-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CslUcrdrAbqEMMiwmypnqq6x0PLyGZuTJgyCX4JrwfVsw9XX39XoWQCbw3HSZWxz AE/MwQwujQu7Idjki0PDsg== 0000950144-99-005145.txt : 19990503 0000950144-99-005145.hdr.sgml : 19990503 ACCESSION NUMBER: 0000950144-99-005145 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990130 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELK INC CENTRAL INDEX KEY: 0001051771 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 562058574 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-42935 FILM NUMBER: 99606948 BUSINESS ADDRESS: STREET 1: 2801 WEST TYVOLA ROAD CITY: CHARLOTTE STATE: NC ZIP: 28217-4500 BUSINESS PHONE: 7043571000 MAIL ADDRESS: STREET 1: 2801 WEST TYVOLA ROAD CITY: CHARLOTTE STATE: NC ZIP: 28217-4500 10-K405 1 BELK INC 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 333-42935 BELK, INC. (Exact name of registrant as specified in its charter) DELAWARE 56-2058574 (State of incorporation) (IRS Employer Identification No.) 2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH 28217-4500 CAROLINA (Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (704) 357-1000 Securities registered pursuant to Section 12(b)of the Act: None Securities registered pursuant to Section 12(g) of the Act: None --------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the common equity held by non-affiliates of the Registrant (assuming for these purposes, but without conceding, that all executive officers and directors are "affiliates" of the Registrant) as of April 15, 1999 (based on the book value per share of Common Stock of the Registrant, as of January 30, 1999) was $233,587,346. 55,226,783 shares of common stock were outstanding as of April 15, 1999, comprised of 55,196,065 shares of the registrant's Class A Common Stock, par value $0.01, and 30,718 shares of the registrant's Class B Common Stock, par value $0.01. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 26, 1999 are incorporated herein by reference in Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 BELK, INC. TABLE OF CONTENTS
ITEM NO. PAGE NO. - -------- -------- PART I 1. Business.................................................... 3 2. Properties.................................................. 10 3. Legal Proceedings........................................... 11 4. Matters Submitted to a Vote of Security Holders............. 11 PART II 5. Market Information for Registrant's Common Equity and Related Stockholder Matters................................. 12 6. Selected Financial Data..................................... 12 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 13 7A. Quantitative and Qualitative Disclosure About Market Risk... 19 8. Financial Statements and Supplementary Data................. 20 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 40 PART III 10. Directors and Executive Officers of the Registrant.......... 40 11. Executive Compensation...................................... 40 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 40 13. Certain Relationships and Related Transactions.............. 40 PART IV 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.................................................... 41
i 3 THIS INFORMATION CONTAINS FORWARD-LOOKING STATEMENTS Certain statements made in this report, and other written or oral statements made by or on behalf of the Company, may constitute "forward-looking statements" within the meaning of the federal securities laws. Statements regarding future events and developments and the Company's future performance, as well as our expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. You can identify these forward-looking statements through our use of words such as "may," "will," "intend," "project," "expect," "anticipate," "believe," "estimate," "continue," or other similar words. Forward-looking statements include information concerning possible or assumed future results from merchandising, marketing and advertising, our ability to be competitive in the retail industry, the expected benefits of our new systems and technology, including our efforts to address Year 2000 issues, and the expected increase in our sales through our proprietary charge card program. We have also made statements in this document with respect to significant enhanced results that we expect from the Reorganization (as defined herein). Such expected benefits include: long-term efficiencies, significant expense savings through reduced taxes, improved cash management and more cost-effective financing, a more intensified customer focus and a unified approach to marketing, merchandising and advertising. In expecting such results, we have made certain assumptions regarding our ability to consolidate functions and combine resources to realize efficiencies, the extent of overlap among each of the Belk stores and our ability to effectively manage the stores on a larger scale. These forward-looking statements are subject to certain risks and uncertainties which may cause our actual results to differ significantly from the results we discuss in such forward-looking statements. We believe that these forward-looking statements are reasonable; however, you should not place undue reliance on such statements. Risks and uncertainties that might cause our results to differ from those we project in our forward-looking statements include, but are not limited to: 1. general economic and business conditions, both nationally and in our market areas; 2. levels of consumer debt and bankruptcies; 3. changes in interest rates; 4. changes in buying, charging and payment behavior among our customers; 5. the effects of weather conditions on seasonal sales in our market areas; 6. seasonal fluctuations in net income due to increased consumer spending during the holiday season, timing of new store openings, merchandise mix, the timing and level of markdowns and historically low first quarter results; 7. competition among department and specialty stores and other retailers, including luxury goods retailers, general merchandise stores, mail order retailers and off-price and discount stores; 8. the competitive pricing environment within the department and specialty store industries; 9. our ability to compete on merchandise mix, quality, style, service, convenience and credit availability; 10. the effectiveness of our advertising, marketing and promotional campaigns; 11. our ability to determine and implement appropriate merchandising strategies, merchandise flow and inventory turnover levels; 12. our ability to generate liquidity and reduce debt through our accounts receivable securitization program; 13. our realization of planned synergies and cost savings from our recent corporate reorganization and our planned organizational restructuring; 14. any adverse effects of the Year 2000 problem on our operations and our vendors; 15. our ability to contain costs; 1 4 16. changes in our business strategy or development plans; 17. our ability to hire and retain key personnel; 18. changes in laws and regulations, including changes in accounting standards, tax statutes or regulations, environmental and land use regulations, and uncertainties of litigation; and 19. our ability to obtain capital to fund any growth or expansion plans. Our other filings with the Securities and Exchange Commission may contain additional information concerning the risks and uncertainties listed above, and other factors you may wish to consider. Upon request, we will provide copies of these filings to you free of charge. Our forward-looking statements are based on current expectations and speak only as of the date of such statements. We undertake no obligation to publicly update or revise any forward-looking statement, even if future events or new information may impact the validity of such statements. 2 5 PART I ITEM 1. BUSINESS GENERAL Belk, Inc., together with its subsidiaries (collectively, the "Company" or "Belk"), is the largest privately-owned department store business in the United States, with total revenues of approximately $2.1 billion for the fiscal year ended January 30, 1999. The Company and its predecessors have been successfully operating department stores since 1888 by delivering superior service and by providing merchandise that meets customers' needs for fashion, value and quality. The Company operates 211 retail department stores in 13 states in the southeastern United States. Belk stores seek to provide customers the convenience of one-stop shopping, with a dominant merchandise mix and extensive offerings of brands, styles, assortments and sizes. Belk stores sell top national brands of fashion apparel, shoes and accessories for women, men and children, as well as cosmetics, home furnishings, housewares, gifts and other types of quality merchandise. The Company also sells exclusive private label brands, which offer customers differentiated merchandise selections at better values. Larger Belk stores may include hair salons, restaurants, optical centers and other amenities. Although the Company operates 46 Belk stores that exceed 100,000 square feet in size, most Belk stores range in size from 50,000 to 80,000 square feet. Most of the Belk stores are anchor tenants in major regional malls and shopping centers, primarily in medium and smaller markets. The Company operates two stores that sell limited selections of cosmetics, hosiery and accessories for women under the "Belk Express" store name. The Belk stores occupy in the aggregate approximately 17 million square feet of space. Management of the Belk stores is organized into regional operating divisions, with each unit headed by a division president. Each division supervises a number of stores and maintains an administrative office in the markets served by the division. Division offices provide overall management and support for the Belk stores in their regions. Belk Stores Services, Inc. ("BSS"), a subsidiary of the Company, coordinates the operations of Belk stores on a company-wide basis by providing services to the Belk division offices and stores such as merchandising, marketing, advertising and sales promotion, information systems, human resources, public relations, accounting, real estate and store planning, credit, legal, tax, distribution and purchasing. The Company was incorporated in Delaware in November 1997. The Company's principal executive offices are located at 2801 West Tyvola Road, Charlotte, North Carolina 28217-4500, and its telephone number is (704) 357-1000. REORGANIZATION AND RESTRUCTURING In fiscal year 1999, Belk began realizing the benefits of the merger and reorganization of the former 112 Belk corporations into Belk, Inc., which became effective on May 2, 1998 (the "Reorganization"). The Reorganization has allowed the Company to create a more streamlined legal structure, and the Company expects to realize significant expense savings through reduced taxes, improved cash management and more cost-effective financing. As an example of corporate efficiencies resulting from the Reorganization, the Company is in the process of forming and chartering a subsidiary that will operate as Belk National Bank in the State of Georgia. The new bank, which is expected to begin operations in May 1999, will enable the Company to standardize the interest rate terms of Belk charge customer accounts across the 13 states in which Belk operates and to set competitive interest rates comparable to other key retailers. Belk has recently announced plans to streamline its organizational structure by consolidating its thirteen operating divisions into four expanded regional divisions to be headquartered in Charlotte and Raleigh, North Carolina, Greenville, South Carolina and Jacksonville, Florida. The consolidation should permit the Company to intensify its customer focus by achieving more unified and consistent execution of its marketing, merchandising and advertising strategies and by simplifying decision-making processes. The Company should also realize long-term efficiencies and cost savings which it believes will increase stockholder value. It is anticipated that the consolidation will take place during the second quarter of fiscal year 2000. 3 6 BUSINESS STRATEGY Belk's mission is to be the dominant department store in its markets, by selling merchandise to customers that meets their needs for fashion, selection, value, quality and service. To achieve this mission, Belk's business strategy includes five key elements: (i) a target customer focus; (ii) focused merchandise assortments; (iii) compelling sales promotions; (iv) distinctive customer service; and (v) a winning store and market strategy. Target Customer Focus. Belk's target customer is a 35 to 54 year old female who has a job and is career oriented; who has a family income of $35,000 to $75,000 per year; who buys for herself and her family; and who is style conscious and seeks updated fashions and quality basic merchandise. The Company plans to maintain its target customer focus by conducting ongoing research to determine target customer needs, such as annual customer satisfaction surveys and customer focus group studies. Belk believes that its focus on meeting the target customer's needs will produce profitable sales increases in other key merchandise areas, including junior's apparel, accessories and shoes; men's and children's apparel, accessories and shoes; cosmetics; home furnishings and household merchandise; and gifts. The Company intends to respond aggressively to changing customer shopping and service needs through effective communication with customers and consumer research. The Company also seeks to maximize customer convenience through effective inventory management that ensures consistently high inventory levels of basic and advertised merchandise, effective store layout, merchandise signing and visual display, and quick and efficient transactions at the point of sale. The Company also strives to continue to attract and retain well-qualified associates who provide a high level of friendly, personal service to enhance the customer's shopping experience. Focused Merchandise Assortments. The Company hopes to position itself through its target customer focus to take advantage of significant sales growth opportunities in its women's apparel (including special sizes), accessories and shoe businesses. The Company has launched merchandise initiatives focused on providing its target customer with in-depth assortments of updated, branded fashions for career, casual and social occasions. Compelling Sales Promotions. Belk is modifying its sales promotion strategy to focus on promoting merchandise which the target customer desires, to offer her more compelling sale discounts, and to provide adequate inventory to support all sales promotion events. Distinctive Customer Service. The Company's customer research has determined that Belk generally differentiates itself from competitors because of the level of service its stores provide. Belk intends to continue its tradition of employing knowledgeable sales associates who approach customers, help when needed and provide quick checkout. Winning Store And Market Strategy. The Company has an explicit company-wide store and market strategy focused on maximizing return on investment and improving its competitive position. The approach to investing in new markets and expanding existing facilities includes a disciplined real estate evaluation process using a balanced scorecard, rigorous financial measures, and sound investment guidelines. The Company also maintains ongoing initiatives aimed at improving productivity and efficiency throughout the organization, including a "floor-ready" merchandise program that speeds delivery of merchandise to the sales floor, continued development of credit programs for customers and the use of computer-based training programs. GROWTH STRATEGY The Company intends to selectively open new stores in new and existing markets in order to increase sales, market share and customer loyalty. As the consolidation of the department store industry continues, the Company will also seek out and consider store acquisitions that offer opportunities and growth into contiguous markets. The Company has invested approximately $360 million over the past five years in building new stores and expanding and renovating existing stores. 4 7 Management of the Company believes that there are significant opportunities for growth in existing Belk markets where the Belk name and reputation are well known. Although the Company will take advantage of opportunities to expand into large markets, the Company will focus its expansion in medium-sized markets with little department store competition, with store units in the 50,000 to 80,000 square foot size range. In a transaction completed with Dillard's, Inc. on September 22, 1998, Belk obtained seven former Mercantile, Inc. stores, which enabled the Company to enter the Jacksonville, Florida market with four dominant stores, and to return to the Columbia, South Carolina market with three strongly positioned stores. The new stores have a total combined size of approximately 1.127 million square feet of space. In exchange, Dillard's, Inc. received eight Belk stores located in Richmond, Virginia and the Tidewater, Virginia market and one store in Chattanooga, Tennessee, with a total combined size of approximately 935,000 square feet of space. In a transaction with Elder-Beerman Stores Corp., completed on October 27, 1998, the Company acquired the former Stone & Thomas department stores at Fashion Square in Charlottesville, Virginia, and Mercer Mall in Bluefield, West Virginia. The stores, with a combined size of approximately 111,000 square feet of space, are scheduled to be renovated and converted to Belk men's stores during fiscal year 2000 to complement the Company's existing stores in those malls. The Company also established a new Hair, Nail and Spa Division, which began operating salons in the three Belk stores in Columbia, South Carolina, and two of the Belk stores in Jacksonville, Florida, in February 1999. In determining where to open new stores in the future, the Company's management will evaluate demographic information such as income and education levels, age and occupation, availability of prime real estate locations, existing and potential competitors and the number of Belk stores in the same or contiguous market areas. Management will also analyze store and market sales and income data and seek to identify economies of scale available in advertising, distribution and other expenses as part of its process for determining new store sites and markets for expansion. In addition to the transaction with Dillard's, Inc., the Company opened seven new stores in fiscal year 1999, which had a combined total size of approximately 364,000 square feet of space. In fiscal year 2000, Belk plans to open five new stores which will have a combined size of approximately 245,000 square feet of space, as well as major expansions of five existing stores with a total combined new space of approximately 206,000 square feet. New stores opened in fiscal year 1999 included:
NEW OR EXISTING LOCATION SQUARE FEET DATE OF OPENING MARKET - -------- ----------- --------------- --------------- Canton, GA, Riverstone Plaza............. 60,065 February 11, 1998 New Smithfield, NC, Centre Pointe Plaza...... 58,936 February 26, 1998 Existing Suffolk, VA, Suffolk Shopping Center..... 46,062 June 3, 1998 New Cookeville, TN, Jackson Plaza............ 60,034 July 29, 1998 New Garner, NC, North Station................ 46,244 August 6, 1998 New Columbia, SC, Columbiana Centre.......... 185,000 September 23, 1998 New Columbia, SC, Dutch Square Mall.......... 209,000 September 23, 1998 New Columbia, SC, Richland Fashion Mall...... 182,000 September 23, 1998 New Jacksonville, FL, Avenues Mall........... 200,000 September 23, 1998 New Jacksonville, FL, Regency Square Mall.... 123,114 September 23, 1998 New Jacksonville, FL, Roosevelt Square....... 70,000 September 23, 1998 New Orange Park, FL, Orange Park Mall........ 101,000 September 23, 1998 New Simpsonville, SC, Fairview Market........ 48,497 October 14, 1998 New Douglas, GA.............................. 45,195 October 21, 1998 Existing
5 8 New stores and major store expansions scheduled for completion in fiscal year 2000 include:
NEW OR EXISTING LOCATION SQUARE FEET DATE OF OPENING MARKET - -------- ----------- ---------------- --------------- Clinton, NC, Sampson Crossing............... 48,497 March 17, 1999 Existing Morganton, NC, Fiddler's Run................ 49,473 March 17, 1999 Existing Mt. Pleasant, SC, Mt. Pleasant Towne 61,317 April 21, 1999 Existing Centre.................................... Bluefield, W. VA, Mercer Mall............... 37,000 August 4, 1999 Existing (Expansion -- Men's & Home Store) Jacksonville, FL, Regency Square............ 64,836 August 18, 1999 Existing (Expansion) Paragould, AK............................... 33,579 October 13, 1999 Existing Greenville, TX, Crossroads Mall............. 52,275 October 20, 1999 Existing Charlottesville, VA, Fashion Square......... 60,007 October 20, 1999 Existing (Expansion -- Men's & Home Store) Kill Devil Hills, NC, Dare Center........... 12,151 October 27, 1999 Existing (Expansion) Southern Pines, NC, Pinecrest Plaza......... 32,400 November, 1999 Existing (Expansion -- Men's Store)
MERCHANDISING Belk stores feature quality name brand and private label merchandise in moderate to upper-middle price ranges, providing fashion, selection and value to customers. The merchandise mix is targeted to middle and upper-income customers shopping for their families and homes, and includes a wide selection of fashion apparel, accessories and shoes for men, women and children, as well as cosmetics, home furnishings, housewares, gift and guild, jewelry, candy and other types of department store merchandise. The Company's merchandise initiatives are focused on meeting the needs of its target customer and boosting profitable sales in women's apparel, accessories and shoes. The goal is to position Belk stores as the leaders in their markets in providing updated career and casual fashion assortments, with greater depth of style, selection and value. The Company's "New Directions" department provides updated career and casual looks for Belk's target customer and features lines by such vendors as Clio, John Paul Richard and AGB. Belk's exclusive Madison Studio and Kim Rogers brands also offer quality updated casual and career fashions at attractive price points for the target customer. Belk stores offer complete assortments of the most desirable national brands. Most Belk stores are the leading sellers in their markets of such top "mega-brands" as Estee Lauder, Clinique, Lancome, Liz Claiborne, Tommy Hilfiger, Polo Ralph Lauren, Calvin Klein, Lee, Levi, Nike, Reebok, Bali and others. The Company has enjoyed excellent long-time relationships with many top apparel and cosmetics suppliers and often enters into arrangements to distribute apparel, accessories and cosmetics on an exclusive basis. This enhances the Belk stores' image as a fashion leader and enables Belk stores to offer customers exclusive and original styles that are not generally available in other stores in their markets. Belk stores also offer a number of exclusive private label brands which provide customers with merchandise that is comparable in quality and style with national brands at substantial savings. In addition to Madison Studio and Kim Rogers, other Belk private label brands, which include J. Khaki, Meeting Street, Saddlebred, Andhurst, Nursery Rhyme and Home Accents, provide outstanding value for customers and differentiate Belk from its competitors. The Company intends to keep fresh seasonal inventory in stock at stores throughout the year and to maintain inventory levels that provide optimum in-stock positions. Belk stores place special emphasis on 6 9 maintaining high levels of inventory of advertised and basic items to ensure that consumers can buy the merchandise they want. MARKETING The Company's primary marketing strategy emphasizes direct communications with customers through personal contact and the use of multi-faceted advertising, marketing and sales promotion programs. This strategy encompasses extensive mass media print and broadcast advertising, direct mailings to charge customers, comprehensive store visual merchandising and signing, in-store special events (e.g., fashion shows, trunk shows, celebrity and designer appearances) and magazine and billboard advertising. Major sales promotions and sales events are planned and implemented in Belk stores throughout the year. The Company regularly produces advertising circulars which are distributed to millions of customers via newspaper inserts or direct mailings, and the cost of many of these mailings is funded in part or in whole by vendors. The Company intends to use creative advertising that effectively communicates the Company's merchandise offerings, fashion image and reputation for superior service to store customers in a variety of media. Belk's strategy to achieve more compelling sales promotions includes: - focusing on advertising and promoting merchandise that the Company's target customer desires; - having sales that offer more attractive discounts than competitors; - providing appropriate inventory levels to support key sales events; - using clearance sales to gain a competitive advantage; - using a coordinated approach to sales promotion events (including a master sales promotion calendar) in order to establish a consistent image of Belk in its markets; and - measuring and communicating sales promotion results more rigorously. Belk intends to employ its strategic marketing initiatives and strategies in order to develop and enhance the equity of the Belk brand, strengthen its relationship with and become the desired destination for the target customer, and create and strengthen "one-to-one" relationships with customers. Belk Web Site. The Company's internet web site at www.Belk.com provides the latest information about the Company and its merchandise offerings and sales promotions. The site receives well over a million hits each year from customers throughout Belk's market area and beyond. The Company plans to further develop and utilize the web site as a primary marketing and customer communication vehicle, and is considering the implementation of on-line shopping in the future. Belk Customer Database Marketing Program. Belk's "one-to-one" relationship marketing program allows the Company to communicate and advertise more effectively with customers based on their particular merchandise needs and shopping preferences. A computerized customer database provides information on the purchasing behavior and shopping patterns of Belk charge customers. This enables the Company to customize its advertising and sales promotions to attract target customers. Moreover, the program has substantially reduced the costs and improved the effectiveness of the Company's direct mail advertising. Belk plans to expand its customer database to include customers who use "third party" credit cards -- Visa, MasterCard and American Express. When added to Belk charge customers, these customers produce approximately 65% of the Company's total sales volume. The Company will carefully monitor marketing and sales promotion efforts and media mix to ensure that customers are being reached effectively and efficiently and that stores generate the maximum return possible on their advertising expenditures. 