable, the transferor Class A Purchaser in amounts reflecting such Transfer
as provided in the Indenture. To the extent of any conflict between the
provisions of this Section 8.1 and any provisions of Section 2.14 of the Base
Indenture applicable to Transfers of Class A Notes (or interests therein), the
provisions of this Section 8.1 shall control. Successive registrations of
Transfers as aforesaid may be made from time to time as desired, and each such
registration of a transfer to a new registered owner shall be noted on the Note
Register.
(f) Each Class A Purchaser may pledge its interest in the Class A
Notes to any Federal Reserve Bank as collateral in accordance with applicable
law.
(g) Any Class A Purchaser shall have the option to change its
Investing Office, provided that such Class A Purchaser shall have prior to such
change in office complied with the provisions of subsection 2.5(c) hereof and
provided further that such Class A Purchaser shall not be entitled to any
amounts otherwise payable under Section 2.4 or 2.5 hereof resulting solely from
such change in office unless such change in office was mandated by applicable
law or by such Class A Purchaser's compliance with the provisions of this
Agreement.
(h) Each Affected Party shall be entitled to receive additional
payments and indemnification pursuant to Sections 2.4, 2.5 and 2.6 hereof as
though it were a Class A Purchaser and such Section applied to its interest in
or commitment to acquire an interest in the Class A Notes; provided that such
Affected Party shall not be entitled to additional payments pursuant to (i)
Section 2.4 by reason of Regulatory Changes which occurred prior to the date it
became an Affected Party or (ii) Section 2.5 attributable to its failure to
satisfy the requirements of subsection 2.5(c) as if it were a Class A Purchaser,
and provided further, that unless such Affected Party has been consented to by
the Seller, such Affected Party shall be entitled to receive additional amounts
pursuant to
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Sections 2.4 or 2.5 only to the extent that its related CP Conduit would have
been entitled to receive such amounts in the absence of the commitment and
Support Advances from such Affected Party.
(i) Each Affected Party claiming increased amounts described in
Sections 2.4 or 2.5 hereof shall furnish, through its related CP Conduit, to the
Issuer, the Servicer, the Indenture Trustee and the Agent for the applicable
Purchaser Group a certificate setting forth the basis and amount of each request
by such Affected Party for any such amounts referred to in Sections 2.4 or 2.5,
such certificate to be conclusive with respect to the factual information set
forth therein absent manifest error.
(j) In the event that a Liquidity Purchaser is a Downgraded
Purchaser, the related CP Conduit shall have the right to replace such Liquidity
Purchaser with a replacement Liquidity Purchaser consented to by the Seller
(which consent shall not be unreasonably withheld), which replacement Purchaser
shall succeed to the rights of such Liquidity Purchaser under this Agreement in
respect of its Commitment as a Liquidity Purchaser, and such Liquidity Purchaser
shall assign such Commitment and its interest in the Class A Notes to such
replacement Liquidity Purchaser in accordance with the provisions of this
Section 8.1; provided, that (A) such Liquidity Purchaser shall not be replaced
hereunder with a new investor until such Liquidity Purchaser has been paid in
full its Percentage Interest of the Class A Principal Balance and all accrued
and unpaid interest thereon by such new investor and all other amounts
(including all amounts owing under Sections 2.4 and 2.5 of this Agreement) owed
to it and to all Participants with respect to such Liquidity Purchaser pursuant
to this Agreement, and (ii) if the Liquidity Purchaser to be replaced is a Class
A Agent, a replacement agent shall have been appointed in accordance with
Section 7.9 hereof, and the Class A Agent to be replaced shall have been paid
all amounts owing to it as agent pursuant to this Agreement. For purposes of
this subsection, a Liquidity Purchaser shall be a "Downgraded Purchaser" if and
so long as the credit rating assigned to its short-term obligations by Moody's
or Standard & Poor's on the date on which it became a party to this Agreement
shall have been reduced or withdrawn, or as may be otherwise agreed among the
Issuer, such Liquidity Purchaser and the CP Conduit in its Purchaser Group.
(k) The Commitment of each Liquidity Purchaser in respect of its
related CP Conduit shall not relate to any Assignee of such CP Conduit. Upon any
Assignment by a CP Conduit of its Percentage Interest in the Class A Principal
Balance to a Person which is not one of its Liquidity Purchasers, the Commitment
of each of its related Liquidity Purchasers shall be reduced by an amount equal
to the assigned Percentage Interest times such Commitment. Without the prior
consent of the Administrative Agent and the Seller, a CP Conduit may not enter
into an Assignment with any Assignee other than (i) one or more of its Liquidity
Purchasers, or (ii) one or more other Persons which, after giving effect to such
Assignment and any concurrent Assignments, will be Committed Purchasers which
have, or CP Conduits having Liquidity Purchasers which have, aggregate new
Commitments equal to the aggregate reductions of Commitments pursuant to the
preceding sentence.
(l) In the event that a Class A Purchaser (or a Participant or
Support Party for such Class A Purchaser) is entitled to receive additional
payments pursuant to Section 2.4 or 2.5
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hereof, the Issuer shall have the right to seek a replacement purchaser not so
affected and which is reasonably acceptable to the Agent for such Purchaser
Group (a "Replacement Purchaser") to replace such affected Class A Purchaser. No
replacement of a Class A Purchaser shall be effected pursuant to this subsection
8.1(l) if, after giving effect thereto, any amounts shall be owing to the
replaced Class A Purchaser hereunder. Each affected Class A Purchaser hereby
agrees to take all actions reasonably necessary to permit a Replacement
Purchaser to succeed to its rights and obligations hereunder.
Notwithstanding the foregoing or the provisions of subsection
8.1(j), (i) if the Class A Purchaser being replaced pursuant to this subsection
is a Liquidity Purchaser, the Replacement Purchaser shall be acceptable to the
CP Conduit in its Purchaser Group in it sole discretion and (ii) if the Class A
Purchaser being replaced is a CP Conduit, the Replacement Purchaser shall be
acceptable to each Committed Purchaser and Liquidity Purchaser in its Purchaser
Group and to the Administrative Agent in their sole discretion, and in either
such case it shall be a condition of such replacement that such Replacement
Purchaser enter into substitute Support Facilities for those to which the Class
A Purchaser being replaced is a party on terms mutually acceptable to the
parties thereto. In addition, if the Class A Purchaser to be replaced is an
Agent or the Administrative Agent or is a CP Conduit which is administered or
sponsored by an Agent or the Administrative Agent, it shall be a condition of
such replacement that a replacement Agent or Administrative Agent shall have
been appointed in accordance with Section 7.9, and the Agent or Administrative
Agent to be replaced shall have been paid all amounts owing to it as Agent or
Administrative Agent, as applicable pursuant to this Agreement.
8.2 Tax Characterization. It is the intention of the parties
hereto that the Class A Notes be treated for tax purposes as indebtedness, and
the parties hereto agree to so treat the Class A Notes (to the extent permitted
by law).
ARTICLE 9 MISCELLANEOUS
9.1 Amendments and Waivers. This Agreement may not be amended,
supplemented or modified nor may any provision hereof be waived except in
accordance with the provisions of this Section 9.1. With the written consent of
the Required Class A Owners and the Required Class A Purchasers, the
Administrative Agent, each Agent, the Issuer, the Seller and the Servicer may,
from time to time, enter into written amendments, supplements, waivers or
modifications hereto for the purpose of adding any provisions to this Agreement
or changing in any manner the rights of any party hereto or waiving, on such
terms and conditions as may be specified in such instrument, any of the
requirements of this Agreement; provided, however, that no such amendment,
supplement, waiver or modification shall (i) reduce the amount or extend the
maturity of any Class A Note or reduce the rate or extend the time of payment of
interest thereon, or reduce or alter the timing of any other amount payable to
any Class A Purchaser hereunder or under the Indenture, in each case without the
consent of the Class A Purchaser affected thereby, (ii) amend, modify or waive
any provision of this Section 9.1, or, if such amendment would have a material
adverse effect on the Class A Purchasers, the definition of "Class A Invested
Amount" or "Class A
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Principal Balance", or reduce the percentage specified in the definition of
Required Class A Owners or Required Class A Purchasers, in each case without the
written consent of all Class A Purchasers or (iii) amend, modify or waive any
provision of Section 7 of this Agreement without the written consent of each
Agent affected by such amendment, modification or wavier. Any waiver of any
provision of this Agreement shall be limited to the provisions specifically set
forth therein for the period of time set forth therein and shall not be
construed to be a waiver of any other provision of this Agreement.
An Agent may cast any vote or give any consent or direction under
the Indenture or other Related Documentation on behalf of the Class A
Noteholders in its Purchaser Group if it has been directed to do so by Class A
Owners in such Purchaser Group having Percentage Interests aggregating greater
than 50% of the aggregate Percentage Interests of all Class A Owners in such
Purchaser Group.
9.2 Notices.
(a) All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by telecopy), and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made when delivered by hand, or, in the case of mail or telecopy
notice, when received, addressed as follows or, with respect to an Agent or
Class A Purchaser, as set forth in its respective Joinder Supplement or Transfer
Supplement, or to such other address as may be hereafter notified by the
respective parties hereto:
Issuer: c/o Wilmington Trust Company
Rodney Square North
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
Treasurer, Finance Department
Zale Corporation
901 West Walnut Hill Lane
Irving, Texas 75038
Telephone: (972) 580-4576
Telecopy: (972) 580-5238
Z Del or Seller: 901 West Walnut Hill Lane
Irving, Texas 75038
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Attention: General Counsel and Secretary
Treasurer, Finance Department
Telephone: (972) 580-4576
Telecopy: (972) 580-5238
JNB or Servicer: 2035 West 4th Street
Tempe, Arizona 85281
Attention: President
Telephone: (972) 580-4965
Telecopy: (972) 580-4673
with separate copies to:
General Counsel and Secretary
Treasurer, Finance Department
Zale Corporation
901 West Walnut Hill Lane
Irving, Texas 75038
Telephone: (972) 580-4576
Telecopy: (972) 580-5238
Indenture Trustee: 101 Barclay Street, 12th Floor
12th Floor, East
New York, New York 10286
Attention: Corporate Trust Administration
Telephone: (212) 815-8195
Telecopy: (212) 815-5544
Administrative Credit Suisse First Boston, New York Branch
Agent: Eleven Madison Avenue
New York, New York 10010
Attention: Asset Finance Department
Telephone: (212) 325-9105
Telefax: (212) 325-6677
(b) All payments to be made to the Administrative Agent or any
Agent or Class A Purchaser hereunder shall be made in United States dollars and
in immediately available funds not later than 2:00 p.m., New York City time, on
the date payment is due, and, unless otherwise specifically provided herein,
shall be made to the Agent, for the account of one or more of the Class A
Purchasers or for its own account, as the case may be. Unless otherwise directed
by the Administrative Agent, all payments to it shall be made by federal wire to
The Bank of New York (BONY), ABA #021-000-018, for credit to Credit Suisse First
Boston CS Remittance/Loan Clearing Account, Account #8900329262, reference Zale
Funding Trust Series 1999-A, with telephone notice (including federal wire
number) to the Asset Finance Department of CSFB (212-325-9213). Unless
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otherwise directed by an Agent or Class A Purchaser, all payments to it shall be
made by federal wire to the account specified in the Joinder Supplement or the
Transfer Supplement by which it became a party hereto (provided, in the case of
an account specified in a Transfer Supplement, that the Agent, the Seller, the
Servicer or the Indenture Trustee, as the case may be, shall have received
notice thereof).
