SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
{ X } Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended January 28, 1995
or
{ } Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ____________ to ___________
Commission File Number 0-1308
STRAWBRIDGE & CLOTHIER
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1131660
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or organization)
801 Market Street Philadelphia, Pennsylvania 19107-3199
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (215) 629-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Series A Common Stock, par value $1 per share
(Title of class)
$5 Cumulative Preferred Stock, par value $100 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO _____
1 <PAGE>
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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.
The aggregate market value of the Series A Common Stock and the
Series B Common Stock, par value $1 per share, of the registrant
held by nonaffiliates of the registrant as of April 6, 1995 was
$157,881,469.
The number of shares of Series A Common Stock, par value $1 per
share, of the registrant outstanding at April 6, 1995 was
7,293,036.
The number of shares of Series B Common Stock, par value $1 per
share, of the registrant outstanding at April 6, 1995 was
3,168,789.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the 1994 Annual Report to shareholders are
incorporated by reference in Part II.
(2) Portions of the definitive 1995 annual meeting proxy
statement filed with the Securities and Exchange Commission on
April 21, 1995 pursuant to Regulation 14A are incorporated by
reference in Part III.
2 <PAGE>
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PART I
Item 1. Business.
Strawbridge & Clothier (the "Company") operates 13
department stores at its original location in Philadelphia and in
the surrounding Delaware Valley area of Pennsylvania, New Jersey
and Delaware. The Company operates, under the Clover name, 25
discount stores in the same market area as well as in the Lehigh
Valley and Lancaster areas of Pennsylvania. The Company also
operates one Home Furnishings store in northern Delaware. The
Company is the successor to a business begun in 1868.
The Company will open two new Clover stores in 1995.
The 26th Clover store will open on May 8, 1995 west of the
Concord Mall, north of Wilmington, Delaware. The Company plans
to open the 27th Clover store in August, 1995 at The Gallery
shopping mall in downtown Philadelphia.
All of the Company's department stores carry most of
the classes of general merchandise usually offered by full-line
department stores. Among the principal types of merchandise sold
are men's, women's and children's apparel, including men's and
boys' clothing, furnishings and footwear, women's coats, suits,
dresses, furs, sportswear, intimate apparel, accessories, shoes
and jewelry and infants' and children's clothing and accessories;
smallwares, including cosmetics, stationery and candy; home
furnishings, including domestics, draperies, lamps, housewares,
furniture, rugs, television sets, audio equipment, china,
glassware and silverware; and gifts. The department stores also
provide various services such as interior decorating, beauty
salons, restaurants, jewelry repair and fur storage. The Company
has arrangements with several common carriers for the delivery by
truck of merchandise to its department store customers throughout
the Company's trading area.
The Clover stores offer a complete range of general
merchandise exclusive of major appliances and furniture. No home
delivery or other services are provided except for cafeteria-
style restaurant service in two stores, snack bars in all stores,
pharmacies in eight stores and beauty salons in nine stores.
The Company opened its first Home Furnishings store on
April 21, 1995 at the Concord Mall, north of Wilmington,
Delaware. The Home Furnishings store carries furniture, bedding,
floor coverings, curtains, draperies, lamps and a full-service
interior design studio.
3 <PAGE>
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The Company's merchandise is sold under a broad variety
of brand names including the Company's own brand names,
manufacturers' brand names, and several brand names owned by the
Associated Merchandising Corporation, of which the Company is a
member.
Strawbridge & Clothier charge cards, VISA, MasterCard,
American Express and Discover cards are accepted at both the
department stores and Clover stores.
In the fiscal year ended January 28, 1995,
approximately 35% of sales were on a cash basis and 65% of sales
were credit sales. The Company's stores have sales activity
throughout the year. Approximately 29% of annual sales are made
in the peak period of November and December.
As of January 28, 1995, the Company had 4,433 full time
employees, 2,849 regular part time employees and 6,661 contingent
employees who are scheduled as needed.
There has not been any significant change in the kinds
of services rendered, or in the markets or methods of
distribution, since the beginning of the fiscal year ended
January 28, 1995.
The general merchandise business in the Company's
principal market of downtown Philadelphia and the surrounding
Delaware Valley area of southeastern Pennsylvania, southern New
Jersey and northern Delaware is highly competitive. The Company
competes on the basis of quality of merchandise, customer
service, price and store location. The Company's department and
discount stores are in active competition with national chain,
regional chain and local retail stores within their market areas,
including conventional and discount department stores, specialty
stores and mail order companies. Many of the Company's
competitors have considerably larger national sales and financial
resources than the Company.
4 <PAGE>
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Item 2. Properties.
The Company's main department store is in downtown
Philadelphia and its 12 suburban branch department stores are
located in the surrounding Delaware Valley area of southeastern
Pennsylvania (seven stores), southern New Jersey (three stores)
and northern Delaware (two stores). The Philadelphia department
store contains approximately 1,065,000 square feet of floor area.
The suburban branch department stores generally contain from
150,000 to 255,000 square feet, with one store containing 108,000
square feet of floor area. All of the branch department stores
are located in shopping centers or malls. The Company's 25
Clover discount stores are located in the same market area as its
department stores (15 in southeastern Pennsylvania, six in
southern New Jersey and one in northern Delaware), as well as in
the Lehigh Valley (two stores) and Lancaster (one store) areas of
Pennsylvania. The Clover stores contain from 70,000 to 157,000
square feet of floor area. The Company's Home Furnishings store
is located at a shopping mall in northern Delaware and contains
54,000 square feet of floor area. The Company owns 18 of its
stores, of which three are on leased land and six are subject to
mortgages or similar liens. The Company leases the remainder of
the stores from third parties with, in most cases, long-term
renewal rights or an option to purchase. The Company also
maintains warehouse and distribution facilities in Philadelphia
and New Jersey. The new Clover store to be opened in northern
Delaware, which contains 94,000 square feet of floor area, is
owned by the Company on leased land. The new Clover store to be
opened in downtown Philadelphia, which contains 130,000 square
feet of floor area, will be leased by the Company.
Item 3. Legal Proceedings.
There are no material pending legal proceedings to
which the Company or its subsidiaries is a party or of which any
of their property is subject. The Company is a party to ordinary
routine legal proceedings incidental to the conduct of its
business, none of which are material.
5 <PAGE>
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Item 4. Submission of Matters to a Vote of Security
Holders.
This item is not applicable because there were no
matters submitted to a vote of security holders during the fourth
quarter of fiscal year 1994.
Executive Officers of the Registrant.
Office
Held
Name Age Office (1) Since(2)
Francis R. Strawbridge, III(3) 57 Chairman of the Board 1984
Peter S. Strawbridge(3) 56 President 1979
Warren W. White 63 Executive Vice 1979
President
Steven L. Strawbridge(3) 51 Vice President, 1982
Treasurer and Secretary
Ronald B. Avellino 56 Vice President 1987
Louis F. Busico 60 Vice President 1979
Harry T. Hinkel 56 Vice President 1993
Robert A. Hoffner 52 Vice President 1984
Charles D. Hollander 64 Vice President 1988
Alexander B. Jervis 51 Vice President 1992
Alice T. Kanigowski 56 Vice President 1986
John J. Leahy 64 Vice President 1969
Robert G. Muskas 56 Vice President 1980
Thelma A. Newman 55 Vice President 1994
E. Spencer Quill 53 Vice President 1990
Thomas S. Rittenhouse 53 Vice President 1978
G. Leonard Shea 61 Vice President 1977
David W. Strawbridge(3) 55 Vice President 1978
William A. Timmons 59 Vice President 1979
6 <PAGE>
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__________
(1) Each executive officer has been employed by the Company as
an executive officer for at least the past five years,
except for E. Spencer Quill who was Director of
Administration and Distribution prior to his election in
1990; Alexander B. Jervis who was Director of Assets
Protection prior to his election in 1992; Harry T. Hinkel
who was a Store Manager prior to his election in 1993; and
Thelma A. Newman who was a Divisional Merchandise Manager
prior to her election in 1994.
(2) The executive officers of the Company are elected annually
to hold office until the annual organization meeting of the
Board of Directors and until their respective successors
shall have been duly elected and qualified.
(3) Peter S. Strawbridge and Steven L. Strawbridge are brothers
and are first cousins of Francis R. Strawbridge, III and
David W. Strawbridge, who also are brothers.
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.
The information appearing in the section captioned
"Market and Dividend Information" from the portions of the
Company's 1994 Annual Report to shareholders filed as Exhibit 13
to this Form 10-K is incorporated herein by reference.
Item 6. Selected Financial Data.
The information appearing in the section captioned
"Ten-Year Financial Summary" from the portions of the Company's
1994 Annual Report to shareholders filed as Exhibit 13 to this
Form 10-K is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The information appearing in the section captioned
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" from the portions of the Company's 1994
Annual Report to shareholders filed as Exhibit 13 to this Form
10-K is incorporated herein by reference.
7 <PAGE>
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Item 8. Financial Statements and Supplementary Data.
The information appearing in the sections captioned
"Consolidated Statements of Operations," "Consolidated Balance
Sheets," "Consolidated Statements of Cash Flows," "Consolidated
Statements of Shareholders' Equity," "Notes to Consolidated
Financial Statements," "Statement of Management Responsibility"
and "Report of Ernst & Young LLP, Independent Auditors" from the
portions of the Company's 1994 Annual Report to shareholders
filed as Exhibit 13 to this Form 10-K is incorporated herein by
reference.
The information appearing in the section captioned
"Quarterly Results of Operations" from the portions of the
Company's 1994 Annual Report to shareholders filed as Exhibit 13
to this Form 10-K is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
This item is not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information as to directors required by this item
is incorporated herein by reference from the section captioned
"Election of Directors" in the Company's definitive 1995 annual
meeting proxy statement which has been filed pursuant to
Regulation 14A. The required information as to executive
officers is set forth in Part I hereof and incorporated herein by
reference.
Item 11. Executive Compensation.
The information required by this item is incorporated
herein by reference from the section captioned "Executive
Compensation" in the Company's definitive 1995 annual meeting
proxy statement which has been filed pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information called for by this item is incorporated
herein by reference from the section captioned "Beneficial
Ownership of Voting Securities" in the Company's definitive 1995
annual meeting proxy statement which has been filed pursuant to
Regulation 14A.
8 <PAGE>
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Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.
(a) All financial statements and schedules.
A list of the financial statements and supporting
schedule included in this Report appears on page F-1
hereof.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last
fiscal quarter of the fiscal year covered by this
Report.
(c) Exhibits.
(3) (i) Restated Articles of the Company filed on
January 3, 1990 with the Department of State
of the Commonwealth of Pennsylvania, as filed
as Exhibit 3(a) to Form 10-K for the fiscal
year ended February 3, 1990, are incorporated
herein by reference.
(ii) By-Laws, effective October 1, 1989, as filed
as Exhibit 3(b) to Form 10-K for the fiscal
year ended February 3, 1990, are incorporated
herein by reference.
(4.1) Note Purchase Agreement dated as of
November 1, 1977 relating to 8 1/2%
Secured Notes of S&C, Center Square,
Inc. due August 1, 2003.*
(4.2) Note Agreement dated November 22, 1985
relating to 11.50% Senior Notes of
Strawbridge & Clothier due November 15,
2000.*
9 <PAGE>
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(4.3) Indenture dated as of October 15, 1993
relating to 6 5/8% Notes of Strawbridge
& Clothier due October 15, 2003.*
(4.4) Note Agreement dated September 14, 1989
relating to Strawbridge & Clothier
Senior Notes, 9.20% Series A due
September 30, 2004 and 9.00% Series B
due September 30, 1999.*
(4.5) Note Agreement dated October 13, 1992
relating to Strawbridge & Clothier 7.04%
Senior Notes due October 15, 1997.*
(10.1) Deferred Compensation Plan for Key
Executive Employees of Strawbridge &
Clothier as amended and restated
effective February 1, 1985, as filed as
Exhibit (10) to Form 10-K for the fiscal
year ended February 2, 1985, is
incorporated herein by reference.**
(10.2) 1985 Stock Option Plan of Strawbridge &
Clothier as amended effective February
22, 1989, as filed as Exhibit 10(b) to
Form 10-K for the fiscal year ended
January 28, 1989, is incorporated herein
by reference.**
(10.3) 1991 Stock Option Plan of Strawbridge &
Clothier, as filed as Exhibit 10(c) to
Form 10-K for the fiscal year ended
February 1, 1992, is incorporated herein
by reference.**
(10.4.1) Form of Employment Agreement for
executive officers of the Company as
filed as Exhibit 10.4.1 to Form 10-K for
the fiscal year ended January 30, 1993,
is incorporated herein by reference.**
* Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the
document listed is not filed with this Report. Registrant
agrees to furnish a copy of such document to the Commission
upon request.
** Management contract or compensatory plan or arrangement
required to be filed or incorporated by reference as an
exhibit.
10 <PAGE>
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(10.4.2) Schedule of certain terms of Employment
Agreements for the executive officers
named in the Company's Summary
Compensation Table for the fiscal year
ended January 28, 1995.**
11 <PAGE>
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(10.5) Receivables Purchase Agreement, dated as
of January 26, 1995, among the Company,
Clipper Receivables Corporation, State
Street Boston Capital Corporation and
PNC Bank, National Association.
(11) Statement re: Computation of per share earnings.
(13) Portions of the 1994 Annual Report to
Shareholders, included as part of this Report.
(21) Subsidiaries of Strawbridge & Clothier.
(23) Consent of Ernst & Young LLP, Independent Auditors.
(27) Financial Data Schedule.
12 <PAGE>
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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.
STRAWBRIDGE & CLOTHIER
(Registrant)
By /s/Francis R. Strawbridge, III
Francis R. Strawbridge, III
Chairman of the Board
Dated: April 26, 1995
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.
/s/Francis R. Strawbridge, III April 26, 1995
Francis R. Strawbridge, III
Director and Chairman of
the Board (co-principal
executive officer)
/s/Peter S. Strawbridge April 26, 1995
Peter S. Strawbridge
Director and President
(co-principal executive
officer)
/s/Warren W. White April 26, 1995
Warren W. White
Director and Executive
Vice President
/s/Steven L. Strawbridge April 26, 1995
Steven L. Strawbridge
Director, Vice President,
Treasurer and Secretary
(principal financial
officer)
13 <PAGE>
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/s/David W. Strawbridge April 26, 1995
David W. Strawbridge
Director and Vice
President
/s/Thomas S. Rittenhouse April 26, 1995
Thomas S. Rittenhouse
Vice President and
Controller
(principal accounting
officer)
/s/Jennifer S. Braxton April 26, 1995
Jennifer S. Braxton
Director
/s/Isaac H. Clothier, IV April 26, 1995
Isaac H. Clothier, IV
Director
/s/Richard H. Hall April 26, 1995
Richard H. Hall
Director
/s/Thomas B. Harvey, Jr. April 26, 1995
Thomas B. Harvey, Jr.
Director
/s/Anne C. Longstreth April 26, 1995
Anne C. Longstreth
Director
14 <PAGE>
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/s/Paul E. Shipley April 26, 1995
Paul E. Shipley
Director
/s/Natalie B. Weintraub April 26, 1995
Natalie B. Weintraub
Director
15 <PAGE>
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FORM 10-K -- ITEM 14(a)(1) and (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
STRAWBRIDGE & CLOTHIER AND SUBSIDIARIES
The following consolidated financial statements of Strawbridge &
Clothier and subsidiaries and the report of independent auditors
thereon and a statement of management responsibility, included in
the 1994 Annual Report to shareholders, are incorporated by
reference in Item 8:
Consolidated Statements of Operations--Fiscal years ended
January 28, 1995, January 29, 1994 and January 30, 1993
Consolidated Balance Sheets--January 28, 1995 and January
29, 1994
Consolidated Statements of Cash Flows--Fiscal years ended
January 28, 1995, January 29, 1994 and January 30, 1993
Consolidated Statements of Shareholders' Equity--Fiscal
years ended January 28, 1995, January 29, 1994 and January
30, 1993
Notes to Consolidated Financial Statements
The following consolidated financial statement schedule of
Strawbridge & Clothier and subsidiaries is included herein:
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
16 <PAGE>
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<TABLE>
Strawbridge & Clothier and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
(in thousands)
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
Additions
Balance at Charged to Charged to Balance at
Description Beginning Costs and Other Deductions- End
of Period Expenses Accounts-- - of Period
Describe Describe
<S> <C> <C> <C> <C> <C>
Fiscal year ended
January 28, 1995
Reserves and allowances
deducted
from asset accounts:
Allowance for doubtful
accounts $5,000 $10,281 $ $9,737(1)(2) $5,544
Fiscal year ended
January 29, 1994
Reserves and allowances
deducted
from asset accounts:
Allowance for doubtful
accounts $5,000 $4,724 $ $4,724 (1) $5,000
17 <PAGE>
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Fiscal year ended
January 30, 1993
Reserves and allowances
deducted
from asset accounts:
Allowance for doubtful
accounts $5,000 $6,638 $ $6,638 (1) $5,000
<FN>
(1) Accounts written off during year, net of recoveries.
(2) Includes $1,756 reclassified to accrued expenses to provide for
estimated recourse obilgations on accounts receivable sold.
</TABLE>
18 <PAGE>
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Exhibit Index
Exhibit No. Page No.
(10.4.2) Schedule of certain terms of Employment Agreements
for the executive officers named in the Company's
Summary Compensation Table for the fiscal year
ended January 28, 1995.
(10.5) Receivables Purchase Agreement, dated as of
January 26, 1995, among the Company, Clipper
Receivables Corporation, State Street Boston
Capital Corporation and PNC Bank, National
Association.
(11) Statement re: Computation of per share earnings.
(13) Portions of the 1994 Annual Report to
Shareholders, included as part of this Report.
(21) Subsidiaries of Strawbridge & Clothier.
(23) Consent of Ernst & Young LLP, Independent
Auditors.
(27) Financial Data Schedule.
19 <PAGE>
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EXHIBIT 10.4.2
SCHEDULE OF CERTAIN TERMS OF
EMPLOYMENT AGREEMENTS FOR THE EXECUTIVE
OFFICERS NAMED IN THE COMPANY'S SUMMARY COMPENSATION
TABLE FOR THE FISCAL YEAR ENDED JANUARY 28, 1995
Three-Year Term
Executive Officer Salary Commencing
Peter S. Strawbridge $310,000 January 31, 1994
Francis R. Strawbridge, III 300,000 January 31, 1994
Warren W. White 275,000 January 31, 1994
Robert G. Muskas 180,000 January 31, 1994
Louis F. Busico 177,000 January 31, 1994
1 <PAGE>
<TABLE>
Strawbridge & Clothier and Subsidiaries
Exhibit 11--Statement re: Computation of Per Share Earnings
<CAPTION>
Year ended
January 28, January 29, January 30,
1995 1994 1993
(in thousands, except per share data)
<S> <C> <C> <C>
Primary
Average shares outstanding 10,411 10,316 10,196
Net effect of dilutive stock options--based on
the treasury stock method using average market price 15 8 20
Total 10,426 10,324 10,216
Earnings before cumulative effect of accounting changes $20,032 $17,727 $18,020
Less: preferred stock dividends 8 17 26
20,024 17,710 17,994
Cumulative effect of accounting changes (16,850)
Total $20,024 $17,710 $ 1,144
Earnings per share:
Before cumulative effect of accounting changes $1.92 $1.71 $1.76
Cumulative effect of accounting changes (1.65)
Net earnings $1.92 $1.71 $ .11
Fully diluted
Average shares outstanding 10,411 10,316 10,196
Net effect of dilutive stock options--based on
the treasury stock method using the year-end market
price, if higher than average market price 15 9 23
<PAGE>
Total 10,426 10,325 10,219
Earnings before cumulative effect of accounting changes $20,032 $17,727 $18,020
Less: preferred stock dividends 8 17 26
20,024 17,710 17,994
Cumulative effect of accounting changes (16,850)
Total $20,024 $17,710 $ 1,144
Earnings per share:
Before cumulative effect of accounting changes $1.92 $ 1.71 $1.76
Cumulative effect of accounting changes (1.65)
Net earnings (1) $1.92 $ 1.71 $ .11
<FN>
(1) This calculation is submitted in accordance with the
requirements of Regulation S-K although not required by APB
Opinion No. 15 because it results in dilution of less than 3%.
</TABLE>
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RECEIVABLES PURCHASE AGREEMENT
Dated as of January 26, 1995
Among
STRAWBRIDGE & CLOTHIER
as Seller and Servicer
and
CLIPPER RECEIVABLES CORPORATION
as Purchaser
and
STATE STREET BOSTON CAPITAL CORPORATION
as Administrator
and
PNC BANK, NATIONAL ASSOCIATION
as Relationship Bank
1 <PAGE>
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|| TABLE OF CONTENTS
ARTICLE I
PURCHASES AND REINVESTMENTS . . . . . . . 2
SECTION 1.01. Commitments to Purchase; Limits on
Purchaser's Obligations . . . . . . . . . . . 2
SECTION 1.02. Purchase Procedures; Assignment of
Purchaser's Interests . . . . . . . . . . . . 2
SECTION 1.03. Reinvestments of Certain Collections;
Payment of Remaining Collections . . . . . . . 2
SECTION 1.04. Asset Interest . . . . . . . . . . . . . . . . 4
ARTICLE II
COMPUTATIONAL RULES . . . . . . . . . 5
SECTION 2.01. Computation of Purchaser's Total Investment. 5
SECTION 2.02. Computation of Earned Discount . . . . . . . . 5
SECTION 2.03. Estimates of Earned Discount Rate, Fees, etc . 5
ARTICLE III
SETTLEMENTS . . . . . . . . . . . 6
SECTION 3.01. Settlement Procedures . . . . . . . . . . . . 6
SECTION 3.02. Deemed Collections; Reduction of
Purchaser's Total Investment, Etc . . . . . . 9
SECTION 3.03. Payments and Computations, Etc. . . . . . . . 10
SECTION 3.04. Treatment of Collections and Deemed Collections 11
ARTICLE IV
FEES AND YIELD PROTECTION . . . . . . . 11
SECTION 4.01. Fees . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.02. Yield Protection . . . . . . . . . . . . . . . 12
ARTICLE V
CONDITIONS OF PURCHASES . . . . . . . . 14
SECTION 5.01. Conditions Precedent to Initial Purchase . . . 14
SECTION 5.02. Conditions Precedent to All Purchases
and Reinvestments . . . . . . . . . . . . . . 16
ARTICLE VI
REPRESENTATIONS AND WARRANTIES . . . . . . 17
SECTION 6.01. Representations and Warranties of Seller . . . 17
2 <PAGE>
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ARTICLE VII
GENERAL COVENANTS OF SELLER . . . . . . . 21
SECTION 7.01. Affirmative Covenants of Seller . . . . . . . 21
SECTION 7.02. Reporting Requirements of Seller . . . . . . . 22
SECTION 7.03. Negative Covenants of Seller . . . . . . . . . 24
ARTICLE VIII
ADMINISTRATION AND COLLECTION . . . . . . 25
SECTION 8.01. Designation of Servicer . . . . . . . . . . . 25
SECTION 8.02. Duties of Servicer . . . . . . . . . . . . . . 26
SECTION 8.03. Rights of the Administrator . . . . . . . . . 27
SECTION 8.04. Responsibilities of Seller . . . . . . . . . . 28
SECTION 8.05. Further Action Evidencing Purchases
and Reinvestments . . . . . . . . . . . . . . 29
SECTION 8.06. Application of Collections . . . . . . . . . . 30
ARTICLE IX
SECURITY INTEREST . . . . . . . . . 30
SECTION 9.01. Grant of Security Interest . . . . . . . . . . 30
SECTION 9.02. Further Assurances . . . . . . . . . . . . . . 30
SECTION 9.03. Remedies . . . . . . . . . . . . . . . . . . . 31
ARTICLE X
LIQUIDATION EVENTS . . . . . . . . . 31
SECTION 10.01. Liquidation Events . . . . . . . . . . . . . . 31
SECTION 10.02. Remedies . . . . . . . . . . . . . . . . . . . 33
ARTICLE XI
THE ADMINISTRATOR; RELATIONSHIP BANK . . . . . 34
SECTION 11.01. Authorization and Action . . . . . . . . . . . 34
SECTION 11.02. Administrator's and Relationship
Bank's Reliance, Etc . . . . . . . . . . . . . 34
SECTION 11.03. State Street Capital and PNC Bank and Affiliates 35
ARTICLE XII
ASSIGNMENT OF PURCHASER'S INTEREST . . . . . 35
SECTION 12.01. Restrictions on Assignments . . . . . . . . . 35
SECTION 12.02. Rights of Assignee . . . . . . . . . . . . . . 36
SECTION 12.03. Evidence of Assignment . . . . . . . . . . . . 36
SECTION 12.04. Rights of the Banks and Collateral Agent . . . 36
ARTICLE XIII
INDEMNIFICATION . . . . . . . . . . 37
SECTION 13.01. Indemnities by Seller . . . . . . . . . . . . 37
ARTICLE XIV
MISCELLANEOUS . . . . . . . . . . 39
<PAGE>
SECTION 14.01. Amendments, Etc . . . . . . . . . . . . . . . 39
SECTION 14.02. Notices, Etc. . . . . . . . . . . . . . . . . 39
SECTION 14.03. No Waiver; Remedies . . . . . . . . . . . . . 40
SECTION 14.04. Binding Effect; Survival . . . . . . . . . . . 40
SECTION 14.05. Costs, Expenses and Taxes . . . . . . . . . . 41
SECTION 14.06. No Proceedings . . . . . . . . . . . . . . . . 41
SECTION 14.07. Confidentiality of Program Information . . . . 41
SECTION 14.08. Confidentiality of Seller Information . . . . 43
SECTION 14.09. Captions and Cross References . . . . . . . . 45
SECTION 14.10. Integration . . . . . . . . . . . . . . . . . 45
SECTION 14.11. Governing Law . . . . . . . . . . . . . . . . 45
SECTION 14.12. Waiver Of Jury Trial . . . . . . . . . . . . . 45
SECTION 14.13. Consent To Jurisdiction; Waiver
Of Immunities . . . . . . . . . . . . . . . . 45
SECTION 14.14. Execution in Counterparts . . . . . . . . . . 46
SECTION 14.15. No Recourse Against Other Parties . . . . . . 46
4 <PAGE>
<PAGE>
APPENDICES
APPENDIX A Definitions
SCHEDULES
SCHEDULE 6.01(i) Description of Material Adverse Changes
SCHEDULE 6.01(j) Description of Litigation
SCHEDULE 6.01(n) List of Offices of Seller where Records Are
Kept
SCHEDULE 6.01(o) List of Lock-Box Banks
SCHEDULE 6.01(p)-1 Forms of Contracts
SCHEDULE 6.01(p)-2 Description of Credit and Collection Policy
SCHEDULE A Fiscal Months
EXHIBITS
EXHIBIT 3.01(a) Information Package to be Provided as of Cut-
Off Date
EXHIBIT 5.01(g) Form of Lock-Box Agreement
EXHIBIT 5.01(h) Form of Opinion of Counsel for Seller||
5 <PAGE>
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RECEIVABLES PURCHASE AGREEMENT
Dated as of January 26, 1995
THIS IS A RECEIVABLES PURCHASE AGREEMENT, among STRAWBRIDGE
& CLOTHIER, a Pennsylvania corporation ("Seller"), CLIPPER
RECEIVABLES CORPORATION, a Delaware corporation ("Purchaser"),
STATE STREET BOSTON CAPITAL CORPORATION, a Massachusetts
corporation ("State Street Capital"), as administrator for
Purchaser under the Program Administration Agreement (in such
capacity, the "Administrator") and PNC BANK, NATIONAL
ASSOCIATION, a national banking association, as a referral agent
for Purchaser under the Relationship Bank Agreement (in such
capacity, together with any successors thereto in such capacity,
the "Relationship Bank" and in its individual capacity, "PNC
Bank"). Unless otherwise indicated, capitalized terms used in
this Agreement are defined in Appendix A.