7 10 BELK PROPRIETARY CHARGE PROGRAMS The Company offers its customers the convenience of paying for their purchases on credit, using a variety of charge payment programs. These programs include: - 30-day revolving account; - interest-free 30-60-90 day account; - interest-free Table Top plan (for china, crystal, silver and other gift purchases); and - interest-free Fine Jewelry plan. Management of the Company believes it can increase sales by generating additional sales from existing Belk charge customers. The Company had 1.9 million active Belk charge customers in fiscal year 1999, which included 90,000 customers who live outside of existing market areas. Belk credit sales for fiscal year 1999 were 38.6% of total sales compared to 38.7% for fiscal year 1998. The Company intends to promote use of the Belk charge cards by existing Belk charge customers, as well as to increase the number of new Belk cardholders through targeted marketing campaigns and active solicitation efforts within Belk stores. The "BelkSelects" affinity program for top Belk charge customers is designed to attract profitable new customers, increase sales from existing customers and increase the active Belk credit card account base. The program offers a number of special benefits and services, such as free deluxe gift wrapping and free basic alterations, to charge customers who have made Belk charge purchases totaling $800 or more in the past 12 months. Approximately 451,000 Belk charge customers have been identified as prospective BelkSelects customers. BUYING The Company's highly qualified and experienced buyers and merchants carefully monitor the merchandise mix of the Company's stores to maximize sales and profitability. The planning process involves a continuous review of merchandise needs by department and demand center, as well as on an individual store basis. Historically, Belk stores have remained in touch with local customers and markets by using a decentralized buying process. In order to achieve a more efficient buying process, however, the Company evolved to a buying process conducted by regional division offices. Buyers in the regional division offices work together with corporate buyers at BSS and local store personnel to ensure that each Belk store receives the merchandise needed to meet the needs of its local customers. As part of its target customer strategy, the Company is implementing changes in its merchandising structure and the roles and responsibilities of its merchants at BSS and in the divisions, to strengthen the buying process and ensure the effective execution of the Company's strategic merchandising initiatives. SYSTEMS AND TECHNOLOGY The Company continues to make significant investments in technology and information systems in order to drive sales growth, improve operating efficiency and support its overall business strategy. A total of approximately $50 million was invested in point-of-sale equipment and information technology during fiscal year 1999, approximately $6.8 million of which was used for the development of new systems. The Company places a priority on the development and implementation of computerized systems to support its merchandising, sales floor, inventory and logistics initiatives. These systems enable the Company's management to quickly identify sales trends, order, track and distribute merchandise, manage markdowns and monitor merchandise mix and inventory levels. Examples of new or enhanced systems that were in development or implementation phases in fiscal year 1999 include: Merchandise Planning and Tracking -- provides for top-down and bottom-up merchandise planning; allows planning to the class level and enables accurate tracking of merchandise performance; Point Of Sale -- electronic terminals speed up sales transactions, ensure accuracy, and improve customer service on the sales floor; and 8 11 Price Management -- provides electronic price lookup and markdowns at the point of sale, assuring greater accuracy and higher margins. Top priority systems for fiscal year 2000 include: Auto Replenishment -- improves inventory turns by automatically alerting suppliers when merchandise inventories need to be replenished; Inventory Scanning -- enables associates to take stock counts electronically to update unit and financial information; and Floor Ready Systems -- new system enhancements to support the Company's "floor-ready" initiatives will improve cycle time and in-stock position, allow for faster merchandise replenishment, and enable the Company to manage the supply chain more effectively and move the latest fashions and styles onto the sales floor as quickly as possible. Once implemented, the Company's floor ready, pool stock and merchandise replenishment initiatives will provide the order fulfillment capabilities needed to sell merchandise over the internet. Belk views this as a major opportunity to expand market share in the future. YEAR 2000 ISSUES The year 2000 ("Y2K") presents a problem for computer systems that were not designed to handle any dates beyond the year 1999. This is a complex problem, as almost every computer operation will be affected in some manner by the rollover of the last two digits to "00." As a result, Belk's software and hardware will have to be modified prior to December 31, 1999 in order to remain functional and be ready for the year 2000 ("Y2K Ready"). If the computer systems are not modified, they may produce erroneous information or otherwise fail to function properly. The Company has committed significant resources to a company-wide initiative, aimed at identifying and resolving Y2K issues and achieving a smooth transition of the business into the next millennium. The initiative, which began in the fall of 1995, addresses every facet of the Company's business, with the goal of ensuring the continuity of all of the Company's mission-critical business processes before, during and after the Y2K calendar change. Substantially all of the Company's systems were Y2K Ready on March 31, 1999. Rigorous testing has begun and will continue throughout 1999. Contingency plans for all critical areas of the business were also completed on March 31, 1999, with testing of these plans also continuing throughout the year. The total cost of the Y2K project is estimated to be $5.7 million and is being funded through operating cash flows. The Company is expensing all costs associated with these system changes. As of January 30, 1999, $4.9 million had been expensed. A more complete discussion of the Company's response to Y2K issues is contained under the heading "Year 2000 Issues" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. NON-RETAIL BUSINESSES Several of the Company's subsidiaries engage in businesses that indirectly or directly support the operations of the retail department stores. The non-retail businesses include United Electronic Services, Inc. ("UES"), a wholly owned subsidiary of Belk, Inc., which provides equipment maintenance services, primarily on cash registers, but also on other equipment. UES provides such services to the Company pursuant to contracts with BSS. INDUSTRY AND COMPETITION The Company operates retail department stores in the highly competitive and dynamic retail apparel industry. Management of the Company believes that the principal competitive factors for retail department store operations include merchandise selection, quality, value, customer service and convenience. The Company believes its stores are strong competitors in all of these areas. The Company's primary competitors are traditional department stores, mass merchandisers, national apparel chains, designer boutiques, individual 9 12 specialty apparel stores and direct marketing firms, including Federated Department Stores, Inc., The May Department Stores Company, Dillard's, Inc., Sak's, Inc., J.C. Penney Company, Inc., Wal-Mart Stores, Inc. and Sears, Roebuck & Co. TRADEMARKS AND SERVICE MARKS BSS owns all of the principal trademarks and service marks now used by the Company, including "Belk" and "All for You". These marks are registered with the United States Patent and Trademark Office. The term of each of these registrations is generally ten years, and they are generally renewable indefinitely for additional ten-year periods, as long as they are in use at the time of renewal. Most of the trademarks, trade names and service marks employed by the Company are used in the Company's private label program. The Company intends to vigorously protect its trademarks and service marks and initiate appropriate legal action whenever necessary. ASSOCIATES As of January 30, 1999, the Company had approximately 22,000 full-time and part-time associates. Because of the seasonal nature of the retail business, the number of associates is highest during the holiday shopping period in November and December. The Company as a whole considers its relations with associates to be good. None of the associates of the Company are represented by unions or subject to collective bargaining agreements. ITEM 2. PROPERTIES STORE LOCATIONS As of January 30, 1999, the Company operated a total of 212 retail stores in the following states: Alabama -- 3 Maryland -- 2 Tennessee -- 3 Arkansas -- 2 Mississippi -- 1 Texas -- 2 North Florida -- 19 Carolina -- 77 Virginia -- 19 South West Georgia -- 39 Carolina -- 39 Virginia -- 2 Kentucky -- 4
117 Belk stores are located in regional malls, 87 are in strip shopping centers and 8 are free standing units. Approximately 89% of the gross square feet of the typical Belk store is devoted to selling space to ensure maximum operating efficiencies. A majority of the stores are either new or have undergone renovations within the past ten years. The new and renovated stores feature the latest in retail design, including attractive exteriors and interiors. The interiors are designed to create an exciting, comfortable and convenient shopping environment for customers. They include the latest lighting and merchandise fixturing, as well as quality decorative floor and wall coverings and other special decor. The store layout is designed for ease of shopping, and store signing is used to help customers identify and locate merchandise. As of January 30, 1999, the Company owned 59 stores outright, leased 141 stores under operating leases, and owned 12 stores under ground leases. The typical operating lease has an initial term of between 15 and 20 years, with four renewal periods of five years each, exercisable at the Company's option. The typical ground lease has an initial term of 20 years, with four renewal periods of five years each, exercisable at the Company's option. 10 13 NON-STORE FACILITIES The Company also owns or leases the following distribution centers, regional group offices and headquarters facilities:
BELK PROPERTY LOCATION OWN/LEASE - ------------- --------------- --------- Belk, Inc. Raleigh, NC Division Office.................. Raleigh, NC Lease Belk, Inc. Fayetteville, NC Division Office............. Fayetteville, NC Lease Belk, Inc. Atlanta, GA Division Office.................. Norcross, GA Lease Belk, Inc. Greenville, SC Division Office............... Greenville, SC Own Belk, Inc., Gastonia, NC Division Office................ Gastonia, NC Own Belk, Inc. Charleston, SC Division Office............... Summerville, SC Own Belk, Inc. Charlotte, NC Division Office................ Charlotte, NC Own Belk, Inc. Richmond, VA Division Office................. Richmond, VA Lease Belk Stores Services, Inc. Offices -- LakePointe........ Charlotte, NC Own Belk Distribution Center................................ Fayetteville, NC Lease Belk Distribution Center................................ Morrisville, NC Own Belk Distribution Center................................ Greensboro, NC Lease Belk Distribution Center................................ Mauldin, SC Lease Belk Distribution Center................................ Summerville, SC Lease
OTHER The Company owns various other real property, including primarily former store locations. Such property is not material, either individually or in the aggregate, to the Company's results of operations or financial condition. ITEM 3. LEGAL PROCEEDINGS The Company is engaged in various legal actions which are incidental to its business. Management of the Company believes that none of the various actions and proceedings involving the Company will have a material adverse effect on the Company's financial condition or results of operations. ITEM 4. MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders during the fourth quarter of the fiscal year ending January 30, 1999. 11 14 PART II ITEM 5. MARKET INFORMATION FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Neither the Class A Common Stock, par value $.01 per share (the "Class A Common Stock") nor the Class B Common Stock, par value $.01 per share (the "Class B Common Stock") was listed or traded on a public market during any part of fiscal year 1999. There is no established public trading market for either class of the Company's common stock. As of April 15, 1999, there were approximately 554 holders of record of the Class A Common Stock and 8 holders of record of the Class B Common Stock. No dividends were declared by the Company during the fiscal year ended January 30, 1999; however, the Belk Companies each declared dividends payable prior to May 2, 1998, the date of the Reorganization. On March 25, 1999, the Company declared a dividend of $.235 on each share of the Class A and Class B Common Stock outstanding on April 1, 1999. The amount of dividends paid out with respect to fiscal year 2000 and each subsequent year will be determined at the sole discretion of the Board of Directors based upon the Company's results of operations, financial condition, cash requirements and other factors deemed relevant by the Board of Directors. ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEAR ENDED ------------------------------------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 31, 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SELECTED STATEMENT OF INCOME DATA: Revenues............................. $2,091,060 $1,974,102 $1,772,613 $1,685,470 $1,694,422 Cost of goods sold................... 1,422,257 1,341,646 1,205,687 1,149,270 1,151,713 Depreciation and amortization........ 57,141 54,081 51,021 50,832 46,762 Income from operations............... 127,189 107,319 96,908 70,825 92,353 Income from continuing operations.... 57,974 59,672 64,497 42,518 46,893 Income (loss) from discontinued operations*........................ -- (5,272) 36,873 1,298 1,731 Net income........................... 56,970 54,400 101,370 43,816 48,624 Basic income per share: From continuing operations......... 1.02 n/a n/a n/a n/a Net income......................... 1.01 n/a n/a n/a n/a Cash dividends per share............. n/a n/a n/a n/a n/a SELECTED BALANCE SHEET DATA: Accounts receivable, net............. 351,143 353,509 335,914 263,161 262,986 Merchandise inventory................ 482,247 431,169 425,415 365,902 349,610 Working capital...................... 622,969 497,146 442,753 423,543 514,228 Total assets......................... 1,593,918 1,348,502 1,358,900 1,260,979 1,159,735 Short-term debt...................... 4,264 59,323 187,272 116,327 11,000 Long-term debt and capitalized lease obligations........................ 403,713 299,582 216,010 178,441 214,450 Stockholders' equity................. 787,935 703,785 672,016 748,706 717,284 SELECTED OPERATING DATA: Number of stores at end of period.... 212 218 250 216 221 Comparable store net revenue increases (decreases).............. 2.8% 1.2% 2.3% (2.3)% 2.4%
- --------------- All years include 52 weeks (364 days), with the exception of the fiscal year ended February 3, 1996, which includes 368 days. (*) Income (loss) from discontinued operations represents the operating results and gain on the sale of BAC, Inc., which owned and operated a mall in Charlotte, North Carolina, and the operating results of TAGS, LLC, which owned and operated outlet stores. 12 15 ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In April 1998, the shareholders of the 112 companies previously comprising the Belk Companies (the "Predecessor Companies") approved the Reorganization of the Predecessor Companies into the Company effective on May 2, 1998. The following is a discussion of the historical consolidated or combined financial condition and results of operations of the Company and the Predecessor Companies, for each of the fiscal years ended January 30, 1999, January 31, 1998 and February 1, 1997, which should be read in conjunction with the financial statements, including the notes thereto, included elsewhere in this Form 10-K. The results of operations for the fiscal year ended January 30, 1999 include three months of pre-Reorganization historical combined results of the Predecessor Companies and nine months of post-Reorganization consolidated results of the Company. Prior to the Reorganization, the Belk-Simpson Company, Greenville, South Carolina ("Belk-Simpson") was included in the combined financial statements as a 37% equity investment. Subsequent to the Reorganization, Belk-Simpson is included in the consolidated financial statements as a wholly-owned subsidiary. References herein to the "Company" include the Belk Companies as predecessors to the Company and references herein to consolidated financial statements include combined financial statements of the Predecessor Companies for periods prior to the Reorganization. GENERAL Acquisitions. The Company acquired a controlling interest in various corporations, which together operated 42 Leggett stores, in November 1996 (the "Leggett Acquisition") for $92.0 million. Under the purchase method of accounting, the assets, liabilities and results of operations associated with the Leggett Acquisition have been included in the Company's financial position and results of operations for the 1997 fiscal year since the date of acquisition. Due to the significant impact on the Company's operations associated with the Leggett Acquisition, the Company's period-to-period comparisons for the fiscal years ended January 31, 1998 and February 1, 1997 may not be meaningful or indicative of future results. Discontinued Operations. In November 1996, the Company sold its investment in a wholly-owned subsidiary that owned a retail mall to an unrelated third party. In October 1997, the Company announced the closing of the TAGS outlet stores (the "TAGS Stores"), that were operated by TAGS Stores, LLC ("TAGS"). The operating results of these entities are presented as discontinued operations. Certain Components of Net Income. Revenues include sales from retail operations and leased departments. Cost of goods sold include cost of merchandise, buying, and occupancy expense. Selling, general and administrative expense ("SG&A") includes payroll, advertising, credit and depreciation expense. REORGANIZATION AND RESTRUCTURING In fiscal year 1999, Belk began realizing the benefits of the Reorganization. The Reorganization has allowed the Company to create a more streamlined legal structure, and the Company expects to realize significant expense savings through reduced taxes, improved cash management and more cost-effective financing. As an example of corporate efficiencies resulting from the Reorganization, the Company is in the process of forming and chartering a subsidiary that will operate as Belk National Bank in the state of Georgia. The new bank, which is expected to begin operations in May 1999, will enable the Company to standardize the interest rate terms of Belk charge customer accounts across the 13 states in which Belk operates and to set competitive interest rates comparable to other key retailers. Belk has recently announced plans to streamline its organizational structure by consolidating its thirteen operating divisions into four expanded regional divisions to be headquartered in Charlotte and Raleigh, North Carolina, Greenville, South Carolina and Jacksonville, Florida. The consolidation should permit the Company to intensify its customer focus by achieving more unified and consistent execution of its marketing, merchandising and advertising strategies and by simplifying decision making processes. It is anticipated that the consolidation will take place during the second quarter of fiscal year 2000. 13 16 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship to revenues of certain items in the Company's statements of income and other pertinent financial and operating data.
FISCAL YEAR ENDED --------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 ----------- ----------- ----------- SELECTED FINANCIAL DATA Revenues.............................................. 100.0% 100.0% 100.0% Cost of goods sold.................................... 68.0 68.0 68.0 Selling, general and administrative expenses.......... 25.9 26.3 26.3 Income from operations................................ 6.1 5.4 5.5 Interest expense, net................................. 1.7 1.8 1.3 Income taxes.......................................... 1.7 1.5 2.2 Income from continuing operations..................... 2.8 3.0 3.6 Discontinued operations............................... -- (0.3) 2.1 Net income............................................ 2.7 2.8 5.7 SELECTED OPERATING DATA Gross square footage (in thousands)................... 16,591 16,217 14,754 Store revenues per gross sq. ft. ..................... $126 $122 $120 Comparable stores revenues increase................... 2.8% 1.2% 2.3% Number of stores Opened.............................................. 8 5 5 Acquired............................................ 7 0 42 Closed.............................................. (21) (37) (13) Total -- end of period...................... 212 218 250
COMPARISON OF FISCAL YEARS ENDED JANUARY 30, 1999 AND JANUARY 31, 1998 Revenues. The Company's revenues in fiscal year 1999 increased 5.9%, or $117 million, to $2.09 billion from $1.97 billion in fiscal year 1998. The increase was partially due to including the Belk-Simpson revenues in the consolidated operating results subsequent to the Reorganization, which contributed $55 million, or 2.6%, in revenues for fiscal year 1999. Excluding the impact of the Reorganization, revenues for the fiscal year 1999 increased 3.3%, or $62 million, over fiscal year 1998. On a comparable store basis, revenues increased 2.8% for the year. Cost of Goods Sold. As a percentage of revenues, cost of goods sold for fiscal year 1999 and fiscal year 1998 was 68.0%. Fiscal year 1999 cost of goods sold was negatively impacted by higher levels of markdowns compared to the markdowns during fiscal year 1998, due to additional markdowns associated with the stores obtained from Dillard's, Inc. and higher markdowns in existing stores designed to promote sales in response to a weak retail environment and unseasonably warm weather during the fall of 1998. The higher markdown levels were offset by decreases in buying costs due to a more efficient purchasing structure. Selling, General and Administrative Expenses. SG&A was $541.6 million in fiscal year 1999, compared to $518.9 million in fiscal year 1998, an increase of 4.4%. As a percentage of revenues, SG&A decreased to 25.9% in fiscal year 1999 from 26.3% in fiscal year 1998. The decrease is attributable to reductions in personnel costs due to improved operating efficiencies, partially offset by decreases in finance charge income on the Company's proprietary credit card receivables. During fiscal years 1999 and 1998 the Company's bad debt expense, net of recovery associated with the issuance of credit on the Belk proprietary credit cards, was $12.2 million and $13.2 million, respectively. During fiscal years 1999 and 1998, finance charge income on the outstanding Belk proprietary credit card receivables was $41.3 million and $43.8 million, respectively. Accounts receivable management and collection services expenses for fiscal years 1999 and 1998 were $20.9 million and $19.9 million, respectively. 14 17 Income From Operations. Income from operations increased $19.9 million, or 18.5%, to $127.2 million in fiscal year 1999, as compared to $107.3 million in fiscal year 1998. The increase resulted from increases in revenues and decreases in SG&A expenses as a percentage of revenues. The Company's income from operations in fiscal year 1999 was negatively impacted by approximately $4 million of additional costs incurred in connection with the store exchange with Dillard's, Inc. These costs consist primarily of additional markdowns, costs associated with the closing of the surrendered stores, costs of converting the acquired stores and costs of preparing the Company's Summerville, South Carolina distribution center for the additional volume of merchandise processed for the acquired stores. Interest Expense, Net. Interest expense, net increased $1.4 million, or 4.2%, in fiscal year 1999 compared to fiscal year 1998. The increase resulted primarily from higher average outstanding borrowings offset by reduced effective interest rates due to the refinancing of higher rate debt facilities. The borrowings were utilized to fund the Company's capital expenditures and to repurchase stock from stockholders exercising their appraisal rights in connection with the Reorganization. Net Income. Net income increased by $2.6 million in fiscal year 1999 compared to fiscal year 1998. However, fiscal year 1998 net income includes $15.9 million of gains on the sale of investments by Belk-Simpson that the Company recognized as equity in earnings of unconsolidated entities. Excluding the impact of the Belk-Simpson investment gains, net income for fiscal year 1999 increased $18.5 million, or 48.1%, over fiscal year 1998. COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1998 AND FEBRUARY 1, 1997 Revenues. The Company's revenues in fiscal year 1998 increased 11.4%, or $201.5 million, to $1.97 billion from $1.77 billion in fiscal year 1997. The increase resulted primarily from the Leggett Acquisition, which contributed $285.0 million, or 14.4% in revenues during the fiscal year ended January 31, 1998, as compared to $107.4 million, or 6.1% in revenues during the fiscal year ended February 1, 1997. Comparable store revenues increased 1.2% for fiscal year 1998 compared to fiscal year 1997. Excluding the impact of the Leggett Acquisition, revenues in fiscal year 1998 increased 1.4%, or $23.9 million, over fiscal year 1997. Cost of Goods Sold. As a percentage of revenues, cost of goods sold for fiscal year 1998 remained constant at 68.0%. Cost of goods sold increased 11.3% or $136.0 million from $1.21 billion in fiscal year 1997 to $1.34 billion in fiscal year 1998, primarily due to the higher revenue volume associated with the Leggett Acquisition. Excluding the impact of the Leggett Acquisition, cost of goods sold as a percentage of revenues decreased .1% from fiscal year 1997 to fiscal year 1998, due to improved inventory management. Selling, General and Administrative Expenses. SG&A was $518.9 million in fiscal year 1998, compared to $466.8 million in fiscal year 1997, an increase of 11.2%. As a percentage of revenues, SG&A remained flat at 26.3% for both fiscal year 1998 and 1997. The Leggett Acquisition resulted in additional SG&A of $80.8 million for fiscal year 1998, as compared to $25.6 million for the three-month period included in fiscal year 1997. Excluding the impact of the Leggett Acquisition, SG&A decreased .7% or $3.1 million and was 25.9% of revenues for fiscal year 1998, compared to 26.5% of revenues for fiscal year 1997. This decrease is attributable to decreases in payroll and supply expenses realized through improved operating efficiencies. During fiscal years 1998 and 1997 the Company's bad debt expense, net of recovery associated with the issuance of credit on the Belk proprietary credit cards, was $13.2 million and $10.8 million, respectively. Although bad debt expense increased $2.4 million due to increased Belk proprietary credit card sales volume and industry-wide increases in personal bankruptcies, the increase was offset by an increase in finance charge income of $6.3 million. During fiscal years 1998 and 1997, finance charge income on the outstanding Belk proprietary credit card receivables was $43.8 million and $37.6 million, respectively. Accounts receivable management and collection services expenses for fiscal years 1998 and 1997 remained flat, at $19.9 million for each year. Impairment of Long-Lived Assets. The Company evaluates its investment in long-lived assets on an individual store basis. Based upon an assessment of historical and projected operating results, it was determined that the carrying value of certain operating stores was impaired under the criteria defined in SFAS 15 18 No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." As a result, the Company recorded pre-tax impairment charges of $6.3 million and $3.2 million for fiscal years 1998 and 1997, respectively, to reduce the carrying value of these assets to their estimated fair value. Interest Expense, Net. As a percentage of revenues, interest expense, net increased to 1.8% for fiscal year 1998 as compared to 1.3% in fiscal year 1997. Interest expense, net increased 52.8% or $12.0 million, to $34.7 million in fiscal year 1998 from $22.7 million in fiscal year 1997. The increase resulted primarily from higher average outstanding borrowings and higher effective interest rates needed to fund the Company's capital expenditures, the Leggett Acquisition and repurchases of common stock. Gain (Loss) on Sale of Property and Equipment. The net loss on sale of property and equipment for the fiscal year ended January 31, 1998 was $1.1 million, compared to a $21.3 million net gain for fiscal year 1997. The fiscal year 1997 gains resulted primarily from the sale of property and fixtures in three closed stores in Florida. Discontinued Operations. During fiscal year 1997, the Company converted certain Belk clearance center stores to discount outlet stores and opened two new store locations under the TAGS name. On September 17, 1997, management decided to close the TAGS Stores. The TAGS Stores were closed in December 1997 after liquidating the stores' inventory. The operating results for the TAGS Stores subsequent to the conversion to the TAGS discount outlet format have been presented as discontinued operations. The Company recognized after-tax losses on the discontinued operations of the TAGS Stores of $5.3 million for the fiscal year ended January 31, 1998, which was composed of a $1.3 million after-tax loss on operations and a $4.0 million after-tax loss on disposal of assets. In addition, a $1.0 million after-tax loss on operations of the TAGS Stores was recognized for the fiscal year ended February 1, 1997. The Company recognized a gain on the sale of a wholly-owned subsidiary that owned a retail mall of $37.9 million in fiscal year 1997, which was composed of a $3.6 million after-tax loss on operations and a $41.5 million after-tax gain on disposal of assets. Net Income. Net income decreased $47.0 million to 2.8% of revenues in fiscal year 1998, compared to 5.7% of revenues in fiscal year 1997. This decrease was due to the one time gain on the sale of a wholly-owned subsidiary that owned a retail mall of $41.5 million, and the gain on sale of property and fixtures of three stores in Florida of $13.0 million after-taxes that occurred during fiscal year 1997. SEASONALITY AND QUARTERLY FLUCTUATIONS The Company has historically experienced and expects to continue to experience seasonal fluctuations in its revenues, operating income and net income. The highest revenue period for the Company is the fourth quarter, which includes the Christmas selling season. A disproportionate amount of the Company's revenues and a substantial amount of the Company's operating and net income are realized during the fourth quarter. If for any reason the Company's revenues were below seasonal norms during the fourth quarter, the Company's annual results of operations could be adversely affected. The Company's inventory levels generally reach their highest in anticipation of increased revenues during these months. The following table illustrates the seasonality of revenues by quarter as a percentage of the full year for the fiscal years indicated.