9.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Agent or
Class A Purchaser, any right, remedy, power or privilege under any of the
Related Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege under any of the
Related Documents preclude any other or further exercise thereof or the exercise
of any other right, remedy, power or privilege. The rights, remedies, powers and
privileges provided in the Related Documents are cumulative and not exclusive of
any rights, remedies, powers and privileges provided by law.
9.4 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the Issuer, the Seller, the Servicer, the
Administrative Agent, the Agents, the Class A Purchasers, any Assignee and their
respective successors and permitted assigns, and, to the extent provided herein,
to each Indemnitee, Participant and Support Party and their respective
successors and assigns; provided that, except as provided in Section 9.5, the
Issuer, the Seller and the Servicer may not assign or transfer any of their
respective rights or obligations under this Agreement without the prior written
consent of the Required Class A Owners and the Required Class A Purchasers;
provided, further, that (i) in connection with any such assignment the assignee
shall expressly agree in writing to assume all the obligations of the Issuer,
the Seller or the Servicer, as applicable, hereunder and (ii) no such assignment
made without the prior written consent of the Required Class A Owners and the
Required Class A Purchasers shall relieve the Issuer, the Seller or the
Servicer, as applicable, of any of its obligations hereunder and provided
further that no assignment permitted hereunder shall relieve the Issuer, the
Seller or the Servicer, as applicable, from any obligations arising hereunder
prior to such assignment (including obligations with respect to breaches of
representations and warranties made herein).
9.5 Successors to Servicer. In the event that a transfer of
servicing occurs under Section 6.10 of the Purchase and Servicing Agreement, (i)
from and after the effective date of such transfer, the Successor Servicer shall
be the successor in all respects to the Servicer and shall be responsible for
the performance of all functions to be performed by the Servicer from and after
such date, except as provided in the Purchase and Servicing Agreement, and shall
be subject to all the responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions hereof, and all references in
this Agreement to the Servicer shall be deemed to refer to the Successor
Servicer, and (ii) as of the date of such transfer, the Successor Servicer shall
be deemed to have made with respect to itself the representations and warranties
made in Section 4.2 hereof (in the case of subsection 4.2(a) with appropriate
factual changes); provided, however, that the references to the Servicer
contained in Section 5.1 of this Agreement shall be deemed to refer to the
Servicer with respect to responsibilities, duties and liabilities arising out of
an act or acts, or omission,
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or an event or events giving rise to such responsibilities, duties and
liabilities and occurring during such time that the Servicer was Servicer under
this Agreement and shall be deemed to refer to the Successor Servicer with
respect to responsibilities, duties and liabilities arising out of an act or
acts, or omission, or an event or events giving rise to such responsibilities,
duties and liabilities and occurring during such time that the Successor
Servicer acts as Servicer under this Agreement; provided, however, to the extent
that an obligation to indemnify Indemnitees under Section 2.6 hereof arises as a
result of any act or failure to act of any Successor Servicer in the performance
of servicing obligations under the Purchase and Servicing Agreement, such
indemnification obligation shall be of the Successor Servicer and not its
predecessor. Upon the transfer of servicing to a Successor Servicer, such
Successor Servicer shall furnish to the Administrative Agent and each Agent
copies of its audited annual financial statements for each of the three
preceding fiscal years or if the Indenture Trustee or any other banking
institution becomes the Successor Servicer, such Successor Servicer shall
provide, in lieu of the audited financial statements required in the immediately
preceding clause, complete and correct copies of the publicly available portions
of its Consolidated Reports of Condition and Income as submitted to the FDIC for
the two most recent year end periods.
9.6 Counterparts. This Agreement may be executed by one or more
of the parties to this Agreement on any number of separate counterparts, and all
of said counterparts taken together shall be deemed to constitute one and the
same instrument.
9.7 Severability. Any provisions of this Agreement which are
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provisions in any other jurisdiction.
9.8 Integration. This Agreement and the Supplemental Fee Letter
represent the agreement of the Issuer, Z Del (individually and as Seller), JNB
(as Servicer), the Issuer, the Administrative Agent, the Agents and the Class A
Purchasers with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Class A Purchasers, the
Agents or the Administrative Agent relative to subject matter hereof not
expressly set forth or referred to herein or therein or in the Related
Documents.
9.9 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ITS CONFLICTS OF LAW PROVISIONS.
9.10 Jurisdiction; Consent to Service of Process. Each of the
Issuer, Z Del and JNB hereby irrevocably and unconditionally (i) 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; (ii)
agrees that all claims in respect of any such action or
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proceeding may be heard and determined in such New York State or, to the extent
permitted by law, federal court; (iii) 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;
(iv) 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; (v) consents to service of
process in the manner provided for notices in Section 9.2 of this Agreement
(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 (vi) 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.
9.11 Termination. This Agreement shall remain in full force and
effect until the earlier to occur of (a) payment in full of the Class A
Principal Balance and all other amounts payable to the Class A Purchasers, the
Agents and the Administrative Agent hereunder and the termination of all
Commitments and (b) the Series 1999-A Termination Date; provided, that the
provisions of Sections 2.4, 2.5, 2.6, 6.1, 6.2, 7.7, 8.2, 9.10, 9.12 and 9.14
shall survive termination of this Agreement and any amounts payable to the
Administrative Agent, the Agents, Class A Purchasers or any Affected Party
thereunder shall remain payable thereto.
9.12 Limited Recourse; No Proceedings.
(a) The obligations of the Issuer under this Agreement or any
other agreement, instrument, document or certificate executed and delivered or
issued by the Issuer in connection herewith 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
Agreement or any other agreement, instrument, document or certificate executed
and delivered or issued by the Issuer in connection herewith against any holder
of a Trust Certificate, employee, officer, director, incorporator, agent or
trustee of the Issuer or any Affiliate of the Issuer.
(b) It is expressly understood and agreed by the parties hereto
that (i) 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, (ii) 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, (iii) 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 parties hereto and by any Person claiming by, through or
under the such parties and (iv) under no circumstances shall Wilmington Trust
Company be personally liable for the payment of any
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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.
(c) The Administrative Agent and each Agent and Class A Purchaser
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.
(d) Each of the Issuer, Z Del (individually and as Seller), JNB
(as Servicer), the Administrative Agent, each Agent and each Class A Purchaser
hereby agrees that it shall not institute or join against any CP Conduit any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding,
or other proceeding under any federal or state bankruptcy or similar law, for
one year and a day after the latest maturing commercial paper note, medium term
note or other debt security issued by such CP Conduit is paid.
9.13 Survival of Representations and Warranties. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Agreement, the purchase of the Class A Notes
hereunder and the termination of this Agreement.
9.14 Waiver of Jury Trial. EACH OF THE ISSUER, Z DEL
(INDIVIDUALLY AND AS SELLER), JNB (INDIVIDUALLY AND AS SERVICER), THE
ADMINISTRATIVE AGENT, THE AGENTS AND THE CLASS A PURCHASERS HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT, THE CLASS A NOTEHOLDERS' INTEREST OR ANY OTHER
DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF
THE ISSUER, Z DEL (INDIVIDUALLY AND AS SELLER), JNB (INDIVIDUALLY AND AS
SERVICER), THE ADMINISTRATIVE AGENT, THE AGENTS AND THE CLASS A PURCHASERS. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE CLASS A PURCHASERS PURCHASING AN
INTEREST IN THE CLASS A NOTEHOLDERS' INTEREST DESCRIBED HEREIN AND THE
ADMINISTRATIVE AGENT AND EACH AGENT AGREEING TO ACT AS SUCH HEREUNDER.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Class A
Note Purchase Agreement to be duly executed by their respective officers 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 15, 1999
By: /s/ JAMES P. LAWLER
---------------------------------------
Name:
Title:
ZALE DELAWARE, INC., individually and as
Seller
By: /s/ STEPHEN C. MASSANELLI
---------------------------------------
Name:
Title:
JEWELERS NATIONAL BANK, as Servicer
By: /s/ SUE E. GOVE
---------------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON, NEW YORK BRANCH,
as Administrative Agent
By: /s/ THOMAS MEIER
---------------------------------------
Name:
Title:
By: /s/ ELIZABETH WHALEN
---------------------------------------
Name:
Title:
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EXHIBIT A
FORM OF INVESTMENT LETTER
[Date]
Zale Funding Trust
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
[Name and address of applicable Agent]
Re Zale Funding Trust
[Floating Rate] Asset Backed [Variable Funding] Notes, Series 1999-A
Ladies and Gentlemen:
This letter (the "Investment Letter") is delivered by the
undersigned (the "Purchaser") pursuant to subsection 8.1(a) of the Class A Note
Purchase Agreement dated as of July 15, 1999 (as in effect, the "Note Purchase
Agreement"), among Zale Funding Trust, Zale Delaware, Inc., Jewelers National
Bank, the Class A Purchasers and the Agents parties thereto and Credit Suisse
First Boston, New York Branch, as Administrative Agent. Capitalized terms used
herein without definition shall have the meanings set forth in the Note Purchase
Agreement. The Purchaser represents to and agrees with the Issuer as follows:
(a) The Purchaser is authorized [to enter into the Note Purchase
Agreement and to perform its obligations thereunder and to consummate the
transactions contemplated thereby] [to purchase a participation in
obligations under the Note Purchase Agreement].