Background
1. Seller is engaged in the business of retail sales, and
in connection therewith issues private label credit cards.
2. Seller has, and expects to have, Pool Receivables in
which Seller intends to sell an undivided interest. Seller has
requested Purchaser, and Purchaser has agreed, subject to the
terms and conditions contained in this Agreement, to purchase
such undivided interest, referred to herein as the Asset
Interest, from Seller from time to time during the term of this
Agreement.
3. Seller and Purchaser desire that, subject to the terms
and conditions of this Agreement, certain of the daily
Collections in respect of the Asset Interest be reinvested in
Pool Receivables, which reinvestment shall constitute part of the
Asset Interest.
4. State Street Capital has been requested, and is
willing, to act as the Administrator.
5. PNC Bank has been requested, and is willing, to act as
the Relationship Bank.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein contained, the parties hereto, intending
to be legally bound hereby, agree as follows:
6 <PAGE>
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ARTICLE I
PURCHASES AND REINVESTMENTS
SECTION 1.01. Commitments to Purchase; Limits on
Purchaser's Obligations. Upon the terms and subject to the
conditions of this Agreement, from time to time prior to the
Termination Date, Seller may request that Purchaser purchase from
Seller ownership interests in the Pool Assets (each being a
"Purchase") and Purchaser shall make such Purchase; provided that
no Purchase shall be made by Purchaser to the extent that, after
giving effect thereto, either (a) the then Purchaser's Total
Investment would exceed $50,000,000, or such larger amount as may
be mutually agreed to in writing by the parties hereto (the
"Purchase Limit"), or (b) the Asset Interest, expressed as a
percentage of Net Pool Balance, would exceed 95% (the "Allocation
Limit"); and provided further that each Purchase made pursuant to
this Section 1.01 shall have a Purchase Price of at least
$5,000,000 and shall be in integral multiples of $1,000,000.
SECTION 1.02. Purchase Procedures; Assignment of
Purchaser's Interests.
(a) Notice of Purchase. Each Purchase from Seller
by Purchaser shall be made on notice from Seller to the
Administrator received by the Administrator not later than
11:00 a.m. (New York City time) on the Business Day before the
date of such proposed Purchase. Each such notice of a proposed
Purchase shall specify the desired amount and date of such
Purchase. The "Purchase Price" for each Purchase shall be the
lesser of (i) the amount requested by Seller pursuant to this
Section 1.02(a) and (ii) the amount permitted pursuant to Section
1.01.
(b) Funding of Purchase. On the date of each Purchase,
Purchaser shall, upon satisfaction of the applicable conditions
set forth in Article V, make available to the Administrator at
the Administrator's Office the amount of its Purchase in same day
funds, and after receipt by the Administrator of such funds, the
Administrator will make such funds immediately available to
Seller at such office or to such account as Seller shall
designate in writing to the Administrator on or prior to the date
hereof (or such other office or account as Seller shall designate
from time to time).
(c) Assignment of Asset Interests. Seller hereby sells,
assigns and transfers to Purchaser, effective on and as of the
date of each Purchase by the Purchaser hereunder, the Asset
Interest in the Pool Assets.
SECTION 1.03. Reinvestments of Certain Collections; Payment
of Remaining Collections. (a) On the close of business on each
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Business Day during the period from the date hereof to the
Termination Date, Servicer shall, out of all Collections received
on such day from Pool Receivables:
(i) determine the portion of such Collections
attributable on such day to the Asset Interest by
multiplying (x) the amount of such Collections times (y) the
Asset Interest (expressed as a percentage of Net Pool
Balance);
(ii) out of the portion of such Collections allocated
to the Asset Interest pursuant to clause (i), set aside and
hold in trust for Purchaser an amount equal to the sum of
the estimated amount of Earned Discount accrued in respect
of the Purchaser's Total Investment (based on rate
information provided by the Administrator pursuant to
Section 2.03), all other amounts due to Purchaser, the
Administrator or the Relationship Bank hereunder and the
Servicer's Fee (in each case, accrued through such day) and
not so previously set aside; provided that unless the
Administrator or the Relationship Bank shall request it to
do so in writing (which writing shall set forth the reason
for such request), Servicer shall not be required to hold
Collections that have been set aside in a separate deposit
account containing only such Collections;
(iii) apply the Collections allocated to the Asset
Interest pursuant to clause (i) and not required to be set
aside pursuant to clause (ii) to the purchase from Seller of
ownership interests in Pool Assets (each such purchase being
a "Reinvestment"); provided that (A) if the then Asset
Interest, expressed as a percentage of Net Pool Balance,
would exceed the Allocation Limit, then, Servicer shall not
reinvest, but shall set aside and hold for the benefit of
Purchaser, a portion of such Collections which, together
with other Collections previously set aside and then so
held, shall equal the amount necessary to reduce the Asset
Interest to the Allocation Limit; and (B) if the conditions
precedent to Reinvestment in clause (a), (b) or (d) of
Section 5.02 are not satisfied then Servicer shall not
reinvest, but shall set aside and hold for the benefit of
Purchaser, any of such remaining Collections; and
(iv) pay to Seller (A) the portion of such Collections
not allocated to the Asset Interest pursuant to clause (i)
and (B) the Collections applied to Reinvestment pursuant to
clause (iii).
(b) Unreinvested Collections. Servicer shall set aside and
hold in trust for the benefit of Purchaser all Collections which
pursuant to clause (iii) of Section 1.03(a), may not be
reinvested in Pool Assets; provided that unless the Administrator
8 <PAGE>
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or the Relationship Bank shall request it to do so in writing
(which writing shall set forth the reason for such request),
Servicer shall not be required to hold Collections that have been
set aside in a separate deposit account containing only such
Collections. If, prior to the date when such Collections are
required to be paid to the Administrator for the benefit of
Purchaser pursuant to Section 1.03(c), the amount of Collections
so set aside exceeds the amount, if any, necessary to reduce the
Asset Interest to the Allocation Limit, and the conditions
precedent to Reinvestment set forth in clauses (a), (b) and (d)
of Section 5.02 are satisfied, then the Servicer shall apply such
Collections (or, if less, a portion of such Collections equal to
the amount of such excess) to the making of a Reinvestment.
(c) Reduction of Purchaser's Total Investment. The
Purchaser's Total Investment shall not be reduced by the amount
of Collections set aside pursuant to this Section unless and
until such Collections are actually delivered to the
Administrator pursuant hereto.
SECTION 1.04. Asset Interest. (a) Components of Asset
Interest. On any date the Asset Interest will represent
Purchaser's combined undivided percentage ownership interest in
(i) all then outstanding Pool Receivables, (ii) related
Contracts, (iii) all Related Security with respect to such Pool
Receivables, (iv) the Accounts, (v) all Collections with respect
to, and other proceeds of, such Pool Receivables, Contracts and
Related Security as at such date and (vi) all books and records
evidencing or related to the foregoing (collectively, the "Pool
Assets").
(b) Computation of Asset Interest. On any date, the Asset
Interest will be equal the following fraction (expressed as a
percentage):
PTI + LR
NPB
where:
PTI = the then Purchaser's Total Investment.
LR = the then Loss Reserve.
NPB = the then Net Pool Balance;
provided, however, that the Asset Interest, as computed as of the
day immediately preceding the Termination Date, will remain
constant at all times on and after the Termination Date until the
Final Payout Date, unless at any time the Administrator requests
a recalculation of the Asset Interest and such recalculation
produces a higher Asset Interest, in which case the Asset
9 <PAGE>
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Interest shall remain constant at such higher amount following
such recalculation until the Final Payout Date, or, if earlier,
until the date of the next such recalculation of a higher Asset
Interest; and provided, further, that the Asset Interest shall
not exceed 100%.
(c) Frequency of Computation. The Asset Interest shall be
computed, as provided in Sections 1.04 and 3.01, as of the Cut-
Off Date for each Settlement Period. In addition, the
Administrator may require Servicer to provide an Information
Package for purposes of computing the Asset Interest as of any
other date, utilizing the then most recently available
information, and the Servicer agrees to do so within 3 Business
Days of its receipt of the Administrator's written request.
ARTICLE II
COMPUTATIONAL RULES
SECTION 2.01. Computation of Purchaser's Total Investment.
In making any determination of Purchaser's Total Investment, the
following rules shall apply:
(a) Purchaser's Total Investment shall not be
considered reduced by any allocation, setting aside or
distribution of any portion of Collections unless such
Collections shall have been actually delivered to the
Administrator pursuant hereto; and
(b) Purchaser's Total Investment shall not be
considered reduced by any distribution of any portion of
Collections if at any time such distribution is rescinded or
otherwise returned for any reason.
SECTION 2.02. Computation of Earned Discount. In making
any determination of Earned Discount, the following rules shall
apply:
(a) the Administrator shall determine the Earned
Discount accruing with respect to the Purchaser's Total
Investment, in accordance with the definition of Earned
Discount;
(b) no provision of this Agreement shall require the
payment or permit the collection of Earned Discount in
excess of the maximum permitted by applicable law; and
(c) Earned Discount shall not be considered paid by
any distribution if at any time such distribution is
rescinded or otherwise returned for any reason.
10 <PAGE>
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SECTION 2.03. Estimates of Earned Discount Rate, Fees, etc.
For purposes of determining the amounts required to be set aside
by Servicer pursuant to Section 1.03, the Administrator shall
notify Servicer from time to time of the Earned Discount Rate
applicable to the Purchaser's Total Investment and the rates at
which fees and other amounts are accruing hereunder. It is
understood and agreed that (i) the Earned Discount Rate may
change from time to time, (ii) certain rate information provided
by the Administrator to Servicer shall be based upon the
Administrator's good faith estimate, (iii) the amount of Earned
Discount actually accrued with respect to any Settlement Period
may exceed, or be less than, the amount set aside with respect
thereto by Servicer, and (iv) the amount of fees or other
payables accrued hereunder with respect to any Settlement Period
may exceed, or be less than, the amount set aside with respect
thereto by Servicer. Failure to set aside any amount so accrued
shall not relieve Servicer of its obligation to remit Collections
to the Administrator with respect to such accrued amount, as and
to the extent provided in Section 3.01.
ARTICLE III
SETTLEMENTS
SECTION 3.01. Settlement Procedures.
The parties hereto will take the following actions with
respect to each Settlement Period:
(a) Information Package. On the seventh Business Day
following the Cut-Off Date for such Settlement Period,
Servicer shall deliver to the Relationship Bank and the
Administrator a diskette containing the information
described in Exhibit 3.01 (each, an "Information Package").
(b) Earned Discount; Other Amounts Due. On the first
Business Day following such Cut-Off Date, the Administrator
shall notify Servicer of (i) the amount of Earned Discount
that will have accrued in respect of the Purchaser's Total
Investment during such Settlement Period, and (ii) all fees
and other amounts accrued and payable by Seller under this
Agreement (other than Purchaser's Total Investment).
(c) Settlement Date Procedure - Reinvestment Period.
On the fifteenth day of each month, or if such day is not a
Business Day, the next succeeding Business Day (each, a
"Settlement Date") prior to the Termination Date, the
Servicer shall distribute from Collections set aside
pursuant to Section 1.03(a)(ii) and (iii) and (b) during the
11 <PAGE>
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immediately preceding Settlement Period the following
amounts in the following order:
(1) to the Administrator, an amount equal to the
Earned Discount accrued during such Settlement Period,
plus any previously accrued Earned Discount not paid on
a prior Settlement Date, which amount shall be
distributed by the Administrator to the Purchaser for
application to such Earned Discount;
(2) to the Administrator, an amount equal to the
Program Fee and the Commitment Fee accrued during such
Settlement Period, plus any previously accrued Program
Fee and Commitment Fee not paid on a prior Settlement
Date;
(3) to the Servicer, if the Servicer is not
Seller, an amount equal to the Servicer's Fee accrued
during such Settlement Period, to the extent that such
Servicer's Fee does not exceed the Servicer's Fee that
would have accrued if such Servicer's Fee had been
calculated using a Servicer's Fee Rate of 2%;
(4) to the Administrator, all other amounts then
due under this Agreement to the Administrator, the
Relationship Bank, the Purchaser, the Affected Parties
or the Indemnified Parties;
(5) to the Administrator, an amount equal to the
amount, if any, necessary to reduce the Asset Interest
to the Allocation Limit, which amount shall be
distributed by the Administrator to the Purchaser for
application to the Purchaser's Total Investment;
(6) to the Servicer, an amount equal to the
Servicer's Fee accrued during such Settlement Period to
the extent not paid pursuant to subparagraph (3) above,
plus any previously accrued Servicer's Fee not paid on
a prior Settlement Date; and
(7) to the Seller, any remaining amounts.
(d) Settlement Date Procedure - Liquidation Period.
On each Settlement Date during the Liquidation Period, the
Servicer shall distribute from Purchaser's Share of
Collections received, or deemed received pursuant to Section
3.02, during the immediately preceding Settlement Period the
following amounts in the following order:
(1) to the Administrator, an amount equal to the
Earned Discount accrued during such Settlement Period,
12 <PAGE>
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plus any previously accrued Earned Discount not paid on
a prior Settlement Date, which amount shall be
distributed by the Administrator to the Purchaser for
application to such Earned Discount;
(2) to the Administrator, an amount equal to the
Program Fee and Commitment Fee accrued during such
Settlement Period, plus any previously accrued Program
Fee and Commitment Fee not paid on a prior Settlement
Date;
(3) to the Servicer, if the Servicer is not
Seller, an amount equal to the Servicer's Fee accrued
during such preceding Settlement Period, to the extent
that such Servicer's Fee does not exceed the Servicer's
Fee that would have accrued if such Servicer's Fee had
been calculated using a Servicer's Fee Rate of 2%;
(4) to the Administrator, all other amounts then
due under this Agreement to the Administrator, the
Relationship Bank, the Purchaser, the Affected Parties
or the Indemnified Parties;
(5) to the Administrator, an amount equal to the
remaining Purchaser's Share of Collections until the
Purchaser's Total Investment is reduced to zero, which
amount shall be distributed by the Administrator to the
Purchaser for application to the Purchaser's Total
Investment;
(6) to the Servicer, an amount equal to the
Servicer's Fee accrued during such Settlement Period,
to the extent not paid pursuant to subparagraph (3)
above, plus any previously accrued Servicer's Fee not
paid on a prior Settlement Date; and
(7) to the Seller, any remaining amounts.
(e) Order of Application of Purchaser's Total
Investment. Upon receipt by the Administrator of funds
distributed pursuant to this Section 3.01 with respect to
any Settlement Period on account of Purchaser's Total
Investment, the Administrator shall apply them to the items
specified in the subclauses below, in the order of priority
of such subclauses:
(i) to that portion of the Purchaser's Total
Investment funded by Liquidity Loans until reduced to
zero;
13 <PAGE>
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(ii) to that portion of the Purchaser's Total
Investment funded by Commercial Paper Notes until
reduced to zero; and
(iii) to that portion of the Purchaser's Total
Investment funded by a Credit Draw until reduced to
zero.
(f) Non-Distribution of Servicer's Fee. Unless the
Administrator gives written notice to the contrary to
Servicer (which notice may be given at any time), the
amounts (if any) set aside pursuant to Section 1.03 in
respect of Servicer's Fee may be retained by Servicer, in
which case no distribution shall be made in respect of
Servicer's Fee pursuant to clause (c) or (d) above.
(g) Delayed Payment. If on any day described in this
Section 3.01 because Collections during the relevant
Settlement Period were less than the aggregate amounts
payable, Servicer shall not make any payment otherwise
required, the next available Collections in respect of the
Asset Interest shall be applied to such payment, and no
Reinvestment shall be permitted hereunder until such amount
payable has been paid in full.
SECTION 3.02. Deemed Collections; Reduction of Purchaser's
Total Investment, Etc.
(a) Deemed Collections. If on any day
(i) the Unpaid Balance of any Pool Receivable is
(A) reduced as a result of any defective,
rejected or returned merchandise or services, any cash
discount, or any incorrect billing or other adjustment
by Seller or any Affiliate of Seller,
(B) reduced or cancelled as a result of a setoff
in respect of any claim by the Obligor thereof against
Seller or any Affiliate of Seller or any other Person
(whether such claim arises out of the same or a related
or an unrelated transaction), or
(C) reduced on account of the obligation of
Seller to pay to the related Obligor any rebate or
refund, or
(D) less than the amount included in calculating
the Net Pool Balance for purposes of any Information
Package, or
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(ii) any of the representations or warranties of
Seller set forth in Section 6.01(l) or (p) were not true
when made with respect to any Pool Receivable, or any of the
representations or warranties of Seller set forth in
Section 6.01(l) are no longer true with respect to any Pool
Receivable,
then, on such day, Seller shall be deemed to have received a
Collection of such Pool Receivable
(I) in the case of clause (i) above, in the
amount of such reduction or cancellation or the
difference between the actual Unpaid Balance and the
amount included in calculating such Net Pool Balance,
as applicable; and
(II) in the case of clause (ii) above, in the
amount of the Unpaid Balance of such Pool Receivable.
(b) Seller's Optional Reduction of Purchaser's Total
Investment. Seller may at any time elect to reduce the
Purchaser's Total Investment as follows:
(i) Seller shall give the Administrator at least
3 Business Days' prior written notice of such reduction
(including the amount of such proposed reduction and the
proposed date on which such reduction will commence),
(ii) on the proposed date of commencement of such
reduction and on each day thereafter, Servicer shall refrain
from reinvesting Collections pursuant to Section 1.03 until
the amount thereof not so reinvested shall equal the amount
of such reduction, and
(iii) Servicer shall hold such Collections in trust
for Purchaser, pending payment to the Administrator, as
provided in Section 1.03;
provided that,
(A) the amount of any such reduction shall be not
less than $1,000,000 and the Purchaser's Total
Investment after giving effect to such reduction shall
be not less than $10,000,000 (unless such reduction
reduces Purchaser's Total Investment to zero), and
(B) Seller shall use reasonable efforts to
attempt to choose a reduction amount, and the date of
commencement thereof, so that such reduction shall
commence and conclude in the same Settlement Period to
the extent possible.
15 <PAGE>
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SECTION 3.03. Payments and Computations, Etc.
(a) Payments. All amounts to be paid or deposited by
Seller or Servicer to the Administrator or any other Person
hereunder (other than amounts payable under Section 4.02) shall
be paid or deposited in accordance with the terms hereof no later
than 11:00 a.m. (New York City time) on the day when due in
lawful money of the United States of America in same day funds
(i) in the case of amounts to be paid or deposited in respect of
accrued and unpaid Earned Discount or in reduction of Purchaser's
Total Investment, to the Collateral Agent at First National Bank
of Chicago, Chicago, Illinois, account #21-201949-6 and (ii) in
the case of all fees, expenses and other amounts (other than
amounts payable under Section 4.02), to the Administrator at
State Street Bank, Boston, Massachusetts, Account #13585872;
Attention: Clipper Receivables.
(b) Late Payments. Seller or Servicer, as applicable,
shall, to the extent permitted by law, pay to Purchaser interest
on all amounts not paid or deposited when due hereunder at 1% per
annum above the Alternate Base Rate, payable on demand, provided,
however, that such interest rate shall not at any time exceed the
maximum rate permitted by applicable law.
(c) Method of Computation. All computations of interest,
Earned Discount, any fees payable under Sections 4.01(b) and (c)
and any other fees payable by Seller to Purchaser, the
Administrator or the Relationship Bank in connection with
Purchases or the Asset Interest hereunder shall be made on the
basis of a year of 360 days for the actual number of days
(including the first day but excluding the last day) elapsed.
SECTION 3.04. Treatment of Collections and Deemed
Collections. Seller shall forthwith deliver to Servicer all
Collections deemed received by Seller pursuant to Section
3.02(a), and Servicer shall hold or distribute such Collections
as Earned Discount, accrued Servicer's Fee, repayment of
Purchaser's Total Investment, etc. to the same extent as if such
Collections had actually been received on the date of such
delivery to Servicer. If Collections are then being paid to the
Collateral Agent, or lock boxes or accounts directly or
indirectly owned or controlled by the Collateral Agent, Servicer
shall forthwith cause such deemed Collections to be paid to the
Collateral Agent or to such lock boxes or accounts, as
applicable, or as the Collateral Agent shall request in writing.
So long as Seller shall hold any Collections or deemed
Collections required to be paid to Servicer, the Administrator or
Collateral Agent, it shall hold such Collections in trust and
shall clearly mark its records to reflect such trust; provided
that unless the Administrator or the Relationship Bank shall
request it to do so in writing, Seller shall not be required to
16 <PAGE>
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hold such Collections in a separate deposit account containing
only such Collections.
ARTICLE IV
FEES AND YIELD PROTECTION
SECTION 4.01. Fees.
(a) Arrangement Fee. Seller shall pay to the Relationship
Bank, an arrangement fee ("Arrangement Fee") payable on such
dates and in such amounts as are set forth in the letter dated
December 15, 1994 from the Relationship Bank to Seller.
(b) Other Fees. Seller shall pay to Purchaser certain
fees, payable on such dates and in such amounts as are set forth
in the letter dated the date hereof from the Relationship Bank to
Seller (as amended from time to time, the "Fee Letter").
SECTION 4.02. Yield Protection.