1999 1998 1997 ---- ---- ---- First quarter............................................... 21.5% 22.8% 21.6% Second quarter.............................................. 21.7 21.9 22.1 Third quarter............................................... 22.9 23.4 23.5 Fourth quarter.............................................. 33.9 31.9 32.8
The Company's quarterly results of operations could also fluctuate significantly as a result of a variety of factors, including the timing of new store openings. 16 19 LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash on hand, cash flow from operations and borrowings under debt facilities. Effective on May 2, 1998, the numerous debt facilities utilized by the Predecessor Companies were assumed by the Company. The Company consolidated those debt facilities with the combination of a $300 million variable rate accounts receivable securitization, a $125 million ten-year variable rate bond facility and two seasonal line of credit agreements totaling $185 million. The Company finalized the $300 million accounts receivable securitization on June 12, 1998, borrowed $257 million and used the proceeds to repay a majority of its existing debt. On July 23, 1998, the Company finalized the $125 million ten year variable rate bond facility and used the proceeds to retire substantially all of the Company's remaining debt. In September 1998, the Company replaced a $128.5 million line of credit with a $150 million line of credit that bears interest at LIBOR plus approximately 60 basis points. The debt facilities place certain restrictions on mergers, consolidations and the sale of the Company's assets and require maintenance of minimum financial ratios. The accounts receivable securitization limits borrowings under the facility to approximately 80% of the Company's customer accounts receivable. Although the interest rates on all of the Company's debt agreements vary with LIBOR or commercial paper rates, the Company has entered into interest rate swap agreements with various financial institutions to manage the exposure to changes in interest rates. The amount of indebtedness covered by the interest rate swaps is $350 million through fiscal year 1999, $325 million for fiscal year 2000, $300 million for fiscal years 2001 through 2008, and $250 million for fiscal year 2009. Operating activities provided cash of $126.4 million during fiscal year 1999, as compared to $91.9 million in fiscal year 1998. The increase in cash provided by operating activities compared to the prior period was due to decreases in accounts receivable from customers, increases in accounts payable and increases in deferred and accrued taxes, partially offset by increases in merchandise inventory levels and prepaid expenses. Cash flows from investing activities used cash of $83.1 million during fiscal year 1999, as compared to $73.0 million in fiscal year 1998. The increase in cash used for investing activities was primarily due to an increase in capital expenditures, partially offset by increases in proceeds from the sale of investments and cash acquired from the acquisition of the Belk-Simpson retail operations in the Reorganization, which was previously accounted for on the equity method. Expenditures for property and equipment were $136.5 million during fiscal year 1999, compared to $77.3 million in fiscal year 1998. During the third quarter of fiscal year 1999, the Company purchased two Stone & Thomas department stores in Virginia and West Virginia, and exchanged nine Belk stores located in Virginia and Tennessee, plus two additional stores to be constructed, for seven Mercantile stores located in Jacksonville, Florida and Columbia, South Carolina. During fiscal year 1999, the Company opened eight new stores and made significant renovations to and/or expansions of existing stores and updated the majority of its point-of-sale register systems. While it is difficult to predict capital expenditures for the Company, capital expenditures over the next three fiscal years are expected to average approximately $100 million per year. Net cash used by financing activities amounted to $41.2 million during fiscal year 1999, including $50.6 million paid to dissenting stockholders in connection with the Reorganization. During fiscal year 1999, the Company entered into a $300 million accounts receivable securitization facility, borrowed $257 million under the facility and used the proceeds to repay a majority of its higher rate debt. The Company also finalized a $125 million ten-year variable rate bond facility and used the proceeds to retire all of the Company's remaining higher rate debt and to fund capital expenditures. Management of the Company believes that cash flows from operations and the planned credit facilities will be sufficient to cover working capital needs, capital expenditures and debt service agreements. RECENT ACCOUNTING PRONOUNCEMENTS In March 1998, the Accounting Standards Executive Committee issued Statement of Position (SOP) No. 98-1, "Accounting for the costs of Computer Software Developed or Obtained for Internal Use," which establishes standards for the costs of computer software developed or obtained for internal use. The 17 20 Company will implement the statement in fiscal year 2000. The Company expects implementation of SOP No. 98-1 to result in approximately $4 million of fiscal year 2000 expenditures to be capitalized that historically would have been expensed. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes standards for accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The standard is effective for the Company starting in fiscal year 2001. The impact of SFAS No. 133 on the Company's financial statements has not been determined. IMPACT OF INFLATION While it is difficult to determine the precise effects of inflation, management of the Company does not believe inflation had a material impact on the consolidated financial statements for the periods presented. YEAR 2000 ISSUES In January 1996, the Company began converting its computer systems to be Y2K compliant. This was necessary due to the use of two digit fields to represent the year in many computer systems, which could cause the year "00" to be recognized as 1900 instead of 2000. Failure to obtain Y2K compliance could result in significant disruption to the Company's operations and information processing. A Y2K executive steering committee was designated to oversee all aspects of the Company's progress towards Y2K compliancy. Under direction of the steering committee, the Company has developed a Y2K compliance plan that focuses on 5 major areas as follows: 1. Information systems. 2. Imbedded chip devices. 3. Merchandise vendors. 4. Service providers. 5. User developed or installed software. The plan generally covers the following 6 phases: 1. Inventory the Company's systems (including all equipment with imbedded chips), merchandise vendors, service providers, and user developed or installed software. 2. Assess whether Y2K compliance issues exist for each system, device or provider identified. 3. Establish a timetable and detailed plans for obtaining compliance. 4. Repair and replace systems and/or devices requiring modification. 5. Validate Y2K compliancy through testing of modifications. 6. Develop contingency plans. * Phases 1, 2, 3 and 6, above, apply to merchandise vendors and service providers as well as to Company systems. The Company is 99% complete with testing of all key information technology ("IT") systems, with one remaining system scheduled for completion by the end of April 1999. The company is 96% complete with the upgrade, replacement and testing phases of non-IT systems. These systems, such as PBX, security and heating and air-conditioning systems, include imbedded chip processors that may be affected by the Y2K issue. Substantially all IT and non-IT systems are scheduled to be completed by the end of April 1999. The Company has also surveyed its merchandise vendors as to their Y2K readiness. The Company has received responses from 99% of its branded merchandise vendors and 97% of its private label merchandise vendors. Responses are scored and follow-up conference calls scheduled for all vendors obtaining a low confidence score. The Company has scored 76% of branded vendor responses and 84% of private label vendor 18 21 responses with either a moderate or high confidence factor. In addition, 85% of the Company's EDI trading partners have successfully passed a basic Y2K purchase order and invoice translator test, with the majority of the remaining trading partners scheduled before the end of July 1999. The Company has surveyed all non-merchandise providers as to their Y2K readiness. These providers include energy and utility companies, real estate firms, advertising and sales promotion vendors, supplies vendors, transportation and logistics companies, technology providers, credit services providers and others. The Company has received responses from over 88% of these providers. The Company has completed 98% of its Y2K contingency plans for all critical business processes, with the remainder scheduled for completion before the end of April 1999. The Company plans to address internal Y2K failures, as well as failures of key external business providers to support the merchandise and services needs of the Company. Plans will be tested and maintained throughout 1999, as the Company monitors the Y2K readiness progress of key business partners. The total cost of the Y2K project is estimated to be $5.7 million and is being funded through operating cash flows. This cost primarily consists of internal labor costs to repair and test IT and non-IT systems. The Company is expensing all costs associated with the project as incurred. At January 30, 1999, $4.9 million had been expensed. The Company has not experienced any significant delays in other IT projects due to the implementation of the Y2K plan. Although the Company anticipates full Y2K compliance will be substantially achieved by the end of April 1999, there is the potential for certain of the Company's systems to experience Y2K failures. This is due to the uncertainties inherent in the Y2K problem, including key business partner failures, failure to identify all systems affected, failure to successfully remediate all systems affected, and other similar uncertainties. A worst case scenario could include disruption in the Company's ability to advertise, purchase and sell merchandise, extend customer credit, keep accurate accounting records, and perform customer service. Should this occur, the Company's liquidity, future operating results and financial position may be materially impacted. Readers are cautioned that forward-looking statements contained in this Y2K discussion should be read in conjunction with the cautionary statement included in this Form 10-K under "This Information Contains Forward-Looking Statements." ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates on its variable rate debt. The Company uses interest rate swaps to manage the interest rate risk associated with its borrowings and to manage the Company's allocation of fixed and variable rate debt. The Company does not use financial instruments for trading or other speculative purposes and is not a party to any leveraged financial instruments. The Company's net exposure to interest rate risk consists of exposure for variable rate debt in excess of its interest rate swaps. At January 30, 1999, the Company had $379 million of variable debt and $350 million of offsetting, pay variable rate, receive fixed rate swaps. The impact on the Company's results of operations of a one-point interest rate change on the outstanding balance of unhedged variable rate debt as of January 30, 1999 would not be material. A discussion of the Company's accounting policies for derivative financial instruments is included in the Summary of Significant Accounting Policies in Note 2 to the Company's financial statements. 19 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE ---- Independent Auditors' Report................................ 21 Statements of Income........................................ 22 Balance Sheets.............................................. 23 Statements of Stockholders' Equity.......................... 24 Statements of Cash Flows.................................... 25 Notes to Financial Statements............................... 26
20 23 INDEPENDENT AUDITORS' REPORT The Board of Directors Belk, Inc.: We have audited the accompanying balance sheets of Belk, Inc. and Predecessor Companies (as described in Note 1) as of January 30, 1999 and January 31, 1998, and the related statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended January 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Belk, Inc. and Predecessor Companies as of January 30, 1999 and January 31, 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended January 30, 1999, in conformity with generally accepted accounting principles. KPMG LLP Charlotte, North Carolina April 27, 1999 21 24 BELK, INC. AND PREDECESSOR COMPANIES STATEMENTS OF INCOME
FISCAL YEAR ENDED --------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues................................................... $2,091,060 $1,974,102 $1,772,613 Cost of goods sold (including occupancy and buying expenses)................................................ 1,422,257 1,341,646 1,205,687 Selling, general and administrative expenses............... 541,614 518,877 466,841 Impairment of long-lived assets............................ -- 6,260 3,177 ---------- ---------- ---------- Income from operations..................................... 127,189 107,319 96,908 Interest expense........................................... (37,132) (39,950) (27,554) Interest income............................................ 1,026 5,288 4,873 Gain (loss) on sale of property, equipment and investments.............................................. 597 (597) 23,209 Other income, net.......................................... 757 859 1,817 ---------- ---------- ---------- Income from continuing operations before income taxes and equity in earnings of unconsolidated entities............ 92,437 72,919 99,253 Income taxes............................................... 34,651 29,900 38,802 ---------- ---------- ---------- Income from continuing operations before equity in earnings of unconsolidated entities............................... 57,786 43,019 60,451 Equity in gain on sale of investments of unconsolidated entities, net of income taxes............................ -- 15,891 3,072 Equity in earnings of unconsolidated entities, net of income taxes............................................. 188 762 974 ---------- ---------- ---------- Income from continuing operations.......................... 57,974 59,672 64,497 Discontinued operations: Loss from discontinued operations, net of income tax benefit of $814 and $2,937 for fiscal years 1998, and 1997, respectively.................................... -- (1,273) (4,593) Gain (loss) on disposal of discontinued operations, net of income tax expense (benefit) of $(2,411) and $29,897 for fiscal years 1998 and 1997, respectively.......................................... -- (3,999) 41,466 ---------- ---------- ---------- Net income before extraordinary item....................... 57,974 54,400 101,370 Extraordinary item -- loan prepayment penalty, net of income tax benefit of $670............................... (1,004) -- -- ---------- ---------- ---------- Net income....................................... $ 56,970 $ 54,400 $ 101,370 ========== ========== ========== Basic income per share: Net income before extraordinary item..................... $ 1.02 N/A N/A ========== ========== ========== Extraordinary item....................................... $ (0.01) N/A N/A ========== ========== ========== Net income............................................... $ 1.01 N/A N/A ========== ========== ========== Weighted average shares outstanding...................... 56,682,252 N/A N/A ========== ========== ==========
See accompanying notes to financial statements. 22 25 BELK, INC. AND PREDECESSOR COMPANIES BALANCE SHEETS
JANUARY 30, JANUARY 31, 1999 1998 ----------- ----------- (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents................................. $ 18,313 $ 16,263 Accounts receivable, net.................................. 351,143 353,509 Merchandise inventory..................................... 482,247 431,169 Prepaid income taxes...................................... 7,205 5,226 Deferred income taxes..................................... 4,378 7,438 Prepaid expenses and other current assets................. 18,269 26,453 ---------- ---------- Total current assets.............................. 881,555 840,058 Investments in unconsolidated entities...................... -- 38,846 Investment securities....................................... 24,164 37,223 Property and equipment, net................................. 560,949 395,771 Prepaid pension costs....................................... 101,352 2,250 Intangible assets, net...................................... -- 17,620 Other assets................................................ 25,898 16,734 ---------- ---------- Total assets...................................... $1,593,918 $1,348,502 ========== ========== LIABILITIES, DEFERRED INCOME AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 167,598 $ 123,573 Accrued expenses.......................................... 60,730 67,520 Accrued income taxes...................................... 20,993 3,363 Lines of credit and notes payable......................... 4,264 59,323 Current installments of long-term debt and capital lease obligations............................................ 5,001 89,133 ---------- ---------- Total current liabilities......................... 258,586 342,912 Deferred income taxes....................................... 45,712 28,866 Long-term debt and capital lease obligations, excluding current installments...................................... 398,712 210,449 Deferred compensation and other noncurrent liabilities...... 102,749 50,508 ---------- ---------- Total liabilities................................. 805,759 632,735 ---------- ---------- Deferred income............................................. 224 11,982 ---------- ---------- Stockholders' equity: Preferred stock........................................... -- -- Common stock, 56.7 million shares issued and outstanding at January 30, 1999........................ 567 70,629 Paid-in capital........................................... 586,641 470 Retained earnings......................................... 200,203 618,834 Net unrealized gains on investments....................... 524 13,852 ---------- ---------- Total stockholders' equity........................ 787,935 703,785 ---------- ---------- Total liabilities, deferred income and stockholders' equity............................ $1,593,918 $1,348,502 ========== ==========
See accompanying notes to financial statements. 23 26 BELK, INC. AND PREDECESSOR COMPANIES STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED OTHER COMMON PAID-IN RETAINED COMPREHENSIVE STOCK CAPITAL EARNINGS INCOME TOTAL -------- -------- --------- ------------- --------- (DOLLARS IN THOUSANDS) Balance at February 3, 1996............ $ 88,949 $ 470 $ 640,236 $ 19,051 $ 748,706 Comprehensive income: Net income........................... -- -- 101,370 -- 101,370 Unrealized gains on investments, net of income taxes of $469........... -- -- -- 733 733 Equity in net unrealized gains on investments held by unconsolidated entity............................ -- -- -- 2,352 2,352 --------- Total comprehensive income... 104,455 --------- Cash dividends......................... -- -- (11,847) -- (11,847) Repurchase of stock.................... (18,064) -- (151,234) -- (169,298) -------- -------- --------- -------- --------- Balance at February 1, 1997............ 70,885 470 578,525 22,136 672,016 Comprehensive income: Net income........................... -- -- 54,400 -- 54,400 Unrealized losses on investments, net of income taxes of $7,937......... -- -- -- (11,421) (11,421) Equity in net unrealized gains on investments held by unconsolidated entity............................ -- -- -- 3,137 3,137 --------- Total comprehensive income... 46,116 --------- Cash dividends......................... -- -- (8,936) -- (8,936) Repurchase of stock.................... (256) -- (5,155) -- (5,411) -------- -------- --------- -------- --------- Balance at January 31, 1998............ 70,629 470 618,834 13,852 703,785 Comprehensive income: Net income........................... -- -- 56,970 -- 56,970 Unrealized losses on investments, net of income taxes of $538........... -- -- -- (897) (897) --------- Total comprehensive income... 56,073 --------- Predecessor Companies: Cash dividends....................... -- -- (8,854) -- (8,854) Repurchase of stock.................. (50) -- (3,450) -- (3,500) Reorganization of Belk Companies....... (70,012) 586,171 (463,297) (12,431) 40,431 -------- -------- --------- -------- --------- Balance at January 30, 1999............ $ 567 $586,641 $ 200,203 $ 524 $ 787,935 ======== ======== ========= ======== =========
See accompanying notes to financial statements. 24 27 BELK, INC. AND PREDECESSOR COMPANIES STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED --------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Cash flows from operating activities: Net income................................................ $ 56,970 $ 54,400 $ 101,370 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes..................................... 5,087 (4,326) 175 Deferred income........................................... 288 81 759 Depreciation and amortization............................. 57,141 54,081 51,021 Impairment of long-lived assets........................... -- 6,260 3,177 (Gain) loss on disposal of discontinued operations, net... -- 3,999 (41,466) (Gain) loss on sale of property and equipment............. (2,152) 1,058 (21,328) (Gain) loss on sale of investments........................ 1,555 (461) (1,882) Equity in earnings of unconsolidated entities, net of income taxes............................................ (188) (16,653) (4,046) (Increase) decrease in: Accounts receivable, net................................ 14,810 (17,595) (32,729) Merchandise inventory................................... (34,987) (5,754) 17,462 Prepaid income taxes.................................... (1,756) (2,544) (606) Prepaid expenses and other assets....................... (16,356) 18,732 6,706 Increase (decrease) in: Accounts payable and accrued expenses................... 31,786 553 (8,070) Accrued income taxes.................................... 18,696 (2,317) 2,357 Deferred compensation and other liabilities............. (4,510) 2,387 (5,607) --------- --------- --------- Net cash provided by operating activities................... 126,384 91,901 67,293 --------- --------- --------- Cash flows from investing activities: Distributions received from real estate partnership....... -- -- 3,375 Purchases of investments.................................. (10,149) (4,403) (16,338) Proceeds from sales of investments........................ 23,021 5,673 16,583 Purchases of property and equipment....................... (136,518) (77,295) (62,408) Proceeds from sales of property and equipment............. 28,673 2,996 27,275 Cash acquired from Belk-Simpson Reorganization............ 11,861 -- -- Acquisition of businesses, net of cash acquired........... -- -- (36,145) --------- --------- --------- Net cash used by investing activities....................... (83,112) (73,029) (67,658) --------- --------- --------- Cash flows from financing activities: Payments to dissenting stockholders....................... (50,553) -- -- Proceeds from notes payable............................... 271,678 24,541 158,018 Payments on notes payable................................. (69,095) (122,796) (91,023) Proceeds from issuance of long-term debt.................. 125,000 175,351 220,157 Principal payments on long-term debt and capital lease obligations............................................. (292,134) (91,779) (160,168) Net proceeds from (payments on) lines of credit........... (13,764) (29,694) 36,233 Dividends paid............................................ (8,854) (8,936) (11,847) Repurchase of common stock................................ (3,500) (5,411) (169,298) --------- --------- --------- Net cash used by financing activities....................... (41,222) (58,724) (17,928) --------- --------- --------- Net increase (decrease) in cash and cash equivalents........ 2,050 (39,852) (18,293) Cash and cash equivalents at beginning of year.............. 16,263 56,115 74,408 --------- --------- --------- Cash and cash equivalents at end of year........... $ 18,313 $ 16,263 $ 56,115 ========= ========= ========= Supplemental disclosures of cash flow information: Interest paid............................................. $ 34,226 $ 40,489 $ 31,129 Income taxes paid......................................... 41,607 38,965 33,062 Supplemental schedule of noncash investing and financing activities: Decrease in assets and liabilities due to sale of rental operations.............................................. -- -- 167,318 Purchase of net assets of retail company through assumption of notes..................................... -- -- 51,923 Increase in property and equipment through assumption of capital leases.......................................... 25,587 -- -- Increase in property and equipment through assumption of debt.................................................... 32,000 -- -- Increase in assets and liabilities due to Reorganization.......................................... 40,431 -- --
See accompanying notes to financial statements. 25 28 BELK, INC. AND PREDECESSOR COMPANIES NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Belk, Inc. and its subsidiaries (the "Company") operate retail department stores in the southeastern United States. The Company's outlet store subsidiary is presented as a discontinued operation. On April 15 and 16, 1998, the shareholders of the 112 companies previously comprising the Belk Companies (the "Predecessor Companies") approved the reorganization (the "Reorganization") of the Predecessor Companies into a single operating entity, the Company, pursuant to a Plan and Agreement of Reorganization, dated November 25, 1997, as amended, among the Company, Belk Acquisition Co. and the Predecessor Companies (the "Reorganization Agreement"). The accompanying consolidated balance sheet as of January 30, 1999 reflects the adjustments to merge the companies pursuant to the Reorganization. The statements of income, stockholders' equity and cash flows for the fiscal year ended January 30, 1999 include three months of pre-Reorganization historical combined results of the Predecessor Companies and nine months of post-Reorganization consolidated results of the Company. The combined financial statements as of January 31, 1998, and for the fiscal years ended January 31, 1998 and February 1, 1997, have been prepared for purposes of depicting the combined financial position and results of operations of the Predecessor Companies on a historical cost basis. On May 2, 1998, a majority of the shareholders of one of the Belk Companies, Belk-Simpson Company, Greenville, South Carolina ("Belk-Simpson"), redeemed their shares in Belk-Simpson (the "Belk-Simpson Reorganization," see note 4). Prior to the Belk-Simpson Reorganization, the 37% investment in Belk-Simpson was accounted for under the equity method of accounting. Subsequent to the Belk-Simpson Reorganization, Belk-Simpson is included in the consolidated financial statements as a wholly-owned subsidiary. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. All significant intercompany transactions and balances have been eliminated in consolidation and combination. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR The Company's fiscal year ends on the Saturday closest to each January 31. Fiscal years 1999, 1998 and 1997 ended on January 30, 1999, January 31, 1998 and February 1, 1997, respectively, and included 52 weeks. REVENUES Revenues include sales from retail operations and leased departments, net of returns. Customer returns are recognized as incurred. COST OF GOODS SOLD Cost of goods sold includes occupancy and buying expenses. Occupancy expenses include rent, utilities and real estate taxes. Buying expenses include payroll and travel expenses associated with the buying function. 26 29 BELK, INC. AND PREDECESSOR COMPANIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) FINANCE CHARGES Selling, general and administrative expenses in the statements of income are reduced by finance charge revenue arising from customer accounts receivable. Finance charge revenues were $41,328, $43,788, and $37,562 in fiscal years 1999, 1998, and 1997, respectively. PRE-OPENING COSTS Store pre-opening costs are expensed as incurred. ADVERTISING Advertising costs, net of co-op recoveries from suppliers, are expensed as incurred and amounted to $60,707, $61,326, and $54,977 in fiscal years 1999, 1998 and 1997, respectively. IMPAIRMENT CHARGE The Company evaluates its investment in long-lived assets on an individual store basis and determines fair value based upon an assessment of historical and projected operating results. As a result of this analysis, the Company recorded pre-tax impairment charges of $6,260 and $3,177 for fiscal years 1998 and 1997, respectively, to reduce the carrying value of these assets to their estimated fair value. CASH EQUIVALENTS Cash equivalents include liquid investments with an original maturity of 90 days or less. MERCHANDISE INVENTORY Merchandise inventory is stated at the lower of average cost or market as determined by the retail inventory method. INVESTMENTS The Company accounts for investments in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Securities classified as available-for-sale are valued at fair value, while securities that the Company has the ability and positive intent to hold to maturity are valued at amortized cost. The Company includes unrealized holding gains and losses for available-for-sale securities in other comprehensive income. Realized gains and losses are recognized on a specific identification basis and included in income. PROPERTY AND EQUIPMENT, NET Property and equipment owned by the Company is stated at cost less accumulated depreciation. Property and equipment leased by the Company under capital leases is stated at an amount equal to the present value of the minimum lease payments less accumulated amortization. Depreciation and amortization are provided utilizing straight-line and various accelerated methods over the shorter of estimated asset lives or related lease terms. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement bases and the respective tax bases of the assets and liabilities and operating loss and tax credit 27 30 BELK, INC. AND PREDECESSOR COMPANIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. INTANGIBLE ASSETS, NET Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited, generally 15 years. Leasehold intangibles, which represent the excess of fair value over the carrying value of leaseholds, are amortized on a straight-line basis over the remaining terms of the lease agreements. The carrying value of intangible assets is periodically reviewed by the Company's management to assess the recoverability of the assets. Accumulated amortization was $4,017 at January 31, 1998. During fiscal year 1999 all remaining goodwill and leasehold intangibles were eliminated in recording the Reorganization. DERIVATIVE FINANCIAL INSTRUMENTS The Company utilizes derivative financial instruments (interest rate swap agreements) to manage the interest rate risk associated with its borrowings. The counterparties to these instruments are major financial institutions. These agreements are used to reduce the potential impact of increases in interest rates on variable rate long-term debt. The differential to be paid or received is accrued as interest rates change and is recognized as an adjustment to interest expense. Other than the amounts allocated to interest rate swaps in recording the Reorganization, the fair value of the swap agreements is not recognized in the financial statements. RECENT ACCOUNTING PRONOUNCEMENTS Effective February 1, 1998, the Company adopted SFAS No. 128, "Earnings Per Share". SFAS No. 128 has not been applied to the combined financial statements of the Predecessor Companies but was applicable to the Company subsequent to the Reorganization on May 2, 1998. For the purpose of calculating net income per share for the fiscal year ended January 30, 1999, the calculation assumes that the Belk, Inc. shares of common stock issued in connection with the Reorganization have been outstanding since February 1, 1998. Effective February 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income", SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", and SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits". SFAS No. 130 requires the Company to report the change in its net assets from nonowner sources. Accumulated other comprehensive income consists of unrealized gains and losses on investments. Comprehensive income is disclosed in the statements of Stockholders' Equity. SFAS No. 131 establishes revised standards for the reporting of information about operating segments. SFAS No. 131 did not impact the Company as it operates as one segment. SFAS No. 132 standardizes the disclosure requirements for pension and other postretirement benefit plans. SFAS No. 132 did not impact the Company's accounting for these plans, but did affect the disclosures in Note 14. RECLASSIFICATIONS Certain reclassifications have been made to prior years' financial statements to conform with the classification used in the financial statements for the fiscal year ended January 30, 1999. 28 31 BELK, INC. AND PREDECESSOR COMPANIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) (3) PRO FORMA CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) As discussed in note 1 above, on April 15 and 16, 1998, the shareholders of the Predecessor Companies approved the Reorganization. The following unaudited pro forma condensed statements of operations are based upon the combined statements of operations of the Predecessor Companies, adjusted to give effect to the Reorganization and the acquisition of Belk-Simpson (see note 4) as if it had occurred at the beginning of each period presented. The Reorganization and the acquisition of Belk-Simpson are reflected in the following unaudited pro forma condensed statements of operations as purchase business combinations in accordance with the provisions of Accounting Principles Board Opinion Number 16, and the Securities and Exchange Commission's Staff Accounting Bulletin Number 97. Belk Enterprises, Inc. was the acquiring corporation in the Reorganization because its shareholders received a larger portion of the voting rights in the Company than any other Predecessor Company. The excess of fair value of the Predecessor Companies over their historical cost was allocated as follows:
AMOUNT -------- Prepaid pension costs....................................... $101,235 Property and equipment, net................................. 31,260 Deferred income tax liability, net.......................... (15,558) Postretirement liabilities.................................. (17,429) Other....................................................... (8,524) -------- Fair value in excess of historical cost..................... 90,984 Dissented stock liability................................... (50,553) -------- Net increase to stockholders' equity.............. $ 40,431 ========
Pro forma basic earnings per share are computed based on the 56,682,252 outstanding common shares of the Company issued in connection with the Reorganization.