(b) The Purchaser has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of its
investment in the Class A Notes and is able to bear the economic risk of
such investment. The Purchaser has been afforded the opportunity to ask
such questions as it deems necessary to make an investment decision, and
has received all information it has requested in connection with making
such investment decision. The Purchaser has, independently and without
reliance upon the Agent or any other Class A Purchaser, 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 Accounts, the
Receivables, the Issuer, the Seller, the Servicer and the Indenture Trustee
and made its own decision to purchase its interest in the Class A Notes,
and will, independently and without reliance upon
<PAGE> 63
the Administrative Agent, any Agent or any other Class A Purchaser, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own analysis, appraisals and decisions in taking
or not taking action under the Note Purchase Agreement, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of
the Accounts, the Receivables, the Issuer, the Seller, the Servicer and the
Indenture Trustee.
(c) The Purchaser is an "accredited investor", as defined in Rule
501, promulgated by the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), or is a sophisticated institutional investor. The Purchaser
understands that the offering and sale of the Class A Notes has not been
and will not be registered under the Securities Act and has not and will
not be registered or qualified under any applicable "Blue Sky" law, and
that the offering and sale of the Class A Notes has not been reviewed by,
passed on or submitted to any federal or state agency or commission,
securities exchange or other regulatory body.
(d) The Purchaser is acquiring an interest in Class A Notes without
a view to any distribution, resale or other transfer thereof except, with
respect to any Class A Purchaser Interest or any interest or participation
therein, as contemplated in the following sentence. The Purchaser will not
resell or otherwise transfer any interest or participation in the Class A
Purchaser Interest, except in accordance with Section 8.1 of the Note
Purchase Agreement and (i) in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended, and applicable
state securities or "blue sky" laws; (ii) to the Issuer or any affiliate of
the Issuer; or (iii) to a person who the Purchaser reasonably believes is a
qualified institutional buyer (within the meaning thereof in Rule 144A
under the Securities Act) that is aware that the resale or other transfer
is being made in reliance upon Rule 144A. In connection therewith, the
Purchaser hereby agrees that it will not resell or otherwise transfer the
Class A Notes or any interest therein unless the purchaser thereof provides
to the addressee hereof a letter substantially in the form hereof.
(e) This Investment Letter has been duly executed and delivered and
constitutes the legal, valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles
affecting the enforcement of creditors' rights generally and general
principles of equity.
Very truly yours,
[NAME OF PURCHASER]
By:___________________________
Name:
Title:
A-2
<PAGE> 64
EXHIBIT B
FORM OF TRANSFER SUPPLEMENT
TRANSFER SUPPLEMENT, dated as of the date set forth in Item 1 of
Schedule I hereto, among the Transferor Class A Purchaser set forth in Item 2 of
Schedule I hereto (the "Transferor Class A Purchaser"), the Purchasing Class A
Purchaser set forth in Item 3 of Schedule I hereto (the "Purchasing Class A
Purchaser"), and the Agent set forth in Item 4 of Schedule I hereto (in such
capacity, the "Agent") for the Purchaser Group set forth in Item 5 of Schedule I
hereto.
W I T N E S S E T H:
WHEREAS, this Supplement is being executed and delivered in
accordance with subsection 8.1(e) of the Class A Note Purchase Agreement, dated
as of July 15, 1999, among Zale Funding Trust, Zale Delaware, Inc., Jewelers
National Bank, the Class A Purchasers and the Agents parties thereto and Credit
Suisse First Boston, New York Branch, as Administrative Agent (as from time to
time amended, supplemented or otherwise modified in accordance with the terms
thereof, the "Note Purchase Agreement"; unless otherwise defined herein, terms
defined in the Note Purchase Agreement are used herein as therein defined);
WHEREAS, the Purchasing Class A Purchaser (if it is not already a
Class A Purchaser party to the Note Purchase Agreement) wishes to become a Class
A Purchaser party to the Note Purchase Agreement and the Purchasing Class A
Purchaser wishes to acquire and assume from the Transferor Class A Purchaser,
certain of the rights, obligations and commitments under the Note Purchase
Agreement; and
WHEREAS, the Transferor Class A Purchaser wishes to sell and
assign to the Purchasing Class A Purchaser, certain of its rights, obligations
and commitments under the Note Purchase Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
(a) Upon receipt by the Agent of five counterparts of this
Supplement, to each of which is attached a fully completed Schedule I and
Schedule II, each of which has been executed by the Transferor Class A
Purchaser, the Purchasing Class A Purchaser and the Agent, the Agent will
transmit to the Servicer, the Issuer, the Indenture Trustee, the Transferor
Class A Purchaser and the Purchasing Class A Purchaser a Transfer Effective
Notice, substantially in the form of Schedule III to this Supplement (a
"Transfer Effective Notice"). Such Transfer Effective Notice shall be executed
by the Agent and shall set forth, inter alia, the date on which the transfer
effected by this Supplement shall become effective (the "Transfer Effective
Date"). From and after the Transfer Effective Date the Purchasing Class A
Purchaser shall be a Class A Purchaser party to the Note Purchase Agreement for
all purposes thereof as a CP Conduit or Committed Purchaser and, if applicable,
a Liquidity Purchaser, as specified on Schedule II to this Supplement.
<PAGE> 65
(b) At or before 12:00 Noon, local time of the Transferor Class A
Purchaser, on the Transfer Effective Date, the Purchasing Class A Purchaser
shall pay to the Transferor Class A Purchaser, in immediately available funds,
an amount equal to the purchase price, as agreed between the Transferor Class A
Purchaser and such Purchasing Class A Purchaser (the "Purchase Price"), of the
portion set forth on Schedule II hereto being purchased by such Purchasing Class
A Purchaser of the outstanding Class A Invested Amount under the Class A Note
owned by the Transferor Class A Purchaser (such Purchasing Class A Purchaser's
"Purchaser Percentage") and other amounts owing to the Transferor Class A
Purchaser under the Note Purchase Agreement or otherwise in respect of the Class
A Notes. Effective upon receipt by the Transferor Class A Purchaser of the
Purchase Price from the Purchasing Class A Purchaser, the Transferor Class A
Purchaser hereby irrevocably sells, assigns and transfers to the Purchasing
Class A Purchaser, without recourse, representation or warranty, and the
Purchasing Class A Purchaser hereby irrevocably purchases, takes and assumes
from the Transferor Class A Purchaser, the Purchasing Class A Purchaser's
Purchaser Percentage of (i) the presently outstanding Class A Invested Amount
under the Class A Notes owned by the Transferor Class A Purchaser and other
amounts owing to the Transferor Class A Purchaser in respect of the Class A
Notes, together with all instruments, documents and collateral security
pertaining thereto, and (ii) the Purchasing Class A Purchaser's Purchaser
Percentage of (A) if the Transferor Class A Purchaser is a CP Conduit, the
Purchaser Percentage of the Transferor Class A Purchaser and the other rights
and duties of the Transferor Class A Purchaser under the Note Purchase
Agreement, or (B) if the Transferor Class A Purchaser is a Committed Purchaser,
the Commitment Percentage, the Liquidity Percentage, if applicable, and the
Commitment of the Transferor Class A Purchaser and other rights, duties and
obligations of the Transferor Class A Purchaser under the Note Purchase
Agreement. This Supplement is intended by the parties hereto to effect a
purchase by the Purchasing Class A Purchaser and sale by the Transferor Class A
Purchaser of interests in the Class A Notes, and it is not to be construed as a
loan or a commitment to make a loan by the Purchasing Class A Purchaser to the
Transferor Class A Purchaser. The Transferor Class A Purchaser hereby confirms
that the amount of the Class A Invested Amount is $ _____ and its Percentage
Interest thereof is ___%, which equals $___ as of _______, 199_. Upon and after
the Transfer Effective Date (until further modified in accordance with the Note
Purchase Agreement), the Purchaser Percentage or Commitment Percentage, as
applicable of the Transferor Class A Purchaser and the Purchasing Class A
Purchaser and the Commitment and the Liquidity Percentage, if applicable, if
any, of the Transferor Class A Purchaser and the Purchasing Class A Purchaser
shall be as set forth in Schedule II to this Supplement.
(c) The Transferor Class A Purchaser has made arrangements with
the Purchasing Class A Purchaser with respect to (i) the portion, if any, to be
paid, and the date or dates for payment, by the Transferor Class A Purchaser to
the Purchasing Class A Purchaser of any fees heretofore received by the
Transferor Class A Purchaser pursuant to the Note Purchase Agreement prior to
the Transfer Effective Date and (ii) the portion, if any, to be paid, and the
date or dates for payment, by the Purchasing Class A Purchaser to the Transferor
Class A Purchaser of fees or interest received by the Purchasing Class A
Purchaser pursuant to the Note Purchase Agreement or otherwise in respect of the
Class A Notes from and after the Transfer Effective Date.
(d) (i) All principal payments that would otherwise be payable
from and after the Transfer Effective Date to or for the account of the
Transferor Class A Purchaser in respect of the
<PAGE> 66
Class A Notes shall, instead, be payable to or for the account of the Transferor
Class A Purchaser and the Purchasing Class A Purchaser, as the case may be, in
accordance with their respective interests as reflected in this Supplement.
(ii) All interest, fees and other amounts that would otherwise
accrue for the account of the Transferor Class A Purchaser from and after the
Transfer Effective Date pursuant to the Note Purchase Agreement or in respect of
the Class A Notes shall, instead, accrue for the account of, and be payable to
or for the account of, the Transferor Class A Purchaser and the Purchasing Class
A Purchaser, as the case may be, in accordance with their respective interests
as reflected in this Supplement. In the event that any amount of interest, fees
or other amounts accruing prior to the Transfer Effective Date was included in
the Purchase Price paid by the Purchasing Class A Purchaser, the Transferor
Class A Purchaser and the Purchasing Class A Purchaser will make appropriate
arrangements for payment by the Transferor Class A Purchaser to the Purchasing
Class A Purchaser of such amount upon receipt thereof from the Agent.