(a) If (i) Regulation D or (ii) any Regulatory Change
occurring after the date hereof
(A) shall impose, modify or deem applicable any
reserve (including, without limitation, any reserve imposed
by the Federal Reserve Board, but excluding any reserve
included in the determination of Earned Discount), special
deposit or similar requirement against assets of any
Affected Party, deposits or obligations with or for the
account of any Affected Party or with or for the account of
any affiliate (or entity deemed by the Federal Reserve Board
to be an affiliate) of any Affected Party, or credit
extended by any Affected Party; or
(B) shall change the amount of capital maintained or
required or requested or directed to be maintained by any
Affected Party;
(C) shall impose any other condition affecting any
Asset Interest owned or funded in whole or in part by any
Affected Party, or its obligations or rights, if any, to
make Purchases or Reinvestments or to provide funding
therefor; or
(D) shall change the rate for, or the manner in which
the Federal Deposit Insurance Corporation (or a successor
thereto) assesses, deposit insurance premiums or similar
charges;
and the result of any of the foregoing is or would be
17 <PAGE>
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(x) to increase the cost to (or in the case of
Regulation D referred to above, to impose a cost on) an
Affected Party funding or making or maintaining any
Purchases or Reinvestments, any purchases, reinvestments, or
loans or other extensions of credit under the Liquidity
Agreement, or any Credit Draw, or any commitment of such
Affected Party with respect to any of the foregoing,
(y) to reduce the amount of any sum received or
receivable by an Affected Party under this Agreement, or
under the Liquidity Agreement or the Credit Agreement with
respect thereto, or
(z) in the reasonable determination of such Affected
Party, to reduce the rate of return on the capital of an
Affected Party as a consequence of its obligations hereunder
or arising in connection herewith to a level below that
which such Affected Party could otherwise have achieved but
for Regulation D or such Regulatory Change,
then within thirty days after demand by such Affected Party
(which demand shall be accompanied by a statement setting forth
the basis of such demand), Seller shall pay directly to such
Affected Party such additional amount or amounts as will
compensate such Affected Party for such additional or increased
cost or such reduction. This Section 4.02(a) shall not apply to
taxes.
(b) Each Affected Party will promptly notify Seller and the
Administrator of any event of which it has knowledge which will
entitle such Affected Party to compensation pursuant to this
Section 4.02; provided, however, no failure to give or delay in
giving such notification shall adversely affect the rights of any
Affected Party to such compensation.
(c) In determining any amount provided for or referred to
in this Section 4.02, an Affected Party may use any reasonable
averaging and attribution methods that it (in its sole
discretion) shall deem applicable. Any Affected Party when
making a claim under this Section 4.02 shall submit to Seller a
statement as to such increased cost or reduced return (including
calculation thereof in reasonable detail), which statement shall,
in the absence of demonstrable error, be conclusive and binding
upon Seller.
(d) Subject to Section 4.02(f), any and all payments made
under this Agreement shall be made free and clear of, and without
deduction for, any and all present or future Taxes. If any
amount of Taxes shall be required by law to be deducted from or
in respect of any sum payable hereunder to any Foreign assignee
or participant of Purchaser, (i) the sum payable shall be
increased as may be necessary so that after making all required
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deductions (including deductions applicable to additional sums
payable under this Section 4.02(d)), such Foreign assignee or
participant of Purchaser, as the case may be, receives an amount
equal to the sum it would have received had no such deductions
been made, (ii) Seller shall make such deductions and (iii)
Seller shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with
applicable law.
(e) Each Foreign assignee or participant of Purchaser, on
or prior to the date pursuant to which it becomes an assignee or
participant of Purchaser, and from time to time thereafter if
requested in writing by Seller (unless such Foreign assignee or
participant of Purchaser can no longer lawfully do so due to a
change in law subsequent to the date it became an assignee or
participant of Purchaser hereunder), shall provide Seller with
Internal Revenue Service Form 1001 or 4224, as appropriate, or
any successor form prescribed by the Internal Revenue Service,
certifying that such Foreign assignee or participant of Purchaser
is entitled to benefits under an income tax treaty to which the
United States is a party which reduces the rate of withholding
tax on payments of interest to zero or certifying that the income
receivable pursuant to this Agreement is effectively connected
with the conduct of a trade or business in the United States.
(f) For any period with respect to which a Foreign assignee
or participant of Purchaser has failed to provide the Seller with
the appropriate form described in Section 4.02(e) (other than if
such failure is due to a change in law occurring subsequent to
the date on which a form originally was required to be provided),
such Foreign assignee or participant of Purchaser shall not be
entitled to payments of additional amounts under Section 4.02(d).
SECTION 4.03. Funding Losses. In the event that any
Liquidity Bank shall incur any loss or expense (including any
loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such
Liquidity Bank to make any Liquidity Loan or maintain any
Liquidity Loan) as a result of (i) any settlement with respect to
any portion of Purchaser's Total Investment funded by a Liquidity
Loan being made on any day other than a Settlement Date, or (ii)
any Purchase not being made in accordance with a request
therefore under Section 1.02 (other than by reason of (a) a
default by such Liquidity Bank, (b) Purchaser's failure to make
available to the Administrator the required funds as set forth in
Section 1.02(b) or (c) the Administrator's failure to make
available the required funds to Seller as set forth in Section
1.02(b)), then, upon written notice from the Administrator to
Seller and Servicer, Seller shall pay to Servicer, and Servicer
shall pay to the Administrator for the Account of such Liquidity
Bank, the amount of such loss or expense. Such written notice
(which shall include calculations in reasonable detail) shall, in
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the absence of manifest error, be conclusive and binding upon the
Seller and Servicer.
ARTICLE V
CONDITIONS OF PURCHASES
SECTION 5.01. Conditions Precedent to Initial Purchase.
The initial Purchase hereunder is subject to the condition
precedent that the Administrator shall have received, on or
before the date of such Purchase, the following, each (unless
otherwise indicated) dated such date and in form and substance
satisfactory to the Administrator:
(a) A copy of the resolutions of the Board of
Directors of Seller approving this Agreement and the other
Transaction Documents to be delivered by it hereunder and
the transactions contemplated hereby, certified by its
Secretary or Assistant Secretary;
(b) A good standing certificate for Seller issued by
the Secretary of State of Pennsylvania.
(c) A certificate of the Secretary or Assistant
Secretary of Seller certifying the names and true signatures
of the officers authorized on its behalf to sign this Agree-
ment and the other Transaction Documents to be delivered by
it hereunder (on which certificate the Administrator and
Purchaser may conclusively rely until such time as the
Administrator shall receive from Seller a revised
certificate meeting the requirements of this subsection
(c));
(d) The Articles of Incorporation of Seller, duly
certified by the Secretary of State of Pennsylvania, as of a
recent date acceptable to Administrator, together with a
copy of the by-laws of Seller, duly certified by the
Secretary or an Assistant Secretary of Seller;
(e) Acknowledgment copies of proper financing
statements (Form UCC-1), filed on or prior to the date of
the initial Purchase, naming Seller as the debtor and seller
of Receivables or an undivided interest therein and
Purchaser as the secured party and purchaser, or other,
similar instruments or documents, as may be necessary or, in
the opinion of the Administrator, desirable under the UCC or
any comparable law of all appropriate jurisdictions to
perfect Purchaser's interests in the Pool Assets;
(f) A search report provided in writing to the
Administrator, listing all effective financing statements
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that name Seller as debtor and that are filed in the
jurisdictions in which filings were made pursuant to
subsection (e) above and in such other jurisdictions that
Administrator shall reasonably request, together with copies
of such financing statements (none of which shall cover any
Pool Assets);
(g) Duly executed copies of Lock-Box Agreements with
each of the Lock-Box Banks;
(h) A favorable opinion of Morgan, Lewis & Bockius,
counsel to Seller, in substantially the form of Exhibit
5.01(h);
(i) Such powers of attorney as the Administrator shall
reasonably request to enable the Administrator to collect
all amounts due under any and all Pool Receivables;
(j) A pro forma Information Package, prepared in
respect of the proposed initial Purchase, assuming a Cut-Off
Date of December 31, 1994;
(k) A report in form and substance satisfactory to the
Administrator from the Relationship Bank as to a pre-closing
due diligence audit of Seller by the Relationship Bank;
(l) The Liquidity Agreement, duly executed by
Purchaser, the Liquidity Agent and each Liquidity Bank;
(m) Written approval by the Credit Bank of this
Agreement and the transactions contemplated hereby;
(n) Letters from the rating agencies then rating the
Commercial Paper Notes, confirming in effect that the
existing ratings of the Commercial Paper Notes will remain
in effect after giving effect to the transactions
contemplated hereby; and
(o) The Fee Letter, duly executed by Seller.
SECTION 5.02. Conditions Precedent to All Purchases and
Reinvestments. Each Purchase (including the initial Purchase)
and each Reinvestment hereunder shall be subject to the further
conditions precedent that on the date of such Purchase or
Reinvestment the following statements shall be true (and Seller
by accepting the amount of such Purchase or by receiving the
proceeds of such Reinvestment shall be deemed to have certified
that):
(a) the representations and warranties contained in
Section 6.01 are correct in all material respects on and as
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of such day as though made on and as of such day and shall
be deemed to have been made on such day,
(b) no event has occurred and is continuing, or would
result from such Purchase or Reinvestment, that constitutes
a Liquidation Event or Unmatured Liquidation Event,
(c) after giving effect to each proposed Purchase or
Reinvestment, Purchaser's Total Investment will not exceed
the Purchase Limit and the Asset Interest, expressed as a
percentage of Net Pool Balance, will not exceed the
Allocation Limit, and
(d) the Termination Date shall not have occurred;
provided, however, the absence of the occurrence and continuance
of an Unmatured Liquidation Event shall not be a condition
precedent to any Reinvestment or any Purchase which does not
cause the Purchaser's Total Investment, after giving effect to
such Reinvestment or Purchase, to exceed the Purchaser's Total
Investment as of the opening of business of the day of such
Reinvestment or Purchase.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties of Seller.
Seller represents and warrants as follows:
(a) Organization and Good Standing. Seller has been
duly organized and is validly existing as a corporation in
good standing under the laws of the Commonwealth of
Pennsylvania, with power and authority to own its properties
and to conduct its business as such properties are presently
owned and such business is presently conducted, and had at
all relevant times, and now has, all necessary power,
authority, and legal right to acquire and own the Pool
Receivables.
(b) Due Qualification. Seller is duly qualified to do
business as a foreign corporation in good standing, and has
obtained all necessary licenses and approvals, in all
jurisdictions in which the failure to so qualify or obtain
such licenses or approvals would have a Material Adverse
Effect.
(c) Power and Authority; Due Authorization. Seller
(i) has all necessary power, authority and legal right to
(A) execute and deliver this Agreement and the other
Transaction Documents to which it is a party, (B) carry out
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the terms of the Transaction Documents to which it is a
party, and (C) sell and assign the Asset Interest on the
terms and conditions herein provided and (ii) has duly
authorized by all necessary corporate action the execution,
delivery and performance of this Agreement and the other
Transaction Documents and the sale and assignment of the
Asset Interest on the terms and conditions herein provided.
(d) Valid Sale; Binding Obligations. This Agreement
constitutes a valid sale, transfer, and assignment of the
Asset Interest to Purchaser, enforceable against creditors
of, and purchasers from, Seller; and this Agreement
constitutes, and each other Transaction Document to be
executed by Seller when duly executed and delivered will
constitute, a legal, valid and binding obligation of Seller
enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the
enforcement of creditors' rights generally and by general
principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at
law.
(e) No Violation. The consummation of the
transactions contemplated by this Agreement and the other
Transaction Documents and the fulfillment of the terms
hereof will not (i) conflict with, result in any breach of
any of the terms and provisions of, or constitute (with or
without notice or lapse of time or both) a default under,
(A) the articles of incorporation or by-laws of Seller, or
(B) in any material respect, any indenture, loan agreement,
receivables purchase agreement, mortgage, deed of trust, or
other agreement or instrument to which Seller is a party or
by which it or any of its properties is bound, (ii) result
in the creation or imposition of any Lien upon any of
Seller's properties pursuant to the terms of any such
indenture, loan agreement, receivables purchase agreement,
mortgage, deed of trust, or other agreement or instrument,
other than this Agreement, or (iii) violate any law or any
order, rule, or regulation applicable to Seller of any court
or of any federal or state regulatory body, administrative
agency, or other governmental instrumentality having
jurisdiction over Seller or any of its properties.
(f) No Proceedings. There are no proceedings or
investigations pending, or, to Seller's knowledge,
threatened, before any court, regulatory body,
administrative agency, or other tribunal or governmental
instrumentality (i) asserting the invalidity of this
Agreement or any other Transaction Document to which Seller
is a party, (ii) seeking to prevent the sale and assignment
of any Asset Interest or the consummation of any of the
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other transactions contemplated by this Agreement or any
other Transaction Document to which Seller is a party, or
(iii) seeking any determination or ruling that might have a
Material Adverse Effect or seeking to adversely affect the
federal income tax attributes of the Purchases or
Reinvestments hereunder.
(g) Bulk Sales Act. No transaction contemplated
hereby requires compliance with any bulk sales act or
similar law.
(h) Government Approvals. No authorization or
approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by
Seller of this Agreement or any other Transaction Document,
except for the filing of the UCC financing statements
referred to in Article V, all of which, at the time required
in Article V, shall have been duly made and shall be in full
force and effect.
(i) Financial Condition. (x) The consolidated balance
sheets of Seller and its consolidated subsidiaries as at
January 29, 1994, and the related statements of income and
shareholders' equity of Seller and its consolidated
subsidiaries for the fiscal year then ended, certified by
Ernst & Young, independent certified public accountants, and
the consolidated balance sheets of Seller and its
consolidated subsidiaries as at October 29, 1994 and the
related statements of income and shareholders' equity of
Seller and its consolidated subsidiaries for the nine month
period then ended, copies of which have been furnished to
the Administrator, fairly present the consolidated financial
condition, business and results of operations of Seller and
its consolidated subsidiaries as at such dates and the
consolidated results of the operations of Seller and its
consolidated subsidiaries for the periods ended on such
dates, all in accordance with generally accepted accounting
principles consistently applied, and (y) since January 29,
1994 there has been no material adverse change in any such
condition, business or results of operations except as
described in Schedule 6.01(i).
(j) Litigation. No injunction, decree or other
decision has been issued or made by any court, governmental
agency or instrumentality thereof that prevents, and no
threat by any person has been made to attempt to obtain any
such decision that would prevent, Seller from conducting a
material part of its business operations, except as
described in Schedule 6.01(j).
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(k) Margin Regulations. The use of all funds obtained
by Seller under this Agreement will not conflict with or
contravene any of Regulations G, T, U and X promulgated by
the Board of Governors of the Federal Reserve System from
time to time.
(l) Quality of Title. Each Pool Receivable, together
with each other Pool Asset, is owned by Seller free and
clear of any Lien (other than any Lien arising solely as the
result of any action taken by Purchaser (or any assignee
thereof) or by the Administrator); when Purchaser makes a
Purchase or Reinvestment, it shall have acquired and shall
at all times thereafter continuously maintain a valid and
perfected first priority undivided percentage ownership
interest to the extent of the Asset Interest in each Pool
Receivable, and each other Pool Asset, free and clear of any
Lien (other than any Lien arising solely as the result of
any action taken by Purchaser (or any assignee thereof) or
by the Administrator); and no financing statement or other
instrument similar in effect covering any Pool Receivable,
or any other Pool Asset is on file in any recording office
except such as may be filed (i) in favor of Purchaser or the
Administrator in accordance with this Agreement or in
connection with any Lien arising solely as the result of any
action taken by Purchaser (or any assignee thereof) or by
the Administrator, or (ii) in favor of the Collateral Agent.
(m) Accurate Reports. No Information Package (if
prepared by Seller or its Affiliate, or to the extent
information therein was supplied by Seller or its Affiliate)
or other information, exhibit, financial statement,
document, book, record or report furnished or to be
furnished by or on behalf of Seller or its Affiliates to the
Administrator, Purchaser or the Relationship Bank in
connection with this Agreement was or will be inaccurate in
any material respect as of the date it was or will be dated
or (except as otherwise disclosed to the Administrator,
Purchaser, and the Relationship Bank at such time) as of the
date so furnished, or contained or will contain any material
misstatement of fact or omitted or will omit to state a
material fact or any fact necessary to make the statements
contained therein not materially misleading.
(n) Offices. The chief place of business and chief
executive office of Seller are located at the address of
Seller referred to in Section 14.02, and the offices where
Seller keeps all its books, records and documents evidencing
Pool Receivables, the related Accounts and Contracts and all
other agreements related to such Pool Receivables are
located at the addresses specified in Schedule 6.01(n) (or
at such other locations, notified to the Administrator in
accordance with Section 7.01(f), in jurisdictions where all
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action required by Section 8.05 has been taken and
completed).
(o) Lock-Box Accounts. The names and addresses of all
the Lock-Box Banks, together with the account numbers of the
lock-box accounts of Seller at such Lock-Box Banks, are
specified in Schedule 6.01(o) (or have been notified to the
Administrator and the Relationship Bank in accordance with
Section 7.03(d)).
(p) Eligible Receivables. Each Receivable included in
the Net Pool Balance as an Eligible Receivable on the date
of any Purchase, Reinvestment or other calculation of the
Net Pool Balance shall be an Eligible Receivable on such
date.
(q) Servicing Programs. No license or approval is
required for the Administrator's use of any program used by
Servicer in the servicing of the Receivables, other than
those which have been obtained and are in full force and
effect.
(r) No Disclosure Required. Under applicable laws and
regulations in effect on the date hereof, Seller is not
required to file a copy of this Agreement with the
Securities and Exchange Commission or any other governmental
authority.
ARTICLE VII
GENERAL COVENANTS OF SELLER
SECTION 7.01. Affirmative Covenants of Seller. From the
date hereof until the Final Payout Date, Seller will, unless the
Administrator shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply in all material
respects with all applicable laws, rules, regulations and
orders, including those with respect to the Pool Receivables
and related Accounts and Contracts.
(b) Preservation of Corporate Existence. Preserve and
maintain its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and
qualify and remain qualified in good standing as a foreign
corporation in each jurisdiction where the failure to
preserve and maintain such existence, rights, franchises,
privileges and qualification would have a Material Adverse
Effect.
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(c) Audits. (i) At any time and from time to time
during regular business hours, permit the Administrator, the
Relationship Bank or any of their agents or representatives,
upon at least two Business Days' prior notice (provided that
no such notice shall be required if a Liquidation Event
shall have occurred and be continuing) (A) to examine and
make copies of and abstracts from all books, records and
documents (including, without limitation, computer tapes and
disks) in the possession or under the control of Seller
relating to Pool Receivables, including, without limitation,
the related Accounts and Contracts and other agreements, and
(B) to visit the offices and properties of Seller for the
purpose of examining such materials described in clause
(i)(A) next above, and to discuss matters relating to Pool
Receivables or Seller's performance hereunder with any of
the officers or employees of Seller having knowledge of such
matters; and (ii) without limiting the provisions of clause
(i) next above, from time to time on request of
Administrator or the Relationship Bank, permit internal
auditors or other employees of the Relationship Bank to
conduct, at Seller's reasonable expense, a review of
Seller's books and records.
(d) Keeping of Records and Books of Account. Maintain
and implement administrative and operating procedures
(including, without limitation, an ability to recreate
records evidencing Pool Receivables in the event of the
destruction of the originals thereof), and keep and maintain
all documents, books, records and other information
reasonably necessary or advisable for the collection of all
Pool Receivables (including, without limitation, records
adequate to permit the daily identification of each new Pool
Receivable and all Collections of and adjustments to each
existing Pool Receivable).
(e) Performance and Compliance with Receivables and
Contracts. At its expense timely and fully perform and
comply with all provisions, covenants and other promises
required to be observed by it under the Contracts related to
the Pool Receivables and all other agreements related to
such Pool Receivables, except insofar as the failure to
perform and comply would not materially and adversely affect
the rights of Purchaser hereunder or the collectability of
such Pool Receivables.
(f) Location of Records. Keep its chief place of
business and chief executive office, and the offices where
it keeps its records concerning the Pool Receivables, all
related Accounts and Contracts and all other agreements
related to such Pool Receivables (and all original documents
relating thereto), at the address(es) of Seller referred to
in Section 6.01(n) or, upon 30 days' prior written notice to
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the Administrator, at such other locations in jurisdictions
where all action required by Section 8.05 shall have been
taken and completed.
(g) Credit and Collection Policies. Comply in all
material respects with its Credit and Collection Policy in
regard to each Pool Receivable and the related Contract.
(h) Collections. Instruct all Obligors to cause all
Collections of Pool Receivables to be deposited directly
with a Lock-Box Bank. From and after the occurrence of a
Liquidation Event, deposit all collections received in
Seller's stores or otherwise received by Seller into an
account at a Lock-Box Bank within one Business Day of
receipt.
SECTION 7.02. Reporting Requirements of Seller. From the
date hereof until the Final Payout Date, Seller shall, unless the
Administrator and the Relationship Bank shall otherwise consent
in writing, furnish to the Administrator and the Relationship
Bank:
(a) Quarterly Financial Statements. As soon as
available and in any event within 45 days after the end of
each of the first three quarters of each fiscal year of
Seller, copies of the financial statements of Seller and its
Subsidiaries prepared on a consolidated basis in conformity
with generally accepted accounting principles, duly
certified by the chief financial officer of Seller;
(b) Annual Financial Statements. As soon as available
and in any event within 90 days after the end of each fiscal
year of Seller, copies of the financial statements of Seller
and its Subsidiaries prepared on a consolidated basis in
conformity with generally accepted accounting principles and
duly certified by independent certified public accountants
of recognized standing selected by Seller;
(c) Reports to Holders and Exchanges. In addition to
the reports required by subsections (a) and (b) next above,
promptly upon the Administrator's or Relationship Bank's
request, copies of any reports which Seller sends to any of
its securityholders, and any reports or registration
statements that Seller files with the Securities and
Exchange Commission or any national securities exchange
other than registration statements relating to employee
benefit plans and to registrations of securities for selling
securities;
(d) ERISA. Promptly after the filing or receiving
thereof, copies of all reports and notices with respect to
any Reportable Event as defined in Article IV of ERISA which
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Seller files under ERISA with the Internal Revenue Service,
the Pension Benefit Guaranty Corporation or the U.S.
Department of Labor or which Seller receives from the
Pension Benefit Guaranty Corporation;
(e) Liquidation Events. As soon as possible and in
any event within three Business Days after the occurrence of
each Liquidation Event and each Unmatured Liquidation Event,
a written statement of the Chairman, President, Treasurer or
any Vice President of Seller setting forth details of such
event and the action that Seller proposes to take with
respect thereto;
(f) Litigation. As soon as possible and in any event
within three Business Days of Seller's knowledge thereof,
notice of (i) any litigation, investigation or proceeding
which could have a Material Adverse Effect and (ii) any
material adverse development in previously disclosed
litigation;
(g) Change in Credit and Collection Policy. Prior to
its effective date, notice of (i) any material change in the
character of Seller's business or (ii) any change in the
Credit and Collection Policy; and
(h) Other. Promptly, from time to time, such other
information, documents, records or reports respecting the
Receivables or the condition or operations, financial or
otherwise, of Seller as the Administrator or the
Relationship Bank may from time to time reasonably request
in order to protect the interests of the Administrator or
Purchaser under this Agreement.
SECTION 7.03. Negative Covenants of Seller. From the date
hereof until the Final Payout Date, Seller shall not, without the
prior written consent of the Administrator:
(a) Sales, Liens, Etc. Except as otherwise provided
herein, 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 Pool Receivable or related
Account or Contract or Related Security, or any interest
therein, or any lock-box account to which any Collections of
any Pool Receivable are sent, or any right to receive income
or proceeds from or in respect of any of the foregoing.
(b) Extension or Amendment of Pool Receivables.
Except as otherwise permitted in Section 8.02 or as ordered
by a court of competent jurisdiction, extend, amend or
otherwise modify the terms of any Pool Receivable, or amend,
modify or waive any term or condition of any Contract
related thereto.
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(c) Change in Business or Credit and Collection
Policy. Make any change in the character of its business or
in the Credit and Collection Policy, which change would, in
either case, impair the collectibility of any Pool
Receivable or otherwise adversely affect the interests or
remedies of Purchaser under this Agreement or any other
Transaction Document.
(d) Change in Payment Instructions to Obligors. Add
or terminate any bank as a Lock-Box Bank from those listed
in Schedule 6.01(o) or make any change in its instructions
to Obligors regarding payments to be made to Seller or
Servicer or payments to be made to any Lock-Box Bank, unless
the Administrator and the Relationship Bank shall have
received notice of such addition, termination or change and
duly executed copies of Lock-Box Agreements with each new
Lock-Box Bank and shall have approved the identity of such
Lock-Box Bank.
(e) Mergers, Sales, Etc. Be a party to any merger or
consolidation, or, except in the ordinary course of its
business, sell, transfer, convey or lease all or
substantially all of its assets, or sell or assign with or
without recourse any Pool Receivables or any interest
therein (other than pursuant hereto), or permit any
Subsidiary to be a party to any merger or consolidation,
except for any such merger or consolidation, sale, transfer,
conveyance, lease or assignment of or by any wholly-owned
Subsidiary into Seller or into, with or to any other wholly-
owned Subsidiary.