FISCAL YEAR ENDED ------------------------------------------------- JANUARY 30, 1999 JANUARY 31, 1998 ----------------------- ----------------------- REPORTED PRO FORMA REPORTED PRO FORMA ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues................................ $2,091,060 $2,107,363 $1,974,102 $2,042,266 Income from continuing operations....... 57,974 55,905 59,672 50,525 Net income.............................. 56,970 54,901 54,400 45,253 Basic net income per share.............. 1.01 .97 n/a .80
(4) ACQUISITIONS In accordance with the Belk-Simpson Reorganization, Belk-Simpson sold substantially all of its investment assets and used the proceeds to purchase common stock of Belk-Simpson. Of the 99,008 shares of common stock of Belk-Simpson that were outstanding at the time of the offer, 63,077 shares were tendered and purchased by Belk-Simpson for an aggregate purchase price of approximately $68 million. The acquisition was accounted for using the purchase method of accounting. On November 1, 1996, the Company acquired substantially all of the outstanding shares of the common stock of Leggett of Virginia, Inc. ("Leggett"). Leggett operated retail department stores generally in the southeastern United States. The acquisition was accounted for using the purchase method of accounting and, accordingly, Leggett's operating results subsequent to the date of acquisition have been included in the Company's financial statements. 29 32 BELK, INC. AND PREDECESSOR COMPANIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) The aggregate purchase price was approximately $92 million, which includes acquisition expenses. The aggregate purchase price, which was financed through available cash resources, proceeds from a credit facility and notes held by previous Leggett shareholders, has been allocated to the assets and liabilities of Leggett based upon their respective fair market values. The excess of purchase price over net assets acquired of approximately $12.5 million was being amortized over 15 years on a straight-line basis. During 1999 the remaining excess of purchase price over net assets acquired was eliminated in recording the Reorganization. (5) DISCONTINUED OPERATIONS In September 1997, the managers and the advisory board of TAGS Stores, LLC, ("TAGS"), the Company's discount outlet store subsidiary, adopted a formal plan to liquidate its operations during the 1997 Christmas retailing season. Accordingly, the results of operations of TAGS are presented as discontinued operations. During the year ended January 31, 1998, the Company provided for losses on liquidation of the discontinued operations of $4.0 million, net of income tax benefit of $2.4 million. TAGS, which was formed in February 1996, recorded revenues of $25.9 and $18.5 million for fiscal years 1998 and 1997, respectively. In November 1996, JV Properties ("JV"), a retail mall joint venture, distributed its interest in a retail mall, along with debt, to BAC, Inc. ("BAC"), a wholly-owned subsidiary of the Company, in redemption of BAC's partnership interest in JV. Subsequently, the Company sold the stock of BAC to an unrelated third party and recognized a gain on the disposal of $41,466 net of income tax expense of $29,897. The accompanying financial statements present the results of operations of JV as discontinued operations. JV recorded revenues of $11,897 for the year ended February 1, 1997. (6) ACCOUNTS RECEIVABLE, NET Customer receivables arise primarily under open-end revolving credit accounts used to finance purchases of merchandise from the Company. These accounts have various billing and payment structures, including varying minimum payment levels and finance charge rates. Installments of deferred payment accounts receivable maturing after one year are included in current assets in accordance with industry practice. The Company provides an allowance for doubtful accounts which is determined based on a number of factors, including the risk characteristics of the portfolio, historical charge-off patterns and management judgment. Accounts receivable, net consists of:
JANUARY 30, JANUARY 31, 1999 1998 ----------- ----------- Customer receivables........................................ $343,125 $349,641 Other....................................................... 17,370 12,274 Less allowance for doubtful accounts........................ (9,352) (8,406) -------- -------- Accounts receivable, net.......................... $351,143 $353,509 ======== ========
30 33 BELK, INC. AND PREDECESSOR COMPANIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) Changes in the allowance for doubtful accounts are as follows:
FISCAL YEAR ENDED --------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 ----------- ----------- ----------- Balance, beginning of year.......................... $ 8,406 $ 6,813 $ 4,883 Charged to expense.................................. 12,237 13,181 10,829 Acquired............................................ 313 -- 801 Net uncollectible balances written off.............. (11,604) (11,588) (9,700) -------- -------- ------- Balance, end of year...................... $ 9,352 $ 8,406 $ 6,813 ======== ======== =======
(7) INVESTMENTS IN UNCONSOLIDATED ENTITIES The Company's 25% ownership in Carolina Place Associates Limited Partnership ("CPA") is recorded on the equity method. Equity in gain on sale of investments of unconsolidated entities for the year ended February 1, 1997 includes $3,072, net of income tax expense of $1,973, for the Company's portion of the gain recognized by CPA for the sale of its investment in a retail mall joint venture. Prior to the Belk-Simpson Reorganization (see note 1), the Company's 37% investment in Belk-Simpson was recorded on the equity method. Equity in earnings of Belk-Simpson in fiscal years 1999, 1998 and 1997 were $188, $762 and $974, respectively. Equity in gain on sale of investments of unconsolidated entities for the year ended January 31, 1998 includes $15,891, net of income tax expense of $9,580, for the Company's portion of the gain recognized by Belk-Simpson in the liquidation of its investment portfolio. (8) INVESTMENT SECURITIES Held-to-maturity securities consist of federal, state and local debt securities. Details of investments in held-to-maturity securities are as follows:
JANUARY 30, JANUARY 31, 1999 1998 ----------- ----------- Amortized cost.............................................. $11,432 $10,480 Gross unrealized gains...................................... 778 626 ------- ------- Fair value........................................ $12,210 $11,106 ======= =======
At January 30, 1999, scheduled maturities of held-to-maturity securities are as follows:
AMORTIZED FAIR VALUE COST ---------- --------- One to five years........................................... $ 5,020 $ 4,787 Six to ten years............................................ 4,485 4,124 After ten years............................................. 2,705 2,521 ------- --------- $12,210 $ 11,432 ======= =========
31 34 BELK, INC. AND PREDECESSOR COMPANIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) Details of investments in available-for-sale securities are as follows:
JANUARY 30, JANUARY 31, 1999 1998 ----------- ----------- Cost........................................................ $11,857 $ 4,660 Gross unrealized gains...................................... 1,833 22,141 Gross unrealized losses..................................... (958) (58) ------- ------- Fair value of securities.......................... $12,732 $26,743 ======= =======
Gross realized gains on sales of available-for-sale securities included in income in fiscal years 1999, 1998 and 1997 were $277, $546 and $1,966 respectively, and gross realized losses included in income in fiscal years 1999, 1998 and 1997 were $1,832, $85 and $84, respectively. (9) PROPERTY AND EQUIPMENT, NET Details of property and equipment are as follows:
ESTIMATED JANUARY 30, JANUARY 31, LIVES 1999 1998 --------- ----------- ----------- Land................................................. n/a $ 29,752 $ 20,337 Buildings............................................ 30-50 559,530 423,962 Furniture, fixtures and equipment.................... 5-7 489,248 432,425 Construction in progress............................. n/a 10,181 8,282 ---------- --------- 1,088,711 885,006 Less accumulated depreciation and amortization....... (527,762) (489,235) ---------- --------- Property and equipment, net................ $ 560,949 $ 395,771 ========== =========
(10) ACCRUED EXPENSES Accrued expenses are comprised of the following:
JANUARY 30, JANUARY 31, 1999 1998 ----------- ----------- Salaries, wages and employee benefits....................... $24,712 $33,141 Interest.................................................... 7,679 4,773 Rent........................................................ 5,596 4,505 Taxes, other than income.................................... 5,180 3,721 Other....................................................... 17,563 21,380 ------- ------- $60,730 $67,520 ======= =======
32 35 BELK, INC. AND PREDECESSOR COMPANIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) (11) BORROWINGS Long-term debt, principally due to banks, and capital lease obligations consist of the following:
JANUARY 30, JANUARY 31, 1999 1998 ----------- ----------- Bond facility............................................... $125,000 $ -- Accounts receivable securitization.......................... 243,863 -- Capital lease agreements through February 2018.............. 34,170 11,556 Mortgage notes payable...................................... -- 39,898 Unsecured notes payable..................................... 680 248,128 -------- -------- 403,713 299,582 Less current installments................................... (5,001) (89,133) -------- -------- Long-term debt and capital lease obligations, excluding current installments...................................... $398,712 $210,449 ======== ========
The annual maturities of long-term debt and capital lease obligations over the next five years as of January 30, 1999 are $5,001, $249,096, $5,501, $5,856 and $2,986, respectively. The Company's loan agreements place restrictions on mergers, consolidations, acquisitions, sales of assets, indebtedness, transactions with affiliates, leases, liens, dividend payments and investments. They also contain leverage ratio, tangible net worth and fixed charge coverage ratio requirements. The Company is in compliance with all debt covenants. The bond facility matures in July 2008 and bears interest at a variable rate based on the market for the bonds that has historically approximated one-month LIBOR plus 50 basis points. The accounts receivable securitization bears interest at a rate that approximates LIBOR plus 35 basis points, is secured by the Company's customer accounts receivable and limits borrowings to approximately 80% of the Company's customer accounts receivable. The accounts receivable securitization expires on April 27, 2000 and, accordingly, the balance as of January 30, 1999 has been included in annual maturities of long-term debt for fiscal year 2001. However, the agreement may be renewed by mutual consent of the parties and it is the Company's intent to utilize the accounts receivable securitization as long-term financing. At January 30, 1999 LIBOR was 4.9%. The Company has entered into interest rate swap agreements with various financial institutions to manage the exposure to changes in interest rates on its variable rate indebtedness. The amount of indebtedness covered by the interest rate swaps is $350 million for fiscal year 1999, $325 million for fiscal year 2000, $300 million for fiscal years 2001 through 2008 and $250 million for fiscal year 2009. At January 30, 1999, the Company has an unsecured line of credit agreement totaling $150,000 with a bank at a variable interest rate based on LIBOR plus 60 basis points. The agreement expires May 31, 1999 and may be renewed upon mutual agreement between the parties. The amounts outstanding under line of credit agreements at January 30, 1999 and January 31, 1998 were $4,264 and $18,026, respectively. The weighted average interest rates on short term borrowings at January 30, 1999 and January 31, 1998 were 5.6% and 6.2%, respectively. The Company prepaid substantially all of its unsecured notes and all of its mortgage notes outstanding during fiscal year 1999 due to the availability of lower interest rate financing. The Company incurred a loan prepayment penalty of $1,004, net of income taxes of $670, on a mortgage prepayment that is reported as an extraordinary loss. 33 36 BELK, INC. AND PREDECESSOR COMPANIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) (12) LEASES The Company leases certain of its stores, warehouse facilities and equipment. The majority of these leases will expire over the next 10 years. The leases usually contain renewal options and provide for payment by the lessee of real estate taxes and other expenses and, in certain instances, increased rentals based on percentages of sales. Future minimum lease payments under noncancelable leases as of January 30, 1999 were as follows:
FISCAL YEAR CAPITAL OPERATING - ----------- -------- --------- 2000........................................................ $ 6,885 $ 30,983 2001........................................................ 6,800 26,987 2002........................................................ 6,740 24,229 2003........................................................ 6,730 22,884 2004........................................................ 3,620 21,148 After 2004.................................................. 14,170 95,558 -------- -------- Total............................................. 44,945 $221,789 ======== Less imputed interest....................................... (10,775) -------- Present value of minimum lease payments..................... 34,170 Less current portion........................................ (4,935) -------- $ 29,235 ========
Rental expense for all operating leases consists of the following:
FISCAL YEAR ENDED --------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 ----------- ----------- ----------- Buildings: Minimum rentals..................................... $33,750 $32,941 $29,982 Contingent rentals.................................. 5,059 5,037 4,562 Equipment............................................. 9,316 10,385 10,484 ------- ------- ------- Total rental expense........................ $48,125 $48,363 $45,028 ======= ======= =======
Contingent rentals are determined on the basis of a percentage of sales in excess of stipulated minimums for certain store facilities. Assets under capital lease and accumulated amortization was $43,931 and $11,417, respectively, at January 30, 1999. 34 37 BELK, INC. AND PREDECESSOR COMPANIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) (13) INCOME TAXES Federal and state income tax expense (benefit) from continuing operations was as follows:
FISCAL YEAR ENDED --------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 ----------- ----------- ----------- Current: Federal............................................. $24,654 $28,212 $31,427 State............................................... 4,910 6,014 7,200 ------- ------- ------- 29,564 34,226 38,627 ------- ------- ------- Deferred: Federal............................................. 3,644 (3,280) 91 State............................................... 1,443 (1,046) 84 ------- ------- ------- 5,087 (4,326) 175 ------- ------- ------- Income taxes.......................................... $34,651 $29,900 $38,802 ======= ======= =======
A reconciliation between income taxes from continuing operations computed using the effective income tax rate and the federal statutory income tax rate of 35% is as follows:
FISCAL YEAR ENDED --------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 ----------- ----------- ----------- Income tax at the statutory federal rate.............. $32,353 $25,522 $34,739 State income taxes, net of federal income tax benefit............................................. 4,130 3,229 4,735 Other................................................. (1,832) 1,149 (672) ------- ------- ------- Income taxes.......................................... $34,651 $29,900 $38,802 ======= ======= =======
35 38 BELK, INC. AND PREDECESSOR COMPANIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) Deferred taxes based upon differences between the financial statement and tax bases of assets and liabilities and available tax carryforwards consist of:
JANUARY 30, JANUARY 31, 1999 1998 ----------- ----------- Deferred tax assets: Benefit plan costs........................................ $25,243 $15,512 Inventory capitalization.................................. 5,579 4,512 Allowance for doubtful accounts........................... 3,564 3,183 Tax carryovers............................................ 2,580 10,362 Accrued vacation.......................................... 2,363 1,898 Other..................................................... 2,061 8,544 ------- ------- Gross deferred tax assets................................... 41,390 44,011 Less valuation allowance.................................... (930) (2,705) ------- ------- Net deferred tax assets..................................... 40,460 41,306 Deferred tax liabilities: Prepaid pension costs..................................... 38,625 846 Property and equipment.................................... 30,400 17,161 Inventory................................................. 7,469 3,799 Investment securities..................................... 3,771 8,102 Provision for gain on disposal of discontinued operations............................................. -- 29,897 Other..................................................... 1,529 2,929 ------- ------- Gross deferred tax liabilities.............................. 81,794 62,734 ------- ------- Net deferred tax liabilities...................... $41,334 $21,428 ======= =======
The valuation allowance decreased by $1,775 and $783 for the years ended January 30, 1999 and January 31, 1998, respectively. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the temporary differences becoming deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of January 30, 1999, the Company has net operating loss carryforwards for federal and state income tax purposes of $4,159 and $16,986, respectively, which are available to offset future taxable income, if any. These carryforwards expire at various intervals through 2013. In addition, the Company has alternative minimum tax net operating loss carryforwards of $11,417 which are available to reduce future alternative minimum taxable income at various intervals through 2013. (14) PENSION AND POSTRETIREMENT BENEFITS The Company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's compensation during the calendar years 1994, 1995 and 1996, or the first three years of employment, if initially employed after 1994. The cost of pension benefits has been determined by the projected unit credit actuarial method in accordance with SFAS No. 87 "Employers' Accounting for Pensions." The assets held by the plan consist of 58% equities, 39% bonds and 3% other investments. No additional funding of the plan is anticipated in the foreseeable future. 36 39 BELK, INC. AND PREDECESSOR COMPANIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) The Company also has a defined benefit health care plan that provides postretirement medical and life insurance benefits to certain retired full-time employees. The Company accounts for postretirement benefits by recognizing the cost of these benefits over an employee's estimated term of service with the Company. The change in benefit obligation, change in plan assets, funded status, amounts recognized and actuarial assumptions are as follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS ------------------------- ------------------------- JANUARY 30, JANUARY 31, JANUARY 30, JANUARY 31, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Change in benefit obligation: Benefit obligation at beginning of year... $209,469 $183,083 $ 32,332 $ 27,742 Service cost.............................. 13,068 10,688 464 454 Interest cost............................. 15,536 14,924 2,472 2,287 Amendments................................ -- 5,205 881 -- Actuarial loss............................ 4,600 9,528 2,717 4,178 Benefits paid............................. (16,207) (13,959) (2,819) (2,329) -------- -------- -------- -------- Benefit obligation at end of year......... 226,466 209,469 36,047 32,332 -------- -------- -------- -------- Change in plan assets: Fair value of plan assets at beginning of year................................... 332,775 289,483 -- -- Actual return on plan assets.............. 40,030 57,251 -- -- Benefits paid............................. (16,207) (13,959) -- -- -------- -------- -------- -------- Fair value of plan assets at end of year................................... 356,598 332,775 -- -- -------- -------- -------- -------- Funded status............................... 130,132 123,306 (36,047) (32,332) Unrecognized net transition obligation...... (1,046) (5,699) 3,664 14,022 Unrecognized prior service costs............ 1,266 4,797 -- -- Unrecognized net gains...................... (29,000) (120,154) 5,639 10,667 -------- -------- -------- -------- Net amount recognized............. $101,352 $ 2,250 $(26,744) $ (7,643) ======== ======== ======== ========
The components of net periodic benefit cost are as follows:
PENSION PLAN POSTRETIREMENT PLAN --------------------------------------- --------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 1999 1998 1997 ----------- ----------- ----------- ----------- ----------- ----------- Service cost......................... $13,068 $10,688 $10,657 $ 464 $ 454 $ 455 Interest cost........................ 15,536 14,924 13,202 2,472 2,287 2,044 Return on assets..................... (25,048) (20,064) (19,146) -- -- -- Amortization of unrecognized items: Net transition (asset) obligation....................... (1,022) (1,965) (1,965) 486 934 935 Prior service cost................. 144 277 (70) 241 395 363 Net gains.......................... (545) (1,511) (963) -- -- -- ------- ------- ------- ------ ------ ------ Net periodic benefit cost... $ 2,133 $ 2,349 $ 1,715 $3,663 $4,070 $3,797 ======= ======= ======= ====== ====== ======
Weighted average assumptions were:
PENSION PLAN POSTRETIREMENT PLAN --------------------------------------- --------------------------------------- JANUARY 30, JANUARY 31, FEBRUARY 1, JANUARY 30, JANUARY 31, FEBRUARY 1, 1999 1998 1997 1999 1998 1997 ----------- ----------- ----------- ----------- ----------- ----------- Discount rates....................... 6.75% 7.25% 7.75% 6.75% 7.25% 7.75% Rates of compensation increase....... 4.00 4.00 4.00 N/A N/A N/A Return on plan assets................ 8.50 8.50 8.50 N/A N/A N/A
37 40 BELK, INC. AND PREDECESSOR COMPANIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) For measurement purposes, an 8.0% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed for fiscal year 1999; the rate was assumed to decrease gradually to 5.5% by fiscal year 2003 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of January 30, 1999 by $2,393 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended January 30, 1999 by $296. Decreasing the assumed health care cost trend rates by one percentage point in each year would decrease the accumulated postretirement benefit obligation as of January 30, 1999 by $1,955 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended January 30, 1999 by $235. (15) OTHER EMPLOYEE BENEFITS The Belk Employees' Health Care Plan provides medical and dental benefits to substantially all full-time employees. This Plan is "self-funded" for medical and dental benefits through a 501(c)(9) Trust. The Group Life Insurance Plan and The Belk Employees Short Term Disability Insurance Plan provide insurance to substantially all full-time employees and are fully insured through contracts issued by insurance companies. Contributions by the Company under these plans amounted to approximately $17,350, $11,584, and $12,311 in fiscal years 1999, 1998 and 1997, respectively. The Belk 401(K) Savings Plan, a contributory, defined contribution multi-employer plan, provides benefits for substantially all employees. Prior to January 1, 1998, the contributions to the plan generally represented 10% of profits, as defined. Beginning on January 1, 1998, the contributions to the 401(K) Savings Plan are comprised of a matching contribution, generally 50% of the employees' contribution up to 6% of eligible compensation, and a basic contribution, generally 2% of eligible compensation, regardless of the employees' contributions. The cost of the plan was approximately $7,961, $16,292 and $14,003 in fiscal years 1999, 1998 and 1997, respectively. The Supplemental Executive Retirement Plan ("SERP") is a non-qualified defined benefit retirement plan that provides retirement and death benefits to certain qualified executives of the Company. Total SERP costs charged to operations were approximately $1,431, $1,336 and $1,002 in fiscal years 1999, 1998 and 1997, respectively. The effective discount rate used in determining the net periodic SERP cost is 6.75%, 7.25% and 7.75% for fiscal years 1999, 1998 and 1997, respectively. Actuarial gains and losses are amortized over the average remaining service lives of the participants. Certain eligible employees participate in a non-qualified Deferred Compensation Plan ("DCP"). Participants in the plan have elected to defer a portion of their regular compensation subject to certain limitations prescribed by the DCP. The Company is required to pay interest on the employees' deferred compensation at various rates between 8% and 15%. Total interest expense related to this plan and charged to operations was approximately $4,007, $3,028 and $2,768 in fiscal years 1999, 1998 and 1997, respectively. 38 41 BELK, INC. AND PREDECESSOR COMPANIES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS) (16) FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying values approximate fair values for financial instruments that are short-term in nature, such as cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, notes payable and lines of credit. The fair value of other financial instruments are as follows:
JANUARY 30, 1999 JANUARY 31, 1998 ------------------- ------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE -------- -------- -------- -------- Long-term debt (excluding capitalized leases)..................................... $369,543 $369,543 $288,026 $290,574 Interest rate swap agreements................. (3,844) (16,785) -- (4,605) Investment securities......................... 24,164 24,942 37,223 37,849
The fair value of the Company's fixed rate long-term debt is estimated based on the current rates offered to the Company for debt of the same remaining maturities. The carrying value of the Company's variable rate long-term debt is reasonable estimates of fair value. The fair value of interest rate swap agreements is the estimated amount that the Company would pay to terminate the swap agreement, taking into account current credit worthiness of the swap counterparties. (17) STOCKHOLDERS' EQUITY Authorized capital stock of Belk, Inc. includes 200 million shares of Class A common stock, 200 million shares of Class B common stock and 20 million shares of preferred stock, all with par value of $.01 per share. At January 30, 1999, there were 56,658,134 shares of Class A common stock outstanding, 24,118 shares of Class B common stock outstanding, and no shares of preferred stock outstanding. The Class A shares were issued in exchange for the shares of existing shareholders of the Predecessor Companies in connection with the Reorganization described in Note 1. The Class B shares were issued in exchange for Class A shares as described below. Class A shares are convertible into Class B shares on a 1 for 1 basis, in whole or in part, at any time at the option of the holder. Class A and Class B shares are identical in all respects, with the exception that Class A stockholders are entitled to 10 votes per share and Class B stockholders are entitled to one vote per share. There are restrictions on transfers of Class A shares to any person other than a Class A permitted holder. Each Class A share transferred to a non Class A permitted holder automatically converts into one share of Class B. (18) RELATED PARTY TRANSACTIONS On January 25, 1999, the Company completed the settlement of dissent proceedings with respect to the capital stock of various Belk Companies involved in the Reorganization with Mrs. Sarah Belk Gambrell, a director of the Company and Mrs. Sarah Gambrell Knight, daughter of Sarah Belk Gambrell, for aggregate consideration of $35,000 and $15,000, respectively. On August 1, 1997, the Company guaranteed a $5,000 bank loan made to Brothers Investment Company. This loan bears interest at the prime rate as established by the Federal Reserve Bank, less 0.5% per annum, payable monthly, and is due on July 31, 1999. At January 30, 1999 and January 31, 1998, this loan had an outstanding balance of $5,000. John M. Belk, the current Chairman of the Board of the Company, owns 50% of Brothers Investment Company and is a director of Brothers Investment Company. The estate of Thomas M. Belk, of which John M. Belk is a co-executor, owns the remaining 50% of Brothers Investment Company. 39 42 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item with respect to Directors and Executive Officers of the Registrant is included in the sections entitled "Election of Directors," "Management of the Company" and "Executive Compensation -- Executive Officers" of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 26, 1999, and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is included in the section entitled "Executive Compensation" of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 26, 1999, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is included in the sections entitled "Management Common Stock Ownership" and "Principal Stockholders" of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 26, 1999, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is included in the section entitled "Executive Compensation -- Certain Transactions" of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 26, 1999, and is incorporated herein by reference. 40 43 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements (included in Item 8 of this Form 10-K) Independent Auditors' Report Balance Sheets -- As of January 30, 1999 and January 31, 1998 Statements of Income -- Years ended January 30, 1999, January 31, 1998 and February 1, 1997 Statements of Stockholders' Equity -- Years ended January 30, 1999, January 31, 1998 and February 1, 1997 Statements of Cash Flow -- Years ended January 30, 1999, January 31, 1998 and February 1, 1997 Notes to Financial Statements 2. Financial Statement Schedules None 3. Exhibits The following list of exhibits includes both exhibits submitted with this Form 10-K as filed with the Commission and those incorporated by reference to other filings: 3.1 -- Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-4 (File No. 333-42935)) 3.2 -- Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.3 to the Registrant's Registration Statement on Form S-4 (File No. 333-42935)) 4.1 -- Specimen Class A Stock Certificate (incorporated by reference to Exhibit 4.0 to the Registrant's Registration Statement on Form S-4 (File No. 333-42935)) 4.2 -- Specimen Class B Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-4 (File No. 333-42935)) 10.1 -- Note Purchase and Security Agreement between Enterprise Funding Corporation, as Company, and Belk, Inc. as Debtor, and The Belk Center, Inc. as Servicer, and NationsBank, N.A., as Agent, and Bank Investor, dated as of June 12, 1998. 10.2 -- Receivables Purchase Agreement among Belk-Simpson, Greenville, South Carolina, as Seller, and Belk, Inc., as Purchaser, and The Belk Center, Inc., as Servicer, dated as of June 12, 1998. 10.3 -- Amendment No. 1 to Note Purchase and Security Agreement, dated as of January 30, 1999, by and among Belk, Inc., as Debtor, The Belk Center, Inc., as Servicer, Enterprise Funding Corporation, as Company, and NationsBank, N.A., as Agent. 10.4 -- Receivables Purchase Agreement among Belk Stores of Virginia LLC, as Seller, and Belk, Inc., as Purchaser, and The Belk Center, Inc., as Servicer dated as of January 30, 1999. 10.5 -- Amendment No. 2 to Note Purchase Agreement among Belk, Inc., as Debtor, The Belk Center, Inc., as Servicer, Enterprise Funding Corporation, as Company, and NationsBank, N.A., as Agent, dated as of April 28, 1999. 10.6 -- Letter of Credit and Reimbursement Agreement by and between Belk, Inc. and First Union National Bank, dated as of July 1, 1998. 10.7 -- Credit Agreement, dated as of September 11, 1998, by and between Belk, Inc., as Borrower, and Wachovia Bank, N.A., as Bank.