(e) Concurrently with the execution and delivery hereof, the
Purchasing Class A Purchaser will deliver to the Agent and the Issuer an
executed Investment Letter in the form of Exhibit A to the Note Purchase
Agreement and the forms, if any, required by subsection 2.5(c) of the Note
Purchase Agreement.
(f) Each of the parties to this Supplement agrees and
acknowledges that (i) at any time and from time to time upon the written request
of any other party, it will execute and deliver such further documents and do
such further acts and things as such other party may reasonably request in order
to effect the purposes of this Supplement, and (ii) the Agent shall apply each
payment made to it under the Note Purchase Agreement, whether in its individual
capacity or as Agent, in accordance with the provisions of the Note Purchase
Agreement, as appropriate.
(g) By executing and delivering this Supplement, the Transferor
Class A Purchaser and the Purchasing Class A Purchaser confirm to and agree with
each other, the Agent and the Class A Purchasers as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned hereby free and clear of any adverse claim, the
Transferor Class A Purchaser makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Note Purchase Agreement or the Related
Documents or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Note Purchase Agreement or any other instrument or
document furnished pursuant thereto; (ii) the Transferor Class A Purchaser makes
no representation or warranty and assumes no responsibility with respect to the
Trust, the financial condition of the Receivables, the Accounts, the Issuer, Z
Del, JNB or the Indenture Trustee, or the performance or observance by the
Issuer, Z Del, JNB or the Indenture Trustee of any of their respective
obligations under the Note Purchase Agreement or any Related Document or any
other instrument or document furnished pursuant hereto; (iii) each Purchasing
Class A Purchaser confirms that it has received a copy of such documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Supplement; (iv) each Purchasing Class A Purchaser
will, independently and without reliance upon the Administrative Agent, any
Agent (as defined in the Note Purchase Agreement) the Transferor Class A
Purchaser or any other Class A Purchaser and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit
<PAGE> 67
decisions in taking or not taking action under the Note Purchase Agreement or
the Related Documents; (v) the Purchasing Class A Purchaser appoints and
authorizes the Agent and the Administrative Agent to take such action as agent
on its behalf and to exercise such powers under the Note Purchase Agreement and
the Related Documents as are delegated to the Agent or the Administrative Agent,
as the case may be, by the terms thereof, together with such powers as are
reasonably incidental thereto, all in accordance with Section 7 of the Note
Purchase Agreement; and (vi) each Purchasing Class A Purchaser agrees (for the
benefit of the Transferor Class A Purchaser, the Administrative Agent, the
Agents (as defined in the Note Purchase Agreement), the Class A Purchasers, the
Indenture Trustee, the Servicer, the Seller and the Issuer) that it will perform
in accordance with their terms all of the obligations which by the terms of the
Note Purchase Agreement are required to be performed by it as a Class A
Purchaser.
(h) Schedule II hereto sets forth the revised Purchaser
Percentage or the revised Commitment Percentage, the revised Liquidity
Percentage, if applicable, and Commitment of the Transferor Class A Purchaser,
as applicable, the Purchaser Percentage or the Commitment Percentage, the
Liquidity Percentage, if applicable, Commitment and Commitment Expiration Date
of the Purchasing Class A Purchaser, as applicable, and the initial Investing
Office of the Purchasing Class A Purchaser, as well as administrative
information with respect to the Purchasing Class A Purchaser.
(i) THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Supplement to be executed by their respective duly authorized officers on
Schedule I hereto as of the date set forth in Item 1 of Schedule I hereto.
<PAGE> 68
SCHEDULE I TO
TRANSFER SUPPLEMENT
COMPLETION OF INFORMATION AND
SIGNATURES FOR TRANSFER SUPPLEMENT
Re: Class A Note Purchase Agreement, dated as of July 15, 1999,
among Zale Funding Trust, Zale Delaware, Inc., Jewelers National
Bank, the Class A Purchasers and the Agents parties thereto and
Credit Suisse First Boston, New York Branch, as Administrative
Agent
Item 1: Date of Transfer Supplement:
Item 2: Transferor Class A Purchaser:
Item 3: Purchasing Class A Purchaser:
Item 4: Name of Agent:
Item 5: Name of Purchaser Group:
Item 6: Signatures of Parties to Agreement:
-------------------------------
as Transferor Class A Purchaser
By:
----------------------------
Name:
Title:
By:
----------------------------
Name:
Title:
<PAGE> 69
-------------------------------
as Purchasing Class A Purchaser
By:
----------------------------
Name:
Title:
By:
----------------------------
Name:
Title:
CONSENTED TO AND ACCEPTED BY:
[NAME OF AGENT], as Agent
By:
----------------------------
Name:
Title:
By:
----------------------------
Name:
Title:
[If applicable:]
CREDIT SUISSE FIRST BOSTON,
NEW YORK BRANCH, as Administrative Agent
By:
----------------------------
Name:
Title:
By:
----------------------------
Name:
Title:
<PAGE> 70
SCHEDULE II TO
TRANSFER SUPPLEMENT
LIST OF INVESTING OFFICES, ADDRESSES
FOR NOTICES, ASSIGNED INTERESTS AND
PURCHASE AND COMMITMENT PERCENTAGES
[Transferor Class A Purchaser]
A. Type of Purchaser: [CP Conduit/Liquidity/Committed]
B. Purchaser Percentage:
Transferor Class A Purchaser Purchaser Percentage
Prior to Sale: %
-----
Purchaser Percentage Sold: %
-----
Purchaser Percentage Retained: %
-----
C. Commitment (not applicable to CP Conduit)
Transferor Class A Purchaser Commitment
Prior to Sale: $
--------
Commitment Sold: $
--------
Commitment Retained: $
--------
Related CP Conduit (applicable to Liquidity Purchaser)
------------
D. Related Liquidity Purchasers (applicable to CP Conduit)
Liquidity Purchasers, Commitments and Liquidity Percentages
prior to Sale:
$ %
------------------------- ------------ -----
$ %
------------------------- ------------ -----
$ %
------------------------- ------------ -----
E. Class A Principal Balance:
Transferor Class A Purchaser
Class A Principal Balance Prior to Sale: $
--------
<PAGE> 71
Class A Principal Balance Sold: $
--------
Class A Principal Balance Retained: $
--------
[Purchasing Class A Purchaser]
A. Type of Purchaser: [CP Conduit/Liquidity/Committed]
B. Purchaser Percentage:
Transferee Class A Purchaser Purchaser Percentage
After Sale: %
------
C. Commitment (not applicable to CP Conduit)
Transferee Class A Purchaser Commitment
After Sale: $
--------
Related CP Conduit (applicable to Liquidity Purchaser):
-------------
D. Related Liquidity Purchasers (applicable to CP Conduit)
Liquidity Purchasers, Commitments and Liquidity Percentages after Sale:
------------------------- $ %
------------ -----
------------------------- $ %
------------ -----
------------------------- $ %
------------ -----
E. Class A Principal Balance:
Transferee Class A Purchaser
Class A Principal Balance After Sale: $
--------
Address for Notices:
Investing Office:
<PAGE> 72
SCHEDULE III TO
TRANSFER SUPPLEMENT
Form of
Transfer Effective Notice
To: [Name and address of Issuer,
Servicer, Indenture Trustee, Administrative
Agent, Transferor Class A Purchaser and
Purchasing Class A Purchaser]
The undersigned, as Agent under the Class A Note Purchase
Agreement, dated as of July 15, 1999, among Zale Funding Trust, Zale Delaware,
Inc., Jewelers National Bank, the Class A Purchasers and the Agents parties
thereto and Credit Suisse First Boston, New York Branch, as Administrative
Agent, acknowledges receipt of five executed counterparts of a completed
Transfer Supplement. [Note: attach copies of Schedules I and II from such
Agreement.] Terms defined in such Supplement are used herein as therein defined
Pursuant to such Supplement, you are advised that the Transfer
Effective Date will be _______________, ____.
Very truly yours,
[NAME OF AGENT], as Agent
By:
-----------------------
Name:
Title:
By:
-----------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.10
SELLER RESTRICTIVE COVENANT AGREEMENT
THIS AGREEMENT made as of the 2nd day of June, 1999
B E T W E E N:
PEOPLES JEWELLERS CORPORATION, a corporation incorporated under the
laws of the Province of Ontario
(hereinafter referred to as "Seller")
OF THE FIRST PART
-and-
ZALE CANADA CO., a corporation incorporated under the laws of the
Province of Nova Scotia
(hereinafter referred to as "Purchaser")
OF THE SECOND PART
-and-
ZALE CORPORATION, a corporation incorporated under the laws of the
State of Delaware
(hereinafter referred to as "Zale")
OF THE THIRD PART
WHEREAS Seller is engaged in the retail sale of fine jewellery and watches
throughout Canada and all business which is incidental or ancillary thereto (the
"Business");
AND WHEREAS pursuant to an asset purchase agreement made the 2nd day of
June, 1999 (the "Asset Purchase Agreement") between Zale, Seller and Purchaser,
Seller agreed to sell and Purchaser agreed to purchase, as a going concern,
substantially all of the property and assets of the Business carried on by
Seller, all upon the terms and conditions set out therein;
AND WHEREAS it is a condition to the closing of the transactions
contemplated by the Asset Agreement that the parties enter into this Agreement;
AND WHEREAS terms with initial capital letters not otherwise defined
herein shall have the meanings attributed to them in the Asset Purchase
Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the
closing of the transactions contemplated pursuant to the Asset Purchase
Agreement and the payment by Purchaser to Seller of the Purchase Price
contemplated therein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by each party, the parties
hereby convenant and agree with each other as follows:
<PAGE> 2
-2-
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS.
For purposes hereof, the following terms shall have the meanings set forth
below:
(a) "Agreement" means this Agreement and any amendments or modifications
thereto made in writing; and
(b) "Person" means any individual, partnership, limited partnership, joint
venture, syndicate, sole proprietorship, company or corporation with
or without share capital, unincorporated association, trust, trustee,
executor, administrator or other legal personal representative,
regulatory body or agency, government or governmental agency,
authority or entity however designated or constituted.