(f) Deposits to Special Accounts. Deposit or
otherwise credit, or cause or permit to be so deposited or
credited, to any Lock-Box Account cash or cash proceeds
other than Collections.
ARTICLE VIII
ADMINISTRATION AND COLLECTION
SECTION 8.01. Designation of Servicer.
(a) Seller as Initial Servicer. The servicing,
administering and collection of the Pool Receivables shall be
conducted by the Person designated as Servicer hereunder
("Servicer") from time to time in accordance with this Section
8.01. Until the Administrator or the Relationship Bank gives to
Seller a Successor Notice (as defined in Section 8.01(b)), Seller
is hereby designated as, and hereby agrees to perform the duties
and obligations of, Servicer pursuant to the terms hereof.
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(b) Successor Notice; Liquidation Events. Upon Seller's
receipt of a notice from the Administrator or Relationship Bank
of the Administrator's or Relationship Bank's designation of a
new Servicer (a "Successor Notice"), Seller agrees that it will
terminate its activities as Servicer hereunder in a manner that
the Administrator reasonably believes will facilitate the
transition of the performance of such activities to the new
Servicer, and the Administrator (or its designee) shall assume
each and all of Seller's obligations to service and administer
such Receivables, on the terms and subject to the conditions
herein set forth, and Seller shall use its best efforts to assist
the Administrator (or its designee) in assuming such obligations.
The Administrator and Relationship Bank agree not to give Seller
a Successor Notice until after the occurrence of any Liquidation
Event, in which case such Successor Notice may be given at any
time in the Administrator's or the Relationship Bank's
discretion. If Seller disputes the occurrence of a Liquidation
Event, Seller may take appropriate action to resolve such
dispute; provided that Seller must terminate its activities
hereunder as Servicer and allow the newly designated Servicer to
perform such activities on the date provided by the Administrator
or Relationship Bank as described above, notwithstanding the
commencement or continuation of any proceeding to resolve the
aforementioned dispute; provided, further that in the event that
such dispute is resolved in favor of Seller and no other
Liquidation Event has occurred and is continuing, at Seller's
written request, Seller shall be reinstated as Servicer.
(c) Subcontracts. Servicer may, with the prior consent of
the Administrator, subcontract with any other person for
servicing, administering or collecting the Pool Receivables,
provided that (i) Servicer shall remain liable for the
performance of the duties and obligations of Servicer pursuant to
the terms hereof and (ii) such subcontract provides for
termination upon the occurrence of a Liquidation Event.
(d) Servicer's Fee. Seller shall be responsible for the
payment of (and, if paid by Purchaser or Administrator, shall on
demand reimburse Purchaser or the Administrator for) Seller's
Portion of the Servicing Fee. "Seller's Portion of the Servicing
Fee" for any Settlement Period means an amount equal to (i) (w)
the Servicer's Fee Rate times (x) the aggregate Unpaid Balance of
the Pool Receivables as of the first day of such Settlement
Period times (y) 1/360 times (z) the number of days in such
Settlement Period minus (ii) the Servicer's Fee for such
Settlement Period.
SECTION 8.02. Duties of Servicer.
(a) Appointment; Duties in General. Each of Seller,
Purchaser and the Administrator hereby appoints as its agent
Servicer, as from time to time designated pursuant to Section
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8.01, to enforce its rights and interests in and under the Pool
Receivables, the Related Security and the related Contracts.
Servicer shall take or cause to be taken all such actions as may
be necessary or advisable to collect each Pool Receivable from
time to time, all in accordance with applicable laws, rules and
regulations, with reasonable care and diligence, and in
accordance with the Credit and Collection Policy.
(b) Allocation of Collections; Segregation. Servicer shall
set aside for the account of Seller and Purchaser their
respective allocable shares of the Collections of Pool
Receivables in accordance with Section 1.03 but shall not be
required (unless otherwise requested by the Administrator or the
Relationship Bank) to segregate the funds constituting such
portions of such Collections prior to the remittance thereof in
accordance with said Section. If instructed by the Administrator
or the Relationship Bank, Servicer shall segregate and deposit
with a bank designated by the Relationship Bank, with the
approval of the Administrator, Purchaser's Share of Collections
of Pool Receivables, set aside for Purchaser on the first
Business Day following receipt by Servicer of such Collections in
immediately available funds.
(c) Modification of Receivables. So long as no Liquidation
Event or Unmatured Liquidation Event shall have occurred and be
continuing, Seller, while it is Servicer, may, in accordance with
the Credit and Collection Policy, (i) extend the maturity or
adjust the Unpaid Balance of, or defer payment of, or otherwise
modify the terms of any Receivable as Seller may determine to be
appropriate to maximize Collections thereof; provided that, after
giving effect to such extension of maturity or such adjustment,
the Asset Interest, expressed as a percentage of Net Pool
Balance, will not exceed the Allocation Limit, and the aggregate
Unpaid Balance of the Receivables so extended, adjusted, deferred
or modified in any monthly period does not exceed 10% of the Net
Pool Balance for such period, and (ii) adjust the Unpaid Balance
of any Receivable to reflect the reductions or cancellations
described in the first sentence of Section 3.02(a).
(d) Documents and Records. Seller shall deliver to
Servicer, and Servicer shall hold in trust for Seller and
Purchaser in accordance with their respective interests, all
documents, instruments and records (including, without
limitation, computer tapes or disks) that evidence or relate to
Pool Receivables.
(e) Certain Duties to Seller. Servicer shall, as soon as
practicable following receipt, turn over to Seller (i) that
portion of Collections of Pool Receivables representing Seller's
undivided interest therein, and (ii) the Collections of any
Receivable which is not a Pool Receivable. Servicer, if other
than Seller, shall, as soon as practicable upon demand, deliver
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to Seller all documents, instruments and records in its
possession that evidence or relate to Receivables of Seller other
than Pool Receivables, and copies of documents, instruments and
records in its possession that evidence or relate to Pool
Receivables.
(f) Termination. Servicer's authorization under this
Agreement shall terminate upon the Final Payout Date.
(g) Power of Attorney. Seller hereby grants to Servicer an
irrevocable power of attorney, with full power of substitution,
coupled with an interest, to take in the name of Seller all steps
which are necessary or advisable to endorse, negotiate or
otherwise realize on any writing or other right of any kind held
or transmitted by Seller or transmitted or received by Purchaser
(whether or not from Seller) in connection with any Receivable.
SECTION 8.03. Rights of the Administrator.
(a) Notice to Obligors. At any time the Administrator may
notify the Obligors of Pool Receivables, or any of them, of the
ownership of Asset Interests by Purchaser.
(b) Notice to Lock-Box Banks. At any time following the
earliest to occur of (i) the occurrence of a Liquidation Event,
(ii) the commencement of the Liquidation Period, and (iii) the
warranty in Section 6.01(i) shall no longer be true, the
Administrator is hereby authorized to give notice to the Lock-Box
Banks, as provided in the Lock-Box Agreements, of the transfer to
the Administrator of dominion and control over the lock-boxes and
related accounts to which the Obligors of Pool Receivables make
payments. Seller hereby transfers to the Administrator,
effective when the Administrator shall give notice to the Lock-
Box Banks as provided in the Lock-Box Agreements, the exclusive
dominion and control over such lock-boxes and accounts, and shall
take any further action that the Administrator may reasonably
request to assist with such transfer.
(c) Rights on Liquidation Event. At any time following the
designation of a Servicer other than Seller pursuant to Section
8.01:
(i) The Administrator may direct the Obligors of Pool
Receivables, or any of them, to pay all amounts payable
under any Pool Receivable directly to the Collateral Agent.
(ii) Seller shall, at the Administrator's or
Relationship Bank's request and at Seller's expense, give
notice of the ownership of the Pool Receivables by Purchaser
to each said Obligor and direct that payments be made
directly to the Collateral Agent.
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(iii) Seller shall, at the Administrator's or
Relationship Bank's request, (A) assemble all of the
documents, instruments and other records (including, without
limitation, computer programs, tapes and disks) which
evidence the Pool Receivables, and the related Accounts and
Contracts and Related Security, or which are otherwise
reasonably necessary or desirable to service such Pool
Receivables, and make the same available to the
Administrator at a place selected by the Administrator or
the Relationship Bank, and (B) segregate all cash, checks
and other instruments received by it from time to time
constituting Collections of Pool Receivables in a manner
reasonably acceptable to the Administrator and promptly upon
receipt, remit all such cash, checks and instruments, duly
endorsed or with duly executed instruments of transfer, to
the Collateral Agent.
(iv) Each of Seller and Purchaser hereby authorizes
the Administrator, and grants to the Administrator an
irrevocable power of attorney, to take any and all steps in
Seller's name and on behalf of Seller and Purchaser which
are reasonably necessary or desirable, in the determination
of the Administrator, to collect all amounts due under any
and all Pool Receivables, including, without limitation,
endorsing Seller's name on checks and other instruments
representing Collections and enforcing such Pool Receivables
and the related Contracts; provided that the Administrator
shall not exercise its rights under such Power of Attorney
unless a Liquidation Event shall have occurred and be
continuing.
SECTION 8.04. Responsibilities of Seller. Anything herein
to the contrary notwithstanding:
(a) Contracts. Seller shall perform all of its obligations
under the Contracts related to the Pool Receivables and under
other agreements related thereto to the same extent as if the
Asset Interest had not been sold hereunder, and the exercise by
the Administrator or its designee of its rights hereunder shall
not relieve Seller from such obligations.
(b) Limitation of Liability. The Administrator, the
Relationship Bank and Purchaser shall not have any obligation or
liability with respect to any Pool Receivables, Contracts or
Accounts related thereto or any other related agreements, nor
shall any of them be obligated to perform any of the obligations
of Seller thereunder.
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SECTION 8.05. Further Action Evidencing Purchases and
Reinvestments.
(a) Further Assurances. Seller agrees to mark its master
data processing records evidencing such Pool Receivables and the
related Contracts with a legend, acceptable to the Administrator,
evidencing that the Asset Interest has been sold in accordance
with this Agreement. Seller agrees that from time to time, at
its expense, it will promptly execute and deliver all further
instruments and documents, and take all further action that the
Administrator or its designee may reasonably request in order to
perfect, protect or more fully evidence the Purchases hereunder
and the resulting Asset Interest, or to enable Purchaser or the
Administrator or its designee to exercise or enforce any of their
respective rights hereunder or under any Transaction Document.
Without limiting the generality of the foregoing, Seller will
upon the request of the Administrator or its designee execute and
file such financing or continuation statements, or amendments
thereto or assignments thereof, and such other instruments or
notices, as may be necessary or appropriate.
(b) Additional Financing Statements; Performance by
Administrator. Seller hereby authorizes the Administrator or its
designee to file one or more financing or continuation
statements, and amendments thereto and assignments thereof,
relative to all or any of the Pool Assets now existing or
hereafter arising in the name of Seller. If Seller fails to
perform any of its agreements or obligations under this
Agreement, the Administrator or its designee may (but shall not
be required to) itself perform, or cause performance of, such
agreement or obligation, and the reasonable expenses of the
Administrator or its designee incurred in connection therewith
shall be payable by Seller as provided in Section 14.05.
(c) Continuation Statements; Opinion. Without limiting the
generality of subsection (a), Seller shall, not earlier than six
(6) months and not later than three (3) months prior to the fifth
anniversary of the date of filing of the financing statement
referred to in Section 5.01(e) or any other financing statement
filed pursuant to this Agreement or in connection with any
Purchase hereunder, unless the Final Payout Date shall have
occurred:
(i) execute and deliver and file or cause to be filed
an appropriate continuation statement with respect to such
financing statement; and
(ii) deliver or cause to be delivered to the
Administrator an opinion of the counsel for Seller referred
to in Section 5.01(h) (or other counsel for Seller
reasonably satisfactory to the Administrator), in form and
substance reasonably satisfactory to the Administrator,
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confirming and updating the opinion delivered pursuant to
Section 5.01(h) with respect to the matters set forth in
paragraph no. __ of Exhibit 5.01(h) and otherwise to the
effect that Purchaser's Total Interest hereunder continues
to be a valid and perfected ownership or security interest,
subject to no other Liens of record except as provided
herein or otherwise permitted hereunder.
SECTION 8.06. Application of Collections. Any payment by
an Obligor in respect of any indebtedness owed by it to Seller
shall, except as otherwise specified by such Obligor, as required
by the underlying Contract or law or unless the Administrator
instructs otherwise, be applied, first, as a Collection of any
Pool Receivable or Receivables then outstanding of such Obligor
in the order of the age of such Pool Receivables, starting with
the oldest of such Pool Receivable and, second, to any other
indebtedness of such Obligor.
ARTICLE IX
SECURITY INTEREST
SECTION 9.01. Grant of Security Interest. To secure all
obligations of Seller and Servicer arising in connection with
this Agreement and each other Transaction Document to which
either of them is a party, whether now or hereafter existing, due
or to become due, direct or indirect, or absolute or contingent,
including, without limitation, all Indemnified Amounts, payments
on account of Collections and fees, in each case pro rata
according to the respective amounts thereof, Seller hereby
assigns and grants to Purchaser, for the benefit of the Secured
Parties, a security interest in all of Seller's right, title and
interest (including specifically any undivided interest retained
by Seller hereunder) now or hereafter existing in, to and under
all the Pool Assets and proceeds thereof.
SECTION 9.02. Further Assurances. The provisions of
Section 8.05 shall apply to the security interest granted under
Section 9.01 as well as to the Purchases, Reinvestments and all
the Asset Interests hereunder.
SECTION 9.03. Remedies. Upon the occurrence of a
Liquidation Event, Purchaser shall have, with respect to the
collateral granted pursuant to Section 9.01, and in addition to
all other rights and remedies available to Purchaser or the
Administrator under this Agreement or other applicable law, all
the rights and remedies of a secured party upon default under the
UCC.
ARTICLE X
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LIQUIDATION EVENTS
SECTION 10.01. Liquidation Events. The following events
shall be "Liquidation Events" hereunder:
(a) (i) Servicer (if Seller or its Affiliate is
Servicer) shall fail to deliver to Administrator an
Information Package for any Settlement Period on or before
12:00, noon (New York City time) of the related Settlement
Date or (ii) Servicer (if Seller or its Affiliate is
Servicer) shall fail to perform or observe in any material
respect any other term, covenant or agreement that is an
obligation of Servicer hereunder (other than as referred to
in clause (iii) next following) and such failure shall
remain unremedied for five Business Days after (1) written
notice thereof shall have been given by the Administrator to
Seller or (2) Seller has actual knowledge thereof or (iii)
Servicer (if Seller or its Affiliate is Servicer) shall fail
to make any payment or deposit to be made by it hereunder
when due and such failure shall remain unremedied for more
than one Business Day; or
(b) Any representation or warranty made or deemed to
be made by Seller (or any of its officers) under or in
connection with this Agreement or any Information Package or
other information or report delivered pursuant hereto shall
prove to have been false or incorrect in any material
respect when made; provided, that with respect to the breach
of the representations or warranties set forth in Section
6.01(l) or (p), compliance by Seller with the provisions of
Section 3.02 in respect thereof shall be deemed to cure such
breach; or
(c) Seller shall fail to perform or observe in any
material respect any other term, covenant or agreement
contained in this Agreement or any of the other Transaction
Documents to which it is a party on its part to be performed
or observed and any such failure shall remain unremedied for
thirty days after (i) written notice thereof shall have been
given by the Administrator to Seller or (ii) Seller has
actual knowledge thereof; or
(d) A default shall have occurred and be continuing
under any instrument or agreement evidencing, securing or
providing for the issuance of indebtedness for borrowed
money in excess of $10,000,000 of, or guaranteed by, Seller
or any Affiliate thereof, which default if unremedied,
uncured, or unwaived (with or without the passage of time or
the giving of notice or both) would permit acceleration of
the maturity of such indebtedness and such default shall
have continued unremedied, uncured or unwaived for a period
long enough to permit such acceleration and any notice of
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default required to permit acceleration shall have been
given; or any default under any agreement or instrument
relating to the purchase of receivables of Seller, or any
other event, shall occur and shall continue after the
applicable grace period, if any, specified in such agreement
or instrument, if the effect of such default is to
terminate, or permit the termination of, the commitment of
any party to such agreement or instrument to purchase
receivables or the right of Seller to reinvest in
receivables the principal amount paid by any party to such
agreement or instrument for interest in receivables; or
(e) An Event of Bankruptcy shall have occurred and
remain continuing with respect to Seller or any Affiliate
thereof; or
(f) (i) Any litigation (including, without limitation,
derivative actions), arbitration proceedings or governmental
proceedings not disclosed in writing by Seller to the
Administrator and Purchaser prior to the date of execution
and delivery of this Agreement is pending against Seller or
any Affiliate thereof, or (ii) any material development not
so disclosed has occurred in any litigation (including,
without limitation, derivative actions), arbitration
proceedings or governmental proceedings so disclosed, which,
in the case of clause (i) or (ii), in the reasonable opinion
of the Administrator, has a reasonable likelihood of having
a Material Adverse Effect; or
(g) Sixty (60) days after the Seller's long-term debt
rating falls below Baa3 by Moody's or BBB- by S&P (unless
Seller's long-term debt ratings have been restored to at
least such levels); or
(h) On any Settlement Date, after giving effect to the
payments made under Section 3.01(c), the Asset Interest
exceeds the Allocation Limit or the Purchaser's Total
Investment exceeds the Purchase Limit; or
(i) There shall exist any event or occurrence (other
than general economic conditions) that is likely to cause a
Material Adverse Effect; or
(j) There shall have occurred any event which
materially adversely impairs the ability of Seller to
originate Receivables of a credit quality which are at least
of the credit quality of the Receivables included in the
initial Purchase; or
(k) The warranty in Section 6.01(i)(y) shall not be
true at any time; or
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(l) Seller or Servicer (if Servicer is Seller or its
Affiliate) is subject to a Change-in-Control; or
(m) The Internal Revenue Service shall file notice of
a lien pursuant to Section 6323 of the Internal Revenue Code
with regard to any of the assets of Seller and such lien
shall not have been released within 5 Business Days, or the
Pension Benefit Guaranty Corporation shall, or shall
indicate its intention to, file notice of a lien pursuant to
Section 4068 of ERISA with regard to any of the assets of
Seller or any of its Affiliates; or
(n) The average of the Default Ratios for any three
successive Cut-Off Dates exceeds 2%; or
(o) The average of the Delinquency Ratios for any
three successive Cut-Off Dates exceeds 16%; or
(p) The average of the Dilution Ratios for any three
successive Cut-Off Dates exceeds 5%; or
(q) The average of the Payment Rates for any three
successive Cut-Off Dates is less than 10%; or
(r) The average of the Net Yield for any three
consecutive Settlement Periods is less then -2.0%; or
(s) The average of the Charge-Off Ratios for any three
successive Cut-Off Dates exceeds 6.5%.
SECTION 10.02. Remedies.
(a) Optional Liquidation. Upon the occurrence of a
Liquidation Event (other than a Liquidation Event described in
subsection (e) of Section 10.01), the Administrator shall, at the
request, or may with the consent, of Purchaser, by notice to
Seller declare the Purchase Termination Date to have occurred and
the Liquidation Period to have commenced.
(b) Automatic Liquidation. Upon the occurrence of a
Liquidation Event described in subsection (e) of Section 10.01,
the Purchase Termination Date shall occur and the Liquidation
Period shall commence automatically.
(c) Additional Remedies. Upon any Purchase Termination
Date pursuant to this Section 10.02, no Purchases or
Reinvestments thereafter will be made, and the Administrator,
Purchaser and the Relationship Bank shall have, in addition to
all other rights and remedies under this Agreement or otherwise,
all other rights and remedies provided under the UCC of each
applicable jurisdiction and other applicable laws, which rights
shall be cumulative.
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ARTICLE XI
THE ADMINISTRATOR; RELATIONSHIP BANK
SECTION 11.01. Authorization and Action. Pursuant to the
Program Administration Agreement and the Relationship Bank
Agreement, Purchaser has appointed and authorized the
Administrator and the Relationship Bank (or their respective
designees) to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the
Administrator or the Relationship Bank by the terms hereof,
together with such powers as are reasonably incidental thereto.
SECTION 11.02. Administrator's and Relationship Bank's
Reliance, Etc. The Administrator, the Relationship Bank and
their directors, officers, agents or employees shall not be
liable for any action taken or omitted to be taken by it or them
under or in connection with the Transaction Documents (including,
without limitation, the servicing, administering or collecting of
Pool Receivables as Servicer pursuant to Section 8.01), except
for its or their own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, each of the
Administrator and the Relationship Bank: (a) may consult with
legal counsel (including counsel for Seller), independent
certified public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken
in good faith by it in accordance with the advice of such
counsel, accountants or experts; (b) makes no warranty or
representation to Purchaser or any other holder of any interest
in Pool Receivables and shall not be responsible to Purchaser or
any such other holder for any statements, warranties or
representations made in or in connection with any Transaction
Document; (c) shall not have any duty to ascertain or to inquire
as to the performance or observance of any of the terms,
covenants or conditions of any Transaction Document on the part
of Seller or to inspect the property (including the books and
records) of Seller; (d) shall not be responsible to Purchaser or
any other holder of any interest in Pool Receivables for the due
execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Transaction Document; and (e) shall
incur no liability under or in respect of this Agreement by
acting upon any notice (including notice by telephone), consent,
certificate or other instrument or writing (which may be by
facsimile or telex) reasonably believed by it to be genuine and
signed or sent by the proper party or parties.
SECTION 11.03. State Street Capital and PNC Bank and
Affiliates. State Street Capital and PNC Bank and any of their
respective Affiliates may generally engage in any kind of
business with Seller or any Obligor, any of their respective
Affiliates and any Person who may do business with or own
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securities of Seller or any Obligor or any of their respective
Affiliates, all as if State Street Capital and PNC Bank were not
the Administrator and the Relationship Bank, respectively, and
without any duty to account therefor to Purchaser or any other
holder of an interest in Pool Receivables.
ARTICLE XII
ASSIGNMENT OF PURCHASER'S INTEREST
SECTION 12.01. Restrictions on Assignments.
(a) Neither Seller, individually or as Servicer, nor PNC
Bank, individually or as the Relationship Bank (except as
otherwise provided in the Relationship Bank Agreement), may
assign its rights, or delegate its duties hereunder or any
interest herein without the prior written consent of the
Administrator. Purchaser may not assign its rights hereunder
(although it may delegate its duties hereunder as expressly
indicated herein) or the Asset Interest (or any portion thereof)
to any Person without the prior written consent of Seller, which
shall not be unreasonably withheld (it being recognized and
understood by all parties hereto that all parties hereto shall
deem it reasonable for Seller to withhold such consent if any
such proposed assignment would, in the reasonable determination
of Seller, cause Seller to be required to pay to any Affected
Party any of the amounts referred to in Section 4.02); provided,
however, that
(i) Purchaser may assign all of its rights and
interests in the Transaction Documents, together with all
its interest in the Asset Interest, to State Street Capital
or PNC Bank, or both, or any Affiliate of either of them, or
to any "bankruptcy remote" special purpose entity, the
business of which is administered by State Street Capital or
any Affiliate of State Street Capital; and
(ii) Purchaser may assign and grant a security
interest in all of its rights in the Transaction Documents,
together with all of its rights and interest in the Asset
Interest, to the Collateral Agent, to secure Purchaser's
obligations under or in connection with the Commercial Paper
Notes, the Liquidity Agreement, the Credit Agreement and any
letter of credit issued thereunder, and certain other
obligations of Purchaser incurred in connection with the
funding of the Purchases and Reinvestments hereunder, which
assignment and grant of a security interest (and any
subsequent assignment by the Collateral Agent) shall not be
considered an "assignment" for purposes of this Section
12.01 or, prior to the enforcement of such security
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interest, for purposes of any other provision of this
Agreement.
(b) Seller agrees to advise the Administrator within five
Business Days after notice to Seller of any proposed assignment
by Purchaser of the Asset Interest (or any portion thereof), not
otherwise permitted under subsection (a), of Seller's consent or
non-consent to such assignment and, if it does not consent, the
reasons therefor. If Seller does not consent to such assignment,
Purchaser may immediately assign such Asset Interest (or portion
thereof) to State Street Capital, PNC Bank or any Affiliate of
State Street Capital or PNC Bank. All of the aforementioned
assignments shall be upon such terms and conditions as Purchaser
and the assignee may mutually agree.
SECTION 12.02. Rights of Assignee. Upon the assignment by
Purchaser in accordance with this Article XII, the assignee
receiving such assignment shall have all of the rights of
Purchaser with respect to the Transaction Documents and the Asset
Interest (or such portion thereof as has been assigned).
SECTION 12.03. Evidence of Assignment. Any assignment of
the Asset Interest (or any portion thereof) to any Person may be
evidenced by such instrument(s) or document(s) as may be
reasonably satisfactory to Purchaser, the Administrator and the
assignee.