41 44 21.1 -- Subsidiaries 27.1 -- Financial Data Schedules
(b) REPORTS ON FORM 8-K. There were no reports filed on Form 8-K during the fiscal quarter ended January 30, 1999. 42 45 SIGNATURES Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 30th day of April 1999. BELK, INC. (Registrant) By: /s/ JOHN M. BELK ---------------------------------- John M. Belk Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on April 30, 1999. /s/ JOHN M. BELK ------------------------------------------------------ John M. Belk Chairman of the Board and Chief Executive Officer (Principal Executive Officer) /s/ THOMAS M. BELK, JR. ------------------------------------------------------ Thomas M. Belk, Jr. President and Director /s/ H. W. MCKAY BELK ------------------------------------------------------ H. W. McKay Belk President and Director /s/ JOHN R. BELK ------------------------------------------------------ John R. Belk President and Director /s/ SARAH BELK GAMBRELL ------------------------------------------------------ Sarah Belk Gambrell Director /s/ J. KIRK GLENN, JR. ------------------------------------------------------ J. Kirk Glenn, Jr. Director /s/ KARL G. HUDSON, JR. ------------------------------------------------------ Karl G. Hudson, Jr. Director ------------------------------------------------------ John A. Kuhne Director /s/ B. FRANK MATTHEWS, II ------------------------------------------------------ B. Frank Matthews, II Director /s/ JAMES M. BERRY ------------------------------------------------------ James M. Berry Executive Vice President, Finance (Principal Financial Officer) /s/ BILL R. WALTON ------------------------------------------------------ Bill R. Walton Senior Vice President and Treasurer (Principal Accounting Officer) 43 46 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT The registrant intends to furnish an annual report to its stockholders covering the registrant's last fiscal year and a proxy statement and form of proxy to its stockholders in connection with the registrant's annual meeting of stockholders to be held on May 26, 1999. The registrant will furnish copies of such material to the Commission when such material is sent to the registrant's stockholders. 44 EX-10.1 2 NOTE PURCHASE & SECURITY AGREEMENT 1 EXHIBIT 10.1 ================================================================================ NOTE PURCHASE AND SECURITY AGREEMENT between ENTERPRISE FUNDING CORPORATION, as Company and BELK, INC. as Debtor and THE BELK CENTER, INC. as Servicer and NATIONSBANK, N.A. as Agent and Bank Investor Dated as of June 12, 1998 ================================================================================ 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS........................................................1 Section 1.1 Certain Defined Terms...............................................................1 Section 1.2 Other Terms........................................................................27 Section 1.3 Computation of Time Periods........................................................27 ARTICLE II GRANT OF SECURITY INTEREST; ADVANCES; SETTLEMENTS..................................................28 Section 2.1 Facility...........................................................................28 Section 2.2 Advances; the Note; Eligible Receivables........................................................................28 Section 2.3 Fundings...........................................................................32 Section 2.4 Carrying Costs, Fees and Other Costs and Expenses.......................................................................36 Section 2.5 Allocations of Collections; Non-Liquidation Settlement Procedures..............................................36 Section 2.6 Liquidation Settlement Procedures .................................................40 Section 2.7 Fees...............................................................................41 Section 2.8 Protection of Security Interest....................................................41 Section 2.9 Deemed Collections; Application of Payments........................................................................44 Section 2.10 Payments and Computations, Etc.....................................................45 Section 2.11 Reports............................................................................45 Section 2.12 Collection Account.................................................................46 Section 2.13 Sharing of Payments, Etc...........................................................46 Section 2.14 Right of Setoff....................................................................47 ARTICLE III REPRESENTATIONS AND WARRANTIES.............................................48 Section 3.1 Representations and Warranties of the Debtor.............................................................................48 Section 3.2 Representations and Warranties of the Servicer...........................................................................53 Section 3.3 Reaffirmation of Representations and Warranties by the Debtor and Servicer..............................................55 ARTICLE IV CONDITIONS PRECEDENT...................................................57 Section 4.1 Conditions to Closing..............................................................57
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Page ---- ARTICLE V COVENANTS........................................................61 Section 5.1 Affirmative Covenants of Debtor....................................................61 Section 5.2 Negative Covenants of the Debtor...................................................65 Section 5.3 Covenants of the Servicer..........................................................68 Section 5.4 Financial Covenants of Debtor......................................................71 ARTICLE VI ADMINISTRATION AND COLLECTIONS..............................................72 Section 6.1 Appointment of Servicer............................................................72 Section 6.2 Duties of Servicer.................................................................72 Section 6.3 Rights After Designation of New Servicer.......................................................................75 Section 6.4 Servicer Default...................................................................75 Section 6.5 Responsibilities of the Debtor and the Designated Sellers.................................................................77 ARTICLE VII TERMINATION EVENTS...................................................78 Section 7.1 Termination Events.................................................................78 Section 7.2 Termination........................................................................80 Section 7.3 Proceeds...........................................................................81 ARTICLE VIII INDEMNIFICATION; EXPENSES; RELATED MATTERS......................................82 Section 8.1 Indemnities by the Debtor..........................................................82 Section 8.2 Indemnity for Taxes, Reserves and Expenses...........................................................................85 Section 8.3 Taxes..............................................................................88 Section 8.4 Other Costs, Expenses and Related Matters............................................................................89 ARTICLE IX THE AGENT; BANK COMMITMENT................................................91 Section 9.1 Authorization and Action...........................................................91 Section 9.2 Agent's Reliance, Etc..............................................................92 Section 9.3 Termination Events.................................................................92 Section 9.4 Rights as Bank Investor............................................................93 Section 9.5 Indemnification of the Agent.......................................................93 Section 9.6 Non-Reliance.......................................................................94 Section 9.7 Resignation of Agent...............................................................94 Section 9.8 Payments by the Agent..............................................................95
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Page ---- Section 9.9 Bank Commitment; Assignment to Bank Investors..........................................................................95 ARTICLE X MISCELLANEOUS.....................................................103 Section 10.1 Term of Agreement.................................................................103 Section 10.2 Waivers; Amendments...............................................................103 Section 10.3 Notices...........................................................................104 Section 10.4 Governing Law; Submission to Jurisdiction; Integration.........................................................107 Section 10.5 Severability; Counterparts........................................................107 Section 10.6 Successors and Assigns............................................................108 Section 10.7 Confidentiality Agreement - Company, Agent, Administrative Agent, Collateral Agent, Liquidity Providers and Bank Investors.........................................................................108 Section 10.8 Confidentiality Agreement.........................................................109 Section 10.9 No Bankruptcy Petition Against the Company...........................................................................109 Section 10.10 No Recourse Against Stockholders, Officers or Directors.............................................................109
iii 5 EXHIBITS EXHIBIT A Forms of Account Agreement EXHIBIT B Credit Guidelines and Collection Guidelines EXHIBIT C List of Servicer Account Banks EXHIBIT D Form of Servicer Account Agreement EXHIBIT E Form of Servicer Report EXHIBIT F Form of Additional Advance Certificate EXHIBIT G Form of Assignment and Assumption Agreement EXHIBIT H List of Actions and Suits EXHIBIT I Location of Records EXHIBIT J List of Subsidiaries, Divisions and Tradenames EXHIBIT K Form of Debtor's and Servicer's Counsel's Opinion EXHIBIT L Forms of Secretary's Certificate EXHIBIT M Form of Note EXHIBIT N List of Post Office Boxes EXHIBIT O Form of Post Office Box Agreement EXHIBIT P Financial Convenant Definitions
iv 6 NOTE PURCHASE AND SECURITY AGREEMENT Note Purchase and Security Agreement (this "Agreement"), dated as of June 12, 1998, by and among BELK, INC., a Delaware corporation, as debtor (in such capacity, the "Debtor"), THE BELK CENTER, INC., a North Carolina corporation, as servicer (the "Servicer" or "Belk Center"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation (the "Company") and NATIONSBANK, N.A., a national banking association ("NationsBank"), as agent for the Company and the Bank Investors (in such capacity, the "Agent") and as a Bank Investor. PRELIMINARY STATEMENTS WHEREAS, the Debtor has issued the Note to the Company and will be obligated to the holder of such Note to pay the principal of and interest on such Note in accordance with the terms thereof; WHEREAS, the Debtor is granting a security interest in the Affected Assets to the Agent, for the benefit of the Secured Parties, to secure the payment and performance by the Debtor of its obligations under the Note; NOW, THEREFORE, the parties hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "Account" means each credit account established pursuant to an Account Agreement with an Obligor as of the Cut-Off Date and on any day thereafter. "Account Agreement" means the agreements and Federal Truth in Lending Statement for Accounts, in substantially the form attached as Exhibit A to this 7 Agreement, as such agreements or statement may be amended, modified or otherwise changed from time to time. "Accrued Interest Component" means, for any Collection Period, that portion of the Interest Component of all Related Commercial Paper outstanding at any time during such Collection Period which has accrued from the first day through the last day of such Collection Period whether or not such Related Commercial Paper matures during such Collection Period, based on the actual number of days in such Collection Period that such Related Commercial Paper was outstanding. "Additional Advance Certificate" means a certificate of the Servicer in substantially the form of Exhibit P hereto, appropriately completed. "Adjusted LIBOR Rate" means, with respect to any period during which the return to any Bank Investor or the Liquidity Provider is to be calculated by reference to the London interbank offered rate, a rate which is 0.80% (2.80% upon the occurrence and during the continuance of a Termination Event other than a Termination Event described in Section 7.1(o) or 7.1(p)) in excess of a rate per annum equal to the sum (rounded upwards, if necessary, to the next higher 1/100 of 1%) of (A) the rate obtained by dividing (i) the applicable LIBOR Rate by (ii) a percentage equal to 100% minus the reserve percentage used for determining the maximum reserve requirement as specified in Regulation D (including, without limitation, any marginal, emergency, supplemental, special or other reserves) that is applicable to the Agent during such period in respect of eurocurrency or eurodollar funding, lending or liabilities (or, if more than one percentage shall be so applicable, the daily average of such percentage for those days in such period during which any such percentage shall be applicable) plus (B) the then daily net annual assessment rate (rounded upwards, if necessary, to the nearest 1/100 of 1%) as estimated by the Agent for determining the current annual assessment payable by the Agent to the Federal Deposit Insurance Corporation in respect of eurocurrency or eurodollar funding, lending or liabilities. "Administrative Agent" means NationsBank, N.A., as administrative agent. 2 8 "Administrative Fee" means the fee payable by the Debtor to the Company pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee Letter. "Advance" means a funding which is made pursuant to Section 2.2(a) hereof. "Advance Amount" means with respect to any Advance, the amount paid to the Debtor by the Company or the Bank Investors. "Advance Date" means, with respect to each Advance, the Business Day on which such Advance is made. "Adverse Claim" means a lien, security interest, charge or encumbrance, or other right or claim in, of or on any Person's assets or properties in favor of any other Person (including any UCC financing statement or any similar instrument filed against such Person's assets or properties). "Affected Assets" means, collectively, the Receivables and the Related Security, Collections and Proceeds relating thereto. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of voting stock, by contract or otherwise. "Agent" means NationsBank, N.A., in its capacity as agent for the Company and the Bank Investors, and any successor thereto appointed pursuant to Article IX. "Aggregate Interest Component" means aggregate sum of the Interest Components of all issued and out standing Related Commercial Paper. "Agreement" has the meaning specified in the preamble hereto. 3 9 "Aggregate Unpaids" means, at any time, an amount equal to the sum of (i) the aggregate accrued and unpaid Carrying Costs at such time, (ii) yield on Related Commercial Paper, interest related to any outstanding LIBOR-based funding period arising from advances by any Liquidity Provider or Bank Investor, Facility Fees, Program Fees, and Administrative Fees which may accrue after such time, (iii) the Net Investment at such time, and (iv) all other amounts owed (whether due or accrued) hereunder by the Debtor to the Company, the Agent or any Bank Investor at such time. "Arrangement Fee" means the fee payable by the Debtor to the Administrative Agent pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee Letter. "Assignment Amount" with respect to a Bank Investor means at any time an amount equal to the lesser of (i) such Bank Investor's Pro Rata Share of the Net Investment at such time and (ii) such Bank Investor's unused Commitment. "Assignment and Assumption Agreement" means an Assignment and Assumption Agreement substantially in the form of Exhibit G attached hereto. "Bank Investors" means NationsBank, N.A. and each other financial institution that becomes a Bank Investor pursuant to an Assignment and Assumption Agreement in accordance with the Agreement and the respective successors and permitted assigns of any of the foregoing. "Base Rate" means, a rate per annum equal to the greater of (i) the prime rate of interest announced by the Liquidity Provider (or if more than one Liquidity Provider, then by NationsBank) from time to time, changing when and as said prime rate changes (such rate not necessarily being the lowest or best rate charged by the Liquidity Provider (or if more than one Liquidity Provider, by NationsBank)) and (ii) the sum of (a) 1.50% and (b) the rate equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business 4 10 Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Liquidity Provider (or, if more than one Liquidity Provider, then by NationsBank) from three Federal funds brokers of recognized standing selected by it. "Belk Center" means The Belk Center, Inc. "Belk Simpson" means Belk-Simpson Company, Greenville, South Carolina. "Benefit Plan" means any employee benefit plan as defined in Section 3(3) of ERISA in respect of which the Debtor, any Designated Seller or any ERISA Affiliate of the Debtor or a Designated Seller is, or at any time during the immediately preceding six years was, an "employer" as defined in Section 3(5) of ERISA. "Business Day" means any day excluding Saturday, Sunday and any day on which banks in New York, New York or Charlotte, North Carolina are authorized or required by law to close, and, when used with respect to the determination of any LIBOR Rate or any notice with respect thereto, any such day which is also a day for trading by and between banks in United States dollar deposits in the London interbank market. "Carrying Costs" means for a Collection Period the sum of (i) the sum of the dollar amount of the Company's obligations for such Collection Period determined on an accrual basis in accordance with GAAP consistently applied (a) to pay (or pass through) interest with respect to Purchased Interests pursuant to the provisions of the Liquidity Provider Agreement (such interest to be calculated based on the Adjusted LIBOR Rate) outstanding at any time during such Collection Period accrued from the first day through the last day of such Collection Period whether or not such interest is payable during such Collection Period and to pay interest with respect to amounts disbursed by a Credit Support Provider pursuant to the Credit Support Agreement outstanding at any time during such Collection Period accrued from the first day through the last day of such Collection Period whether or not such interest is payable during such Collection Period, (b) to pay the Accrued 5 11 Interest Component of Related Commercial Paper with respect to any Collection Period (and, for purposes of this clause (b), Related Commercial Paper shall include Commercial Paper issued to fund the Net Investment even if such Commercial Paper is issued in an amount in excess of the Net Investment), (c) to pay the Dealer Fee with respect to Related Commercial Paper issued during such Collection Period, (d) to pay any past due interest not paid in clauses (a) and (b) with respect to prior Collection Periods, and (e) to pay the costs of the Company with respect to the operation of Sections 8.1, 8.2, 8.3 and 8.4, (ii) the Program Fee, the Administrative Fee and the Facility Fee accrued from the first day through the last day of such Collection Period whether or not such amount is payable during such Collection Period, and all interest amounts due the Bank Investors in accordance with Section 2.3(c), (d) and (e) and (iii) to pay the Servicing Fee due to any successor Servicer. "Closing Date" means June 12, 1998. "Code" means the Internal Revenue Code of 1986, as amended. "Collateral" means all of the Debtor's right, title and interest in and to the Receivables, the Related Security, all Collections and all proceeds thereof, whether constituting an account, chattel paper, instrument, investment property or general intangible. "Collateral Agent" means NationsBank, N.A. in its capacity as collateral agent under the Security Agreement, dated as of September 5, 1991, as amended, between Enterprise and NationsBank, N.A., as consented and agreed to by the Liquidity Provider and the letter of credit bank (as defined therein). "Collection Account" means the account, established by the Agent, for the benefit of the Company and the Bank Investors, pursuant to Section 2.12. "Collection Period" means each monthly period ending on the 28th day of a calendar month; provided, that the first Collection Period shall begin on the CutOff Date and shall end on the 28th day of the calendar following the month containing the Cut-Off Date. 6 12 "Collections" means, with respect to any Receivable, all cash collections and other cash proceeds of such Receivable, including, without limitation, all Recoveries and Finance Charges, if any, and cash proceeds of Related Security with respect to such Receivable. For the purposes hereof, "cash" shall include payments received with respect to the Receivables in the form of checks. "Commercial Paper" means the promissory notes of the Company issued by the Company in the commercial paper market. "Commitment" means, (i) with respect to each Bank Investor party hereto, the commitment of such Bank Investor to make advances to the Debtor or to acquire interests in the Net Investment from the Company in accordance herewith in an amount not to exceed the dollar amount set forth opposite such Bank Investor's signature on the signature page hereto under the heading "Commitment", minus the dollar amount of any Commitment or portion thereof assigned pursuant to an Assignment and Assumption Agreement plus the dollar amount of any in crease to such Bank Investor's Commitment consented to by such Bank Investor prior to the time of determination and (ii) with respect to any direct or indirect assignee of a Bank Investor party hereto taking pursuant to an Assignment and Assumption Agreement, the commitment of such assignee to make advances to the Debtor or to acquire interests in the Net Investment from the Company not to exceed the amount set forth in such Assignment and Assumption Agreement plus the dollar amount of any increase to such assignee's Commitment consented to by such as signee prior to the time of determination minus the dollar amount of any Commitment or portion thereof as signed pursuant to an Assignment and Assumption Agreement prior to such time of determination. "Commitment Termination Date" means June 11, 1999, or such later date to which the Commitment Termination Date may be extended by Debtor, the Agent and the Bank Investors not later than 30 days prior to the then current Commitment Termination Date. "Company" means Enterprise Funding Corporation, and its successors and permitted assigns. 7 13 "Company Termination Date" means the second Business Day after the delivery by the Company to the Debtor of written notice that the Company elects to commence the amortization of its interest in the Net Investment pursuant to Section 2.6 or otherwise liquidate the Net Investment. "Credit Guidelines" means Belk Center's credit and collection policy or policies and practices, relating to Accounts and Receivables existing on the Cut-Off Date and referred to in Exhibit B attached hereto, as modified and as supplemented from time to time in compliance with Section 5.2(c). "Credit Support Agreement" means the agreement between the Company and the Credit Support Provider evidencing the obligation of the Credit Support Provider to provide credit support to the Company in connection with the issuance by the Company of Commercial Paper. "Credit Support Provider" means the Person or Persons who provides credit support to the Company in connection with the issuance by the Company of Commercial Paper. "Cut-Off Date" means May 30, 1998. "Cycle Date" means the 1st, 4th, 7th, 10th, 13th, 16th, 19th, 22nd, 25th and 28th calendar day of each calendar month. "Date of Processing" means, with respect to any transaction giving rise to a Receivable, the date on which such transaction is first recorded on the Servicer's computer master file of Accounts (without regard to the effective date of such recordation). "Dealer Fee" shall have the meaning assigned in the Fee Letter. "Debtor" has the meaning specified in the preamble hereto. "Debtor Account" means the demand deposit account of the Debtor maintained at NationsBank, N.A. for the purpose of receiving deposits of Collections. 8 14 "Debtor's Percentage" means at any time 1 minus the Noteholder's Percentage. "Deemed Collections" means any Collections on any Receivable deemed to have been received pursuant to Section 2.9(a) or (b) hereof. "Default Ratio" means, with respect to any Collection Period, the ratio (expressed as a percentage) computed (on the following Determination Date) as of the last day of each Collection Period by dividing (i) the product of (x) 12 and (y) the aggregate amount of Receivables which became Defaulted Receivables during such Collection Period by (ii) the aggregate amount of all Receivables (other than Defaulted Receivables) as of the last day of the prior Collection Period. "Default Ratio Multiplier" means, at any time, the highest three-month rolling arithmetic average Default Ratio for the twelve most recent Collection Periods. The three-month rolling arithmetic average Default Ratio shall be computed on each Determination Date by dividing the sum of the Default Ratios for the three immediately preceding Collection Periods by three. "Defaulted Receivable" means a Receivable in an Account with respect to which, in accordance with the Credit Guidelines or Belk Center's customary and usual servicing procedures, the Servicer has charged off such Receivable as uncollectible; a Receivable shall become a Defaulted Receivable on the day on which it is recorded as charged off as uncollectible on the Servicer's computer master file of consumer credit card revolving accounts. "Delinquency Ratio" means, the ratio (expressed as a percentage) computed as of the last day of each Collection Period by dividing (i) the aggregate amount of all Delinquent Receivables as of such date by (ii) the aggregate amount of all Receivables (other than Defaulted Receivables) as of such date. "Delinquent Receivable" means a Receivable: (i) as to which any payment, or part thereof, remains unpaid for more than 30 days from the original due date for such Receivable and (ii) which is not a Defaulted Receivable. 9 15 "Designated Seller" means Belk Simpson. "Determination Date" means with respect to any Collection Period, the tenth day of the succeeding calendar month or, if such tenth day is not a Business Day, the Business Day next succeeding such tenth day. "Dilution Ratio" means, for each Collection Period, the ratio (expressed as a percentage) computed (on the following Determination Date) as of the last day of each Collection Period by dividing (i) the aggregate amount by which Receivables (other than the finance charge component of any such Receivable) are reduced or cancelled as a result of any defective, rejected or returned merchandise or services and all credits, re bates, discounts, disputes, warranty claims, repossessed or returned goods, chargebacks, allowances, or any other downward adjustments to the balance of such Receivable without receiving Collections therefor and prior to such Receivable becoming a Defaulted Receivable (whether effected through the granting of credits against the applicable Receivables or by the issuance of a check or other payment in respect of (and as payment for) such reduction) by the Debtor, a Designated Seller or the Servicer, provided to Obligors in respect of Receivables during such month by (ii) the aggregate Outstanding Principal Balance of all Receivables as of the last day of the preceding Collection Period. "Dilution Ratio Multiplier" means (i) at any time during a Collection Period ending in November, December, or January, the highest Dilution Ratio for the immediately preceding Collection Periods ending in November, December or January, and (ii) at any other time, the highest Dilution Ratio during the immediately preceding twelve Collection Periods (excluding for purposes of this determination, the Collection Periods ending in November, December or January). "Discount Percentage" means the percentage designated by the Debtor pursuant to Section 2.5(e). "Discount Receivables" shall have the meaning specified in Section 2.5(e). "Discount Receivable Collections" means, for any day, the product of (a) the Discount Percentage and 10 16 (b) Collections, other than those of the type described in clauses (i) and (ii) of the definition of "Finance Charge Collections," on such day. "Early Collection Fee" means, for any funding period during which the portion of the Net Investment that was allocated to such funding period is reduced for any reason whatsoever, the excess, if any, of (i) the additional interest that would have accrued during such funding period if such reductions had not occurred, minus (ii) the income, if any, received by the recipient of such reductions from investing the proceeds of such reductions. "Eligible Account" means, as of the Cut-Off Date (or, with respect to Accounts arising after the CutOff Date, as of the date of creation), each Account in existence and owned by the Debtor or a Designated Seller: (a) which is payable in United States Dollars; (b) the credit card or cards related thereto have not been reported lost or stolen or designated fraudulent; (c) which is not an Account as to which any of the Receivables existing thereunder are Defaulted Receivables; (d) the Receivables in which have not been charged-off (unless such Account is subsequently reinstated); (e) which is serviced by the Servicer and has been created and is maintained by the Debtor or a Designated Seller in the ordinary course of its business in accordance with the Credit Guidelines; and (f) with respect to which the Debtor or a Designated Seller has, and, with respect to which to the amounts payable thereunder, the Debtor has, good title thereto, free and clear of all Adverse Claims. "Eligible Investments" means any of the following (a) negotiable instruments or securities represented by instruments in bearer or registered or in 11 17 book-entry form which evidence (i) obligations fully guaranteed by the United States of America; (ii) time deposits in, or bankers acceptances issued by, any depositary institution or trust company incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by Federal or state banking or depositary institution authorities; provided, however, that at the time of investment or contractual commitment to invest therein, the certificates of deposit or short-term deposits, if any, or long-term unsecured debt obligations (other than such obligation whose rating is based on collateral or on the credit of a Person other than such institution or trust company) of such depositary institution or trust company shall have a credit rating from Moody's and S&P of at least "P-1" and "A-1", respectively, in the case of the certificates of deposit or short-term deposits, or a rating not lower than one of the two highest investment categories granted by Moody's and by S&P; (iii) certificates of deposit having, at the time of investment or contractual commitment to invest therein, a rating from Moody's and S&P of at least "P-1" and "A-1", respectively; or (iv) investments in money market funds rated in the highest investment category or otherwise approved in writing by the applicable rating agencies; (b) demand deposits in any depositary institution or trust company referred to in (a)(ii) above; (c) commercial paper (having original or remaining maturities of no more than 30 days) having, at the time of investment or contractual commitment to invest therein, a credit rating from Moody's and S&P of at least "P-1" and "A-1", respectively; (d) Eurodollar time deposits having a credit rating from Moody's and S&P of at least "P-1" and "A-1", respectively; and (e) repurchase agreements involving any of the Eligible Investments described in clauses (a)(i), (a)(iii) and (d) hereof so long as the other party to the repurchase agreement has at the time of investment therein, a rating from Moody's and S&P of at least "P-1" and "A-1", respectively. "Eligible Receivable" means, at any time, any Receivable: (a) with respect to which, the related Account is an Eligible Account; 12 18 (b) which has been originated by the Debtor or a Merged Entity in the ordinary course of its business, (or has been originated by a Designated Seller in the ordinary course of its business and sold to the Debtor pursuant to (and in accordance with) the Receivables Purchase Agreement), and to which the Debtor has good title thereto, free and clear of all Adverse Claims; (c) which (together with the Collections and Related Security related thereto) has been the subject of the grant of a first priority perfected security interest therein (and in the Collections and Related Security related thereto) to the Agent, on behalf of the Company and the Bank Investors, effective until the termination of this Agreement; (d) which arises pursuant to an Account with respect to which the Debtor, any Designated Seller or any Affiliate of the Debtor has performed all material obligations required to be performed by it thereunder, including without limitation shipment of the merchandise and/or the performance of the services purchased thereunder, at the time an interest in such Receivable is initially pledged to the Agent, on behalf of the Company and the Bank Investors; (e) the Obligor of which has been directed to make all payments to a Post Office Box with respect to which there shall be a Post Office Box Agreement in effect or at retail store locations owned by the Debtor or any Designated Seller; (f) a purchase of which with the proceeds of Commercial Paper would constitute a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended; (g) which is an "account" or a "general intangible" or "chattel paper" within the meaning of Article 9 of the UCC of all applicable jurisdictions; (h) which arises under an Account that, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the related Obligor enforceable against such Obligor in accordance with its terms and is not 13 19 subject to any litigation, right of rescission, dispute, offset, counterclaim or other defense (it being under stood that a potential reduction because of returned merchandise would not in itself cause such Receivables to not be considered an "Eligible Receivable"); (i) which was created in compliance, in all material respects, with all laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and pursuant to an Account Agreement which complies, in all material respects, with all such laws, rules and regulations; (j) which (A) satisfies all applicable requirements of the Credit Guidelines, (B) has not been waived or modified except in accordance with the Credit Guidelines or the credit guidelines of the Debtor, a Merged Entity or a Designated Seller or an Affiliate thereof, as applicable, (C) is assignable without the consent of, or notice to, the Obligor thereunder and (D) is not, at the time of the initial creation of interest hereunder, a Defaulted Receivable; (k) is serviced in all respects by the Servicer; (l) with respect to which all material consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained, effected or given by the Debtor, a Merged Entity or a Designated Seller, as applicable, in connection with the creation of such Receivable or the execution, delivery, creation and performance by the Debtor, a Merged Entity or a Designated Seller, as applicable, of the Account Agreement pursuant to which such Receivable was created, have been duly obtained, effected or given and are in full force and effect; and (m) the assignment of which under the Receivables Purchase Agreement by the applicable Designated Seller to the Debtor, and the grant of a security interest therein under this Agreement does not violate, conflict or contravene any applicable laws, 14 20 rules, regulations, orders or writs or any contractual or other restriction, limitation or encumbrance. "ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means, with respect to any Person, (i) any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code (as in effect from time to time, the "Code")) as such Person; (ii) a trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Code) with such Person; or (iii) a member of the same affiliated service group (within the meaning of Section 414(n) of the Code) as such Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above. "Event of Bankruptcy" means, with respect to any Person, (i) that such Person (a) shall generally not pay its debts as such debts become due or (b) shall admit in writing its inability to pay its debts generally or (c) shall make a general assignment for the benefit of creditors; (ii) any proceeding shall be instituted by or against such Person seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or any substantial part of its property or (iii) if such Person is a corporation, such Person or any Subsidiary shall take any corporate action to authorize any of the actions set forth in the preceding clauses (i) or (ii). "Excluded Taxes" shall have the meaning specified in Section 8.3 hereof. "Facility Fee" means the fee payable by the Debtor to the Agent for distribution to the Bank Investors pursuant to Section 2.7(a) hereof, the terms of which are set forth in the Fee Letter. 