1.2 NUMBER, GENDER, ETC.
In this Agreement, words importing the singular number only shall include the
plural and vice versa, words importing gender shall include all genders and
words importing persons shall include individuals, corporations, partnerships,
associations, trusts, unincorporated organizations, governmental bodies and
other legal or business entities of any kind whatsoever.
1.3 HEADINGS AND INTERNAL REFERENCES.
The titles, captions and headings contained in this Agreement are inserted for
convenience of reference only and are not intended to be a part of or to affect
in any way the meaning or interpretation of this Agreement. Numbered or lettered
Articles and sections herein contained refer to Articles and sections of this
Agreement unless otherwise expressly stated. The words "herein," "hereof,"
"hereunder," "hereby," "this Agreement" and other similar references shall be
construed to mean and include this Agreement and all amendments to this
Agreement unless the context shall clearly indicate or require otherwise.
1.4 SEVERABILITY.
If any provision of this Agreement shall be held void, voidable, invalid or
inoperative by a court of competent jurisdiction, no other provision of this
Agreement shall be affected as a result thereof, and, accordingly, the
remaining provisions of this Agreement shall remain in full force and effect as
though such void, voidable, or invalid or inoperative provision had not been
contained herein.
1.5 GOVERNING LAW.
This Agreement shall be construed, interpreted and enforced in accordance with,
and the respective rights and obligations of the parties shall be governed by,
the laws of the Province of Ontario and the federal laws of Canada applicable
therein, and each party irrevocably and unconditionally submits to the
non-exclusive jurisdiction of the courts of such province and all courts
competent to hear appeals therefrom.
<PAGE> 3
-3-
1.6 ENTIRE AGREEMENT.
Save as provided for in section 2.5, this Agreement contains the entire
agreement and understanding concerning the subject matter hereof between the
parties and specifically supersedes any other agreement or understanding between
the parties related to the subject matter hereof. There are no conditions,
covenants, agreements, representations, warranties or other provisions, express
or implied, collateral, statutory or otherwise, relating to the subject matter
hereof except as herein provided.
ARTICLE 2
RESTRICTIVE COVENANTS
2.1 CONFIDENTIALITY.
Seller acknowledges that it is essential to the success of Purchaser that the
Business and affairs of Purchaser be kept in the strictest confidence. Seller
shall not at any time disclose to any Person any information (financial or
otherwise) relating to the private or confidential affairs of Purchaser or the
Business or relating to any trade secrets of Purchaser or the Business,
including without limiting the generality of the foregoing, customer lists,
information relating to costs, prices and discounts, information relating to
present and contemplated services and products, technology, techniques,
processes and instructions pertaining to the Business, and methods of service,
supply, marketing, and merchandising used by or in connection with the Business,
and details of any information on customers, suppliers, personnel, landlords,
and finances pertaining to the Business (hereinafter called the "Confidential
Information"). In recognition of the need to protect the legitimate business
interests of Purchaser, Seller agrees to maintain all Confidential Information
as strictly confidential and wholly owned by Purchaser and agrees not to,
directly or indirectly, use or disclose any of the Confidential Information for
any purpose whatsoever except:
(a) as may be required for the purpose of complying with any statutory
requirement in connection with the Business including, without
limitation, requirements pursuant to the Tax Act;
(b) Confidential Information which is available to the public or in the
public domain at the time of such disclosure without breach of this
Agreement;
(c) disclosure of the Confidential Information that is reasonably required
to be made in connection with the enforcement of its rights under the
Asset Purchase Agreement or any other contractual arrangements entered
into from time to time between Seller and Purchaser;
(d) such disclosure as it determines in good faith upon advice of counsel
may be required to be made by any law, regulation, governmental body
or authority or by court order; or
(e) as may be authorized in writing by Purchaser or for the sole benefit
of Purchaser.
Seller shall use reasonable commercial efforts to protect the Confidential
Information, whether in storage or in use, against public disclosure. Seller
hereby acknowledges and agrees that the
<PAGE> 4
-4-
obligations under this section 2.1 shall remain in effect for a period of five
(5) years following the Closing of the transactions contemplated under the Asset
Purchase Agreement.
2.2 NON-COMPETITION.
Seller hereby covenants and agrees that it shall not for a period of five (5)
years (the "Restricted Period") following the Closing of the transactions
contemplated under the Asset Purchase Agreement, directly or indirectly, in any
manner whatsoever including, without limitation, or in partnership or jointly or
in conjunction with any Person, as agent or shareholder, or in any other
capacity, engage in any of the following activities (each a "Restricted
Activity"):
(a) carry on or be engaged in, or give financial assistance to or have any
financial or other interest in, or advise, lend money to or guarantee
the debts or obligation of any undertaking which is in whole or in part
competitive with the Business of Purchaser or the business of Zale
within North America as it was heretofore conducted by Seller or Zale,
as the case may be (except any equity investment of less than five
percent (5%) of the issued shares of a publicly traded Person engaged
in such undertaking); or
(b) attempt to induce, entice or solicit any current consignors, suppliers,
contractors, or customers away, in whole of part, from Purchaser or
Zale or the Business; or
(c) initiate contact with any current employee or executive of Purchaser or
Zale for the purpose of offering him or her employment with anyone
other than the Purchaser or Zale or engage the services of any employee
or executive of Purchaser or Zale unless such employee has been
terminated by Purchaser of Zale; or
(d) interfere or attempt to interfere with relations between Purchaser or
Zale and any of their respective current consignors, suppliers,
consultants, customers or employees.
2.3 ACKNOWLEDGEMENTS AND AGREEMENTS.
Seller hereby acknowledges and agrees that:
(a) the restrictive covenants contained herein are intended to ensure that
Purchaser, Zale and the Business are not adversely affected by Seller
or any successor acting in a manner contrary to this Agreement and
thereby damaging the results, prospects and goodwill associated with
the Business of Purchaser and Zale;
(b) breach of section 2.1 or 2.2 of this Agreement in respect of
obligations owing to Purchaser and Zale may cause serious harm to
Purchaser and Zale; and
(c) all of the covenants and restrictions contained herein are reasonable
and valid and all defences to enforcement thereof are hereby expressly
waived.
2.4 RESTRICTIVE COVENANTS.
In the event that a court of competent jurisdiction finds any restrictive
covenant contained in this Agreement to be unenforceable in whole or in part,
including without limitation as to duration
<PAGE> 5
-5-
and/or territory, the parties hereby direct the court to reduce the scope of
such provision to that which is reasonable in the circumstances.
2.5 ADDITIONAL COVENANTS.
Seller hereby acknowledges and agrees that the provisions of this Article 2
shall not be construed as limiting the effectiveness of any non-competition,
confidentiality or non-solicitation obligations of any of the parties pursuant
to any relationship other than as Purchaser and Seller under the Asset Purchase
Agreement (for example employment or consulting relationships).
ARTICLE 3
GENERAL
3.1 REMEDIES.
The parties acknowledge that a breach or threatened breach by Seller or any
successor entity of the provisions of this Agreement may result in Purchaser
and/or Zale suffering irreparable harm which cannot be calculated or fully or
adequately compensated by recovery of damages alone. Accordingly, Seller agrees
that, in addition to any other relief to which Purchaser may be entitled,
Purchaser shall be entitled to interim and permanent injunctive relief,
specific performance, and other equitable remedies in order to prevent or
restrain any such breach. For greater certainty, the provisions of section 12.3
of the Asset Purchase Agreement shall not apply to this Agreement.
3.2 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and shall inure to the benefit of the
parties and their respective successors and permitted assigns. None of the
parties may assign this Agreement, in whole or in part, without the prior
written consent of the other party provided, however, that Purchaser may assign
this Agreement to a subsidiary of Zale at any time prior to the Time of Closing
without the consent of Seller; provided further, that any such assignment shall
not relieve Purchaser or Zale of any liability or obligation hereunder. Any
attempted assignment not in accordance herewith shall be null and void and of no
force or effect.
3.3 AMENDMENTS AND WAIVERS.
No amendment or waiver of any provision of this Agreement hereof shall be
binding on either party unless consented to in writing by such party. No waiver
of any provision of this Agreement shall constitute a waiver of any other
provision nor shall any waiver constitute a continuing waiver unless otherwise
expressly provided.
3.4 TIME OF ESSENCE.
Time shall be of the essence of this agreement.
3.5 NOTICES.
(a) All notices, consents, requests, and other communications hereunder
shall be in writing and shall be sent by hand delivery, by certified
or registered mail (return-receipt requested), by a recognized
national overnight courier service or by telecopy addressed as set
forth below:
<PAGE> 6
(i) If to Purchaser or Zale:
Zale Corporation
901 Walnut Hill Lane
Irving, Texas 75038-1003
U.S.A.
Attention: Alan P. Shor, Esq.
Facsimile: (972)580-5238
and a copy to:
Morris/Rose/Ledgett
161 Bay Street, Suite 2600
Toronto, Ontario M5J 2S1
Canada
Attention: Chris J. Eustace, Esq.
Facsimile: (416)863-9500
(ii) If to Seller:
Peoples Jewellers Corporation
1440 Don Mill Road
Don Mills, Ontario M3B 3M1
Canada
Attention: E. Duff Scott, Esq.
Facsimile: (416)391-7871
and after Closing:
with a copy to:
Stikeman, Elliot
Commerce Court West
53rd Floor
Toronto, Ontario M5L 1B9
Canada
Attention: Mihkel E. Voore, Esq.
Facsimile: (416)947-0866
<PAGE> 7
-7-
(b) Notices delivered pursuant to section 12.1(a) shall be deemed given:
(i) at the time delivered, if personally delivered or if delivered by
overnight courier; (ii) at the time received, if mailed; and (iii) one
(1) Business Day after transmission by telecopy.
(c) Either Party hereto may change the address to which notice is to be sent
by written notice to the other Party in accordance with this section
12.1.
3.6 COUNTERPARTS; FAX SIGNATURES.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original, but all of which together shall constitute the
same Agreement. Any signature page of any such counterpart, or any electronic
facsimile thereof, may be attached or appended to any other counterpart to
complete a fully executed counterpart of this Agreement, and any telecopy or
other facsimile transmission of any signature shall be deemed an original and
shall bind each Party.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the day and year first written above.