SECTION 12.04. Rights of the Banks and Collateral Agent.
Seller hereby agrees that, upon notice to Seller, the Collateral
Agent may exercise all the rights of the Administrator hereunder,
with respect to the Asset Interest (or any portions thereof), and
Collections with respect thereto, which are owned by Purchaser,
and all other rights and interests of Purchaser in, to or under
this Agreement or any other Transaction Document. Without
limiting the foregoing, upon such notice Collateral Agent may
request Servicer to segregate Purchaser's allocable shares of
Collections from Seller's allocable share, may give a Successor
Notice pursuant to Section 8.01(a), may give or require the
Administrator or Relationship Bank to give notice to the Lock-Box
Banks as referred to in Section 8.03(b) and may direct the
Obligors of Pool Receivables to make payments in respect thereof
directly to an account designated by them, in each case, to the
same extent as the Administrator might have done.
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ARTICLE XIII
INDEMNIFICATION
SECTION 13.01. Indemnities by Seller.
(a) General Indemnity. Without limiting any other rights
which any such Person may have hereunder or under applicable law,
Seller hereby agrees to indemnify each of the Administrator,
Purchaser, the Liquidity Banks, the Credit Bank, the Relationship
Bank, the Liquidity Agent, each of their respective Affiliates,
and all successors, transferees, participants and assigns and all
officers, directors, shareholders, controlling persons, employees
and agents of any of the foregoing (each an "Indemnified Party"),
forthwith on demand, from and against any and all damages,
losses, claims, liabilities and related costs and expenses,
including reasonable attorneys' fees and disbursements (all of
the foregoing being collectively referred to as "Indemnified
Amounts") awarded against or incurred by any of them arising out
of or relating to the Transaction Documents or the ownership or
funding of the Asset Interest or in respect of any Receivable or
Account or any Contract, excluding, however, (a) Indemnified
Amounts to the extent resulting from gross negligence or willful
misconduct on the part of any such Indemnified Party or (b)
recourse (except as otherwise specifically provided in this
Agreement) for Defaulted Receivables. Without limiting the
foregoing, Seller shall indemnify each Indemnified Party for
Indemnified Amounts arising out of or relating to:
(i) the transfer by Seller of any interest in any
Receivable other than the transfer of an Asset Interest to
Purchaser pursuant to this Agreement and the grant of a
security interest to Purchaser pursuant to Section 9.01;
(ii) any representation or warranty made by Seller (or
any of its officers) under or in connection with any
Transaction Document, any Information Package or any other
information or report delivered by or on behalf of Seller
pursuant hereto, which shall have been false, incorrect or
misleading in any material respect when made or deemed made;
(iii) the failure by Seller to comply with any
applicable law, rule or regulation with respect to any Pool
Receivable or the related Account or Contract, or the
nonconformity of any Pool Receivable or the related Contract
with any such applicable law, rule or regulation;
(iv) the failure to vest and maintain vested in
Purchaser an undivided percentage ownership interest, to the
extent of the Asset Interest, in the Receivables in, or
purporting to be in, the Receivables Pool, free and clear of
any Lien, other than a Lien arising solely as a result of an
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act of Purchaser, the Administrator or the Relationship
Bank, whether existing at the time of any Purchase or
Reinvestment of such Asset Interest or at any time
thereafter, unless such failure is the result of the failure
of Purchaser to execute any necessary financing statements;
(v) the failure to file, or any delay in filing,
financing statements or other similar instruments or
documents under the UCC of any applicable jurisdiction or
other applicable laws with respect to any Receivables in, or
purporting to be in, the Receivables Pool, whether at the
time of any Purchase or Reinvestment or at any time
thereafter;
(vi) any dispute, claim, offset or defense (other than
discharge in bankruptcy of the Obligor) of the Obligor to
the payment of any Receivable in, or purporting to be in,
the Receivables Pool (including, without limitation, a
defense based on such Receivable's or the related Contract's
not being a legal, valid and binding obligation of such
Obligor enforceable against it in accordance with its
terms), or any other claim resulting from the sale of the
merchandise or services related to such Receivable or the
furnishing or failure to furnish such merchandise or
services;
(vii) any failure of Seller, as Servicer or
otherwise,to perform its duties or obligations in accordance
with the provisions of Article VIII;
(viii) any products liability claim arising out of or
in connection with merchandise or services that are the
subject of any Pool Receivable; or
(ix) any tax or governmental fee or charge (but not
including taxes upon or measured by net income), all
interest and penalties thereon or with respect thereto, and
all out-of-pocket costs and expenses, including the
reasonable fees and expenses of counsel in defending against
the same, which may arise by reason of the purchase or
ownership of any Asset Interest, or any other interest in
the Pool Receivables or in any goods which secure any such
Pool Receivables.
(b) Contest of Tax Claim; After-Tax Basis. If any
Indemnified Party shall have notice of any attempt to impose or
collect any tax or governmental fee or charge for which
indemnification will be sought from Seller under
Section 13.01(a)(ix), such Indemnified Party shall give prompt
and timely notice of such attempt to Seller and Seller shall have
the right, at its expense, to participate in any proceedings
resisting or objecting to the imposition or collection of any
44 <PAGE>
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such tax, governmental fee or charge. Indemnification hereunder
shall be in an amount necessary to make the Indemnified Party
whole after taking into account any tax consequences to the
Indemnified Party of the payment of any of the aforesaid taxes
and the receipt of the indemnity provided hereunder or of any
refund of any such tax previously indemnified hereunder,
including the effect of such tax or refund on the amount of tax
measured by net income or profits which is or was payable by the
Indemnified Party.
(c) Contribution. If for any reason the indemnification
provided above in this Section 13.01 is unavailable to an
Indemnified Party or is insufficient to hold an Indemnified Party
harmless, then Seller shall contribute to the amount paid or
payable by such Indemnified Party as a result of such loss,
claim, damage or liability in such proportion as is appropriate
to reflect not only the relative benefits received by such
Indemnified Party on the one hand and Seller on the other hand
but also the relative fault of such Indemnified Party as well as
any other relevant equitable considerations.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.01. Amendments, Etc. No amendment or waiver of
any provision of this Agreement nor consent to any departure by
Seller therefrom shall in any event be effective unless the same
shall be in writing and signed by (a) Seller, the Administrator
and Purchaser (with respect to an amendment), provided that no
amendment shall become effective without the signature of the
Relationship Bank, if such amendment materially increases the
obligations or liabilities of the Relationship Bank, in either
its individual or agent capacity hereunder, or materially reduces
any amount payable to it hereunder or (b) the Administrator and
Purchaser (with respect to a waiver or consent by them) or Seller
(with respect to a waiver or consent by it), as the case may be,
and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
The parties acknowledge that, before entering into such an
amendment or granting such a waiver or consent, Purchaser may
also be required to obtain the approval of some or all of the
Liquidity Banks or the Credit Bank or to obtain confirmation from
certain rating agencies that such amendment, waiver or consent
will not result in a withdrawal or reduction of the ratings of
the Commercial Paper Notes.
SECTION 14.02. Notices, Etc. All notices and other
communications provided for hereunder shall, unless otherwise
stated herein, be in writing (including facsimile communication)
and shall be personally delivered or sent by express mail or
45 <PAGE>
<PAGE>
courier or by certified mail, postage prepaid, or by facsimile,
to the intended party at the address or facsimile number of such
party set forth under its name on the signature pages hereof or
at such other address or facsimile number as shall be designated
by such party in a written notice to the other parties hereto.
All such notices and communications shall be effective, (a) if
personally delivered or sent by express mail or courier or if
sent by certified mail, when received, and (b) if transmitted by
facsimile, when sent, receipt confirmed by telephone or
electronic means.
SECTION 14.03. No Waiver; Remedies. No failure on the part
of the Administrator, the Relationship Bank, any Affected Party,
any Indemnified Party, Purchaser or any other holder of the Asset
Interest (or any portion thereof) to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right
hereunder 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.
Without limiting the foregoing, each of State Street Capital,
individually and as Administrator, PNC Bank, individually and as
Relationship Bank, the Collateral Agent, the Credit Bank and each
Liquidity Bank is hereby authorized by Seller at any time and
from time to time, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other
indebtedness at any time owing by State Street Capital, the
Collateral Agent and such Liquidity Bank to or for the credit or
the account of Seller, now or hereafter existing under this
Agreement, to the Administrator, any Affected Party, any
Indemnified Party or Purchaser, or their respective successors
and assigns.
SECTION 14.04. Binding Effect; Survival. This Agreement
shall be binding upon and inure to the benefit of Seller, the
Administrator, the Relationship Bank, Purchaser and their
respective successors and assigns, and the provisions of Section
4.02 and Article XIII shall inure to the benefit of the Affected
Parties and the Indemnified Parties, respectively, and their
respective successors and assigns; provided, however, nothing in
the foregoing shall be deemed to authorize any assignment not
permitted by Section 12.01. 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 Final Payout Date. The rights and remedies with
respect to any breach of any representation and warranty made by
Seller pursuant to Article VI and the indemnification and payment
provisions of Article XIII and Sections 4.02, 14.05, 14.06,
14.07, 14.08 and 14.15 shall be continuing and shall survive any
termination of this Agreement.
46 <PAGE>
<PAGE>
SECTION 14.05. Costs, Expenses and Taxes. In addition to
its obligations under Article XIII, Seller agrees to pay on
demand:
(a) all reasonable costs and expenses incurred by the
Administrator, the Relationship Bank, the Credit Bank, the
Collateral Agent and the Purchaser and their respective
Affiliates in connection with the negotiation, preparation,
execution and delivery, the administration (including
periodic auditing) or the enforcement of, or any actual or
claimed breach of, this Agreement and the other Transaction
Documents, including, without limitation (i) the reasonable
fees and expenses of counsel to any of such Persons incurred
in connection with any of the foregoing or in advising such
Persons as to their respective rights and remedies under any
of the Transaction Documents, and (ii) all reasonable out-
of-pocket expenses (including reasonable fees and expenses
of independent accountants), incurred in connection with any
review of Seller's books and records either prior to the
execution and delivery hereof or pursuant to Section
7.01(c); and
(b) 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 Transaction Documents, and agrees to indemnify each
Indemnified Party against any liabilities with respect to or
resulting from any delay in paying or omission to pay such
taxes and fees.
SECTION 14.06. No Proceedings. Seller, Servicer, State
Street Capital (individually and as Administrator) and PNC Bank
(individually and as Relationship Bank) each hereby agrees that
it will not institute against Purchaser, or join any other Person
in instituting against Purchaser, any insolvency proceeding
(namely, any proceeding of the type referred to in the definition
of Event of Bankruptcy) so long as any Commercial Paper Notes
issued by Purchaser shall be outstanding or there shall not have
elapsed one year plus one day since the last day on which any
such Commercial Paper Notes shall have been outstanding. The
foregoing shall not limit Seller's right to file any claim in or
otherwise take any action with respect to any insolvency
proceeding that was instituted by any Person other than Seller.
SECTION 14.07. Confidentiality of Program Information.
(a) Confidential Information. Each party hereto
acknowledges that State Street Capital regards the structure of
the transactions contemplated by this Agreement to be
proprietary, and each such party severally agrees that:
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(i) it will not disclose without the prior written
consent of State Street Capital (other than to the
directors, employees, auditors, counsel or affiliates
(collectively, "representatives" of such party, each of whom
shall be informed by such party of the confidential nature
of the Program Information (as defined below) and of the
terms of this Section 14.07), (A) any information regarding
the pricing in, or copies of, this Agreement or any
transaction contemplated hereby, (B) any information
regarding the organization, business or operations of
Purchaser generally or the services performed by the
Administrator or the Relationship Bank for Purchaser, or (C)
any information which is furnished by State Street Capital
to such party and which is designated by State Street
Capital to such party as confidential or not otherwise
available to the general public (the information referred to
in clauses (A), (B) and (C) is collectively referred to as
the "Program Information"); provided, however, that such
party may disclose any such Program Information (I) to any
other party to this Agreement for the purposes contemplated
hereby, (II) as may be required by any municipal, state,
federal or other regulatory body having or claiming to have
jurisdiction over such party, (III) in order to comply with
any law, order, regulation, regulatory request or ruling
applicable to such party, or (IV) subject to subsection (c),
in the event such party is legally compelled (by
interrogatories, requests for information or copies,
subpoena, civil investigative demand or similar process) to
disclose any such Program Information;
(ii) it will use the Program Information solely for
the purposes of evaluating, administering and enforcing the
transactions contemplated by this Agreement and making any
necessary business judgments with respect thereto; and
(iii) it will, upon demand, return (and cause each of
its representatives to return) to State Street Capital, all
documents or other written material received from State
Street Capital, as the case may be, in connection with
(a)(i)(B) or (C) above and all copies thereof made by such
party which contain the Program Information.
(b) Availability of Confidential Information. This Section
14.07 shall be inoperative as to such portions of the Program
Information which are or become generally available to the public
or such party on a nonconfidential basis from a source other than
State Street Capital or were known to such party on a
nonconfidential basis prior to its disclosure by State Street
Capital.
(c) Legal Compulsion to Disclose. In the event that any
party or anyone to whom such party or its representatives
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transmits the Program Information is requested or becomes legally
compelled (by interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar
process) to disclose any of the Program Information, such party
will:
(i) provide State Street Capital with prompt written
notice so that State Street Capital may seek a protective
order or other appropriate remedy and/or waive compliance
with the provisions of this Section 14.07; and
(ii) unless State Street Capital waives compliance by
such party with the provisions of this Section 14.07, make a
timely objection to the request or confirmation to provide
such Program Information on the basis that such Program
Information is confidential and subject to the agreements
contained in this Section 14.07.
In the event that such protective order or other remedy is not
obtained, or State Street Capital waives compliance with the
provisions of this Section 14.07, such party will furnish only
that portion of the Program Information which (in such party's
good faith judgment) is legally required to be furnished and will
exercise reasonable efforts to obtain reliable assurance that
confidential treatment will be accorded the Program Information.
(d) Survival. This Section 14.07 shall survive termination
of this Agreement.
SECTION 14.08. Confidentiality of Seller Information.
(a) Confidential Information. Each party hereto
acknowledges that Seller regards certain financial and portfolio
information to be confidential, and each such party severally
agrees that:
(i) it will not disclose without the prior written
consent of Seller (other than to the directors, employees,
auditors, counsel or affiliates (collectively, "representa-
tives" of such party, each of whom shall be informed by such
party of the confidential nature of the Seller Information
(as defined below) and of the terms of this Section 14.08),
(A) any financial information regarding Seller, (B) any
pricing information of Seller, or (C) any information which
is furnished by Seller to such party and which is designated
by Seller to such party as confidential or not otherwise
available to the general public (the information referred to
in clauses (A), (B) and (C) is collectively referred to as
the "Seller Information"); provided, however, that such
party may disclose any such Seller Information (I) to any
other party to this Agreement for the purposes contemplated
hereby, (II) as may be required by any municipal, state,
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federal or other regulatory body having or claiming to have
jurisdiction over such party, (III) in order to comply with
any law, order, regulation, regulatory request or ruling
applicable to such party, (IV) subject to subsection (c), in
the event such party is legally compelled (by
interrogatories, requests for information or copies,
subpoena, civil investigative demand or similar process) to
disclose any such Seller Information, and (V) to the Credit
Bank, the Liquidity Banks, any assignee or participant or
potential assignee or participant of the Credit Bank or any
Liquidity Bank, the rating agencies rating the Commercial
Paper Notes, and the investors in and dealers of the
Commercial Paper Notes;
(ii) it will use the Seller Information solely for the
purposes of evaluating, administering and enforcing the
transactions contemplated by this Agreement and making any
necessary business judgments with respect thereto; and
(iii) it will, upon demand, return (and cause each of
its representatives to return) to Seller, all documents or
other written material received from Seller, as the case may
be, and all copies thereof made by such party which contain
the Seller Information.
(b) Availability of Confidential Information. This Section
14.08 shall be inoperative as to such portions of the Seller
Information which are or become generally available to the public
or such party on a nonconfidential basis from a source other than
Seller or were known to such party on a nonconfidential basis
prior to its disclosure by Seller.
(c) Legal Compulsion to Disclose. In the event that any
party or anyone to whom such party or its representatives
transmits the Seller Information is requested or becomes legally
compelled (by interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar
process) to disclose any of the Seller Information, such party
will
(i) provide Seller with prompt written notice so that
Seller may seek a protective order or other appropriate
remedy and/or waive compliance with the provisions of this
Section 14.08; and
(ii) unless Seller waives compliance by such party
with the provisions of this Section 14.08, make a timely
objection to the request or confirmation to provide such
Seller Information on the basis that such Seller Information
is confidential and subject to the agreements contained in
this Section 14.08.
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In the event that such protective order or other remedy is not
obtained, or Seller waives compliance with the provisions of this
Section 14.08, such party will furnish only that portion of the
Seller Information which (in such party's good faith judgment) is
legally required to be furnished and will exercise reasonable
efforts to obtain reliable assurance that confidential treatment
will be accorded the Seller Information.
(d) Survival. This Section 14.08 shall survive termination
of this Agreement.
SECTION 14.09. Captions and Cross References. The various
captions (including, without limitation, the table of contents)
in this Agreement are provided solely for convenience of
reference and shall not affect the meaning or interpretation of
any provision of this Agreement. Unless otherwise indicated,
references in this Agreement to any Section, Appendix, Schedule
or Exhibit are to such Section of or Appendix, Schedule or
Exhibit to this Agreement, as the case may be, and references in
any Section, subsection, or clause to any subsection, clause or
subclause are to such subsection, clause or subclause of such
Section, subsection or clause.
SECTION 14.10. Integration. This Agreement, together with
the letter referenced in Section 4.01(a), contains a final and
complete integration of all prior expressions by the parties
hereto with respect to the subject matter hereof and shall
constitute the entire understanding among the parties hereto with
respect to the subject matter hereof, superseding all prior oral
or written understandings.
SECTION 14.11. Governing Law. THIS AGREEMENT, INCLUDING
THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE PERFECTION OF
THE INTERESTS OF PURCHASER IN THE RECEIVABLES IS GOVERNED BY THE
LAWS OF THE JURISDICTION OTHER THAN THE STATE OF NEW YORK.
SECTION 14.12. Waiver Of Jury Trial. SELLER HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT,
ANY OTHER TRANSACTION DOCUMENT OR ANY AMENDMENT, INSTRUMENT OR
DOCUMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION HEREWITH OR ARISING FROM ANY BANKING OR OTHER
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER TRANSACTION DOCUMENT AND AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY TRIAL.
SECTION 14.13. Consent To Jurisdiction; Waiver Of
Immunities. SELLER HEREBY ACKNOWLEDGES AND AGREES THAT:
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(a) IT IRREVOCABLY (i) SUBMITS TO THE JURISDICTION,
FIRST, OF ANY UNITED STATES FEDERAL COURT, AND SECOND, IF
FEDERAL JURISDICTION IS NOT AVAILABLE, OF ANY NEW YORK STATE
COURT, IN EITHER CASE SITTING IN NEW YORK, NEW YORK IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, (ii) AGREES THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED ONLY IN
SUCH NEW YORK STATE OR FEDERAL COURT AND NOT IN ANY OTHER
COURT, AND (iii) WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH ACTION OR PROCEEDING.
(b) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE
ANY IMMUNITY FROM THE JURISDICTION OF ANY COURT OR FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID TO EXECUTION, EXECUTION
OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT
HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER OR IN CONNECTION WITH THIS AGREEMENT.
SECTION 14.14. Execution in Counterparts. This Agreement
may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same
Agreement.
SECTION 14.15. No Recourse Against Other Parties. No
recourse under any obligation, covenant or agreement of Purchaser
contained in this Agreement shall be had against any stockholder,
employee, officer, director, or incorporator of Purchaser,
provided, however, that nothing in this Section 14.15 shall
relieve any of the foregoing Persons from any liability which
such Person may otherwise have for his/her or its gross
negligence or willful misconduct.
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IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
STRAWBRIDGE & CLOTHIER,
as Seller and initial Servicer
By
Title
801
Market Street
Philadelphia, Pennsylvania 19107
Facsimile No.: (215) 629-6833
Attention: Treasurer
CLIPPER RECEIVABLES CORPORATION,
as Purchaser
By
Title
P.O. Box 4024
Boston, Massachusetts 02101
Facsimile No.: (617) 951-7050
Attention: R. Douglas
Donaldson
STATE STREET BOSTON CAPITAL
CORPORATION, as Administrator
By
Vice President
225 Franklin Street
Boston, Massachusetts 02110
Facsimile No.: (617) 350-4020
Attention: Clipper Products
<PAGE>
PNC BANK, NATIONAL ASSOCIATION,
as Relationship Bank
By
Vice President
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
Facsimile No.: (215) 585-5972
Attention: H. Todd Dissinger
<PAGE>
APPENDIX A
DEFINITIONS
This is Appendix A to the Receivables Purchase Agreement
dated as of January 26, 1995 among Strawbridge & Clothier,
Clipper Receivables Corporation, State Street Boston Capital
Corporation, as Administrator and PNC Bank, National Association,
as Relationship Bank (as amended, supplemented or otherwise
modified from time to time, this "Agreement"). Each reference in
this Appendix A to any Section, Appendix or Exhibit refers to
such Section of or Appendix or Exhibit to this Agreement.
A. Defined Terms. As used in this Agreement, unless the
context requires a different meaning, the following terms have
the meanings indicated hereinbelow:
"Account" means each revolving credit card or charge account
established pursuant to a Contract between Seller and any Obligor
pursuant to which indebtedness may arise from time to time for
the purchase of goods.
"Administrator" has the meaning set forth in the preamble.
"Administrator's Office" means the office of the
Administrator at 225 Franklin Street, Boston, Massachusetts
02110, Attention: Clipper Funds, or such other address as shall
be designated by the Administrator in writing to Seller and
Purchaser.
"Affected Party" means each of Purchaser, each Liquidity
Bank, any assignee or participant of Purchaser or any Liquidity
Bank, the Credit Bank, any assignee or participant of the Credit
Bank, State Street Capital, any successor to State Street Capital
as Administrator, PNC Bank, any successor to PNC Bank as
Relationship Bank, any sub-agent of the Administrator, the
Collateral Agent, any successor of First Chicago as Collateral
Agent and any co-agent or sub-agent of the Collateral Agent.
"Affiliate" when used with respect to a Person means any
other Person controlling, controlled by, or under common control
with, such Person.
"Allocation Limit" has the meaning set forth in Section
1.01.
"Alternate Base Rate" means, on any date, a fluctuating rate
of interest per annum equal to the higher of
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(a) the rate of interest most recently announced by
the Liquidity Agent in Pittsburgh, Pennsylvania as its prime
rate; and
(b) the Federal Funds Rate (as defined below) most
recently determined by the Liquidity Agent plus 0.50% per
annum.
The Alternate Base Rate is not necessarily intended to be the
lowest rate of interest determined by the Liquidity Agent in
connection with extensions of credit.
"Arrangement Fee" has the meaning set forth in Section
4.01(a).
"Asset Interest" means an undivided ownership interest
determined from time to time as provided in Section 1.04(b) in
all Pool Assets.
"Bank Rate" for any Settlement Period means
(a) in the case of any Settlement Period other than a
Settlement Period described in clause (b), an interest rate
per annum equal to the sum of (x) 1.00%, plus (y) the
Eurodollar Rate (Reserve Adjusted) for such Settlement
Period;
(b) in the case of
(i) any Settlement Period on or after the first
day of which Purchaser, any Liquidity Bank or the
Credit Bank shall have notified the Administrator that
(A) the introduction of or any change in or in the
interpretation of any law or regulation makes it
unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for such Person
to fund the Asset Interest (or a portion thereof) at
the rate described in clause (a), or (B) due to market
conditions affecting the interbank eurodollar market,
funds are not reasonably available to such Person in
such market in order to enable it to fund such Asset
Interest (or a portion thereof) at the rate described
in clause (a) (and in the case of subclause (A) or (B),
such Person shall not have subsequently notified the
Administrator that such circumstances no longer exist),
or
(ii) any Settlement Period as to which the
Administrator does not receive notice or determine, by
no later than 12:00 noon (New York City time) on the
third Business Day preceding the first day of such
Settlement Period, that the Asset Interest (or portion
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thereof) will be funded by Liquidity Loans and not by
the issuance of Commercial Paper Notes,
an interest rate per annum equal to the Alternate Base Rate
for such Settlement Period.
"Business Day" means a day on which both (a) the
Administrator at its principal office in Boston, Massachusetts is
open for business and (b) commercial banks in New York City and
Chicago, Illinois are not authorized or required to be closed for
business.