15 21 "Facility Limit" means $300,000,000; provided that such amount may not at any time exceed the aggregate Commitments at any time in effect; provided, further, that from and after the Termination Date the Facility Limit shall at all times equal the Net Investment plus the Aggregate Interest Component. "Fee Letter" means, collectively, the letter agreement or agreements dated the date hereof (i) between the Debtor and the Company and (ii) between the Debtor and the Agent on behalf of the Bank Investors, in each case with respect to the fees to be paid by the Debtor hereunder, as amended, modified or supplemented from time to time. "Finance Charge Collections" means (i) that portion of the Collections with respect to the Receivables which are estimated by the Servicer to be designated as billed Finance Charges, (ii) any Recoveries (net of liquidation expenses, if any) in respect of Defaulted Receivables and Related Security with respect thereto and (iii) all Discount Receivable Collections. "Finance Charges" means, with respect to an Account, any periodic finance charges, and, to the extent rights with respect thereto are held by the Debtor, late fees, returned check or NSF charges or similar charges owing by an Obligor pursuant to such Account. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such accounting profession, which are in effect as of the date of this Agreement. "Governmental Authority" means the United States of America, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranty" means, with respect to any Person any agreement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide 16 22 funds for the payment of, or otherwise becomes liable upon, the obligation of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person or otherwise assures any other creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement or take-or-pay contract and shall include, without limitation, the contingent liability of such Person in connection with any application for a letter of credit. "Indebtedness" means, with respect to any Person, without duplication, such Person's (i) obligations for borrowed money evidenced by a promissory note, bond or similar written obligation, including, without limitation, conditional sales or similar title retention agreements, (ii) obligations representing the deferred purchase price of property, (iii) obligations, whether or not assumed, secured by liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, acceptances, or other instruments, and all liabilities of such Person by way of endorsements (other than for collection or deposit in the ordinary course of business), (v) Capitalized Lease obligations, and (vi) obligations for which such Person is obligated pursuant to a Guaranty; provided that the term "Indebtedness" shall not include any accounts pay able arising in the ordinary course of such Person's business on terms customary in the trade. "Indemnified Amounts" has the meaning specified in Section 8.1 hereof. "Indemnified Parties" has the meaning specified in Section 8.1 hereof. "Interest Component" means, (i) with respect to any Commercial Paper issued on an interest-bearing basis, the interest payable on such Commercial Paper at its maturity and (ii) with respect to any Commercial Paper issued on a discount basis, the portion of the face amount of such Commercial Paper representing the discount incurred in respect thereof (including any dealer commissions to the extent included as part of such discount). 17 23 "Law" means any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of any Official Body. "LIBOR Rate" means, with respect to any one-month funding period, the rate per annum (rounded up wards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at approximately 11:00 a.m. (London time) two London Business Days prior to the first day of such funding period for a term of one month. If for any reason such rate is not available, the term "LIBOR Rate" shall mean, for any funding period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBOR Page as the London inter bank offered rate for deposits in dollars at approximately 11:00 a.m. (London time) two London Business Days prior to the first day of such funding period for a term of one month; provided, however, if more than one rate is specified on the Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever for the purpose of security, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement under the Uniform Commercial Code (other than any such financing statement filed for informational purposes only) or comparable law of any jurisdiction to evidence any of the foregoing. "Liquidity Provider" means the Person or Persons who will provide liquidity support to the Company in connection with the issuance by the Company of Commercial Paper. "Liquidity Provider Agreement" means the agreement between the Company and the Liquidity Provider evidencing the obligation of the Liquidity Provider to 18 24 provide liquidity support to the Company in connection with the issuance by the Company of Commercial Paper. "Majority Investors" means, at any time, the Agent and those Bank Investors which hold Commitments aggregating in excess of 51% of the Facility Limit (less the Commitment of any Bank Investor who is to be disregarded pursuant to Section 10.2(b)) as of such date. "Material Adverse Effect" means any event or condition which would have a material adverse effect on (i) the collectibility of the Receivables, (ii) the condition (financial or otherwise), businesses or proper ties of the Debtor or any Designated Seller, (iii) the ability of the Debtor or any Designated Seller to perform its respective obligations under the Transaction Documents to which it is a party and (iv) the interests of the Agent, the Company or the Bank Investors under the Transaction Documents, or any event or condition which would directly or immediately result in or cause the bankruptcy or insolvency of any Designated Seller. "Merged Entity" means any Person merged into the Debtor between May 2, 1998 and the Closing Date. "Minimum Debtor's Percentage" means at any time the greater of (i) 2.5 times the sum of the Default Ratio Multiplier plus the Dilution Ratio Multiplier and (ii) 15%, subject to a minimum equivalent to, when expressed as the product of the Minimum Debtor's Percentage and the Net Receivables Balance, 3% of the Facility Limit. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding five years contributed to by the Debtor, any Designated Seller or any ERISA Affiliate of the Debtor or any Designated Seller on behalf of its employees. "NationsBank" has the meaning specified in the preamble hereto. 19 25 "Net Asset Test" means, in connection with any assignment by the Company to the Bank Investors of an interest in the Net Investment pursuant to Section 9.7 hereof, that on the day immediately prior to the day on which such assignment is to take effect, the Net Receivables Balance shall be greater than or equal to the Net Investment. "Net Investment" means the sum of the initial Advance Amount plus, without duplication, the sum of the cash amounts paid to the Debtor for each Advance less the aggregate amount of Collections received and applied by the Agent to reduce such Net Investment pursuant to Section 2.5, 2.6 or 2.9 hereof; provided that the Net Investment shall be restored and reinstated in the amount of any Collections so received and applied if at any time the distribution of such Collections is rescinded or must otherwise be returned for any reason; and provided further that the Net Investment may be increased by the amount described in Section 9.7(d) as described therein. "Net Portfolio Yield" means, with respect to any Collection Period, the annualized percentage equivalent of a fraction the numerator of which is the estimated daily average Noteholder's Percentage of Finance Charge Collections over such a period less the Carrying Costs for such Collection Period less the estimated daily average Noteholder's Percentage of the aggregate out standing balance of all Receivables which became Defaulted Receivables during such Collection Period less the Servicing Fee with respect to such Collection Period (to the extent not duplicative of Carrying Costs) and the denominator of which is the daily average aggregate Net Investment during such Collection Period. "Net Receivables Balance" at any time means the aggregate Outstanding Principal Balance of all Eligible Receivables, excluding the aggregate balance of any Discount Receivables at such time, minus the amount by which (i) the aggregate Outstanding Principal Balance of Receivables with respect to which the related obligor has not provided, as its most recent billing address, an address located in the United States or its territories or possessions, or which is a United States military address exceeds (ii) 1.00% of the aggregate Outstanding Principal Balance of Receivables. 20 26 "Note" shall have the meaning specified in Section 2.2(a). "Noteholder's Percentage" means the percentage computed in accordance with Section 2.2(e) as follows: NI/NRB Where: NI = the Net Investment at the time of such computation. NRB = the Net Receivables Balance at the time of such computation. Notwithstanding the foregoing computation, (i) the Noteholder's Percentage shall not exceed 100%, and (ii) the Noteholder's Percentage with respect to Principal Collections at any time on and after the Termination Date shall be the percentage equivalent of a fraction the numerator of which is the Net Investment as of the Termination Date and the denominator of which is the greater of (x) the Net Receivables Balance on the first Remittance Date following the Termination Date or (y) the Net Receivables Balance on the Remittance Date of the Collection Period in which the Termination Date occurs. "Obligor" means any Person obligated to make payments under an Account, including any guarantor there under. "Official Body" means any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of any such government or political subdivision, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "Other Transferor" means any Person that has entered into a note purchase agreement or a receivables purchase agreement or transfer and administration agreement with the Company. "Outstanding Principal Balance" means, with respect to any Receivable at any time, the then 21 27 outstanding principal amount thereof excluding any accrued and outstanding Finance Charges related thereto and giving effect to the amount of any credit balances and other adjustments existing with respect to such Receivable on such day. The outstanding principal amount of any Defaulted Receivables shall be considered to be zero for the purposes of any determination hereunder of the aggregate Outstanding Principal Balance of the Receivables or the aggregate Outstanding Principal Balance of Eligible Receivables. "Payment Rate" means, for any Collection Period, the percentage equivalent of a fraction, the numerator of which is equal to the amount of all cash and check Principal Collections received during such Collection Period and the denominator of which is equal to the aggregate Outstanding Principal Balance of all Receivables (excluding Discount Receivables) as of the last day of the prior Collection Period. "Person" means any corporation, limited liability company, natural person, firm, joint venture, partnership, trust, unincorporated organization, enterprise, government or any department or agency of any government. "Post Office Box" means any box at a United States Post Office with respect to which a Post Office Box Agreement is in effect. "Post Office Box Agreement" means an agreement between the Servicer and an official of the United States Postal Service in substantially the form of Exhibit O hereto. "Potential Termination Event" means an event which with the passage of time or the giving of notice, or both, would constitute a Termination Event. "Principal Collections" means with respect to any Collection Period, all Collections received during such period other than Finance Charge Collections. "Pro Rata Share" means, for a Bank Investor, the Commitment of such Bank Investor divided by the sum of the Commitments of all Bank Investors. 22 28 "Proceeds" means "proceeds" as defined in Section 9-306(1) of the UCC. "Program Fee" means the fee payable by the Debtor to the Company pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee Letter. "Purchased Interest" means the security interest in the Receivables acquired by a Liquidity Provider through purchase pursuant to the terms of the Liquidity Provider Agreement. "Receivable" means the indebtedness owed to (i) a Designated Seller by any Obligor (without giving effect to any purchase under the Receivables Purchase Agreement by the Debtor at any time) under an Account (including such indebtedness sold by such Designated Seller to the Debtor pursuant to the Receivables Purchase Agreement), and (ii) the Debtor by an Obligor under an Account, in each case whether constituting an account, chattel paper, instrument, investment property or general intangible, arising in connection with the sale or lease of merchandise or the rendering of services, and includes the right to payment of any Finance Charges and other obligations of such Obligor with respect thereto. A Receivable shall be deemed to have been created or the amount thereof increased as of the end of the day on the Date of Processing of such Receivable or such increase to the amount thereof. "Receivables Purchase Agreement" means the Receivables Purchase Agreement, dated as of June 12, 1998, by and between Belk, Inc., as purchaser, Belk Simpson, as seller, and The Belk Center, Inc., as servicer. "Records" means all Account Agreements and other documents, books, records and other information (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights) maintained with respect to Receivables and the related Obligors. "Recoveries" means all amounts received or collected by the Servicer with respect to Defaulted Receivables. 23 29 "Related Commercial Paper" means Commercial Paper issued by the Company the proceeds of which were used to acquire, or refinance the acquisition of, an interest in the Net Investment with respect to the Debtor. "Related Security" means with respect to any Receivable, all of the Debtor's rights, title and interest in, to and under: (1) all of the Debtor's interest, if any, in the merchandise (including returned or repossessed merchandise), if any, the sale of which gave rise to such Receivable; (2) all other security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Account related to such Receivable or otherwise, together with all financing statements signed by an Obligor describing any collateral securing such Receivable; (3) all guarantees, indemnities, warranties, insurance (and proceeds and premium refunds thereof) or other agreements or arrangements of any kind from time to time supporting or securing payment of such Receivable whether pursuant to the Account related to such Receivable or otherwise; (4) all Records related to such Receivable; (5) all rights and remedies of the Debtor under the Receivables Purchase Agreement together with all financing statements filed by the Debtor in connection therewith; (6) all rights and remedies of the Debtor under the Servicing Agreement; and (7) all Proceeds of any of the foregoing. 24 30 "Remittance Advance" shall have the meaning specified in Section 2.5(d). "Remittance Date" means the fifteenth day of each month beginning June 15, 1998, or, if such day is not a Business Day, the Business Day next succeeding such fifteenth day. "Requirements of Law" for any Person means the certificate of incorporation or articles of association and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination of an arbitrator or Governmental Authority, in each case applicable to or binding upon such Person or to which such Person is subject, whether Federal, state or local (including, without limitation, usury laws, the Federal Truth in Lending Act and Regulation Z and Regulation B of the Board of Governors of the Federal Reserve System). "Section 8.2 Costs" has the meaning specified in Section 8.2(d) hereof. "Servicer" means at any time the Person then authorized pursuant to Section 6.1 to service, administer and collect Receivables. "Servicer Account" means an account maintained by the Servicer at a Servicer Account Bank for the purpose of depositing Collections from Receivables. "Servicer Account Agreement" means an agreement between the Agent and a Servicer Account Bank in substantially the form of Exhibit D hereto. "Servicer Account Bank" means each of the banks set forth in Exhibit C hereto and such banks as may be added thereto or deleted therefrom pursuant to Section 2.8 hereof. "Servicer Default" has the meaning specified in Section 6.4 hereof. "Servicer Report" means a report, in substantially the form attached hereto as Exhibit E or in such other form as is mutually agreed to by the Servicer, 25 31 the Debtor and the Agent, furnished by the Servicer pursuant to Section 2.11 hereof. "Servicing Agreement" means the Membership Agreement, dated as of June 10, 1998, by and among Belk Center, the Debtor, and various other members party thereto. "Servicing Fee" means the fees payable by the Company or the Bank Investors to the Servicer in an amount equal to 2.0% per annum (calculated on the basis of actual days elapsed divided by a year consisting of 360 days) on the average daily amount of the Net Investment. Such fee shall accrue from the date of the initial Advance to the date on which the Noteholder's Percentage is reduced to zero. Such fee shall be payable only from Collections pursuant to, and subject to the priority of payments set forth in, Section 2.5 hereof. "Standard & Poor's" or "S&P" means Standard & Poor's Ratings Services, a division of McGraw-Hill Companies, Inc. "Subsidiary" of a Person means any Person more than 50% of the outstanding voting interests of which shall at any time be owned or controlled, directly or indirectly, by such Person or by one or more Subsidiaries of such Person or any similar business organization which is so owned or controlled. "Taxes" shall have the meaning specified in Section 8.3 hereof. "Telerate Page 3750" means the British Bankers Association Libor Rates (determined at 11:00 a.m. London time) that are published by Dow Jones Telerate, Inc. "Termination Date" means the earliest of (i) the Business Day designated by the Debtor to the Company as the Termination Date at any time following 60 days' written notice to the Agent, (ii) the date of termination of the commitment of the Liquidity Provider under the Liquidity Provider Agreement, (iii) the date of termination of the commitment of the Credit Support Provider under the Credit Support Agreement, (iv) the day upon which a Termination Date is declared or automatically occurs pursuant to Section 7.2(a) hereof, 26 32 (v) two Business Days prior to the Commitment Termination Date, or on (vi) the day on which a Company Termination Date shall occur unless the interest in the Net Investment shall have been assigned (or is concurrently so assigned) to the Bank Investors pursuant to Section 9.9 hereof. "Termination Event" means an event described in Section 7.1 hereof. "Transaction Costs" has the meaning specified in Section 8.4(a) hereof. "Transaction Documents" means, collectively, this Agreement, the Receivables Purchase Agreement, any Servicer Account Agreement, any Post Office Box Agreement, the Fee Letter, the Note and all of the other instruments, documents and other agreements executed and delivered by the Debtor or the Designated Sellers in connection with any of the foregoing, in each case, as the same may be amended, restated, supplemented or other wise modified from time to time. "UCC" means, with respect to any state, the Uniform Commercial Code as from time to time in effect in such state. "U.S." or "United States" means the United States of America. Section 1.2 Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. Section 1.3 Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including", the words "to" and "until" each means "to but excluding", and the word "within" means "from and excluding a specified date and to and including a later specified date". 27 33 ARTICLE II GRANT OF SECURITY INTEREST; ADVANCES; SETTLEMENTS Section 2.1 Facility. In order to secure the Debtor's obligations to the Company and the Bank Investors pursuant to this Agreement and the other Transaction Documents, the Debtor hereby grants to the Agent, on behalf of the Company and the Bank Investors, a first priority security interest in and continuing Lien on all of the Debtor's right, title and interest in, to and under all Receivables existing on the Cut-Off Date and thereafter, together with Related Security, Collections and Proceeds with respect thereto, now or hereafter existing, (all of the foregoing, collectively, the "Affected Assets"). By accepting such grant hereunder, neither the Company, any Bank Investor nor the Agent assumes or shall have any obligations or liability under any of the Accounts, all of which shall remain the obligations and liabilities of the Debtor and the Designated Sellers. Section 2.2 Advances; the Note; Eligible Receivables (a) Advances. Upon the terms and subject to the conditions herein set forth, at any time and from time to time prior to the occurrence of the Termination Date the Company may, at its option, or the Bank Investors, shall, if so requested by the Debtor, make an advance (any such advance, an "Advance"); provided that after giving effect to the issuance of Related Commercial Paper to fund the amount of any Advance (an "Advance Amount") and the payment to the Debtor of such Advance Amount the sum of the Net Investment plus the Interest Component of all outstanding Related Commercial Paper would not exceed the Facility Limit; and, provided further, that, after giving effect to such Advance, the Debtor's Percentage shall not be less than the Minimum Debtor's Percentage (the calculation thereof to be set forth in the Additional Advance Certificate delivered in connection with such Advance) and provided further how ever, that, subject to Section 3.3, the representations and warranties set forth in Sections 3.1 and 3.2 shall be true and correct both immediately before and immediately after giving effect to any such Advance and the payment to the Debtor of the Advance Amount related thereto and an Additional Advance Certificate 28 34 shall have been delivered with respect to such Advance as required by Section 3.3 hereof. The Debtor shall, by notice to the Agent given by telephone (and promptly followed by telecopy confirmation), request an Advance at least three (3) Business Days prior to the proposed date of any Advance. Each such notice shall specify (w) whether such request is made to the Company or the Bank Investors (it being understood and agreed that the Debtor shall not request funding from the Bank Investors unless the Company shall have not accepted an Advance and that once the Bank Investors acquire any interest in the Net Investment hereunder, the Bank Investors shall be required to accept the assignment of all interest in the Net Investment held by the Company in accordance with Section 9.9 and there after the Company shall no longer make any additional Advances hereunder), (x) the desired Advance Amount (which shall be at least $1,000,000 or integral multiples of $100,000 in excess thereof) or, to the extent that the then available unused portion of the Facility Limit is less than such amount, such lesser amount equal to such available portion of the Facility Limit), and (y) the desired date of such Advance. In the event that proceeds from the issuance of Related Commercial Paper exceed the Advance Amount paid to the Debtor, the Debtor may elect to receive such excess proceeds and increase the Net Investment, subject to the terms and conditions applicable to Advances as set forth in this Agreement. The Agent will promptly notify the Company or each of the Bank Investors, as the case may be, of the Agent's receipt of any request for an Advance to be made to such Person. To the extent that any such Advance is requested of the Company, the Company shall accept or reject such offer by notice given to the Debtor and the Agent by telephone or telecopy by no later than 5:00 p.m. (New York time) on the Business Day following its receipt of any such request. Each Additional Advance Certificate shall be irrevocable and binding on the Debtor and the Debtor shall indemnify the Company and each Bank Investor against any loss or expense incurred by the Company or any Bank Investor, either directly or indirectly (including, in the case of the Company, through the Liquidity Provider Agreement) as a result of any failure by the Debtor to accept any such Advance on the date indicated in the applicable Additional Advance Certificate, including, without limitation, any actual 29 35 loss or expense incurred by the Company or any Bank Investor, either directly or indirectly (including, in the case of the Company, pursuant to the Liquidity Provider Agreement) by reason of the liquidation or reemployment of funds acquired by the Company (or the Liquidity Provider) or any Bank Investor (including, without limitation, funds obtained by issuing commercial paper or promissory notes or obtaining deposits as loans from third parties) for the Company or any Bank Investor to fund such Advance. On or prior to the Closing Date, the Debtor shall issue a single note to the Agent, on behalf of the Company and the Bank Investors (the "Note"), which shall (1) be dated the Closing Date; (2) be in the stated principal amount equal to the Facility Limit (as reflected from time to time on the grid attached thereto); (3) bear interest as provided therein; (4) be payable to the order of the Agent for the account of the Company or the Bank Investors and mature on the date which is twelve (12) months after the Termination Date; and (5) be substantially in the form of Exhibit F to this Agreement, with blanks appropriately completed in conformity here with. The Agent shall indicate the amount of the initial Advance together with the date thereof on the grid attached to the Note. The Agent shall indicate the amount of each subsequent Advance together with the date thereof as well as any increase in the Net Investment on the grid attached to the Note. Although the Note shall be dated the Closing Date, interest in respect thereof shall be payable only for the periods during which amounts are outstanding thereunder. In addition, although the stated principal amount of the Note shall be equal to the Facility Limit, the Note shall be enforceable with respect to the Debtor's obligation to pay the principal thereof only to the extent of the unpaid principal amount of the Advances outstanding thereunder at the time such enforcement shall be sought. By no later than 11:00 a.m. (New York time) on any Advance Date, the Company or each Bank Investor, as the case may be, shall remit its share (which, in the case of an Advance by the Bank Investors, shall be equal to such Bank Investor's Pro Rata Share) of the aggregate Advance Amount for such Advance to the account of the 30 36 Agent specified therefor from time to time by the Agent by notice to such Persons. The obligation of each Bank Investor to remit its Pro Rata Share of any such Advance Amount shall be several from that of each other Bank Investor, and the failure of any Bank Investor to so make such amount available to the Agent shall not relieve any other Bank Investor of its obligation hereunder. Following each Advance and the Agent's receipt of funds from the Company or the Bank Investors as aforesaid, the Agent shall use its reasonable efforts to remit the Advance Amount to the Debtor's account at the location indicated in Section 10.3 hereof, in immediately available funds, by 1:30 p.m. (New York time) on the Advance Date. Unless the Agent shall have received notice from the Company or any Bank Investor, as applicable, that such Person will not make its share of any Advance Amount relating to any Advance available on the applicable Advance Date there for, the Agent may (but shall have no obligation to) make the Company's or any such Bank Investor's share of any such Advance Amount available to the Debtor in anticipation of the receipt by the Agent of such amount from the Company or such Bank Investor. To the extent the Company or any such Bank Investor fails to remit any such amount to the Agent after any such advance by the Agent on such Advance Date, the Company or such Bank Investor, on the one hand, and the Debtor, on the other hand, shall be required to pay such amount, together with interest thereon at a per annum rate equal to the Federal funds rate (as determined in accordance with clause (ii) of the definition of "Base Rate"), in the case of the Company or any such Bank Investor, or the Base Rate, in the case of the Debtor, to the Agent upon its demand therefor (provided that the Company shall have no obligation to pay such interest amounts except to the extent that it shall have sufficient funds to pay the face amount of its Commercial Paper in full). The Agent shall immediately notify the Debtor if the Agent has made such an advance on behalf of the Company or any Bank Investor and the Debtor shall repay such advance at any time without penalty or any Early Collection Fee. Until such amount shall be repaid, such amount shall be deemed to be Net Investment paid by the Agent and the Agent shall be deemed to have an interest in the Net Investment hereunder. Upon the payment of such amount to the Agent (x) by the Debtor, the amount of the aggregate Net Investment shall be reduced by such amount or (y) by the Company or such Bank 31 37 Investor, such payment shall constitute such Person's payment of its share of the applicable Advance Amount for such Advance. (b) Noteholder's Percentage. The Noteholder's Percentage shall be initially computed as of the opening of business of the Servicer on the date of the Cut-Off Date. Thereafter until the Termination Date the Noteholder's Percentage shall be automatically and promptly recomputed as of the close of business of each Cycle Date (other than a Cycle Date after the Termination Date). The Noteholder's Percentage shall remain constant from the time as of which any such computation or recomputation is made until the time as of which the next such recomputation, if any, shall be made. Section 2.3 Fundings. (a) Prior to the Termination Date; Net Investment Funded by Company. At all times hereafter, but prior to the Termination Date and not with respect to any portion of the Net Investment held by the Bank Investors (or any of them), the Debtor may, subject to the Company's approval and the limitations described below, request that the Net Investment be allocated among one or more funding periods, so that the aggregate amounts so allocated at all times