PEOPLES JEWELLERS CORPORATION
Per: /s/ CLARE R. COPELAND
-----------------------------------
Name: Clare R. Copeland
Title: Chief Executive Officer
I have the authority to
bind the Corporation
ZALE CANADA CO.
Per: /s/ ALAN P. SHOR
-----------------------------------
Name: Alan P. Shor
Title: Executive Vice-President,
Chief Logistics Officer
and Secretary
I have the authority to
bind the Corporation
ZALE CORPORATION
Per: /s/ ALAN P. SHOR
-----------------------------------
Name: Alan P. Shor
Title: Executive Vice-President,
Chief Logistics Officer
I have the authority to
bind the Corporation
<PAGE> 1
EXHIBIT 10.11
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"),
dated as of September 7, 1999, is by and between ZALE CORPORATION, a Delaware
corporation ("Company"), and ROBERT J. DINICOLA ("Executive").
WHEREAS, Executive and Company are parties to that certain Employment
Agreement, dated as of August 1, 1997, as amended by that certain Amendment to
Employment Agreement, dated as of October 8, 1998 (the "Existing Agreement");
and
WHEREAS, Executive and Company desire to amend and restate the
Existing Agreement in its entirety as set forth below.
NOW, THEREFORE, in consideration of the foregoing recital and of the
mutual covenants set forth herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. Employment. Executive agrees to enter into the continued
employment of the Company, and the Company agrees to employ Executive, on the
terms and conditions set forth in this Agreement. Executive agrees during the
term of this Agreement to devote substantially all of his business time,
efforts, skills and abilities to the performance of his duties as stated in this
Agreement and to the furtherance of the Company's business.
Executive's job title will be Chairman of the Board and his
duties will be those as are designated by the Board of Directors of the Company
("Board"), consistent with the position of Chairman of the Board. Executive
further agrees to serve, without additional compensation, as an officer or
director, or both, of any subsidiary, division or affiliate of the Company or
any other entity in which the Company holds an equity interest, provided,
however, that (a) the Company shall indemnify Executive from liabilities in
connection with serving in any such position to the same extent as his
indemnification rights pursuant to the Company's Certificate of Incorporation,
By-laws and applicable Delaware law, and (b) such other position shall not
materially detract from the responsibilities of Executive pursuant to this
Section 1 or his ability to perform such responsibilities.
2. Compensation.
(a) Base Salary. During the term of Executive's employment with
the Company pursuant to this Agreement, the Company shall pay to Executive as
compensation for his services an annual base salary of not less than $750,000
payable semi-monthly ("Base Salary"). Executive's Base Salary will be payable in
arrears in accordance with the Company's normal payroll procedures and will be
reviewed annually and subject to upward adjustment at the discretion of the
Board or an authorized Committee or representative thereof.
<PAGE> 2
(b) Incentive Bonus. Executive's incentive compensation program
for the term of this Agreement shall be determined under the Company's Executive
Bonus Program, established by the Board in its discretion. Executive is eligible
to receive up to 50% of his Base Salary in accordance with the terms and
conditions of the Executive Bonus Program.
(c) Vacation. Executive shall be entitled to a reasonable
vacation of not less than 5 weeks each year of the term.
(d) Executive Perquisites. Executive shall be entitled to
receive such executive perquisites and fringe benefits as are provided to the
senior most executives and their families under any of the Company's plans
and/or programs in effect from time to time and such other benefits as are
customarily available to executives of the Company and their families.
(e) Club Membership. The Company shall pay all fees for
membership by Executive in a club of his choice, together with the dues therefor
for use by Executive for conferences, meetings and entertainment within the
scope of his employment.
(f) Tax Withholding. The Company has the right to deduct from
any compensation payable to Executive under this Agreement social security
(FICA) taxes and all federal, state, municipal or other such taxes or charges as
may now be in effect or that may hereafter be enacted or required.
(g) Life Insurance. In addition to the Company's group life
insurance coverage, the Company shall provide Executive with additional life
insurance coverage in the amount of $2,000,000.
(h) Medical Insurance. In addition to the Company's group
medical insurance coverage and/or Executive Medical Insurance Plan ("Medical
Plans"), the Company shall reimburse Executive for all additional medical
expenses incurred by Executive which are defined as reimbursable under the
Company's Medical Plans.
(i) Expense Reimbursements. The Company shall pay or reimburse
Executive for all reasonable business expenses incurred or paid by Executive in
the course of performing his duties hereunder, including but not limited to
reasonable travel expenses for Executive and his spouse. As a condition to such
payment or reimbursement, however, Executive shall maintain and provide to the
Company reasonable documentation and receipts for such expenses.
3. Term. Unless sooner terminated pursuant to Section 4 of this
Agreement, and subject to the provisions of Section 5 hereof, the term of this
Agreement shall commence as of the date hereof and shall continue for an initial
period of two (2) years. At the end of each year during the term, the term of
this Agreement shall be automatically renewed and extended for a period of one
(1) year, unless either party hereto delivers written notice otherwise to the
other party at least ninety (90) days prior to the end of such year.
2
<PAGE> 3
4. Termination. Notwithstanding the provisions of Section 3 hereof, but
subject to the provisions of Section 5 hereof, this Agreement (and Executive's
employment hereunder) shall terminate as follows:
(a) Death. This Agreement shall terminate upon the death of
Executive; provided, however, that the Company shall continue to pay (in
accordance with its normal payroll procedures) the Base Salary to Executive's
estate for a period of twelve (12) months after the date of Executive's death.
(b) Termination for Cause. The Company may terminate this Agreement
at any time for "Cause" (as hereinafter defined) by delivering a written
termination notice to Executive. For purposes of this Agreement, "Cause" shall
mean any of: (i) Executive's conviction of a felony or a crime involving moral
turpitude; (ii) Executive commits an act constituting fraud, deceit or material
misrepresentation with respect to the Company; (iii) Executive embezzles funds
or assets from the Company; (iv) Executive becomes addicted to any alcoholic,
controlled or illegal substance or drug; (v) Executive commits any act or
omission which would give the Company the right to terminate Executive's
employment under applicable law; or (vi) Executive fails to correct or cure any
material breach of or default under this Agreement within ten (10) days after
receiving written notice of such breach or default from the Company.
(c) Termination Without Cause. The Company may terminate this
Agreement at any time by delivering a written termination notice to Executive.
(d) Termination by Executive. Executive may terminate this Agreement
at any time by delivering ninety (90) days prior written notice to the Company;
provided, however, that the terms, conditions and benefits specified in Section
5 hereof shall apply or be payable to Executive if such termination occurs for
any of the following reasons:
(i) the assignment to the Executive by the Company of duties
inconsistent with, or the reduction of the powers and functions associated with,
Executive's position, duties, responsibilities and status with the Company or an
adverse change in Executive's title or office, unless such action is the result
of Executive's failure to meet preestablished and objective performance criteria
or termination of employment for Disability or Cause;
(ii) any material breach by the Company of any provision of this
Agreement; or
(iii) Executive elects to retire from his employment with the
Company effective at any time after September 6, 2000.
(e) Termination Following Disability. In the event, Executive becomes
mentally or physically impaired or disabled and is unable to perform his
material duties and responsibilities hereunder for a period of at least ninety
(90) days in the aggregate during any one
3
<PAGE> 4
hundred twenty (120) consecutive day period, the Company may terminate this
Agreement by delivering a written termination notice to Executive.
Notwithstanding the foregoing, Executive shall continue to receive his full
salary and benefits under this Agreement for a period of twelve (12) months
after the effective date of such termination.
(f) Payments. Following any expiration or termination of this
Agreement, and in addition to any amounts owed pursuant to Section 5 hereof, the
Company shall pay to Executive all amounts earned by Executive hereunder prior
to the date of such expiration or termination.
5. Certain Termination Benefits. Notwithstanding anything else contained
herein to the contrary, in the event (i) either the Company or Executive elects
not to renew the term of this Agreement pursuant to Section 3 hereof, (ii) this
Agreement is terminated by reason of Executive's death pursuant to Section 4(a),
(iii) the Company terminates this Agreement without cause pursuant to Section
4(c), (iv) Executive terminates this Agreement for Good Reason pursuant to
Section 4(d), or (v) the Company terminates this Agreement due to Executive's
disability pursuant to Section 4(e), then, to the extent applicable:
(a) Stock. On and as of the effective date of the expiration or
termination of this Agreement, all of Executive's outstanding stock options and
restricted stock grants under the Zale Corporation Omnibus Stock Incentive Plan
shall immediately vest.
(b) Supplemental Executive Retirement Plan. On and as of the
effective date of the expiration or termination of this Agreement, all of
Executive's benefits under the Zale Delaware, Inc. Supplemental Executive
Retirement Plan ("SERP") shall immediately vest. In addition, Executive shall
have a period of sixty (60) days after the effective date of such termination or
expiration to require the Company (by delivering written notice thereof) to make
a cash payment to Executive in an amount equal to the value of such benefits, in
which case the Company shall make such payment within ninety (90) days after the
effective date of such termination or expiration. In the event Executive fails
to require the Company to make such cash payment in accordance with the
preceding sentence, then Executive shall be entitled to receive such benefits as
and when provided in the SERP.
(c) Life Insurance. The Company shall continue to provide Executive
with group and additional life insurance coverage until Executive's death
pursuant to Section 2(g).
(d) Medical Insurance. The Company shall continue to provide
Executive and his family with group medical insurance coverage under the
Company's Medical Plans (as the same may change from time to time) or other
substantially similar health insurance, as well as all additional medical
expenses incurred by Executive which are defined as reimbursable under such
Medical Plans; provided, however, that the Company shall no longer be required
to provide Executive or his spouse, respectively, with such coverage on the date
that each qualifies for Medicare coverage.
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<PAGE> 5
(e) Group Disability. The Company shall continue to provide Executive
coverage under the Company's group disability plan at all times during the term
of the Consulting Agreement contemplated by Section 5(i) hereof.
(f) Office. Executive shall be entitled to retain the cellular
telephone and the home office computer equipment provided to him by the Company;
provided, however, that Executive shall be responsible for the payment of all of
his cellular telephone bills, except for those expenses incurred for business
purposes. In addition, at Executive's request, the Company shall provide
Executive with an office at the Company's principal executive offices.