"Change in Control" means (i) any person or group of related
persons, excluding Permitted Shareholders, gains beneficial
ownership of a majority in voting interest of the outstanding
voting stock of Seller or has caused to be elected a majority of
the Board of Directors of Seller or (ii) all or substantially all
of the assets of Seller are sold or liquidated. As used herein,
"Permitted Shareholders" means (i) Justus C. Strawbridge and
Isaac H. Clothier; (ii) the respective lineal descendants of the
persons set forth in (i) or their respective estates; and (iii)
an inter vivos or testamentary trust whose current beneficiaries
include one or more persons falling within the scope of preceding
category (ii).
"Charge-Off Ratio" means the product of (i) the ratio
(expressed as a percentage) computed as of the Cut-Off Date by
dividing (x) the aggregate Unpaid Balance of all Receivables that
were charged off in accordance with the Credit and Collection
Policy during the Settlement Period ending on such Cut-Off Date,
minus any recoveries with respect to such charged off Receivables
by (y) the aggregate Unpaid Balance of all Receivables, on the
immediately preceding Cut-Off Date, other than such charged off
Receivables, times (ii) 12.
"Collateral Agent" means First Chicago in its capacity as
collateral agent, together with any successors thereto, under the
Security Agreement.
"Collections" means, with respect to any Receivable, all
funds which either (a) are received by Seller or Servicer from or
on behalf of the related Obligors in payment of any amounts owed
(including, without limitation, purchase prices, finance charges,
interest and all other charges) in respect of such Receivable, or
applied to such amounts owed by such Obligors (including, without
limitation, insurance payments that Seller or Servicer applies in
the ordinary course of its business to amounts owed in respect of
such Receivable and net proceeds of sale or other disposition of
repossessed goods or other collateral or property of the Obligor
or any other party directly or indirectly liable for payment of
such Receivable and available to be applied thereon), or (b) are
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deemed to have been received by Seller or any other Person as a
Collection pursuant to Section 3.02.
"Commercial Paper Holders" means the holders from time to
time of the Commercial Paper Notes.
"Commercial Paper Notes" means short-term promissory notes
issued or to be issued by Purchaser to fund its investments in
accounts receivable or other financial assets.
"Commitment Fee" has the meaning set forth in the Fee
Letter.
"Contract" means a contract between Seller and any Person
pursuant to or under which such Person establishes a revolving
credit card or charge account pursuant to which indebtedness may
arise for the purchase of goods from time to time. A "related"
Contract with respect to the Receivables means a Contract under
which Receivables in the Receivables Pool arise or which is
relevant to the collection or enforcement of such Receivables.
"CP Rate" for any period means a rate per annum calculated
by the Administrator equal to the sum of (i) the rate or, if more
than one rate, the weighted average of the rates, determined by
converting to an interest-bearing equivalent rate per annum the
discount rate (or rates) at which Commercial Paper Notes on each
day during such period have been sold by the commercial paper
placement agents selected by the Administrator, plus (ii) the
commissions and charges charged by such commercial paper
placement agents with respect to such Commercial Paper Notes,
expressed as a percentage of such face amount and converted to an
interest-bearing equivalent rate per annum.
"Credit Agreement" means and includes (a) the Credit
Agreement, dated as of September 24, 1992 between Purchaser and
the Credit Bank and (b) any other agreement (other than the
Liquidity Agreement) hereafter entered into by Purchaser
providing for the issuance of one or more letters of credit for
the account of Purchaser, the making of loans to Purchaser or any
other extensions of credit to or for the account of Purchaser to
support all or any part of Purchaser's payment obligations under
its Commercial Paper Notes or to provide an alternate means of
funding Purchaser's investments in accounts receivable or other
financial assets, in each case as amended, supplemented or
otherwise modified from time to time.
"Credit and Collection Policy" means those credit and
collection policies and practices relating to Contracts,
Accounts, and Receivables described in Schedule 6.01(p)-2, as
modified without violating Section 7.03(c).
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"Credit Bank" means and includes State Street Bank, as
lender to Purchaser and as issuer of a letter of credit for
Purchaser's account under the Credit Agreement, and any other or
additional bank or other financial institution now or hereafter
extending credit or having a commitment to extend credit to or
for the account of Purchaser under the Credit Agreement.
"Credit Draw means a loan made by the Credit Bank pursuant
to the Credit Agreement or a disbursement made by the Credit Bank
under a letter of credit issued pursuant to the Credit Agreement.
"Cut-Off Date" means the last day of each Settlement Period.
"Defaulted Receivable" means, for any Settlement Period, a
Receivable: (a) as to which any payment, or part thereof,
becomes 7 or more months past due during such Settlement Period,
or (b) as to which the Obligor thereof is the subject of an Event
of Bankruptcy and which has been, or in accordance with the
Credit and Collection Policy should have been, charged off during
such Settlement Period and which is not a Defaulted Receivable
pursuant to clause (a).
"Default Ratio" means the ratio (expressed as a percentage)
computed as of a Cut-Off Date by dividing (x) the aggregate
Unpaid Balance of Receivables that become Defaulted Receivables
during the Settlement Period ending on such Cut-Off Date by (y)
the average of the aggregate Unpaid Balance of all Receivables
during such Settlement Period.
"Delinquency Ratio" means the ratio (expressed as a
percentage) computed as of a Cut-Off Date by dividing (x) the
aggregate Unpaid Balance of Delinquent Receivables on such Cut-
Off Date by (y) the aggregate Unpaid Balance of all Receivables
on such date.
"Delinquent Receivable" means a Receivable as to which any
payment, or part thereof, remains unpaid for more than 3 months
from the original due date for such payment.
"Dilution Ratio" means, for any Settlement Period, the ratio
(expressed as a percentage) computed by dividing (i) the
aggregate amount of credits, adjustments, rebates, refunds and
setoffs with respect to Receivables granted or allowed by Seller
or any Affiliate of Seller during such Settlement Period by (ii)
the average aggregate Unpaid Balance of all Receivables during
such Settlement Period.
"Dollars" means dollars in lawful money of the United States
of America.
"Downgraded Liquidity Bank" means a Liquidity Bank which has
been the subject of a Downgrading Event.
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"Downgrading Event" with respect to any Person means the
lowering of the rating with regard to the short-term securities
of such Person to below (i) A-1 by S&P or (ii) P-1 by Moody's.
"Earned Discount" means for any Settlement Period:
PTI x ER x ED + LF
360
where:
PTI= the daily average (calculated at the close of business
each day) of the Purchaser's Total Investment during
such Settlement Period,
ER = the Earned Discount Rate for such Settlement Period,
ED = the actual number of days elapsed during such
Settlement Period, and
LF = the Liquidation Fee, if any, during such Settlement
Period.
"Earned Discount Rate" means for any Settlement Period:
(a) in the case of any portion of the Purchaser's
Total Investment funded by a Liquidity Loan, either (i) the
Bank Rate for such Settlement Period or (ii) the Alternate
Base Rate, as elected by Seller set forth in a written
notice to the Administrator and the Liquidity Agent
delivered at least three Business Days prior to such funding
(if such three Business Day prior notice cannot be given
prior to funding, the Earned Discount Rate for such
Settlement Period shall be the Alternate Base Rate);
(b) in the case of any portion of the Purchaser's
Total Investment funded by a Credit Draw, a rate per annum
equal for each day during such Settlement Period to the
Alternate Base Rate in effect on such day plus 2% per annum;
and
(c) for any portion of the Purchaser's Total
Investment funded by Commercial Paper Notes, the CP Rate for
the related Settlement Period;
provided, however, that on any day during a Settlement Period
when any Liquidation Event or Unmatured Liquidation Event shall
have occurred and be continuing, the Earned Discount Rate for the
Purchaser's Total Investment shall mean the Alternate Base Rate
in effect on such day plus 2%.
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"Eligible Contract" means a Contract in one of the forms set
forth in Schedule 6.01(p)-1 or otherwise approved by the
Administrator.
"Eligible Receivable" means, at any time, a Receivable:
(a) which is originated by Seller in the ordinary
course of its business;
(b) which, (i) if the perfection of Purchaser's
undivided ownership interest therein is governed by the
laws of a jurisdiction where the Uniform Commercial Code --
Secured Transactions is in force, constitutes an account or
general intangible as defined in the Uniform Commercial Code
as in effect in such jurisdiction, and (ii) if the
perfection of Purchaser's undivided ownership interest
therein is governed by the law of any jurisdiction where the
Uniform Commercial Code -- Secured Transactions is not in
force, Seller has furnished to the Administrator such
opinions of counsel and other evidence as has reasonably
been requested, establishing to the reasonable satisfaction
of the Administrator that Purchaser's undivided ownership
interest and other rights with respect thereto are not
significantly less protected and favorable than such rights
under the Uniform Commercial Code;
(c) the Obligor of which is resident of the United
States, or any of its possessions or territories, is not an
Affiliate of Seller, and is not a government or a
governmental subdivision or agency;
(d) as to which the payment terms have not been
altered or extended;
(e) the Obligor of which is not the Obligor of any
Defaulted Receivable;
(f) which is not a Defaulted Receivable or a
Delinquent Receivable;
(g) with regard to which the warranty of Seller in
Section 6.01(l) is true and correct;
(h) the sale of an undivided interest in which does
not contravene or conflict with any law;
(i) which is denominated and payable only in Dollars
in the United States;
(j) which arises under an Eligible Contract, which
contract has been duly authorized by the parties thereto and
that, together with such Receivable, is in full force and
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effect and constitutes the legal, valid and binding
obligation of the Obligor of such Receivable enforceable
against such Obligor in accordance with its terms, is not
subject to any dispute, offset, counterclaim or defense
whatsoever and is not classified as a "Dispute Receivable"
pursuant to the Credit and Collection Policy;
(k) which, together with the Contract related thereto,
does not contravene any laws, rules or regulations
applicable thereto (including, without limitation, laws,
rules and regulations relating to usury, truth in lending,
fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy) and
with respect to which no party to the Contract related
thereto is in violation of any such law, rule or regulation
if such violation would impair the collectibility of such
Receivable;
(l) which (i) satisfies all applicable requirements
of the Credit and Collection Policy and (ii) complies with
such other criteria and requirements (other than those
relating to the collectibility of such Receivable) as the
Administrator may from time to time specify to Seller
following ten days' notice;
(m) the Unpaid Balance of which, when combined with
the Unpaid Balance of all Pool Receivables as to which
principal or interest has been deferred, does not exceed 10%
of the Net Pool Balance; and
(n) the Obligor of which has not exceeded 115% of his
or her limit.
"ERISA" means the U.S. Employee Retirement Income Security
Act of 1974, as amended from time to time.
"Eurodollar Rate (Reserve Adjusted)" means, with respect to
any Settlement Period and any portion of the Purchaser's Total
Investment, a rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined pursuant to the following
formula:
Eurodollar Rate = Eurodollar Rate
(Reserve Adjusted) 1-Eurodollar
Reserve Percentage
where:
"Eurodollar Rate" means, with respect to any Settlement
Period and any portion of the Purchaser's Total Investment,
the rate per annum at which Dollar deposits in immediately
available funds are offered to the Eurodollar Office of the
Administrator two Eurodollar Business Days prior to the
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beginning of such period by prime banks in the interbank
eurodollar market at or about 11:00 a.m., New York City time
for delivery on the first day of such Settlement Period, for
the number of days comprised therein and in an amount equal
or comparable to the applicable portion of the Purchaser's
Total Investment for such Settlement Period.
"Eurodollar Business Day" means a day of the year on which
dealings are carried on in the eurodollar interbank market
and banks are open for business in London and are not
required or authorized to close in New York City or Boston.
"Eurodollar Reserve Percentage" means, with respect to any
Settlement Period, the then applicable percentage (expressed
as a decimal) prescribed by the Federal Reserve Board for
determining reserve requirements applicable to "Eurocurrency
Liabilities" pursuant to Regulation D.
"Event of Bankruptcy" shall be deemed to have occurred with
respect to a Person if either:
(a) a case or other proceeding shall be commenced,
without the application or consent of such Person, in any
court, seeking the liquidation, reorganization, debt
arrangement, dissolution, winding up, or composition or
readjustment of debts of such Person, the appointment of
a trustee, receiver, custodian, liquidator, assignee,
sequestrator or the like for such Person or all or
substantially all of its assets, or any similar action with
respect to such Person under any law relating to bankruptcy,
insolvency, reorganization, winding up or composition or
adjustment of debts, and such case or proceeding shall
continue undismissed, or unstayed and in effect, for a
period of 60 consecutive days; or an order for relief in
respect of such Person shall be entered in an involuntary
case under the federal bankruptcy laws or other similar laws
now or hereafter in effect; or
(b) such Person shall commence a voluntary case or
other proceeding under any applicable bankruptcy,
insolvency, reorganization, debt arrangement, dissolution
or other similar law now or hereafter in effect, or shall
consent to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) for, such Person or
for any substantial part of its property, or shall make any
general assignment for the benefit of creditors, or shall
fail to, or admit in writing its inability to, pay its debts
generally as they become due, or, if a corporation or
similar entity, its board of directors shall vote to
implement any of the foregoing.
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"Exchange Act" means the Securities and Exchange Act of
1934, as amended.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal (for each day during such period)
to
(a) the weighted average of the rates on overnight
federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal
Reserve Bank of Philadelphia; or
(b) if such rate is not so published for any day which
is a Business Day, the average of the quotations for such
day on such transactions received by the Liquidity Agent
from three federal funds brokers of recognized standing
selected by it.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System, or any successor thereto or to the
functions thereof.
"Fee Letter" has the meaning set forth in Section 4.01(b).
"Final Payout Date" means the date following the Termination
Date on which Purchaser's Total Investment shall have been
reduced to zero and all other amounts payable by Seller under the
Transaction Documents shall have been paid in full.
"Finance Charge Receivables" means all amounts billed to the
Obligors on any Account in respect of finance charges, late
charges and other fees and charges with respect to the Accounts.
"First Chicago" means The First National Bank of Chicago, a
national banking association.
"Foreign" means, with respect to any assignee or participant
of Purchaser hereunder, any Person not organized under the laws
of the United States, one of the states thereof, or the District
of Columbia.
"Indemnified Amounts" has the meaning set forth in
Section 13.01.
"Indemnified Party" has the meaning set forth in
Section 13.01.
"Information Package" has the meaning set forth in
Section 3.01.
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"Interest Collections" means all Collections received or
deemed received for Finance Charge Receivables.
"Lien" means any mortgage, lien, pledge, encumbrance,
charge, title retention or other security interest of any kind,
whether arising under a security agreement, mortgage, deed of
trust, assignment, pledge or financing statement or arising as a
matter of law, judicial process or otherwise.
"Liquidation Event" has the meaning set forth in Section
10.01.
"Liquidation Fee" means, for each day in any Settlement
Period during the Liquidation Period, the amount, if any, by
which:
(a) the additional Earned Discount (calculated without
taking into account any Liquidation Fee) which would have
accrued on the reductions of the Purchaser's Total
Investment during such Settlement Period (as so computed) if
such reductions had not been made exceeds,
(b) the income, if any, received by Purchaser from
investing the proceeds of such reductions of the Purchaser's
Total Investment.
"Liquidation Period" means the period commencing on the date
on which the conditions precedent to Purchases and Reinvestments
set forth in Section 5.02 are not satisfied (or expressly waived
by Purchaser) and the Administrator shall have notified Seller,
Servicer and the Relationship Bank in writing that the
Liquidation Period has commenced, and ending on the Final Payout
Date.
"Liquidity Agent" means PNC Bank, as agent for the Liquidity
Banks under the Liquidity Agreement, or any successor to PNC Bank
in such capacity.
"Liquidity Agreement" means and includes (a) the Liquidity
Agreement dated as of January 26, 1995 among Purchaser, as
borrower, State Street Capital, as Program Administrator, PNC
Bank, as Liquidity Agent, and certain other financial
institutions, and (b) any other agreement hereafter entered into
by Purchaser providing for the making of loans or other
extensions of credit to Purchaser secured by a direct or indirect
security interest in the Asset Interest (or any portion thereof),
to support all or part of Purchaser's payment obligations under
the Commercial Paper Notes or to provide an alternate means of
funding Purchaser's investments in accounts receivable or other
financial assets, and under which the amount available from such
extensions of credit is limited to an amount calculated by
reference to the value or eligible unpaid balance of such
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accounts receivable or other financial assets or any portion
thereof or the level of deal-specific credit enhancement
available with respect thereto, as such Liquidity Agreement or
other agreement may be amended, supplemented or otherwise
modified from time to time.
"Liquidity Bank" means any one of, and "Liquidity Banks"
means all of, PNC Bank and the other commercial lending
institutions that are at any time parties to the Liquidity
Agreement.
"Liquidity Commitment Amount" means, at any time, the then
aggregate amount of the Liquidity Banks' commitments under the
Liquidity Agreement.
"Liquidity Loan" means a loan made by the Liquidity Bank (or
simultaneous loans made by the Liquidity Banks) pursuant to the
Liquidity Agreement.
"Lock-Box Agreement" means a letter agreement, in
substantially the form of Exhibit 5.01(g), between Seller and any
Lock-Box Bank.
"Lock-Box Bank" means any of the banks holding one or more
lock-box accounts for receiving Collections from Pool
Receivables.
"Loss Reserve" means on any day, an amount equal to the
product of (1) the Purchaser's Total Investment on such day
multiplied by (2) the Loss Reserve Percentage at such time.
"Loss Reserve Percentage" means, on any day, the sum of (1)
the greatest of (A) 12%, (B) 3 times the average Charge Off Ratio
for the 3 most recent Cut-Off Dates and (C) 2 times the product
of (i) the average Default Ratio for the 3 most recent Cut-Off
Dates times (ii) 1 divided by the average Payment Rate for the 3
most recent Cut-Off Dates, plus (2) the amount, if any,
(expressed as a positive number) by which the Net Yield is less
than zero as of the most recent Cut-Off Date.
"Material Adverse Effect" with respect to any event or
circumstance, means a material adverse effect on:
(i) the business, assets, financial condition or
results of operations of Seller or Servicer, and its
consolidated Subsidiaries, taken as a whole;
(ii) the ability of Servicer or Seller to perform its
obligations under this Agreement or any other Transaction
Document;
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(iii) the validity, enforceability or collectibility
of this Agreement, any other Transaction Document, the
Receivables, the Accounts, or the related Contracts; or
(iv) the status, existence, perfection, priority or
enforceability of Purchaser's interest in the Pool
Receivables.
"Moody's" means Moody's Investors Service, Inc.
"Net Pool Balance" at any time means an amount equal to the
aggregate Unpaid Balance of the Eligible Receivables in the
Receivables Pool at such time.
"Net Yield" means, for any Settlement Period, the Portfolio
Yield for such Settlement Period, minus, the Earned Discount Rate
for such Settlement Period, minus the Servicer's Fee Rate, minus
the Program Fee Rate, minus the greater of (i) the average
Charge-Off Ratio for the three most recent Cut-Off Dates and (ii)
90% of the average Default Ratio for the three most recent Cut-
Off Dates multiplied by 1 divided by the average Payment Rate for
the three most recent Cut-Off Dates.
"Obligor" means a Person obligated to make payments with
respect to a Receivable, including any guarantor thereof.
"Payment Rate" means the ratio (expressed as a percentage)
computed as of the Cut-Off Date by dividing (x) the Collections
received during the Settlement Period ending on such Cut-Off Date
by (y) the aggregate Unpaid Balance of all Receivables as of the
first day of such Settlement Period.
"Permitted Investments" means any one or more of the
following obligations or securities:
(i) direct non-callable obligations of, and non-
callable obligations fully guaranteed by, the United
States of America, or any agency or instrumentality of
the United States of America the obligations of which
are backed by the full faith and credit of the United
States of America;
(ii) demand and time deposits in, certificates of
deposits of, and bankers' acceptances issued by, any
depository institution or trust company incorporated
under the laws of the United States of America or any
state thereof, having a combined capital and surplus of
at least $500,000,000, and subject to supervision and
examination by federal and/or state banking
authorities, so long as at the time of such investment
or contractual commitment providing for such investment
the commercial paper or other short-term debt
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obligations of such depository institution or trust
company (or, in the case of a depository institution
that is the principal subsidiary of a holding company,
the commercial paper or other short-term debt
obligations of such holding company) have one of the
two highest short-term credit rating available from
Moody's and S&P.
(iii) repurchase obligations with respect to and
collateralized by (A) any security described in clause
(i) above or (B) any other security issued or
guaranteed by an agency or instrumentality of the
United States of America, in each case entered into
with a depository institution or trust company (acting
as principal) of the type described in clause (ii)
above, provided that the Administrator has taken
delivery of such security;
(iv) commercial paper (including both non-
interest-bearing discount obligations and interest-
bearing obligations, but excluding Commercial Paper
(Notes) payable on demand or on a specified date not
more than one year after the date of issuance thereof
having the highest short-term credit rating from
Moody's and S&P at the time of such investment; and
(v) shares in a mutual fund investing solely in
short term securities of the United States government
and/or securities described in clause (iii) above where
the mutual fund custodian has taken delivery of the
collateralizing securities, provided that (i) such fund
shall have one of the two highest short-term credit
rating available from Moody's and S&P and (ii) such
shares shall be freely transferable by the holder on a
daily basis.
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust,
unincorporated association, joint venture, government or any
agency or political subdivision thereof or any other entity.
"PNC Bank" has the meaning set forth in the preamble.
"Pool Assets" has the meaning set forth in Section 1.04(a).
"Pool Receivable" means a Receivable in the Receivables
Pool.
"Portfolio Yield" means, with respect to any Settlement
Period, the annualized percentage equivalent of a fraction, the
numerator of which is the amount of Finance Charge Receivables
accrued during such Settlement Period, and the denominator of
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which is the aggregate Unpaid Balance of Receivables as of the
last day of the immediately preceding Settlement Period.
"Principal Collections" means Collections received or deemed
received (other than Interest Collections) for amounts billed to
the Obligors on any Account in respect of purchases of goods.
"Program Administration Agreement" means the Program
Administration Agreement dated as of September 24, 1992 between
Purchaser and State Street Capital, as Program Administrator, as
the same may be amended, supplemented or otherwise modified from
time to time.
"Program Fee" has the meaning set forth in the Fee Letter.
"Program Fee Rate" has the meaning set forth in the Fee
Letter.
"Program Information" has the meaning set forth in Section
14.07.
"Purchase" has the meaning set forth in Section 1.01.
"Purchase Limit" has the meaning set forth in Section 1.01.
"Purchase Price" has the meaning set forth in Section
1.02(a).
"Purchase Termination Date" means that day
(a) the Administrator declares a Purchase Termination
Date in a notice to Seller in accordance with Section
10.02(a); or
(b) in accordance with Section 10.02(b), becomes the
Purchase Termination Date automatically.
"Purchaser" has the meaning set forth in the preamble.
"Purchaser's Share" of any amount means the then Asset
Interest, expressed as a percentage, times such amount.
"Purchaser's Total Investment" means at any time with
respect to the Asset Interest an amount equal to (a) the
aggregate of the amounts theretofore paid to Seller for Purchases
pursuant to Section 1.01, less (b) the aggregate amount of
Collections theretofore received and actually distributed to
Purchaser on account of such Purchaser's Total Investment
pursuant to Section 3.01.
"Qualifying Liquidity Bank" means a Liquidity Bank with a
rating of its short-term securities equal to or higher than
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(i) A-1 by Standard & Poor's Ratings Group and (ii) P-1 by
Moody's Investors Service, Inc.
"Receivable" means any right to payment from a Person,
whether constituting an account, chattel paper, instrument or a
general intangible, arising under an Account, and includes the
right to payment of any interest or finance charges and other
obligations of such Person with respect thereto.
"Receivables Pool" means at any time all then outstanding
Receivables.
"Regulation D" means Regulation D of the Federal Reserve
Board, or any other regulation of the Federal Reserve Board that
prescribes reserve requirements applicable to nonpersonal time
deposits or "Eurocurrency Liabilities" as presently defined in
Regulation D, as in effect from time to time.
"Regulatory Change" means, relative to any Affected Party
(a) any change in (or the adoption, implementation,
change in phase-in or commencement of effectiveness of) any
(i) United States federal or state law or foreign
law applicable to such Affected Party;
(ii) regulation, interpretation, directive,
requirement or request (whether or not having the force
of law) applicable to such Affected Party of (A) any
court, government authority charged with the
interpretation or administration of any law referred to
in clause (a)(i) or of (B) any fiscal, monetary or
other authority having jurisdiction over such Affected
Party; or
(iii) generally accepted accounting principles or
regulatory accounting principles applicable to such
Affected Party and affecting the application to such
Affected Party of any law, regulation, interpretation,
directive, requirement or request referred to in clause
(a)(i) or (a)(ii) above; or
(b) any change in the application to such Affected
Party of any existing law, regulation, interpretation,
directive, requirement, request or accounting principles
referred to in clause (a)(i), (a)(ii) or (a)(iii) above.
"Reinvestment" has the meaning set forth in Section 1.03.