shall equal the Net Investment held by the Company. The Debtor shall give the Company irrevocable notice by telephone of the new requested funding period(s) at least three (3) Business Days prior to the expiration of any then existing funding period; provided, however, that the Company may select, in its sole discretion, any such new funding period if (i) the Debtor fails to provide such notice on a timely basis or (ii) the Company determines, in its sole discretion, that the funding period requested by the Debtor is unavailable or for any reason commercially undesirable. The Company confirms that it is its intention to fund all or substantially all of the Net Investment held by it by issuing Related Commercial Paper; provided that the Company may determine, from time to time, in its sole discretion, that funding such Net Investment by means of Related Commercial Paper is not possible or is not desirable for any reason. If the Liquidity Provider acquires from the Company a Purchased Interest with respect to the Receivables pursuant to the terms of the Liquidity Provider Agreement, NationsBank, 32 38 on behalf of the Liquidity Provider, may exercise the right of selection granted to the Company hereby. The initial funding period applicable to any such Purchased Interest shall be a period of not greater than three (3) Business Days and shall accrue Carrying Costs on the basis of the Base Rate. Thereafter, provided that the Termination Date shall not have occurred, Carrying Costs shall accrue on the basis of either the Base Rate or the Adjusted LIBOR Rate, as determined by the Debtor. The Debtor shall give the Agent irrevocable notice by telephone of the new requested funding period at least three (3) Business Days prior to the expiration of any then existing funding period. In the case of any funding period outstanding upon the Termination Date, such funding period shall end on such date. (b) After the Termination Date; Net Investment Funded by Company. At all times on and after the Termination Date (provided that no Termination Event (other than an event described in either Section 7.1(o) or 7.1(p)) shall have occurred), with respect to any portion of the Net Investment which shall not have been transferred to the Bank Investors (or any of them), the Debtor shall select all funding periods and rates applicable thereto. The Debtor shall give the Agent irrevocable notice by telephone of the new requested funding period at least three (3) Business Days prior to the expiration of any then existing funding period. After the occurrence of a Termination Event (other than an event described in either Section 7.1(o) or 7.1(p)), the Agent shall select all funding periods and rates applicable to the Net Investment. (c) Prior to the Termination Date; Net Investment Funded by Bank Investor. At all times with respect to any portion of the Net Investment transferred to the Bank Investors (or any of them) pursuant to Section 9.7, but prior to the Termination Date, the initial funding period applicable to such portion of the Net Investment allocable thereto shall be a period of not greater than three (3) Business Days and shall accrue Carrying Costs on the basis of the Base Rate. Thereafter, with respect to such portion, and with respect to any other portion of the Net Investment held by the Bank Investors (or any of them), provided that the Termination Date shall not have occurred, Carrying Costs shall accrue with respect thereto at either the Base Rate 33 39 or the Adjusted LIBOR Rate, at the Debtor's option. The Debtor shall give the Agent irrevocable notice by telephone of the new requested funding period at least three (3) Business Days prior to the expiration of any then existing funding period. In the case of any funding period outstanding upon the occurrence of the Termination Date, such funding period shall end on the date of such occurrence. (d) After the Termination Date; Net Investment Funded by Bank Investor. At all times on and after the Termination Date (provided that no Termination Event (other than an event described in either Section 7.1(o) or 7.1(p)) shall have occurred), with respect to any portion of the Net Investment which shall have been owned or transferred to the Bank Investors (or any of them), the Debtor shall select all funding periods applicable thereto. After the occurrence of a Termination Event (other than an event described in either Section 7.1(o) or 7.1(p)), the Agent shall select all funding periods and rates applicable to the Net Investment. (e) Eurodollar Rate Protection; Illegality. (i) If the Agent is unable to obtain on a timely basis the information necessary to determine the LIBOR Rate for any proposed funding period, then (A) the Agent shall forthwith notify the Company or Bank Investors, as applicable and the Debtor that the Adjusted LIBOR Rate cannot be deter mined for such funding period, and (B) while such circumstances exist, neither the Company, the Bank Investors or the Agent shall allocate the Net Investment related to any Advances made during such period or reallocate the Net In vestment allocated to any then existing funding period ending during such period, to a funding period which accrues Carrying Costs on the basis of the Adjusted LIBOR Rate. (ii) If, with respect to any outstanding funding period which accrues Carrying Costs on the basis of the Adjusted LIBOR Rate, the Company or any of the Bank Investors funding any portion of the Net Investment allocated thereto notifies the Agent that it is unable to 34 40 obtain matching deposits in the London interbank market to fund its purchase or maintenance of such Net Investment or that the Adjusted LIBOR Rate applicable to such Net Investment will not adequately reflect the cost to the Person of funding or maintaining such Net Investment for such funding period then the Agent shall forthwith so notify the Debtor, whereupon neither the Agent nor the Company or the Bank Investors, as applicable, shall, while such circumstances exist, allocate any Net Investment related to any Advances made during such period or reallocate the Net Investment allocated to any funding period ending during such period, to a funding period which accrues Carrying Costs on the basis of the Adjusted LIBOR Rate. (iii) Notwithstanding any other provision of this Agreement, if the Company or any of the Bank Investors, as applicable, shall notify the Agent that such Person has determined (or has been notified by any Liquidity Provider) that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful (either for the Company, such Bank Investor, or such Liquidity Provider, as applicable), or any central bank or other governmental authority asserts that it is unlawful, for the Company, such Bank Investor or such Liquidity Provider, as applicable, to fund the Net Investment or any portion thereof at the Adjusted LIBOR Rate, then (x) as of the effective date of such notice from such Person to the Agent, the obligation or ability of the Company or such Bank Investor, as applicable, to fund its purchase or maintenance of Net Investments at the Adjusted LIBOR Rate shall be suspended until such Person notifies the Agent that the circumstances causing such suspension no longer exist and (y) the Net Investment allocated to each funding period which accrues Carrying Costs on the basis of the Adjusted LIBOR Rate in which such Person owns an interest shall either (1) if such Person may lawfully continue to maintain such Net Investment at the Adjusted LIBOR Rate until the last day of the applicable funding period, be reallocated on the last day of such funding period to another funding period in respect of which the Net Investment allocated thereto accrues Carrying Costs on a basis other than the Adjusted LIBOR Rate or (2) if such Person shall determine that it may not lawfully continue to maintain such Net Investment at the Adjusted LIBOR Rate until the end of the applicable funding 35 41 period, such Person's share of the Net In vestment allocated to such funding period shall be deemed to accrue Carrying Costs on the basis of the Base Rate from the effective date of such notice until the end of such funding period. Section 2.4 Carrying Costs, Fees and Other Costs and Expenses. The Debtor shall pay, as and when due in accordance with this Agreement, all fees hereunder, including any Early Collection Fee, Carrying Costs, all amounts payable pursuant to Article VIII hereof, if any, and the Servicing Fees. On each Remittance Date, the Debtor shall pay to the Agent, on behalf of the Company or the Bank Investors, as applicable, an amount equal to the accrued and unpaid Carrying Costs for the related Collection Period. The Debtor shall pay to the Agent, on behalf of the Company, on each day on which Related Commercial Paper is issued by the Company, the Dealer Fee with respect to such Related Commercial Paper. Nothing in this Agreement shall limit in any way the obligations of the Debtor to pay the amounts set forth in this Section 2.4. Section 2.5 Allocations of Collections; Non-Liquidation Settlement Procedures. (a) Within six (6) days of each Cycle Date, the Servicer shall allocate all Collections received on or prior to such Cycle Date and after the preceding Cycle Date as Finance Charge Collections or Principal Collections and shall deposit such Collections into the Debtor Account or the Collection Account, as applicable. Principal Collections shall be applied by the Servicer as described in subsection (b) below. On each Remittance Date, the product of (A) the estimated daily average of the Noteholder's Percentage over the preceding Collection Period (as determined as of each Cycle Date occurring during such Collection Period) and (B) the aggregate Finance Charge Collections for such preceding Collection Period (other than Collections comprised of late fees, NSF or returned check charges or similar fees and charges which shall be retained by the Servicer as provided in Section 6.2(e)), which product shall be net of any Remittance Advances made by the Servicer for costs accrued with respect to such Collection Period (but not less than zero), shall be withdrawn by the Servicer from the Debtor Account or Collection Account, as applicable, 36 42 and applied, without duplication, by the Servicer as follows: (i) first, to the payment to the Agent of any accrued and unpaid Carrying Costs for such Collection Period; (ii) second, to the retention by the Servicer of any Servicing Fee due and owing; and (iii) third, to the extent any Finance Charge Collections remain after application in accordance with clauses (i) and (ii) above, (A) if prior to the Termination Date such excess amounts shall be paid to the Debtor and (B) if on or after the Termination Date such excess amounts shall be paid to the Agent in reduction of the Net Investment. On each Remittance Date, subject to Section 2.5(c), there shall be remitted to the Debtor the product of (A) the estimated daily average of the Debtor's Percentage over the preceding Collection Period (as deter mined as of each Cycle Date occurring during such Collection Period) and (B) the aggregate Finance Charge Collections for the preceding Collection Period, which product shall be net of any Remittance Advances made by the Servicer for costs accrued with respect to such Collection Period in excess of the amount netted against the estimated daily average of the Noteholder's Percentage of Finance Charge Collections in the first paragraph of Section 2.5(a) (but not less than zero). (b) Within six (6) days after each Cycle Date prior to the Termination Date, (i) the Servicer shall allocate to the Company and/or the Bank Investors the Noteholder's Percentage of Principal Collections received on or prior to such Cycle Date and after the preceding Cycle Date and the Servicer shall, at the Debtor's option, (A) deposit or retain such amount (net of any Remittance Advances made by the Servicer for costs accrued with respect to the preceding Collection Period in excess of the amount of Remittance Advances netted against the Noteholder's Percentage of Finance Charge Collections for such Collection Period, the Debtor's Percentage of Finance Charge Collections for such 37 43 Collection Period and the portion of Principal Collections not allocated to the Net Investment) in the Debtor Account or the Collection Account, as applicable, and pay such amount to the Debtor on the related Remittance Date, or (B) retain or deposit such amount (net of any Remittance Advances made by the Servicer for costs accrued with respect to the preceding Collection Period in excess of the amount of Remittance Advances netted against the Noteholder's Percentage of Finance Charge Collections for such Collection Period, the Debtor's Percentage of Finance Charge Collections for such Collection Period and the portion of Principal Collections not allocated to the Net Investment) in the Debtor Account or the Collection Account, as applicable, and on the related Remittance Date pay such amount to the Agent in reduction of the Net Investment and (ii) the Servicer shall retain or deposit the portion of such Principal Collections not allocated to the Net Investment (net of any Remittance Advances made by the Servicer for costs accrued with respect to the preceding Collection Period in excess of the amount of Remittance Advances netted against the Noteholder's Percentage of Finance Charge Collections for such Collection Period and the Debtor's Percentage of Finance Charge Collections for such Collection Period) in the Debtor Account or the Collection Account, as applicable and on the related Remittance Date pay to the Debtor any such amounts remaining after any reallocations pursuant to Section 2.5(c) below. Within six (6) days after each Cycle Date on or subsequent to the Termination Date, (i) the Servicer shall allocate to the Company or the Bank Investors, as applicable, the Noteholder's Percentage of all Principal Collections received on or prior to such Cycle Date and after the preceding Cycle Date and on the related Remittance Date pay such amount (net of any Remittance Advances made by the Servicer for costs accrued with respect to the preceding Collection Period in excess of the amount of Remittance Advances netted against the Noteholder's Percentage of Finance Charge Collections for such Collection Period, the Debtor's Percentage of Finance Charge Collections for such Collection Period and the portion of Principal Collections not allocated to the Net Investment) to the Agent in reduction of the Net Investment, and (ii) the portion of such Principal Collections not allocated to the Net Investment (net of 38 44 any Remittance Advances made by the Servicer for costs accrued with respect to the preceding Collection Period in excess of the amount of Remittance Advances netted against the Noteholder's Percentage of Finance Charge Collections for such Collection Period and the Debtor's Percentage of Finance Charge Collections for such Collection Period) shall be retained by the Servicer in the Debtor Account or the Collection Account, as applicable and, to the extent of such amounts remaining after any reallocations pursuant to Section 2.5(c) below, on the related Remittance Date shall be distributed to the Agent in reduction of the Net Investment; provided, however, that if no Termination Event (other than an event described in either Section 7.1(o) or 7.1(p)) shall have occurred, the funds referred to in clause (ii) above shall be paid to the Debtor. (c) If on any Remittance Date, after giving effect to clauses (i) and (ii) of Section 2.5(a), an insufficiency exists with respect to the Noteholder's Percentage of Finance Charge Collections, then, in such event, on such Remittance Date the amount of Finance Charge Collections distributable or allocable to the Debtor, and to the extent any such insufficiency continues to remain, the amount of Principal Collections not allocable to the Net Investment, shall be reduced by the amount of such insufficiency, and such amount(s) shall be applied as Finance Charge Collections allocable to the Net Investment and shall be applied and distributed in accordance with the priorities set forth in clauses (i) and (ii) of Section 2.5(a). (d) In the event that, on any date, the Company does not have sufficient funds to pay the Interest Component of matured or maturing Related Commercial Paper or any Dealer Fee due and payable on such day, the Servicer, acting upon written notice from the Administrative Agent, shall make a withdrawal from the Debtor Account or the Collection Account, as applicable, in an amount equal to such costs and any Dealer Fee due and payable on such day (a "Remittance Advance") and pay to the Agent, for the account of the Company, the amount of such advance. (e) The Debtor shall have the option to designate a fixed percentage (the "Discount Percentage") of all Receivables other than Finance Charges and 39 45 Receivables in Defaulted Accounts to be treated as finance charge receivables ("Discount Receivables") in accordance with the provisions of this Section 2.5(e), which percentage shall remain fixed and in effect until such time as the Debtor has provided a subsequent designation, upon 20 days prior written notice, to the Agent. The initial Discount Percentage shall be 0%. The Debtor shall have the option to increase, decrease or eliminate the Discount Percentage, provided, that (i) no such designation shall become effective if it would reasonably be expected to cause a Termination Event to occur, (ii) no such designation shall become effective upon or after a Termination Event without the Agent's prior written approval, and (iii) if, at the date of designation, the projected Net Portfolio Yield for any Monthly Period during the six months following such date, after giving effect to such designation, is less than 3%, no such designation shall become effective without the Agent's prior written consent. Section 2.6 Liquidation Settlement Procedures. If, on the Termination Date the Debtor's Percentage is less than the Minimum Debtor's Percentage, then the Debtor shall immediately pay to the Agent, for the benefit of the Company or the Bank Investors, as applicable, from previously received Principal Collections, an amount equal to the amount that, when applied in reduction of the Net Investment, will result in a Debtor's Percentage equal to or greater than the Minimum Debtor's Percentage. Such amount shall be applied by the Agent to the reduction of the Net Investment. On each Remittance Date occurring on and following the Termination Date, Principal Collections shall be applied in accordance with Section 2.5(b). Following the date on which the Net Investment shall be reduced to zero and all other Aggregate Unpaids have been paid in full, (i) the Servicer shall recompute the Noteholder's Percentage as zero, (ii) the Agent, on behalf of the Company and the Bank Investors, shall be considered to have released all of the Company's and the Bank Investors' right, title and interest in and to the Affected Assets, (iii) the Servicer shall pay to the Debtor any remaining Collections set aside and held by the Servicer and (iv) the Agent, on behalf of the Company and the Bank Investors, shall execute and deliver to the Debtor, at the Debtor's expense, such documents or 40 46 instruments as are necessary to terminate the Company's and the Bank Investors' respective interests in the Affected Assets. Any such documents shall be prepared by or on behalf of the Debtor. Section 2.7 Fees. Notwithstanding any limitation on recourse contained in this Agreement, the Debtor shall pay the following non-refundable fees: (a) On each Remittance Date, to the Company solely for its own account, the Program Fee and the Administrative Fee, and to the Agent for distribution to the Bank Investors, the Facility Fee. (b) On the date of execution hereof, to the Administrative Agent solely for its own account, the Arrangement Fee. Section 2.8 Protection of Security Interest. (a) The Debtor agrees that it will, and will cause each Designated Seller to, from time to time, at its expense, promptly execute and deliver all instruments and documents and take all actions as may be necessary or as the Agent may reasonably request in order to perfect or protect the Agent's security interest in the Affected Assets or to enable the Agent, the Company or the Bank Investors to exercise or enforce any of their respective rights hereunder. Without limiting the foregoing, the Debtor will, and will cause each Designated Seller to, upon the request of the Agent, the Company or any of the Bank Investors, in order to accurately reflect this grant of a security interest, execute and file such financing or continuation statements or amendments thereto or assignments thereof (as permitted pursuant to Section 9.7 hereof) as may be requested by the Agent, the Company or any of the Bank Investors. The Debtor shall, and will cause each Designated Seller to, upon request of the Agent, the Company or any of the Bank Investors, obtain such additional search reports as the Agent, the Company or any of the Bank Investors shall reasonably request. To the fullest extent permitted by applicable law, the Agent shall be permitted to sign and file continuation statements and amendments thereto and assignments thereof without the Debtor's or any Designated Seller's signature; provided, however, that the Agent shall not file without the Debtor's signature or consent any amendment to a financing statement (which absent the 41 47 provisions of this Agreement would otherwise require the Debtor's signature) which increases the scope of the property subject to such financing statement beyond the Receivables and the Related Security, the Collections and Proceeds with respect thereto; provided further, however, that the Agent shall not file any continuation, amendment or assignment of a financing statement, which absent the provisions of this Agreement would otherwise require the Debtor's signature, unless the Agent shall have requested the Debtor to take such action pursuant to this Section 2.8(a) and the Debtor shall have failed to do so with in a reasonable period of time after such request. Carbon, photographic or other reproduction of this Agreement or any financing statement shall be sufficient as a financing statement. The Debtor agrees that it will, at its expense, on or prior to the Closing Date indicate clearly and unambiguously in its master data processing records and on any storage containers containing Records that the Receivables created in connection with the Accounts have been pledged to the Agent, for the benefit of the Company and the Bank Investors, pursuant to this Agreement by affixing thereon the following legend: "THE RECEIVABLES IN THESE FILES HAVE BEEN PLEDGED TO NATIONSBANK, N.A., AS AGENT, FOR THE BENEFIT OF ENTERPRISE FUNDING CORPORATION AND THOSE CERTAIN BANK INVESTORS PURSUANT TO THE NOTE PURCHASE AND SECURITY AGREEMENT DATED AS OF JUNE 12, 1998, AS AMENDED FROM TIME TO TIME, AMONG BELK, INC., THE BELK CENTER, INC., NATIONSBANK, N.A., ENTERPRISE FUNDING CORPORATION AND THE OTHER SIGNATORIES NAMED THEREIN." The Debtor further agrees to deliver or to cause the Servicer to deliver to the Agent a computer file or microfiche list containing a true and complete list of all such Receivables, identified by account number and by Receivable balance as of the Cut-Off Date. The Debtor agrees to deliver or to cause the Servicer to deliver to the Agent within five (5) Business Days of the request therefor by the Agent a computer file or microfiche list showing a true and complete balance of all Receivables, including all Receivables created on or after the Cut-Off Date, in existence as of the last day of the prior Collection Period, identified by account number and by Receivable balance as of such day. The Servicer agrees, on behalf of the Debtor, at its own expense, by the end of each Collection Period to indicate clearly and unambiguously in its master data processing records and 42 48 any storage containers containing Records that the Receivables have been pledged to the Agent, for the benefit of the Company and the Bank Investors, pursuant to this Agreement. The Debtor shall not, and shall not permit any Designated Seller to, change its respective name, identity or corporate structure (within the meaning of Section 9-402(7) of the UCC as in effect in the States of New York, South Carolina and North Carolina) nor relocate its respective chief executive office or any office where Records are kept unless it shall have: (i) given the Agent at least fifteen (15) days prior notice thereof and (ii) prepared at Debtor's expense and delivered to the Agent all financing statements, instruments and other documents necessary to preserve and protect the Agent's security interest in the Affected Assets or reasonably requested by the Agent in connection with such change or relocation. Any filings under the UCC or otherwise that are occasioned by such change in name or location shall be made at the expense of the Debtor. (b) The Servicer shall direct all Obligors to cause all Collections to be mailed directly to a Post Office Box or remitted to retail store locations owned by the Debtor or a Designated Seller. Each Post Office Box shall be under the exclusive dominion and control of the Agent which is hereby granted to the Agent by the Servicer. The Servicer shall be permitted to collect Collections from any Post Office Box for so long as neither a Servicer Default nor any other Termination Event has occurred hereunder. The Servicer shall not terminate a Post Office Box or add any new Post Office Box unless the Agent shall have received thirty (30) days' prior written notice of such termination or addition and the Agent shall have received a Post Office Box Agreement with respect to each new Post Office Box, executed by the Servicer and the appropriate United States Postal Service official. (c) Unless the Servicer is denied access to such Post Office Box pursuant to the respective Post Office Box Agreement or otherwise through no fault of the Servicer, the Servicer shall deposit all Collections received at a Post Office Box in a Servicer Account promptly, but in any event within two (2) Business Days of receipt. In the event any Servicer Account shall be 43 49 proposed to be closed, the Servicer shall remove all Collections held in such Servicer Account to another Servicer Account. Each Servicer Account shall be under the exclusive ownership and control of the Agent which is hereby granted to the Agent by the Servicer. The Servicer shall be permitted to give instructions to any Servicer Account Bank for so long as neither a Servicer Default nor any other Termination Event has occurred hereunder. The Servicer shall not terminate any bank as a Servicer Account Bank or add any bank as a Servicer Account Bank unless the Agent shall have received fifteen (15) days' prior written notice of such termination or addition and the Agent shall have received a Servicer Account Agreement executed by each new Servicer Account Bank or an existing Servicer Account Bank with respect to each new Servicer Account, as applicable. (d) Unless the Servicer is denied access, either pursuant to the respective Post Office Box Agreement or otherwise through no fault of the Servicer, to the Post Office Box where such Collections are held, the Servicer shall deposit all Collections into the Debtor Account or, if required by this Agreement, into the Collection Account within ten (10) days of the initial receipt of such Collections by the Servicer. Section 2.9 Deemed Collections; Application of Payments. (a) If on any day the Outstanding Principal Balance of a Receivable is either (x) reduced as a result of any defective, rejected or returned merchandise or services, any discount, credit, rebate, dispute, warranty claim, repossessed or returned goods, chargeback, allowance or any billing adjustment, or (y) reduced or canceled as a result of a setoff or offset in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction) or (z) any other downward adjustments to the balance of such Receivable without receiving Collections therefor and prior to such Receivable becoming a Defaulted Receivable, the amount of such cancellation, reduction or adjustment shall thereafter be deducted from the aggregate Outstanding Principal Balance of the Receivables and the Net Receivables Balance. If such reduction would result in a Debtor's Percentage less than the Minimum Debtor's Percentage, the Debtor shall pay (or direct the Servicer to pay from Collections otherwise distributable to the Debtor) to the Agent an amount equal 44 50 to the amount that, when applied in reduction of the Net Investment, will result in a Debtor's Percentage equal to or greater than the Minimum Debtor's Percentage. Such amount shall be applied by the Agent to the reduction of the Net Investment. (b) If on any day the Servicer or the Debtor has actual knowledge that any of the representations or warranties in Section 3.1(l) was or has become untrue with respect to a Receivable (whether on or after the date of any transfer of an interest therein to the Agent, the Company or the Bank Investors as contemplated hereunder), such Receivable shall thereafter not be included in any calculation of the Net Receivables Balance. If such reduction would result in a Debtor's Percentage less than the Minimum Debtor's Percentage, the Debtor shall pay (or direct the Servicer to pay from Collections otherwise distributable to the Debtor) to the Agent an amount equal to the amount that, when applied in reduction of the Net Investment, will result in a Debtor's Percentage equal to or greater than the Minimum Debtor's Percentage. Such amount shall be applied by the Agent to the reduction of the Net Investment. Section 2.10 Payments and Computations, Etc. All amounts to be paid or deposited by the Debtor or the Servicer hereunder shall be paid or deposited in accordance with the terms hereof no later than 11:00 a.m. (New York City time) on the day when due in immediately avail able funds; if such amounts are payable to the Company or any Bank Investor they shall be paid or deposited in the account indicated in Section 10.3 hereof, until otherwise notified by the Agent. The Debtor shall, to the extent permitted by law, pay to the Agent, for the benefit of the Company and the Bank Investors upon demand, interest on all amounts not paid or deposited when due hereunder at a rate equal to the Adjusted LIBOR Rate that would apply during the continuance of a Termination Event. All computations of interest and all per annum fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed. Any computations by the Agent of amounts payable by the Debtor hereunder shall be binding upon the Debtor absent manifest error. 45 51 Section 2.11 Reports. On each Determination Date, the Servicer shall prepare and forward to the Agent and the Administrative Agent (i) a Servicer Report as of the end of the last day of the immediately preceding Collection Period, and (ii) such other information as the Agent or the Administrative Agent may reasonably request. Section 2.12 Collection Account. There shall be established on the day of the initial Advance hereunder and maintained, for the benefit of the Company and the Bank Investors, with the Agent, a segregated account (the "Collection Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Company and the Bank Investors. Upon the occurrence and during the continuance of (i) a Servicer Default or (ii) a Termination Event (other than one arising under Section 7.1(o) or (p)), the Servicer shall remit as promptly as possible and in any event prior to the close of business on the tenth day following receipt to the Collection Account all Collections received with respect to any Receivables; prior to the occurrence of any such event the Servicer to the extent it holds such funds, shall be permitted to retain and invest (at the Servicer's risk) Collections pending the application thereof pursuant to Section 2.5 hereof. Funds on deposit in the Collection Account (other than investment earnings) shall be invested by the Agent in Eligible Investments that will mature so that such funds will be available prior to the Remittance Date following such investment. On each Remittance Date, all interest and earnings (net of losses and investment expenses) on funds on deposit in the Collection Account shall be retained in the Collection Account and be available to make any distributions required to be made pursuant to Section 2.5(a). On the date following the Termination Date on which the Net Investment and all other Aggregate Unpaids have been paid in full, any funds remaining on deposit in the Collection Account shall be released and paid to the Debtor. Section 2.13 Sharing of Payments, Etc. If the Company or any Bank Investor (for purposes of this Section only, being a "Recipient") shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of setoff, or otherwise) on account of any interest in the Net Investment it may have (other than pursuant to Section 2.7, or Article VIII and other 46 52 than as a result of the differences in the timing of the applications of Collections pursuant to Section 2.5 or 2.6) in excess of its ratable share of payments on account of Net Investment held by the Company and/or the Bank Investors entitled thereto, such Recipient shall forthwith purchase from the Company and/or the Bank Investors entitled to a share of such amount participations in the Net Investment held by such Persons as shall be necessary to cause such Recipient to share the excess payment ratably with each such other Person entitled thereto; provided, however, that if all or any portion of such excess payment is thereafter recovered from such Recipient, such purchase from each such other Person shall be rescinded and each such other Person shall repay to the Recipient the purchase price paid by such Recipient for such participation to the extent of such recovery, together with an amount equal to such other Person's ratable share (according to the proportion of (a) the amount of such other Person's required payment to (b) the total amount so recovered from the Recipient) of any interest or other amount paid or payable by the Recipient in respect of the total amount so recovered. Section 2.14 Right of Setoff. Without in any way limiting the provisions of Section 2.13, each of the Company and the Bank Investors is hereby authorized (in addition to any other rights it may have) at any time after the occurrence of the Termination Date or during the continuance of a Potential Termination Event to set-off, appropriate and apply (without presentment, demand, protest or other notice which are hereby expressly waived) any deposits and any other indebtedness held or owing by the Company or such Bank Investor to, or for the account of, the Debtor against the amount of the Aggregate Unpaids owing by the Debtor to such Person (even if contingent or unmatured). 