(g) Automobile. During the forty-five (45) day period following the
expiration or termination of this Agreement, Executive shall be entitled to
purchase from the Company, at the Company's book value therefor, the automobile
provided to him by the Company. In the event Executive does not elect to
purchase the automobile within such forty-five (45) period, then Executive
agrees to promptly return the automobile to the Company.
(h) Relocation. In the event that Executive desires to relocate his
home and family to an area outside of Dallas County, Texas, within the twelve
(12) month period following the expiration or termination of this Agreement,
then Company shall reimburse Executive for all reasonable and appropriate moving
and other expenses actually incurred by him in connection with such move, and
approved by the Compensation Committee of the Board of Directors.
(i) Consulting Agreement. In the event (i) either the Company or
Executive elects not to renew this Agreement pursuant to Section 3 or (ii)
Executive terminates this Agreement pursuant to Section 4(d)(iii), Executive and
Company shall enter into, as of the effective date the expiration or termination
of this Agreement, a Consulting Agreement in the form attached hereto as Exhibit
A.
(j) Offset. Any fringe benefits received by Executive in connection
with any other employment that are reasonably comparable, but not necessarily as
beneficial, to Executive as the fringe benefits then being provided by the
Company pursuant to this Section 5, shall be deemed to be the equivalent of, and
shall terminate the Company's responsibility to continue providing, the fringe
benefits then being provided by the Company pursuant to this Section 5. The
Company acknowledges that if Executive's employment with the Company is
terminated, Executive shall have no duty to mitigate damages.
(k) General Release. Acceptance by Executive of any amounts pursuant
to this Section 5 shall constitute a full and complete release by Executive of
any and all claims Executive may have against the Company, its officers,
directors and affiliates, including, but not limited to, claims he might have
relating to Executive's cessation of employment with the Company; provided,
however, that there may properly be excluded from the scope of such general
release the following:
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<PAGE> 6
(i) claims that Executive may have against the Company for
reimbursement of ordinary and necessary business expenses incurred by
him during the course of his employment;
(ii) claims that may be made by the Executive for payment of Base
Salary, fringe benefits or stock options properly due to him; or
(iii) claims respecting matters for which the Executive is
entitled to be indemnified under the Company's Certificate of
Incorporation or Bylaws, respecting third party claims asserted or
third party litigation pending or threatened against the Executive.
A condition to Executive's receipt of any amounts pursuant to this Section 5
shall be Executive's execution and delivery of a general release as described
above. In exchange for such release, the Company shall, if Executive's
employment is terminated without Cause, provide a release to Executive, but only
with respect to claims against Executive which are actually known to the Company
as of the time of such termination.
6. Effect of Change in Control.
(a) If within two years following a "Change of Control" (as
hereinafter defined), Executive terminates his employment with the Company for
Good Reason (as hereinafter defined) or the Company terminates Executive's
employment for any reason other than Cause or disability, the Company shall pay
to the Executive: (1) an amount equal to three (3) times the Executive's Base
Salary as of the date of termination; (2) an amount equal to three (3) times the
average annual cash bonus paid to Executive for the two fiscal years immediately
preceding the date of termination; (3) all benefits under the Company's various
benefit plans, including group healthcare, dental and life, for the period equal
to thirty-six (36) months from the date of termination; and (4) a lump sum
payment equal to the actuarial equivalent (determined by the Company in good
faith with assistance of its accountants or actuaries), of the benefit which
would have accrued under the SERP if (i) Executive remained a participant in the
SERP for the three (3) year period commencing on the first day of the SERP's
plan year ("Plan Year") in which the Executive's employment with the Company
terminated ("Measurement Period"), (ii) during each Plan Year in the Measurement
Period the Executive earned benefit points equal to the highest number of the
benefit points earned by such Executive in a Plan Year during the three (3) year
period ending on the last day of the Plan Year immediately preceding the Plan
Year in which his employment with the Company terminated, and (iii) the
Executive's final average pay during the Measurement Period is the greater of
his monthly Base Salary on the date of (A) a Potential Change of Control, (B)
the Change of Control or (C) the date of his termination of employment.
(b) "Change of Control" shall mean the date as of which: (i) there
shall be consummated (1) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to which
shares of the Company's common stock would be converted into cash, securities or
other property, other than a merger of the Company in
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<PAGE> 7
which the holders of the Company's common stock immediately prior to the merger
have the same proportionate ownership of common stock of the surviving
corporation immediately after the merger, or (2) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company; or (ii) the stockholders of
the Company approve any plan or proposal for the liquidation or dissolution of
the Company; or (iii) any person ( as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of 30% of the Company's outstanding common stock; or
(iv) during any period of two consecutive years, individuals who at the
beginning of such period constitute the entire board of directors of the Company
shall cease for any reason to constitute a majority thereof unless the election,
or the nomination for election by the Company's stockholders, of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
(c) "Good Reason" shall mean any of the following actions taken by
the Company without the Executive's written consent after a Change of Control:
(i) the assignment to the Executive by the Company of duties
inconsistent with, or the reduction of the powers and functions
associated with, the Executive's position, duties, responsibilities
and status with the Company immediately prior to a Change of Control
or Potential Change of Control (as defined below), or an adverse
change in Executive's titles or offices as in effect immediately prior
to a Change of Control or Potential Change of Control, or any removal
of the Executive from or any failure to re-elect Executive to any of
such positions, except in connection with the termination of his
employment for Disability or Cause or as a result of Executive's death
or by the Executive other than for Good Reason;
(ii) A reduction by the Company in the Executive's base salary as
in effect on the date of a Change of Control or Potential Change of
Control, or as the same may be increased from time to time during the
term of his Agreement, or the Company's failure to increase (within 12
months of Executive's last increase in base salary) the Executive's
base salary after a Change of Control or Potential Change of Control,
unless such failure is the result of (A) a hiring or salary freeze
uniformly applied to all employees or (B) Executive's failure to meet
preestablished and objective performance criteria;
(iii) Company's principal executive offices shall be moved to a
location outside Irving, Dallas County, Texas;
(iv) Company shall require the Executive to be based anywhere
other than at the Company's principal executive offices or the
location where the Executive is based on the date of a Change of
Control or Potential Change of Control, or if Executive agrees to such
relocation, the Company fails to reimburse the Executive for moving
and all other expenses incurred with such move;
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<PAGE> 8
(v) The Company shall fail to continue in effect any
Company-sponsored plan or benefit that is in effect on the date of a
Change of Control or Potential Change of Control, and provides (A)
incentive or bonus compensation, (B) fringe benefits such as vacation,
medical benefits, life insurance and accident insurance, (C)
reimbursement for reasonable expenses incurred by the Executive in
connection with the performance of duties with the Company, and (D)
pension benefits such as a Code Section 401(k) plan;
(vi) Any material breach by the Company of any provision of this
Agreement; and
(vii) Any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company effected in
accordance with the provisions of Section 6.
(d) "Potential Change of Control" shall mean the date as of which (1)
the Company enters into an agreement the consummation of which, or the approval
by shareholders of which, would constitute a Change of Control; (ii) proxies for
the election of Directors of the Company are solicited by anyone other than the
Company; (iii) any person (including, but not limited to, any individual,
partnership, joint venture, corporation, association or trust) publicly
announces an intention to take or to consider taking actions which, if
consummated, would constitute a Change of Control; or (iv) any other event
occurs which is deemed to be a Potential Change of Control by the Board and the
Board adopts a resolution to the effect that a Potential Change of Control has
occurred.
(e) In the event that (i) Executive would otherwise be entitled to
the compensation and benefits described in Section 6(a) hereof ("Compensation
Payments"), and (ii) the Company determines, based upon the advice of tax
counsel selected by the Company's independent auditors and acceptable to
Executive, that, as a result of such Compensation Payments and any other
benefits or payments required to be taken into account under Code Section
280G(b)(2) ("Parachute Payments"), any of such Parachute Payments would be
reportable by the Company as "excess parachute payments", such Compensation
Payments shall be reduced to the extent necessary to cause Executive's Parachute
Payments to equal 2.99 times the "base amount" as defined in Code Section
280G(b)(3) with respect to such Executive. However, such reduction in the
Compensation Payments shall be made only if, in the opinion of such tax counsel,
it would result in a larger Parachute Payment to the Executive than payment of
the unreduced Parachute Payments after deduction of tax imposed on and payable
by the Executive under Section 4999 of the Code ("Excise Tax"). The value of any
non-cash benefits or any deferred payment or benefit for purposes of this
paragraph shall be determined by the Company's independent auditors.
(f) The parties hereto agree that the payments provided under Section
6(a) above, as the case may be, are reasonable compensation in light of
Executive's services rendered
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<PAGE> 9
to the Company and that neither party shall contest the payment of such benefits
as constituting an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code.
(g) Unless the Company determines that any Parachute Payments made
hereunder must be reported as "excess parachute payments" in accordance with
Section 6(e) above, neither party shall file any return taking the position that
the payment of such benefits constitutes an "excess parachute payment" within
the meaning of Section 280G(b)(1) of the Code.
7. Non-Competition. Executive agrees that during the term of this
Agreement and for a period of eighteen (18) months from the date of the
termination of Executive's employment with the Company pursuant to Sections
4(c), 4(d) and 6 herein or for any other reason that results in the Executive
being entitled to the benefits described in Section 5, he will not, directly or
indirectly, compete with the Company by providing to any company that is in a
"Competing Business" services substantially similar to the services currently
being provided by Executive. Competing Business shall be defined as any business
that engages, in whole or in part, in the wholesale or retail sale of jewelry in
the United States, and Executive's employment function or affiliation is
directly or indirectly in such business of jewelry. Executive shall not be
obligated to abide by the foregoing covenant if the Company defaults in the
payment of any severance compensation or benefits.
8. Nonsolicitation of Employees. For a period of two years after the
termination or cessation of his employment with the Company for any reason
whatsoever, Executive shall not, on his own behalf or on behalf of any other
person, partnership, association, corporation, or other entity, solicit or in
any manner attempt to influence or induce any employee of the Company or its
subsidiaries or affiliates (known by the Executive to be such) to leave the
employment of the Company or its subsidiaries or affiliates, nor shall he use or
disclose to any person, partnership, association, corporation or other entity
any information obtained while an employee of the Company concerning the names
and addresses of the Company's employees.