"Related Security" means, with respect to any Pool
Receivable: (a) all of Seller's right, title and interest in and
to all Contracts that relate to such Pool Receivable; (b) all of
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Seller's interest in the merchandise (including returned
merchandise), if any, relating to the sale which gave rise to
such Pool Receivable; (c) all other security interests or liens
and property subject thereto from time to time purporting to
secure payment of such Pool Receivable, whether pursuant to the
Contract related to such Pool Receivable or otherwise; (d) all
UCC financing statements covering any collateral securing payment
of such Pool Receivable; and (e) all guarantees and other
agreements or arrangements of whatever character from time to
time supporting or securing payment of such Pool Receivable
whether pursuant to the Contract related to such Pool Receivable
or otherwise. The interest of Purchaser in any Related Security
is only to the extent of Purchaser's undivided interest, as more
fully described in the definition of Asset Interest.
"Relationship Bank" has the meaning set forth in the
preamble.
"Relationship Bank Agreement" means the Relationship Bank
Agreement, dated as of September 24, 1992, among Purchaser, the
Administrator and the Relationship Bank, as such agreement may be
amended, supplemented or otherwise modified from time to time.
"Reporting Date" has the meaning set forth in Section
3.01(a).
"S&P" means Standard & Poor's Credit Ratings Group.
"Secured Parties" means Purchaser, the Administrator, the
Relationship Bank, the Indemnified Parties and the Affected
Parties.
"Security Agreement" means the Security Agreement dated as
of September 24, 1992, between Purchaser, as grantor, and the
Collateral Agent, as secured party, as the same may be amended,
supplemented or otherwise modified from time to time.
"Seller" has the meaning set forth in the preamble.
"Seller Information" has the meaning set forth in Section
14.08.
"Seller's Portion of Servicing Fee" has the meaning set
forth in Section 8.01(d).
"Servicer" has the meaning set forth in Section 8.01(a).
"Servicer Transfer Event" has the meaning set forth in
Section 8.01(b).
"Servicer's Fee" accrued for any day means an amount equal
to (x) the Servicer's Fee Rate, times (y) the amount of the
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Purchaser's Total Investment at the close of business on such
day, times (z) 1/360.
"Servicer's Fee Rate" (i) means 2.0% per annum, so long as
Seller is Servicer and (ii) such higher rate as may be charged by
any other Servicer, provided such rate is a market rate for
servicing portfolios similar to the Pool Receivables at such
time.
"Settlement Date" has the meaning set forth in Section
3.01(c).
"Settlement Period" means a fiscal month as described on
Schedule A.
"State Street Bank" means State Street Bank and Trust
Company, a trust company organized under the laws of
Massachusetts.
"State Street Capital" has the meaning set forth in the
preamble.
"Subsidiary" means a corporation of which Seller and/or its
other Subsidiaries own, directly or indirectly, such number of
outstanding shares as have more than 50% of the ordinary voting
power for the election of directors.
"Successor Notice" has the meaning set forth in Section
8.01(b).
"Taxes" means, in the case of any assignee or participant of
Purchaser, taxes, levies, imposts, deductions, charges,
withholdings and liabilities, now or hereafter imposed, levied,
collected, withheld or assessed by any country (or any political
subdivision thereof), excluding income or franchise taxes imposed
on it by (i) the jurisdiction under the laws of which such
assignee or participant or Purchaser, is organized (or by any
political subdivision thereof), (ii) any jurisdiction in which an
office of such assignee or participant of Purchaser funding or
maintaining the ownership of Asset Interests is located (or any
political subdivision thereof), or (iii) any jurisdiction in
which such assignee or participant of Purchaser is already
subject to tax.
"Termination Date" means the earliest of
(a) the date of termination (whether by scheduled
expiration, termination on default or otherwise) of either
the Liquidity Banks' commitments under the Liquidity
Agreement or the Credit Bank's commitment under the Credit
Agreement;
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(b) the Purchase Termination Date;
(c) January 26, 1996; and
(d) the date on which any of the following shall
occur:
(1) Failure to obtain a Liquidity Agreement in
substitution for the then-existing Liquidity Agreement
on or before 30 days prior to the expiration of the
commitments of the Liquidity Banks thereunder; or
(2) (i) A Downgrading Event with respect to a
Liquidity Bank shall have occurred and been continuing
for not less than 45 days, (ii) the Downgraded
Liquidity Bank shall not have been replaced by a
Qualifying Liquidity Bank pursuant to a Liquidity
Agreement in form and substance acceptable to Purchaser
and the Administrator, and (iii) the commitment of such
Downgraded Liquidity Bank under the Liquidity Agreement
shall not have been funded or collateralized in such a
manner that such Downgrading Event will not result in a
reduction or withdrawal of the credit rating applied to
the Commercial Paper Notes by any of the rating
agencies then rating the Commercial Paper Notes; or
(3) Purchaser shall become an "investment
company" within the meaning of the Investment Company
Act of 1940, as amended.
"Transaction Documents" means this Agreement, the Lock-Box
Agreements, the Fee Letter and the other documents to be executed
and delivered in connection herewith.
"UCC" means the Uniform Commercial Code as from time to time
in effect in the applicable jurisdiction or jurisdictions.
"Unmatured Liquidation Event" means any event which, with
the giving of notice or lapse of time, or both, would become a
Liquidation Event.
"Unpaid Balance" of any Receivable means at any time the
unpaid principal amount thereof, excluding any Finance Charge
Receivables related thereto.
B. Other Terms. All accounting terms not specifically
defined herein, including Interest Expense, shall be construed in
accordance with generally accepted accounting principles. All
terms used in Article 9 of the UCC in the State of Illinois, and
not specifically defined herein, are used herein as defined in
such Article 9.
73 <PAGE>
<PAGE>
C. Computation of Time Periods. Unless otherwise stated
in this Agreement, in the computation of a period of time from a
specified date to a later specified date, the word "from" means
"from and including" and the words "to" and "until" each means
"to but excluding".
74 <PAGE>
EXHIBIT 21
Subsidiaries of Strawbridge & Clothier
Name Jurisdiction Percentage of
of Ownership
Incorporation
S&C, Burlington, Inc. Pennsylvania 100%
S&C, Center Square, Inc. Pennsylvania 100%
S&C, Cherry Hill, Inc. Pennsylvania 100%
S&C, Concord, Inc. Delaware 100%
S&C, Echelon, Inc. Pennsylvania 100%
S&C, Filbert St., Inc. Pennsylvania 100%
S&C, Penrose, Inc. Pennsylvania 100%
S&C, Whiteland, Inc. Pennsylvania 100%
S&C, Maintenance and New Jersey 90%
Construction, Inc.
Anfly, Inc. Delaware 100%
8th & Filbert Parking, Inc. Pennsylvania 100%
1 <PAGE>
Exhibit 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Strawbridge & Clothier of our report dated
March 17, 1995, included in the 1994 Annual Report to
Shareholders of Strawbridge & Clothier.
Our audits also included the financial statement schedule of
Strawbridge & Clothier listed in Item 14(a). This schedule is
the responsibility of the Company's management. Our
responsibility is to express an opinion on this schedule based
on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the incorporation by reference in Registration
Statement No. 2-99396 on Form S-8 dated August 22, 1985,
Registration Statement No. 33-37675 on Form S-8 dated November 8,
1990, Registration Statement No. 33-40928 on Form S-8 dated May
29, 1991, and Registration Statement No. 33-55782 on Form S-3
dated December 15, 1992, and the related Prospectuses of
Strawbridge & Clothier of our report dated March 17, 1995, with
respect to the consolidated financial statements incorporated
herein by reference and our report included in the preceding
paragraph with respect to the financial statement schedule
included in the 1994 Annual Report (Form 10-K) of Strawbridge &
Clothier.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
April 26, 1995
1 <PAGE>
STRAWBRIDGE & CLOTHIER
PORTIONS OF THE
1994 ANNUAL REPORT TO SHAREHOLDERS
CONSOLIDATED STATEMENTS
OF OPERATIONS
(in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Year Ended
----------------------------------------
JANUARY 28 January 29 January 30
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales .......................... $1,003,524 $984,615 $967,794
Other income, net of other
deductions ....................... 3,265 2,412 1,061
---------- -------- --------
1,006,789 987,027 968,855
Deduct:
Cost of sales, including occupancy
and buying costs ............... 745,251 733,901 718,582
Selling and administrative
expenses, net of finance
charges ........................ 172,029 171,835 166,678
Depreciation ..................... 29,587 28,829 28,322
Interest ......................... 19,551 20,909 21,446
Provision for doubtful accounts .. 10,281 4,724 6,638
---------- -------- --------
976,699 960,198 941,666
---------- -------- --------
Earnings before income taxes and
cumulative effect of accounting
changes .......................... 30,090 26,829 27,189
Income taxes ....................... 10,058 9,102 9,169
---------- -------- --------
Earnings before cumulative effect
of accounting changes ............ 20,032 17,727 18,020
Cumulative effect of accounting
changes:
Income taxes ................... -0- -0- 9,750
Retiree health care, net of
$13,600 income taxes ......... -0- -0- (26,600)
---------- -------- --------
-0- -0- (16,850)
---------- -------- --------
NET EARNINGS ....................... $ 20,032 $ 17,727 $ 1,170
========== ======== ========
Earnings per share:
Before cumulative effect of
accounting changes ............. $1.92 $1.71 $1.76
Accounting changes ............... -0- -0- (1.65)
---------- -------- --------
Net earnings ..................... $1.92 $1.71 $ .11
========== ======== ========
Average shares outstanding ......... 10,426,277 10,324,048 10,215,742
</TABLE>
See accompanying notes.
3
<PAGE>
CONSOLIDATED
BALANCE SHEETS
(in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Assets
JANUARY 28 January 29
1995 1994
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents ............................. $ 1,575 $ 2,860
Accounts receivable .............................. 167,487 205,433
Allowance for doubtful accounts ................ (5,544) (5,000)
-------- --------
161,943 200,433
Merchandise inventories .......................... 143,790 143,132
Deferred income taxes ............................ 3,975 2,397
Prepaid expenses and other ....................... 11,219 7,379
-------- --------
TOTAL CURRENT ASSETS ............................. 322,502 356,201
PROPERTY, FIXTURES AND EQUIPMENT --
on the basis of cost
Land ............................................. 20,311 20,363
Buildings and improvements ....................... 352,411 338,662
Store fixtures, furniture and equipment .......... 238,136 225,973
Allowance for depreciation (deduction) ........... (315,105) (288,581)
-------- --------
295,753 296,417
Construction in progress ......................... 12,408 3,951
-------- --------
308,161 300,368
OTHER ASSETS ..................................... 9,129 6,483
-------- --------
$639,792 $663,052
======== ========
</TABLE>
4
<PAGE>
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Liabilities and
Shareholders' Equity JANUARY 28 January 29
1995 1994
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to banks ........................... $ 6,500 $ 43,500
Accounts payable ................................. 59,500 60,138
Accrued expenses ................................. 24,665 20,724
Federal, state and local taxes ................... 15,357 11,203
Dividends payable ................................ 2,798 -0-
Long-term debt and capital lease obligations
due within one year ............................ 8,426 11,055
-------- --------
TOTAL CURRENT LIABILITIES ........................ 117,246 146,620
LONG-TERM DEBT -- due after one year ............. 161,442 162,254
CAPITAL LEASE OBLIGATIONS -- due after one year .. 40,848 43,554
ACCRUED RETIREMENT COSTS ......................... 51,105 49,795
DEFERRED INCOME TAXES ............................ -0- 3,355
OTHER LIABILITIES ................................ 6,799 5,272
SERIES PREFERRED STOCK -- no par value:
authorized -- 2,000,000 shares; none issued .... -0- -0-
SHAREHOLDERS' EQUITY
Series A Common Stock -- par value $1 a share:
authorized -- 20,000,000 shares; issued and
outstanding 1994 -- 7,291,482 shares, 1993 --
7,151,254 shares ............................... 7,291 7,151
Series B Common Stock -- par value $1 a share,
convertible: authorized -- 20,000,000 shares;
issued and outstanding 1994 -- 3,170,343 shares,
1993 -- 3,235,149 shares ....................... 3,170 3,235
Capital in addition to par value of shares ....... 168,222 167,024
Retained earnings ................................ 83,669 74,792
-------- --------
TOTAL SHAREHOLDERS' EQUITY ....................... 262,352 252,202
-------- --------
$639,792 $663,052
======== ========
</TABLE>
See accompanying notes.
5
<PAGE>
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in thousands)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
JANUARY 28 January 29 January 30
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ....................... $ 20,032 $ 17,727 $ 1,170
Adjustments to reconcile net
earnings to cash flows from
operating activities:
Depreciation ................... 29,587 28,829 28,322
Deferred income taxes
(benefit) .................... (5,377) 502 (1,309)
Cumulative effect of accounting
changes ...................... -0- -0- 16,850
Sale of accounts receivable .... 50,000 -0- -0-
Changes in:
Accounts receivable .......... (11,510) (21,016) (11,443)
Merchandise inventories ...... (658) 1,829 (11,690)
Accounts payable and accrued
expenses ................... 3,303 (965) 4,021
Federal, state and local
taxes ...................... 4,154 514 2,713
Other ........................ 3,481 4,240 (461)
-------- -------- --------
TOTAL .............................. 93,012 31,660 28,173
-------- -------- --------
NET CASH USED FOR
INVESTING ACTIVITIES
Acquisition of property, fixtures
and equipment .................... (37,970) (22,076) (22,588)
Changes in other assets ............ (5,917) (879) 389
-------- -------- --------
TOTAL .............................. (43,887) (22,955) (22,199)
-------- -------- --------
NET CASH USED FOR
FINANCING ACTIVITIES
Long-term borrowings ............... 5,000 49,255 25,000
Payment of long-term debt and
capital lease obligations ........ (11,147) (66,718) (12,303)
Change in short-term notes
payable .......................... (37,000) 16,000 (4,500)
Proceeds from stock transactions ... 1,094 1,226 1,468
Cash dividends ..................... (8,357) (10,980) (13,080)
-------- -------- --------
TOTAL .............................. (50,410) (11,217) (3,415)
-------- -------- --------
CHANGE IN CASH AND EQUIVALENTS ..... (1,285) (2,512) 2,559
Cash and equivalents at beginning
of year .......................... 2,860 5,372 2,813
-------- -------- --------
CASH AND EQUIVALENTS AT END
OF YEAR .......................... $ 1,575 $ 2,860 $ 5,372
======== ======== ========
</TABLE>
See accompanying notes.
6
<PAGE>
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
(in thousands, except per share data)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL
IN
SERIES SERIES ADDITION TREASURY
A B TO PAR STOCK
COMMON COMMON VALUE OF RETAINED (DEDUC-
STOCK STOCK SHARES EARNINGS TION) TOTAL
------ ------ -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1992..$6,288 $3,291 $149,208 $ 91,761 $-0- $250,548
Net earnings .............. 1,170 1,170
Cash dividends --
common (per share:
$1.07 Series A;
$.96 Series B) .......... (10,502) (10,502)
Cash dividends --
preferred ................ (26) (26)
Stock dividend (three
percent) ................. 193 94 6,825 (7,112) -0-
Exercise of stock options
and employee stock
purchases ................ 91 1,558 1 1,650
Conversions ............... 189 (189) -0-
Treasury stock purchases... (1) (1)
------ ------ -------- -------- ---- --------
Balance, January 30, 1993.. 6,761 3,196 157,591 75,291 -0- 242,839
Net earnings .............. 17,727 17,727
Cash dividends --
common (per share:
$1.09 Series A;
$.99 Series B)............ (10,963) (10,963)
Cash dividends --
preferred ................ (17) (17)
Stock dividend (three
percent) ................. 203 96 6,947 (7,246) -0-
Exercise of stock options,
employee stock purchases,
and contribution to
Retirement Savings Plan... 127 3 2,486 18 2,634
Conversions ............... 60 (60) -0-
Treasury stock purchases... (18) (18)
------ ------ -------- -------- ---- --------
Balance, January 29, 1994.. 7,151 3,235 167,024 74,792 -0- 252,202
Net earnings .............. 20,032 20,032
Cash dividends --
common (per share:
$1.10 Series A;
$1.00 Series B)........... (11,147) (11,147)
Cash dividends --
preferred ................ (8) (8)
Employee stock purchases .. 75 1,198 1,273
Conversions ............... 65 (65) -0-
------ ------ -------- -------- ---- --------
Balance, January 28, 1995..$7,291 $3,170 $168,222 $ 83,669 $-0- $262,352
====== ====== ======== ======== ==== ========
</TABLE>
See accompanying notes.
7
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
The Company operates 38 retail stores, including department and
self-service stores, which sell general merchandise in
Philadelphia and the surrounding Delaware Valley area of
Southeastern Pennsylvania, Southern New Jersey and Northern
Delaware. The Company grants credit to customers, substantially
all of whom are residents of its trading area.
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial
statements include the accounts of the Company and its
wholly-owned subsidiaries. All intercompany transactions have
been eliminated.
Inventories: Merchandise inventories are priced at cost
determined on the last-in, first-out method using internally
developed price indices for most inventories.
Store Preopening Costs: Such costs are charged to expense in the
year incurred.
Property, Fixtures and Equipment: Property, fixtures and
equipment are recorded at cost, which is depreciated by the
straight-line method over the estimated useful lives of the
assets.
Cash Equivalents: For purposes of the statement of cash flows,
the Company considers all highly liquid investments with
maturities of three months or less when purchased to be cash
equivalents.
Per Share Data: Earnings per share amounts are based on the
weighted average number of shares of common stock and common
stock equivalents (employee stock options) outstanding during
each fiscal year, after recognition of Preferred Stock dividends.
2. INVENTORIES
If the first-in, first-out method of determining inventory cost
had been used, inventories would have been $34,141,000 and
$34,180,000 higher than reported at January 28, 1995 and January
29, 1994, respectively.
3. ACCOUNTS RECEIVABLE
The Company has an agreement whereby it can sell, on a revolving
basis, up to $50,000,000 of the Company's private label credit
card accounts receivable. Following the one-year revolving
period, there will be a liquidation period during which the
purchaser's interest in principal cash collections will be used
to pay down the purchaser's investment. The Company sold
$50,000,000 of receivables on January 26, 1995. No gain or loss
was recognized at the date of sale. The Company remained
contingently liable for approximately $6,700,000 of the sold
receivables at January 28, 1995. The Company has established an
accrual of $1,756,000 which management believes is an adequate
reserve against any such uncollectible receivables.
4. LONG-TERM DEBT AND SHORT-TERM BORROWINGS
Long-term debt -- due after one year consists of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 28 January 29
1995 1994
---------- ----------
<S> <C> <C>
6.625% notes due October 15, 2003 ................ $ 49,612 $ 49,580
Series A Senior Notes, maturing equally from
1995 to 2004 with interest at 9.2% ............. 24,546 27,273
Series B Senior Notes, due September 30, 1999
with interest at 9.0% .......................... 20,000 20,000
Mortgage notes payable, at rates ranging from
8.50% to 10%, due in installments,
maturing from 3 to 13 years .................... 14,557 16,310
Senior Note, due October 15, 1997 with
interest at 7.04% .............................. 25,000 25,000
Notes payable to bank under revolving credit
agreement with interest at 6.39% at January
28, 1995 and 3.80% at January 29, 1994 ......... 25,000 20,000
Senior Notes maturing equally from 1995 to
1997 with interest at 11.5% .................... 2,727 4,091
-------- --------
$161,442 $162,254
======== ========
</TABLE>
Among other things, certain loan agreements require that the
Company maintain a ratio of current assets to current liabilities
of not less than 1.5.
Certain agreements restrict transactions reducing shareholders'
equity and the amount available for such transactions at January
28, 1995 is $32,102,000. Fixed assets with a net book value of
$31,716,000 are mortgaged by certain agreements.
8
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
The carrying amounts of the Company's borrowings under its
short-term bank credit lines approximate their fair values. The
fair value of the Company's long-term debt (including the current
portion thereof) is approximately $162,500,000 at January 28,
1995 while the carrying amount is $167,184,000. Fair values were
estimated using discounted cash flow analyses, based on the
Company's incremental borrowing rates for similar types of
borrowing arrangements. The excess of recorded amount over fair
values results because current rates exceed contractual borrowing
rates on certain loans.
Under the revolving credit agreement, the Company may borrow up
to $25,000,000 through October 31, 1997 with various interest
rate options. The Company pays a commitment fee equal to 3/16%
per annum on the unused portion of the total commitment.
The Company has unused short-term bank credit lines which are
subject to annual confirmation and which aggregated $26,000,000
at January 28, 1995.
The weighted average interest rates on short-term borrowings
outstanding at January 28, 1995 and January 29, 1994 were 6.1%
and 3.6%, respectively.
There are no compensating balance arrangements in connection with
debt or credit lines.
Maturities of long-term debt for the next five fiscal years are
as follows: 1995 -- $5,742,000; 1996 -- $5,754,000; 1997 --
$55,470,000; 1998 -- $4,032,000; 1999 -- $23,959,000.
Interest paid, net of amounts capitalized, was: 1994 --
$19,833,000; 1993 -- $21,050,000; 1992 -- $21,242,000.
5. RETIREMENT BENEFITS
Defined Benefit Plans: The Company provides pension benefits for
substantially all regular employees under noncontributory defined
benefit pension plans. Benefits are determined based on average
compensation or years of service. The Company's funding policy
is to contribute amounts consistent with the minimum funding
standards of the Employee Retirement Income Security Act of 1974.
Plan assets consist primarily of common equity funds, stocks and
fixed income securities.
Net pension cost included the following components (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- -------- -------
<S> <C> <C> <C>
Service cost -- benefits earned
during the period .................. $ 2,739 $ 2,488 $ 2,263
Interest cost on projected benefit
obligation ......................... 6,856 6,562 6,137
Actual loss (return) on plan assets .. 420 (10,164) (7,887)
Net amortization and deferral ........ (6,782) 3,601 1,595
------- -------- -------
Net pension cost ..................... $ 3,233 $ 2,487 $ 2,108
======= ======== =======
</TABLE>
The expected long-term rate of return on plan assets used in
determining net pension cost was 9%.
The following table sets forth the funded status and amounts
recognized in the Company's consolidated balance sheets for the
Strawbridge & Clothier Employees Retirement Benefit Plan (in
thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested ......................................... $61,643 $65,593
======= =======
Accumulated .................................... $63,312 $67,004
======= =======
Projected ...................................... $73,586 $80,084
Plan assets at fair value......................... 74,660 82,989
------- -------
Plan assets in excess of projected benefit
obligation ..................................... 1,074 2,905
Items not yet recognized:
Net gain ....................................... (6,848) (9,165)
Net obligation at transition ................... 337 394
Prior service cost ............................. 2,029 2,940
------- -------
Accrued pension cost included in consolidated
balance sheets ................................. $(3,408) $(2,926)
======= =======
</TABLE>
The following assumptions were used in determining the actuarial
present value of the projected benefit obligation:
<TABLE>
<CAPTION>
1994 1993
------- --------
<S> <C> <C>
Weighted average discount rate ................... 8.75% 7.50%
Rate of increase in compensation levels .......... 5.5% 5.5%
</TABLE>
The Company sponsors an unfunded, nonqualified Deferred
Compensation Plan, which provides retirement benefits for certain
key executive officers. The accrued liability for this plan is
included in
9
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
accrued retirement costs in the accompanying balance sheets. At
December 31, 1994, the accumulated benefit obligation for this
plan was $9,443,000, and the projected benefit obligation was
$9,689,000.
401(k) Plan: The Company has a 401(k) Retirement Savings Plan,
under which employees may defer a portion of their compensation.
Contingent upon there having been an increase in the Company's
earnings, as defined under the Plan, for the fiscal year ending
within the Plan year, employee contributions not in excess of 4%
of a participant's compensation will be matched by the Company at
the rate of $.50 for each $1.00 contributed. Matching expense
was $882,000, $479,000 and $732,000 for 1994, 1993 and 1992,
respectively. All Company matching contributions are invested in
a separate fund comprised of the Company's Series A Common Stock,
250,000 shares of which have been reserved for use under the
401(k) Plan.
Retiree Health Care Plan: The Company provides certain health
care benefits for eligible retired employees. The retiree health
care plan is noncontributory for retirees who were full-time
regular employees of the Company and retired prior to January 1,
1993. For eligible employees retiring on or after January 1,
1993, with fifteen years of service, the plan is contributory
with retiree contributions based on years of service.
Cost-sharing features include deductibles and co-payment
provisions. For certain participants, the Plan limits the amount
of future cost increases that will be paid by the Company.
Employees hired on or after January 1, 1993 are not eligible for
retiree health care benefits. The Plan is funded on a
pay-as-you-go basis.