9. Nondisclosure of Trade Secrets. During the term of this Agreement,
Executive will have access to and become familiar with various trade secrets and
proprietary and confidential information of the Company, its subsidiaries and
affiliates, including, but not limited to, processes, computer programs,
compilations of information, records, sales procedures, customer requirements,
pricing techniques, customer lists, methods of doing business and other
confidential information (collectively, referred to as "Trade Secrets") which
are owned by the Company, its subsidiaries and/or affiliates and regularly used
in the operation of its business, and as to which the Company, its subsidiaries
and/or affiliates take precautions to prevent dissemination to persons other
than certain directors, officers and employees. Executive acknowledges and
agrees that the Trade Secrets (1) are secret and not known in the industry; (2)
give the Company or its subsidiaries or affiliates an advantage over competitors
who do not know or use the Trade Secrets; (3) are of such value and nature as to
make it reasonable and necessary to protect and preserve the confidentiality and
secrecy of the Trade Secrets; and (4) are valuable, special and unique assets of
the Company or its subsidiaries or affiliates, the disclosure of which could
cause substantial injury and loss of profits and goodwill to the Company or its
subsidiaries or affiliates.
9
<PAGE> 10
Executive may not use in any way or disclose any of the Trade Secrets, directly
or indirectly, either during the term of this Agreement or at any time
thereafter, except as required in the course of his employment under this
Agreement, if required in connection with a judicial or administrative
proceeding, or if the information becomes public knowledge other than as a
result of an unauthorized disclosure by the Executive. All files, records,
documents, information, data and similar items relating to the business of the
Company, whether prepared by Executive or otherwise coming into his possession,
will remain the exclusive property of the Company and may not be removed from
the premises of the Company under any circumstances without the prior written
consent of the Board (except in the ordinary course of business during
Executive's period of active employment under this Agreement), and in any event
must be promptly delivered to the Company upon termination of Executive's
employment with the Company. Executive agrees that upon his receipt of any
subpoena, process or other request to produce or divulge, directly or
indirectly, any Trade Secrets to any entity, agency, tribunal or person,
Executive shall timely notify and promptly hand deliver a copy of the subpoena,
process or other request to the Board. For this purpose, Executive irrevocably
nominates and appoints the Company (including any attorney retained by the
Company), as his true and lawful attorney-in-fact, to act in Executive's name,
place and stead to perform any act that Executive might perform to defend and
protect against any disclosure of any Trade Secrets.
10. Severability. The parties hereto intend all provisions of Sections 7,
8 and 9 hereof to be enforced to the fullest extent permitted by law.
Accordingly, should a court of competent jurisdiction determine that the scope
of any provision of Sections 7, 8 or 9 hereof is too broad to be enforced as
written, the parties intend that the court reform the provision to such narrower
scope as it determines to be reasonable and enforceable. In addition, however,
Executive agrees that the nonsolicitation and nondisclosure agreements set forth
above each constitute separate agreements independently supported by good and
adequate consideration shall be severable from the other provisions of, and
shall survive, this Agreement. The existence of any claim or cause of action of
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
the covenants of Executive contained in the nonsolicitation and nondisclosure
agreements. If any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future laws effective during the term hereof,
such provision shall be fully severable and this Agreement shall be construed
and enforced as if such illegal, invalid or unenforceable provision never
constituted a part of this Agreement; and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom.
Furthermore, in lieu of such illegal, invalid or unenforceable provision, there
shall be added as part of this Agreement, a provision as similar in its terms to
such illegal, invalid or enforceable provision as may be possible and be legal,
valid and enforceable.
11. Arbitration - Exclusive Remedy.
(a) The parties agree that the exclusive remedy or method of
resolving all disputes or questions arising out of or relating to this Agreement
shall be arbitration. Arbitration shall be held in Dallas, Texas by three
arbitrators, one to be appointed by the Company, a second to be appointed by
Executive, and a third to be appointed by those two arbitrators. The third
10
<PAGE> 11
arbitrator shall act as chairman. Any arbitration may be initiated by either
party by written notice ("Arbitration Notice") to the other party specifying the
subject of the requested arbitration and appointing that party's arbitrator.
(b) If (i) the non-initiating party fails to appoint an arbitrator by
written notice to the initiating party within ten days after the Arbitration
Notice, or (ii) the two arbitrators appointed by the parties fail to appoint a
third arbitrator within ten days after the date of the appointment of the second
arbitrator, then the American Arbitration Association, upon application of the
initiating party, shall appoint an arbitrator to fill that position.
(c) The arbitration proceeding shall be conducted in accordance with
the rules of the American Arbitration Association. A determination or award made
or approved by at least two of the arbitrators shall be the valid and binding
action of the arbitrators. The costs of arbitration (exclusive of the expense of
a party in obtaining and presenting evidence and attending the arbitration and
of the fees and expenses of legal counsel to a party, all of which shall be
borne by that party) shall be borne by the Company only if Executive receives
substantially the relief sought by him in the arbitration, whether by
settlement, award or judgment; otherwise, the costs shall be borne equally
between the parties. The arbitration determination or award shall be final and
conclusive on the parties, and judgment upon such award may be entered and
enforced in any court of competent jurisdiction.
12. Miscellaneous.
(a) Notices. Any notices, consents, demands, requests, approvals and
other communications to be given under this Agreement by either party to the
other must be in writing and must be either (i) personally delivered, (ii)
mailed by registered or certified mail, postage prepaid with return receipt
requested, (iii) delivered by overnight express delivery service or same-day
local courier service, or (iv) delivered by telex or facsimile transmission, to
the address set forth below, or to such other address as may be designated by
the parties from time to time in accordance with this Section 11(a):
If to the Company: Zale Corporation
901 West Walnut Hill Lane
Irving, Texas 75038
Attention: Alan P. Shor, Executive
Vice President
If to Executive: Robert J. DiNicola
3800 Beverly Drive
Dallas, Texas 75205
Notices delivered personally or by overnight express delivery service
or by local courier service are deemed given as of actual receipt. Mailed
notices are deemed given three business days after mailing. Notices
delivered by telex or facsimile transmission are deemed given upon receipt
by the sender of the answer back (in the case of a telex) or transmission
confirmation (in the case of a facsimile transmission).
11
<PAGE> 12
(b) Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or written, between the parties with respect to the
subject matter of this Agreement and contains all of the covenants and
agreements between the parties with respect to the subject matter of this
Agreement.
(c) Modification. No change or modification of this Agreement is
valid or binding upon the parties, nor will any waiver of any term or condition
in the future be so binding, unless the change or modification or waiver is in
writing and signed by the parties to this Agreement.
(d) Governing Law and Venue. The parties acknowledge and agree that
this Agreement and the obligations and undertakings of the parties under this
Agreement will be performable in Irving, Dallas County, Texas. This Agreement is
governed by, and construed in accordance with, the laws of the State of
Delaware. If any action is brought to enforce or interpret this Agreement, venue
for the action will be in Irving, Dallas County, Texas.
(e) Counterparts. This Agreement may be executed in counterparts,
each of which constitutes an original, but all of which constitutes one
document.
(f) Costs. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, each party shall bear its own costs
and expenses.
(g) Estate. If Executive dies prior to the expiration of the term of
employment or during a period when monies are owing to him, any monies that may
be due him from the Company under this Agreement as of the date of his death
shall be paid to his estate and as when otherwise payable.
(h) Assignment. The Company shall have the right to assign this
Agreement to its successors or assigns. The terms "successors" and "assigns"
shall include any person, corporation, partnership or other entity that buys all
or substantially all of the Company's assets or all of its stock, or with which
the Company merges or consolidates. The rights, duties and benefits to Executive
hereunder are personal to him, and no such right or benefit may be assigned by
him.
(i) Binding Effect. This Agreement is binding upon the parties
hereto, together with their respective executors, administrators, successors,
personal representatives, heirs and permitted assigns.
(j) Waiver of Breach. The waiver by the Company or Executive of a
breach of any provision of this Agreement by Executive or the Company may not
operate or be construed as a waiver of any subsequent breach.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Company"
ZALE CORPORATION
By: /s/ ALAN P. SHOR
----------------------------------------
Name: Alan P. Shor
--------------------------------------
Title: Executive Vice President
-------------------------------------
By: /s/ RICHARD C. MARCUS
----------------------------------------
Name: Richard C. Marcus
--------------------------------------
Title: Chairman, Compensation Committee
-------------------------------------
"Executive"
/s/ ROBERT J. DINICOLA
---------------------------------------------
Robert J. DiNicola
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
The following companies are subsidiaries of Zale Corporation:
Zale Delaware, Inc.
Zale Holding Corporation (i)
Zale International, Inc.
Zale Canada Finance, Inc.
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
Jewel Re-Insurance Ltd.
Zale Employees Child Care Association, Inc.
Jewelers Credit Corporation
Jewelers National Bank
The following company is a subsidiary of Zale International, Inc.:
Zale Canada Company
(i) Former parent company of Zale Corporation .
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into the Company's previously filed
Form S-8 Registration Statements File Nos. 333-67527, 333-51607, 333-20673,
333-01789 and 33-87782.
Arthur Andersen LLP
Dallas, Texas
September 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDUEL CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JULY 31,
1999 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-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 41,432<F2>
<SECURITIES> 0
<RECEIVABLES> 510,714<F1>
<ALLOWANCES> 0
<INVENTORY> 571,669
<CURRENT-ASSETS> 1,160,642
<PP&E> 203,841<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,526,932
<CURRENT-LIABILITIES> 603,756
<BONDS> 99,589
0
0
<COMMON> 392
<OTHER-SE> 699,219
<TOTAL-LIABILITY-AND-EQUITY> 1,526,932
<SALES> 1,428,868
<TOTAL-REVENUES> 1,428,868
<CGS> 737,188
<TOTAL-COSTS> 502,279
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,488
<INCOME-PRETAX> 129,435
<INCOME-TAX> 48,503
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,932
<EPS-BASIC> 2.24
<EPS-DILUTED> 2.21
<FN>
<F2>AMOUNT INCLUDES, CASH AND CASH EQUIVALENT, AND RESTRICTED CASH.
<F1>THIS ASSET VALUE REPRESENTS A NET AMOUNT.
</FN>
</TABLE>