Effective February 2, 1992, the Company adopted the provisions of
FASB Statement No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This statement requires that the
expected cost of retiree health care benefits be charged to
expense during the years that the employees render service. The
Company's past practice was to recognize these costs on a cash
basis. As part of adopting the new standard, as of February 2,
1992, the Company recorded a one-time, noncash charge against
earnings of $40,200,000 before taxes and $26,600,000 after taxes,
or $2.60 per share. This cumulative catch-up adjustment as of
February 2, 1992 represents the discounted present value of
expected future retiree health care benefits attributed to
employees' service rendered prior to that date.
The following table presents the status of the Plan and the
amounts recognized in the Company's consolidated balance sheets
(in thousands):
<TABLE>
<CAPTION>
1994 1993
------- --------
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees ..................................... $23,442 $25,013
Active plan participants ..................... 6,927 6,905
------- -------
30,369 31,918
Unrecognized net actuarial gain................... 12,577 11,203
Unrecognized prior service cost .................. 266 -0-
------- -------
Accrued postretirement benefit cost included
in consolidated balance sheets ................. $43,212 $43,121
======= =======
</TABLE>
Postretirement benefit expense included the following components (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Service cost ................... $ 375 $ 603 $ 580
Interest cost .................. 2,310 3,437 3,310
Net amortization ............... (736) -0- -0-
------ ------ ------
$1,949 $4,040 $3,890
====== ====== ======
</TABLE>
The following assumptions were used in determining the accumulated
postretirement benefit obligation:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Discount rate ................................. 8.75% 7.5%
</TABLE>
<TABLE>
<CAPTION>
1994
-------------------
CURRENT FUTURE
RETIREES RETIREES 1993
-----------------------------
<S> <C> <C> <C>
Health care cost trend rate:
Initial rate 10% 9% 13.0%
Ultimate rate ............................ 6.0% 6.0% 6.0%
Period to ultimate rate .................. 8 YEARS 6 YEARS 7 years
</TABLE>
The health care cost trend rate assumption has a significant
effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage point
would increase the accumulated postretirement benefit obligation
as of January 28, 1995 by $2,642,000 and the aggregate of the
service and interest cost components of postretirement benefit
expense for 1994 by $248,000.
10
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
6. COMMON STOCK
Series A and Series B shares are entitled to one and ten votes
per share, respectively. Series B shares are convertible on a
share-for-share basis into Series A shares. Series A shares are
freely transferable while Series B shares are only transferable
to certain permitted transferees. Series A Common Stock is
entitled to cash dividends at least 10% higher than any cash
dividend declared on Series B Common Stock.
The Company offers Series A Common Stock to employees for
purchase through payroll deductions under its 1991 Employee Stock
Purchase Plan. The purchase price is 85% of the closing market
price on the offering date or the purchase date, whichever is
lower. During fiscal 1994, 1993 and 1992, respectively, 75,422,
74,499, and 91,183 shares were issued under the Plan at average
prices of $17.00, $19.23, and $18.19. As of January 28, 1995,
403,176 shares of Series A Common Stock were available for use
under the Plan.
The Company also has stock option plans which provide for
granting to key employees qualified and nonqualified options to
purchase common stock of the Company. Generally, options are
granted for a term of ten years and become exercisable
immediately. No options were exercised during fiscal 1994.
During fiscal 1993 and 1992, respectively, 3,154 shares and 95
shares were issued upon exercise of options at average prices of
$22.46 and $23.53. Options to purchase 460,980 shares of Series
A Common Stock and 145,254 shares of Series B Common Stock at an
average exercise price of $25.08 were outstanding at January 28,
1995, of which 455,675 and 145,254 options, respectively, were
exercisable. As of January 28, 1995, 74,288 shares of Series A
Common Stock remain available for grant of options.
Effective in fiscal 1993, the Company established a dividend
reinvestment and stock purchase plan, whereby shareholders may
invest cash dividends and optional cash payments in Series A
Common Stock. The Company has registered 2,060,000 shares for
use under the plan, of which 2,039,840 remain available for use
at January 28, 1995.
7. INCOME TAXES
Effective February 2, 1992, the Company changed its method of
accounting for income taxes from the deferred method to the
liability method required by FASB Statement No. 109, "Accounting
for Income Taxes." As permitted by this statement, prior years'
financial statements were not restated. The cumulative effect of
adopting Statement 109 as of February 2, 1992 was to increase
1992 net earnings by $9,750,000, or $.95 per share.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. The components of deferred tax
liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Deferred tax liabilities:
Depreciation ................................ $20,456 $22,334
Other -- net ................................ 2,898 3,747
------- -------
23,354 26,081
Deferred tax assets:
Retiree health care obligation .............. 15,158 15,096
Accruals and reserves ....................... 12,615 10,027
------- -------
27,773 25,123
------- -------
Net deferred tax asset (liability) .............. $ 4,419 $ (958)
======= =======
</TABLE>
Other assets include deferred tax assets of $444,000 at January
28, 1995.
The components of income tax expense attributable to earnings
before cumulative effect of accounting changes are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Current:
Federal ....................... $13,886 $8,299 $10,172
State ......................... 1,549 301 306
------- ------ -------
15,435 8,600 10,478
Deferred:
Federal ....................... (3,927) 146 (1,163)
State ......................... (1,450) 356 (146)
------- ------ -------
(5,377) 502 (1,309)
------- ------ -------
$10,058 $9,102 $ 9,169
======= ====== =======
</TABLE>
11
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
A reconciliation of the effective income tax rate with the
statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Federal tax rate ................. 35.0% 35.0% 34.0%
State taxes, net of federal
benefit......................... 0.2 1.6 0.4
Jobs tax credit .................. (1.9) (1.9) (1.2)
Other ............................ 0.1 (0.8) 0.5
---- ---- ----
33.4% 33.9% 33.7%
==== ==== ====
</TABLE>
Income taxes paid were as follows: 1994 -- $11,735,000; 1993 --
$8,587,000; 1992 -- $8,465,000.
8. COMMITMENTS
Leases:
Capital lease assets, which are included in property, fixtures
and equipment, are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 28 January 29
1995 1994
---------- ----------
<S> <C> <C>
Land ........................................ $ 2,157 $ 2,696
Buildings ................................... 65,963 75,027
Store fixtures and equipment ................ 2,807 3,887
-------- --------
70,927 81,610
Allowance for amortization
(deduction) ............................... (33,857) (36,550)
-------- --------
$ 37,070 $ 45,060
======== ========
</TABLE>
Amortization of capital lease assets is included in depreciation
expense.
Future minimum rental commitments as of January 28, 1995, for
all noncancelable leases are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Fiscal Year Leases Leases*
- ----------- -------- ---------
<S> <C> <C>
1995 ...................... $ 6,554 $ 7,127
1996 ...................... 6,585 6,547
1997 ...................... 6,606 5,503
1998 ...................... 6,556 4,856
1999 ...................... 6,237 4,777
Thereafter ................ 38,634 43,317
-------- -------
Total minimum rental
commitments ............. 71,172 $72,127
=======
Estimated executory costs.. (1,203)
Imputed interest .......... (26,437)
--------
Present value of net
minimum lease payments .. $ 43,532
========
</TABLE>
*These amounts have not been reduced by future noncancelable
sublease rentals of $6,004. Operating lease commitments include
amounts for two new stores that will open in 1995.
All real estate leases include renewal options for periods
ranging from 5 to 100 years. Most of these leases include
options to purchase at specified times. In most instances, the
Company pays real estate taxes, insurance and maintenance costs.
There are no guarantees, related obligations or restrictions in
connection with the lease agreements.
Total net rental expense amounted to (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Minimum rentals ...................... $ 5,661 $5,861 $6,802
Contingent rentals, based on sales ... 1,310 1,288 1,276
Sublease rentals ..................... (1,022) (831) (659)
------- ------ ------
$ 5,949 $6,318 $7,419
======= ====== ======
</TABLE>
Other:
Estimated cost to complete construction in progress at January 28, 1995 is
approximately $20,726,000.
12
<PAGE>
STATEMENT OF MANAGEMENT RESPONSIBILITY
- ------------------------------------------------------------------------------
Strawbridge & Clothier management is responsible for the
financial statements and information presented in this Annual
Report. The financial statements have been prepared in
conformity with generally accepted accounting principles and
include certain amounts based on management's best estimates and
judgements.
The Company maintains a system of internal accounting controls,
which provides for appropriate division of responsibility and the
application of written policies and procedures. The system is
designed to provide reasonable assurance, at suitable costs, that
assets are safeguarded and that transactions are executed in
accordance with appropriate authorization and are recorded and
reported properly. An important element of the internal control
environment is an ongoing internal audit program.
The financial statements have been audited by Ernst & Young LLP,
independent auditors, whose report appears below. Their audit
includes an evaluation of the internal control structure and
selected tests of transactions and records. Their audit is
intended to provide a reasonable level of assurance that the
financial statements are free of material misstatement.
The Audit Committee of the Board of Directors is responsible for
recommending the independent auditors to be retained for the
coming year, subject to shareholder approval. The Audit
Committee meets periodically with the independent auditors and
the internal auditors to consider the scope and results of their
audits and to discuss other significant matters regarding
internal accounting controls and financial reporting. The
independent auditors and the internal auditors have unrestricted
access to the Audit Committee.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- ------------------------------------------------------------------------------
To the Shareholders of
Strawbridge & Clothier
We have audited the accompanying consolidated balance sheets of
Strawbridge & Clothier as of January 28, 1995 and January 29,
1994, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three fiscal
years in the period ended January 28, 1995. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Strawbridge & Clothier at January 28, 1995
and January 29, 1994, and the consolidated results of its
operations and its cash flows for each of the three fiscal years
in the period ended January 28, 1995, in conformity with
generally accepted accounting principles.
As discussed in Notes 5 and 7 to the financial statements, in
1992 the Company changed its methods of accounting for
postretirement benefits other than pensions and for income taxes.
Philadelphia, Pennsylvania
March 17, 1995 ERNST & YOUNG LLP
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
OPERATIONS
Sales for fiscal 1994 were $1,003,524,000, an increase of
1.9% over sales of $984,615,000 in fiscal 1993, which had
increased 1.7% over fiscal 1992 sales of $967,794,000. Fiscal
1994 sales benefited from improved weather conditions in January
1995 compared to January 1994. The 1993 sales result reflects a
strong Christmas selling season, offset by poor weather
conditions in the Company's trading area during much of the first
quarter of fiscal 1993 and January 1994. The Company's current
outlook for fiscal year 1995 does not include any anticipated
significant increases in the level of consumer buying patterns.
Net earnings for fiscal 1994 were $20,032,000, an increase of
13.0% over 1993 net earnings of $17,727,000. Earnings for 1992
were $18,020,000, before accounting changes. The improvement in
net earnings for 1994 can be attributed to the increase in sales,
continued control of operating expenses and a decrease in
interest expense, partially offset by an increase in the
provision for doubtful accounts and a reduced LIFO benefit.
Fiscal 1993 earnings declined slightly from fiscal 1992 due to
increased markdowns taken to stimulate sales, a reduced LIFO
benefit and increased advertising expenses.
Cost of sales, including occupancy and buying costs, was
74.3% of sales in 1994, compared to 74.5% in 1993 and 74.2% in
1992. Cost of sales for all three years was negatively impacted
by increased markdowns taken to stimulate sales in the Company's
highly competitive trading area. Reduced occupancy and buying
costs partially offset this negative impact in 1994 and 1993.
The impact of the LIFO method of accounting for inventories
(benefits of $39,000, $1,239,000 and $2,380,000 in fiscal 1994,
1993 and 1992, respectively) is reflected in cost of sales.
Selling and administrative expenses, net of finance charges,
were 17.1% of sales in 1994, compared to 17.5% of sales in 1993
and 17.2% of sales in 1992. The 1994 result reflects a decrease
in benefits expense due to changes in benefit plans, increased
finance charge income and continued control of operating
expenses. The 1993 increase reflects a planned increase in
advertising expenses to stimulate sales, partially offset by
tight control of other operating expenses and increased finance
charge income. Finance charge income has increased in each of
the three years as a result of increased accounts receivable due
to changes in the Company's credit policies with respect to its
flexible charge accounts.
Depreciation expense was 2.9% of sales in all three years.
Interest expense was 1.9% of sales in 1994, compared to 2.1% in
1993 and 2.2% in 1992. Interest expense declined in 1994 due to
the refinancing of high-rate long-term debt, partially offset by
increased outstanding floating-rate debt and increased
short-term borrowing rates. The decrease in 1993 from 1992 also
reflects refinancing high-rate long-term debt as well as lower
interest rates on short-term borrowings. The provision for
doubtful accounts was 1.0% of sales in 1994, compared to .5% in
1993 and .7% in 1992. The 1994 result reflects an increase in
actual write-offs and an increase in the reserve for doubtful
accounts. The higher write-offs were a result of more liberal
credit policies instituted in fiscal years 1993 and 1992 to
stimulate credit sales and remain competitive in the credit
market. The decrease in the effective tax rate from 33.9% in
1993 to 33.4% in 1994 resulted from decreases in statutory state
income tax rates. The increase in the effective tax rate from
33.7% in 1992 to 33.9% in 1993 resulted from a 1% increase in the
statutory federal income tax rate, partially offset by increased
jobs tax credits. The jobs tax credit, which reduced the
Company's effective tax rate by 1.9% in 1994, has expired. If
the credit is not reinstated, management expects that the
effective tax rate will increase in the future.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ------------------------------------------------------------------------------
FINANCIAL CONDITION AND LIQUIDITY
Cash provided by operating activities for 1994 was $93.0
million compared to $31.7 million in 1993 and $28.2 million in
1992. The 1994 increase includes $50.0 million from the
Company's sale of its private label credit card accounts
receivable, as discussed in Note 3 to the financial statements.
Improved earnings and a lower increase in accounts receivable
also contributed to the 1994 increase. The slight increase in
1993 over 1992 was a result of careful control of inventory
levels, partially offset by reduced collections of accounts
receivable as a result of lower, more competitive, minimum
payment requirements on the Company's charge accounts.
The Company's capital expenditures were $38.0 million, $22.1
million and $22.6 million in fiscal 1994, 1993 and 1992,
respectively. Capital expenditures for 1994 included the
renovation of the women's shoes, intimate apparel and children's
departments of the Philadelphia store, the total renovation of
the Mercerville and Cheltenham Clover stores, the expansion of
the Rising Sun Clover store and other smaller renovation
projects. Capital expenditures for 1993 and 1992 were for
various renovation projects.
Cash used for financing activities was $50.4 million, $11.2
million and $3.4 million in fiscal 1994, 1993 and 1992,
respectively. Near the end of fiscal 1994, the Company used the
proceeds from the sale of $50 million of customer accounts
receivable to reduce short-term floating-rate debt. On November
1, 1994, the Company renewed its Revolving Credit Agreement for
three years, increasing the amount from $20.0 million to $25.0
million. Due to the timing of the Company's fiscal year-end,
cash dividends paid reflects three, four and five regular
quarterly common stock cash dividend payments in fiscal 1994,
1993 and 1992, respectively.
The Company has $30.0 million in confirmed bank credit lines.
At January 28, 1995, $4.0 million of these confirmed lines were
in use, in addition to $2.5 million of unconfirmed lines.
Long-term debt and capital lease obligations were 43.5% of
capitalization at the end of fiscal 1994, compared to 44.9% at
the end of the prior fiscal year.
Anticipated capital expenditures for 1995 of $39.6 million
include the opening of two new Clover stores and the Company's
first home furnishings store, the renovation of the Concord
department store and the renovation of the Rising Sun and the
Center Square Clover stores. An additional $30.6 million is
planned for capital expenditures in 1996, which includes the
opening of one Clover store, the renovation of two Clover stores
and the renovation of one department store. The funding for
these capital expenditures is expected to be generated from
operations and additional long-term financing. The Company
continually investigates potential sites for new stores, and
capital expenditure plans may change as opportunities for new
stores develop.
The Company believes its relations with banks and other
credit sources are good and that it has considerable flexibility
in deciding how to fund future capital expenditures and
maturities of long-term debt.
- ------------------------------------------------------------------------------
15
<PAGE>
TEN-YEAR FINANCIAL SUMMARY
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989(1) 1988 1987 1986 1985
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net Sales $1,003,524 $984,615 $967,794 $967,786 $981,668 $950,306 $904,196 $814,313 $739,117 $686,929
- ------------------------------------------------------------------------------------------------------------------------
Cost of Sales 745,251 733,901 718,582 718,927 730,048 687,713 660,412 592,309 536,932 494,936
- ------------------------------------------------------------------------------------------------------------------------
Interest Expense 19,551 20,909 21,446 23,048 25,481 25,386 22,112 17,694 17,066 18,258
- ------------------------------------------------------------------------------------------------------------------------
Earnings Before
Income Taxes and
Cumulative Effect
of Accounting
Changes 30,090 26,829 27,189 20,714 28,606 51,726 45,026 48,739 41,734 46,755
- ------------------------------------------------------------------------------------------------------------------------
Income Taxes 10,058 9,102 9,169 7,146 11,385 20,567 17,756 21,725 21,042 22,669
- ------------------------------------------------------------------------------------------------------------------------
Earnings Before
Cumulative Effect
of Accounting
Changes 20,032 17,727 18,020 13,568 17,221 31,159 27,270 27,014 20,692 24,086
- ------------------------------------------------------------------------------------------------------------------------
Net Earnings 20,032 17,727 1,170(3) 13,568 17,221 31,159 27,270 27,014 20,692 24,086
OTHER OPERATING DATA
Depreciation $ 29,587 $ 28,829 $ 28,322 $ 28,710 $ 27,910 $ 24,565 $ 21,904 $ 18,812 $ 16,911 $ 14,815
- ------------------------------------------------------------------------------------------------------------------------
Rent 5,949 6,318 7,419 6,320 4,475 4,088 4,229 3,704 3,183 2,596
- ------------------------------------------------------------------------------------------------------------------------
Taxes Other Than
Income Taxes 25,353 25,050 25,164 25,627 25,020 23,777 21,965 20,581 18,896 17,691
DIVIDENDS
Cash Dividends on
Common Stock $ 11,147 $ 10,963 $ 10,502 $ 10,067 $ 9,540 $ 8,837 $ 8,178 $ 6,365 $ 5,631 $ 4,662
- ------------------------------------------------------------------------------------------------------------------------
Stock Dividends on
Common Stock -- 3% 3% 3% 7% 7% 7% 7% 7% 7%
PER SHARE OF
COMMON STOCK(2)
Earnings Before
Cumulative Effect
of Accounting
Changes $ 1.92 $ 1.71 $ 1.76 $ 1.34 $ 1.72 $ 3.13 $ 2.77 $ 2.76 $ 2.12 $ 2.52
- ------------------------------------------------------------------------------------------------------------------------
Net Earnings 1.92 1.71 .11(3) 1.34 1.72 3.13 2.77 2.76 2.12 2.52
- ------------------------------------------------------------------------------------------------------------------------
Cash Dividends on
Series A Common
Stock 1.10 1.09 1.07 1.03 .99 .92 .84 .68 .33 --
- ------------------------------------------------------------------------------------------------------------------------
Cash Dividends on
Series B Common
Stock 1.00 .99 .96 .92 .90 .85 .79 .60 .29 --
- ------------------------------------------------------------------------------------------------------------------------
Cash Dividends on
Common Stock -- -- -- -- -- -- -- -- .27 .49
- ------------------------------------------------------------------------------------------------------------------------
Book Value 25.08 24.28 23.68 24.66 24.40 23.69 21.43 19.50 17.39 15.79
FINANCIAL DATA
Working Capital $ 205,256 $209,581 $212,514 $184,641 $171,504 $188,411 $178,906 $186,028 $165,418 $148,973
- ------------------------------------------------------------------------------------------------------------------------
Property, Fixtures
& Equipment --
Net 308,161 300,368 307,158 312,876 322,059 301,228 279,337 233,508 197,801 188,468
- ------------------------------------------------------------------------------------------------------------------------
Total Assets 639,792 663,052 653,939 631,987 645,603 618,546 593,278 518,289 472,639 454,811
- ------------------------------------------------------------------------------------------------------------------------
Long-Term Debt 161,442 162,254 171,617 156,237 158,880 167,188 154,267 128,685 115,271 105,790
- ------------------------------------------------------------------------------------------------------------------------
Capital Lease
Obligations 40,848 43,554 52,030 55,481 59,370 59,179 63,773 63,351 58,780 61,565
- ------------------------------------------------------------------------------------------------------------------------
Redeemable
Preferred Stock 116 296 474 655 814 1,022 1,199 1,384 1,384 1,431
- ------------------------------------------------------------------------------------------------------------------------
Shareholders'
Equity 262,352 252,202 242,839 250,548 244,153 234,777 210,761 190,050 167,922 151,504
- ------------------------------------------------------------------------------------------------------------------------
Number of
Common Shares
Outstanding 10,462 10,386 9,957 9,579 9,157 8,478 7,860 7,281 6,744 6,259
- ------------------------------------------------------------------------------------------------------------------------
Square Feet of
Store Space 5,744 5,744 5,744 5,744 5,674 5,591 5,487 5,088 5,088 5,007
</TABLE>
(1) 53-week fiscal year
(2) Weighted average shares outstanding were: 1994 -- 10,426;
1993 -- 10,324; 1992 -- 10,216; 1991 -- 10,099; 1990 --
9,988; 1989 -- 9,965; 1988 -- 9,835; 1987 -- 9,780; 1986 --
9,744; 1985 -- 9,569. Net earnings give effect to dividend
requirements of the preferred stock.
(3) Includes cumulative effect adjustments relating to accounting changes
for income taxes ($9,750 benefit; $.95 per share) and retiree health
care benefits ($26,600 charge; $2.60 per share) and reduced cost of
sales of $3,948 as a result of a change in LIFO accounting method,
resulting in an after-tax benefit of $2,606 or $.26 per share.
16 17
<PAGE>
QUARTERLY RESULTS
OF OPERATIONS
(in thousands, except per share data)
- ---------------------------------------------------------------------------
The following is a summary of unaudited quarterly results of operations
for the 1994 and 1993 fiscal years.
<TABLE>
<CAPTION>
Net Earnings
Net Earnings (Loss) Per
Net Sales Gross Profit (Loss) Common Share
Fiscal ------------------ ---------------- ----------------- ---------------
Quarter 1994 1993 1994 1993 1994 1993 1994 1993
- ------- -------- -------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First ...... $208,303 $197,151 $50,233 $44,414 $ (988) $(4,255) $(0.10) $(0.41)
Second ..... 222,894 225,018 53,377 51,384 244 (1,425) 0.02 (0.14)
Third ...... 226,559 223,639 58,559 56,698 526 69 0.05 0.01
Fourth ..... 345,768 338,807 96,104 98,218 20,250 23,338 1.93 2.25
</TABLE>
MARKET AND DIVIDEND
INFORMATION
- ------------------------------------------------------------------------------
The Company's Series A Common Stock is traded on the
over-the-counter market. There is no trading market for Series B
Common Stock but it is readily convertible at any time into
Series A Common Stock on a share-for-share basis. The number of
shareholders of record as of January 3, 1995 was 5,309 for Series
A and 247 for Series B. The following table indicates the range
of high and low price quotations for the Series A Common Stock by
quarter during the last two fiscal years, as obtained through
NASDAQ and the quarterly cash dividends per common share.
<TABLE>
<CAPTION>
Cash Dividends Per Share
Range of High and Low -----------------------------------
Price Quotations Series A Series B
Fiscal ------------------------------------ ----------------- ---------------
Quarter 1994 1993 1994 1993 1994 1993
- ------- ------------------ ---------------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First ..... $20.00 $23.50 $23.25 $25.50 $0.275 $0.267 $0.25 $0.24
Second .... 19.50 21.75 21.00 24.75 0.275 0.275 0.25 0.25
Third ..... 20.75 23.50 19.25 21.75 0.275 0.275 0.25 0.25
Fourth .... 20.75 23.25 20.75 23.50 0.275 0.275 0.25 0.25
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> JAN-28-1995
<CASH> 1,575
<SECURITIES> 0
<RECEIVABLES> 167,487
<ALLOWANCES> 5,544
<INVENTORY> 143,790
<CURRENT-ASSETS> 322,502
<PP&E> 623,266
<DEPRECIATION> 315,105
<TOTAL-ASSETS> 639,792
<CURRENT-LIABILITIES> 117,246
<BONDS> 202,290
<COMMON> 10,461
0
0
<OTHER-SE> 251,891
<TOTAL-LIABILITY-AND-EQUITY> 639,792
<SALES> 1,003,524
<TOTAL-REVENUES> 1,006,789
<CGS> 745,251
<TOTAL-COSTS> 745,251
<OTHER-EXPENSES> 201,616
<LOSS-PROVISION> 10,281
<INTEREST-EXPENSE> 19,551
<INCOME-PRETAX> 30,090
<INCOME-TAX> 10,058
<INCOME-CONTINUING> 20,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,032
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 1.92
</TABLE>