47 53 ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.1 Representations and Warranties of the Debtor. The Debtor represents and warrants to the Agent, the Company and the Bank Investors that: (a) Corporate Existence and Power. The Debtor is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate power and all material governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is now conducted. The Debtor is duly qualified to do business in, and is in good standing in, every other jurisdiction in which the nature of its business requires it to be so qualified, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. (b) Corporate and Governmental Authorization; Contravention. The execution, delivery and performance by the Debtor of this Agreement, the Receivables Purchase Agreement, the Fee Letter, the Note and the other Transaction Documents to which the Debtor is a party are within the Debtor's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any Official Body or official thereof (except as contemplated by Section 2.8 hereof), and do not contravene, or constitute a default under, any provision of applicable law, rule or regulation or of the Certificate of Incorporation or Bylaws of the Debtor or of any agreement, judgment, injunction, order, writ, decree or other instrument binding upon the Debtor or result in the creation or imposition of any Adverse Claim on the assets of the Debtor or any of its Subsidiaries (except as contemplated by Section 2.8 hereof or any other provision of this Agreement or any other Transaction Document). (c) Binding Effect. Each of this Agreement, the Receivables Purchase Agreement, the Fee Letter, the Note and the other Transaction Documents to which the Debtor is a party constitutes the legal, valid 48 54 and binding obligation of the Debtor, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally. (d) Perfection. The Debtor shall be the owner of all of the Receivables, free and clear of all Adverse Claims (except as permitted by this Agreement or the other Transaction Documents). All financing statements and other documents required to be recorded or filed in order to perfect and protect the Agent's security interest in the Affected Assets against all creditors of and purchasers from the Debtor and the applicable Designated Seller have been, or will, within ten (10) days of the date hereof be, duly filed in each filing office necessary for such purpose and all filing fees and taxes, if any, payable in connection with such filings have been, or will, within ten (10) days of the date hereof be, paid in full. (e) Accuracy of Information. All information heretofore furnished by the Debtor (including without limitation, the Servicer Reports, any reports delivered pursuant to Section 2.11 hereof and the financial statements delivered pursuant to Section 5.1) to the Company, any Bank Investors, the Agent or the Administrative Agent for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Debtor to the Company, any Bank Investors, the Agent or the Administrative Agent will be, true and accurate in every material respect, on the date such information is stated or certified. (f) Tax Status. The Debtor has filed all tax returns (federal, state and local) required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges. (g) Action, Suits. (x) Except as set forth in Exhibit H hereof (as such exhibit may be amended from time to time), there are no actions, suits or proceedings pending, or to the knowledge of the Debtor threatened, against or affecting the Debtor or its properties, in or before any court, 49 55 arbitrator or other body, (i) asserting the invalidity of any Transaction Document, (ii) seeking to prevent the consummation of any of the transactions contemplated by any Transaction Document, (iii) seeking any determination or ruling that, in the judgment of the Debtor, would materially and adversely affect the performance of its obligations under any Transaction Document to which it is a party or materially and adversely affect the collectibility of the Receivables as a whole, or (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of any Transaction Document. (y) Except as set forth in Exhibit H hereof (as such exhibit may be amended from time to time), there are no actions, suits or proceedings pending, or to the knowledge of the Debtor threatened, against or affecting any Designated Seller or any Designated Seller's respective properties, in or before any court, arbitrator or other body, (i) asserting the invalidity of any Transaction Document, (ii) seeking to prevent the consummation of any of the transactions contemplated by any Transaction Document, (iii) seeking any determination or ruling that, in the judgment of the Debtor, would materially and adversely affect the performance of each of their obligations under any Transaction Document to which each is a party or materially and adversely affect the collectibility of the Receivables as a whole, or (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of any Transaction Document. (z) Except as set forth in Exhibit H hereof (as such exhibit may be amended from time to time), there are no outstanding judgments in any court against the Debtor or, any Designated Seller (for which any such party is solely responsible or is responsible jointly with other Persons) in excess of $1,000,000 individually. (h) Use of Proceeds. No proceeds of any Advance will be used by the Debtor to acquire any security in any transaction which is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended. (i) Place of Business. The principal place of business and chief executive office of the 50 56 Debtor are located at the address of the Debtor indicated in Section 10.3 hereof and the offices where the Debtor keeps all its Records, are located at the address(es) described on Exhibit I or such other locations notified to the Agent in accordance with Section 2.8 hereof in jurisdictions where all action required by Section 2.8 hereof has been taken and completed. (j) Good Title. Upon the filing of the appropriate financing statements as required by this Agreement, the Agent on behalf of the Company and the Bank Investors shall have or acquire a first priority perfected security interest in the Receivables existing on the date of the Cut-Off Date and thereafter and in the Related Security and Collections with respect thereto free and clear of any Adverse Claim. (k) Tradenames, Etc. As of the date hereof: (i) the Debtor has only the subsidiaries and divisions listed on Exhibit J hereto; and (ii) the Debtor has, within the last five (5) years, operated only under the tradenames identified in Exhibit J hereto, and, within the last five (5) years, has not changed its name, merged with or into or consolidated with any other corporation or been the subject of any proceeding under Title 11, United States Code (Bankruptcy), except as disclosed in Exhibit J hereto. (l) Nature of Receivables. Each Receivable (x) represented by the Debtor or the Servicer to be an Eligible Receivable (including in any Servicer Report or other report delivered pursuant to Section 2.11 hereof) or (y) included in the calculation of the Net Receivables Balance, in fact satisfies at such time the definition of "Eligible Receivable" set forth herein and is an "eligible asset" as defined in Rule 3a-7 under the Investment Company Act, of 1940, as amended. (m) Coverage Requirement; Amount of Receivables. The Debtor's Percentage is not less than the Minimum Debtor's Percentage. As of the Cut-Off Date, the aggregate Outstanding Principal Balance of the Receivables in existence was $318,269,025.64 the aggregate balance of Finance Charges was $13,524,570.57 and the Net Receivable Balance was $318,269,025.64. 51 57 (n) Credit Guidelines. Since November 21, 1997, there have been no material changes in the Credit Guidelines other than as permitted hereunder. Since such date, no material adverse change has occurred in the overall rate of collection of the Receivables. (o) Ratios. the Default Ratio and the Delinquency Ratio have not exceeded 8% and 7.5%, respectively, for the 3 months prior to the Cut-Off Date. (p) No Termination Event. No event has occurred and is continuing and no condition exists which constitutes a Termination Event or a Potential Termination Event. (q) Not an Investment Company. The Debtor is not, and is not controlled by, an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such Act. (r) ERISA. Each of the Debtor and its ERISA Affiliates is in compliance in all material respects with ERISA and no lien exists in favor of the Pension Benefit Guaranty Corporation on any of the Receivables. (s) Servicer Accounts. The names and addresses of all the Servicer Account Banks, together with the account numbers of the Servicer Accounts at such Servicer Account Banks, are specified in Exhibit C hereto (or at such other Servicer Account Banks and/or with such other Servicer Accounts as have been notified to the Agent and for which Servicer Account Agreements have been executed in accordance with Section 2.8(c) hereof and delivered to the Agent). Only Collections are deposited into the Servicer Accounts. (t) Bulk Sales. No transactions contemplated hereby or by the Receivables Purchase Agreement requires compliance with any bulk sales act or similar law. (u) Transfers Under Receivables Purchase Agreement. Each Receivable which has been transferred to the Debtor by a Designated Seller has been purchased by the Debtor from such Designated Seller pursuant to, and 52 58 in accordance with, the terms of the Receivables Purchase Agreement. (v) Post Office Boxes. The numbers and addresses of all the Post Office Boxes are specified in Exhibit N hereto (or at such other Post Office Boxes as have been notified to the Agent and for which Post Office Box Agreements have been executed in accordance with Section 2.8(b) hereof and delivered to the Agent). All Obligors have been directed to make payment to a Post Office Box or to retail store locations owned by the Debtor or a Designated Seller. Section 3.2 Representations and Warranties of the Servicer. The Servicer represents and warrants to the Agent, the Company and the Bank Investors that: (a) Corporate Existence and Power. The Servicer is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate power and all material governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is now conducted. The Servicer is duly qualified to do business in, and is in good standing in, every other jurisdiction in which the nature of its business requires it to be so qualified, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. (b) Corporate and Governmental Authorization; Contravention. The execution, delivery and performance by the Servicer of this Agreement are within the Servicer's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official (except as contemplated by Section 2.8), and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the charter or Bylaws of the Servicer or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Servicer or result in the creation or imposition of any lien on assets of the Servicer or any of its Subsidiaries (except as contemplated by Section 2.8 or any other 53 59 provision of this Agreement or any other Transaction Document). (c) Binding Effect. This Agreement constitutes the legal, valid and binding obligation of the Servicer enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally. (d) Accuracy of Information. All information heretofore furnished by the Servicer in writing to the Debtor, the Company, any Bank Investor, the Agent or the Administrative Agent for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Servicer to the Debtor, the Company, any Bank Investor, the Agent or the Administrative Agent will be, true and accurate in every material respect, on the date such information is stated or certified. (e) Tax Status. The Servicer has filed all tax returns (federal, state and local) required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges. (f) Action, Suits. (x) Except as set forth in Exhibit H hereof (as such exhibit may be amended from time to time), there are no actions, suits or proceedings pending, or to the knowledge of the Servicer threatened, against or affecting the Debtor, the Servicer or their respective proper ties, in or before any court, arbitrator or other body, (i) asserting the invalidity of any Transaction Document, (ii) seeking to prevent the consummation of any of the transactions contemplated by any Transaction Document, (iii) seeking any determination or ruling that, in the judgment of the Servicer, would materially and adversely affect the performance of the Servicer's obligations under any Transaction Document to which it is a party or materially and adversely affect the collectibility of the Receivables as a whole, or (iv) seeking any determination or ruling that would materially 54 60 and adversely affect the validity or enforceability of any Transaction Document. (y) Except as set forth in Exhibit H hereof (as such exhibit may be amended from time to time), there are no outstanding judgments in any court against the Servicer (for which either the Servicer is solely responsible or the Servicer is responsible jointly with other Persons) in excess of $1,000,000 individually. (g) Collections and Servicing. Since August 22, 1997, there has been no material adverse change in the ability of the Servicer to service and collect the Receivables and no material adverse change has occurred in the overall rate of collections of Receivables. (h) Not an Investment Company. The Servicer is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such Act. (i) ERISA. The Servicer is in compliance in all material respects with ERISA. (j) Servicer Accounts. The names and addresses of all the Servicer Account Banks, together with the account numbers of the Servicer Accounts at such Servicer Account Banks, are specified in Exhibit C (or at such other Servicer Account Banks and/or with such other Servicer Accounts as have been notified to the Debtor and the Agent and for which Servicer Account Agreements have been executed in accordance with Section 2.8(c) hereof and delivered to the Agent). Only Collections are deposited into the Servicer Accounts. (k) Post Office Boxes. The names and addresses of all the Post Office Boxes are specified in Exhibit N (or at such other Post Office Boxes as have been notified to the Debtor and the Agent and for which Post Office Box Agreements have been executed in accordance with Section 2.8(b) hereof and delivered to the Agent). All Obligors have been directed to make payment to a Post Office Box or to retail store locations owned by the Debtor of a Designated Seller. 55 61 Section 3.3 Reaffirmation of Representations and Warranties by the Debtor and Servicer. On each day that an Advance is made hereunder, the Debtor, by accepting the proceeds of such Advance, and the Servicer, shall be deemed to have certified that all of their respective representations and warranties described in Sections 3.1 and 3.2 hereof are correct on and as of such day as though made on and as of such day, provided that the representations set forth in Section 3.1(g)(y) and 3.2(f)(x) hereof shall be deemed made only on and as of the Closing Date and on each January 1, April 1, July 1 and October 1 of each calendar year (whether or not any such date is a Advance Date). Each Advance shall be subject to the further condition precedent that prior to the date of such Advance, the Servicer shall have delivered to the Agent and the Administrative Agent, in the form and substance satisfactory to the Agent and the Administrative Agent, a completed Additional Advance Certificate as of a Cycle Date that is not earlier than the fifth Business Day prior to the date of such Advance, together with such additional information as may be reasonably requested by the Administrative Agent or the Agent; and the Debtor shall be deemed to have represented and warranted that such conditions precedent have been satisfied. 56 62 ARTICLE IV CONDITIONS PRECEDENT Section 4.1 Conditions to Closing. On or prior to the date of execution hereof, the Debtor shall deliver to the Agent the following documents, instruments and fees all of which shall be in a form and substance acceptable to the Agent: (a) A copy of the resolutions of the Board of Directors of the Debtor, certified by its Secretary or Assistant Secretary, approving the execution, delivery and performance by the Debtor of this Agreement, the Receivables Purchase Agreement and the other Transaction Documents to be delivered by the Debtor hereunder or thereunder. (b) A copy of the resolutions of the Board of Directors of each Designated Seller and the Servicer certified by its Secretary or Assistant Secretary approving the execution, delivery and performance by such Person of this Agreement, the Receivables Purchase Agreement and the other Transactions Documents to be delivered by such Person hereunder or thereunder. (c) The Articles or Certificate of Incorporation of the Debtor certified by the Secretary of State or other similar official of the Debtor's jurisdiction of incorporation dated a date reasonably prior to the Closing Date. (d) The Articles or Certificate of Incorporation of each Designated Seller and the Servicer certified by the Secretary of State or other similar official of such Person's jurisdiction of incorporation dated a date reasonably prior to the Closing Date. (e) A Good Standing Certificate for the Debtor issued by the Secretary of State or a similar official of the Debtor's jurisdiction of incorporation and certificates of qualification as a foreign corporation issued by the Secretaries of State or other similar officials of each jurisdiction where such qualification is material to the transactions contemplated by this Agreement and the other Transaction 57 63 Documents, in each case, dated a date reasonably prior to the Closing Date. (f) A Good Standing Certificate for each Designated Seller and the Servicer issued by the Secretary of State or a similar official of the Servicer's jurisdiction of incorporation and certificates of qualification as a foreign corporation issued by the Secretaries of State or other similar officials of each jurisdiction when such qualification is material to the transactions contemplated by this Agreement and the other Transaction Documents, in each case, dated a date reasonably prior to the Closing Date. (g) A Certificate of the Secretary or Assistant Secretary of the Debtor, each Designated Seller and the Servicer substantially in the form of Exhibit L attached hereto. (h) Copies of proper financing statements (Form UCC-1), dated a date reasonably near to the date of the initial Advance naming the Debtor as the debtor in favor of the Agent, for the benefit of the Company and the Bank Investors, as secured party or other similar instruments or documents as may be necessary or in the reasonable opinion of the Agent desirable under the UCC of all appropriate jurisdictions or any comparable law to perfect the Agent's first priority perfected security interest in all Receivables and the Related Security and Collections relating thereto. (i) Copies of proper financing statements (Form UCC-1), dated a date reasonably near to the date of the initial Advance naming each Designated Seller as the debtor in favor of the Debtor as secured party and the Agent, for the benefit of the Company and the Bank Investors, as assignee of the secured party or other similar instruments or documents as may be necessary or in the reasonable opinion of the Agent desirable under the UCC of all appropriate jurisdictions or any comparable law to perfect the Debtor's ownership interest in all Receivables. (j) Copies of proper financing statements (Form UCC-3), if any, necessary to terminate all security interests and other rights of any person in Receivables 58 64 granted by the Debtor, any Designated Seller, Belk Funding LLC or any Merged Entity. (k) Certified copies of request for information or copies (Form UCC-11) (or a similar search report certified by parties acceptable to the Agent) dated a date reasonably near the date of the initial Advance listing all effective financing statements which name the Debtor, any Designated Seller or any Merged Entity, except with respect to any Merged Entity that has not owned, originated, or had an interest in any account receivable since January 1, 1998 (under their respective present names and any names they have had since January 1, 1998) as debtor and which are filed in jurisdictions in which the filings were made pursuant to items (h) or (i) above together with copies of such financing statements (none of which shall cover any Receivables or Contracts). (l) Executed copies of the Servicer Account Agreements relating to each of the Servicer Account Banks and the Servicer Accounts. (m) Opinions of Smith Helms Mulliss & Moore, L.L.P., special counsel to the Debtor, the Designated Sellers and the Servicer and Luther T. Moore, Senior Vice President and Assistant General Counsel of Belk Stores Services, Inc., as counsel to the Debtor and the Servicer, together covering the matters set forth in Exhibit K hereto, in form and substance satisfactory to the Agent and Agent's counsel. (o) An opinion or opinions of King & Spalding, special counsel to the Debtor, or of Luther T. Moore, Senior Vice President and Assistant General Counsel of Belk Stores Services, Inc., to the effect that the merger of the Merged Entities into Belk, Inc. has become effective under the laws of the State of Delaware and that as a result of such merger Belk, Inc. has the same right, title and interest in and to all property, including accounts receivable, of the Merged Entities as the Merged Entities had in such property before being merged into Belk, Inc. (p) A computer tape setting forth as of the Cut-Off Date all Receivables and the Outstanding 59 65 Principal Balances thereon and such other information as the Agent may reasonably request. (q) An executed copy of this Agreement, the Receivables Purchase Agreement, the Fee Letter and each of the other Transaction Documents to be executed by the Servicer, the Designated Sellers or the Debtor. (r) The Note, duly executed by the Debtor. (s) The Arrangement Fee in accordance with Section 2.7(b). (t) A Servicer Report for May 30, 1998. (u) An executed copy of the Post Office Box Agreements. (v) Such other documents, instruments, certificates and opinions as the Agent or the Administrative Agent, shall reasonably request. 60 66 ARTICLE V COVENANTS Section 5.1 Affirmative Covenants of Debtor. At all times from the date hereof to the later to occur of (i) the Termination Date or (ii) the date on which the Net Investment and all other Aggregate Unpaids have been paid in full, in cash, unless the Agent shall otherwise consent in writing: (a) Financial Reporting. The Debtor will and will cause each Designated Seller and each of the Designated Sellers' Subsidiaries to, maintain, for itself and each of its respective Subsidiaries, a system of accounting established and administered substantially in accordance with GAAP, and furnish to the Agent: (i) Annual Reporting. (A) Within 150 days after the close of the Debtor's and Belk Center's fiscal years, (be ginning with the fiscal year ending in 1998) company prepared financial statements, (x) prepared substantially in accordance with GAAP for the Debtor and (y) prepared on a consolidated basis, substantially as currently prepared, for Belk Center and its Subsidiaries, in each case, including balance sheets as of the end of such period, related statements of operations, shareholder's equity and cash flows, or (B) within ten (10) days of the delivery of the Debtor's Form 10-K Annual Report to the Securities and Exchange Commission, a copy of such report, in either case certified by an officer of the Debtor as accurate accompanied by a certificate of the Chief Financial Officer of the Debtor stating that the Debtor is in compliance with Section 5.4 of this Agreement and stating that no Termination Event or Potential Termination Event exists, or if any Termination Event or Potential Termination Event exists, stating the nature and status thereof; provided, that if such annual report does not include the financial statements of Belk Center, the Debtor 61 67 shall furnish to the Agent the information specified in Section 5.1(a)(i)(A)(y). (ii) Quarterly Reporting. (A) Within forty-five (45) days after the close of the first three quarterly periods of the Debtor's fiscal year, consolidated unaudited balance sheets of the Debtor and its Subsidiaries as at the close of each such period and consolidated related statements of operations, shareholder's equity and cash flows for the period from the beginning of such fiscal year to the end of such quarter, or (B) within ten (10) days of the delivery of the Debtor's Form 10-Q Quarterly Report to the Securities and Exchange Commission, a copy of such report, in either case certified by the Debtor's chief financial officer. (iii) Notice of Termination Events or Potential Termination Events. As soon as possible and in any event within two (2) Business Days after the Debtor has actual knowledge of the occurrence of each Termination Event or each Potential Termination Event, a statement of the Chief Financial Officer of the Debtor setting forth details of such Termination Event or Potential Termination Event, and within five (5) Business Days after such notice, an additional notice detailing the action which the Debtor proposes to take with respect thereto. (iv) Change in Credit Guidelines and Debt Ratings. Within ten (10) days after the date any material change in or amendment to the Credit Guidelines is made, a copy of the Credit Guidelines then in effect indicating such change or amendment. Within five (5) Business Days after the date of any change in the Debtor's or any Designated Seller's public or private debt ratings from Moody's, S&P, Fitch IBCA, Inc. or Duff & Phelps Credit Rating Co., if any, a written certification of the Debtor's or any Designated Seller's public and private debt ratings after giving effect to any such change. 62 68 (v) Credit Guidelines. Promptly upon the request of the Agent, a complete copy of the Credit Guidelines then in effect. (vi) ERISA. Promptly after the filing or receiving thereof, copies of all reports and notices with respect to any Report able Event (as defined in Article IV of ERISA) which the Debtor, any Designated Seller or any ERISA Affiliate of the Debtor or any Designated Seller files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which the Debtor, any Designated Seller or any ERISA Affiliate of the Debtor receives from the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor. (vii) Other Information. Such other information (including non-financial information) as the Agent or the Administrative Agent may from time to time reasonably request with respect to the Debtor, any Designated Seller or any Subsidiary of either of them. (b) Conduct of Business. The Debtor will carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted and do all things necessary to remain duly incorporated or organized, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted. (c) Compliance with Laws. The Debtor will comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it or its respective properties may be subject except where the failure to comply would not have a Material Adverse Effect. (d) Furnishing of Information and Inspection of Records. The Debtor will, and will cause 63 69 each Designated Seller to, furnish to the Agent from time to time such information with respect to the Receivables as the Agent may reasonably request. The Debtor will, at any time and from time to time during regular business hours permit the Agent, or its agents or representatives, (i) to examine and make copies of and take abstracts from all Records and (ii) to visit the offices and properties of the Debtor or such Designated Seller for the purpose of examining such Records, and to discuss matters relating to Receivables or the Debtor's or such Designated Seller's performance hereunder and under the other Transaction Documents to which the Debtor or such Designated Seller is a party with any of the officers, directors, employees or independent public accountants of the Debtor or such Designated Seller, as applicable, having knowledge of such matters. (e) Keeping of Records and Books of Account. The Debtor will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the identification as of each Cycle Date of each new Receivable and all Collections of and adjustments to each existing Receivable). The Debtor will give the Agent notice of any material change in the administrative and operating procedures of the Debtor referred to in the previous sentence. (f) Performance and Compliance with Accounts. The Debtor, at its expense, will, or will cause a Designated Seller to, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by the Debtor or the Designated Sellers under the Accounts related to the Receivables. (g) Credit Guidelines. The Debtor will comply in all material respects with the Credit Guide lines in regard to each Receivable and the related Account. 64 70 (h) Collections. The Debtor shall direct all Obligors to cause all Collections to be mailed directly to a Post Office Box or delivered to retail store locations owned by the Debtor or a Designated Seller. (i) Collections Received. The Debtor shall hold in trust, and remit, immediately, but in any event not later than three (3) Business Days of its receipt thereof, to the Servicer all Collections received from time to time by the Debtor. (j) Inventory Financings. The Debtor shall, and will cause each Designated Seller to, specifically exclude from the property subject to any Adverse Claim granted on inventory any and all accounts receivable generated by sales of such inventory and the proceeds thereof, and shall provide evidence, in each case satisfactory to the Agent, that any and all accounts receivable generated by sales of such inventory and the proceeds thereof shall have been excluded from any such Adverse Claims. Section 5.2 Negative Covenants of the Debtor. During the term of this Agreement, unless the Agent shall otherwise consent in writing: (a) No Sales, Liens, Etc. Except as otherwise provided herein, the Debtor will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon (or the filing of any financing statement) or with respect to (x) any of the Affected Assets, (y) any goods, the sale of which may give rise to a Receivable or any Receivable or related Account, or (z) any account which concentrates in a Servicer Account Bank to which any Collections of any Receivables are sent (other than such Servicer Account Bank's rights of set-off with respect to fees, expenses and NSF charges related to such account), or assign any right to receive income in respect thereof. Except as otherwise provided herein, the Debtor will not sell, assign (by operation of law or otherwise) or otherwise dispose of or create any Adverse Claim upon (or the filing of any financing statement) or with respect to any account which contains proceeds of Receivables, or assign any right to receive income in respect thereof. 65 71 (b) No Extension or Amendment of Receivables. Except as otherwise permitted in this Section 5.2, 5.3 and in Section 6.2 hereof, the Debtor will not extend, amend or otherwise modify the terms of any Receivable, or amend, modify or waive any term or condition of any Account related thereto. The Debtor shall not take any action to permit the reduction of the amount due under any Receivable as a result of any discount, credit, rebate, dispute, repossessed or returned goods, chargeback allowance or billing adjustment except with the prior written consent of the Agent or except in accordance with the Credit Guidelines or the credit guidelines of the Debtor or a Designated Seller. (c) Performance of Account Agreements. The Debtor shall not fail to comply with and perform its obligations under the applicable Account Agreements relating to the Accounts and the Credit Guidelines except insofar as any such failure to comply or perform would not materially and adversely affect the rights of the Company, the Agent, or any Bank Investor in the Receivables or the collectibility of the Receivables. The Debtor shall not change the terms and provisions of the Account Agreements or the Credit Guidelines in any respect (including, without limitation, the calculation of the amount, and the timing, of uncollectible Receivables) except to the extent (a) such change is made applicable to the comparable segment of the consumer revolving credit accounts owned and serviced by the Debtor or a Designated Seller that have characteristics the same as, or substantially similar to, the Accounts that are the subject of such change or (b) if it does not own such a comparable segment, it will not make any such change with the intent to materially benefit itself over the Company, the Agent, or any Bank Investor, and such change does not materially and adversely affect the rights of the Company, the Agent or any Bank Investor in the Receivables or the collectibility of the Receivables. References to the Receivables in this paragraph shall be deemed to refer to the Receivables in the aggregate. (d) No Change in Business or Credit Guidelines. The Debtor will not make any change in the character of its business or in the Credit Guidelines, which change would, in either case, impair the 66 72 collectibility of any Receivable or otherwise result in a Material Adverse Effect. (e) No Mergers, Etc. The Debtor will not (i) consolidate or merge with or into any other Person or (ii) sell, lease or transfer all or substantially all of its assets to any other Person; provided, however, that the Debtor may merge with another person if (w) such Person is a Subsidiary of the Debtor, (x) the Debtor is the corporation surviving such merger, and (y) immediately after and giving effect to such merger, no Termination Event or Potential Termination Event shall have occurred and be continuing. (f) Change in Payment Directions to Obligors. The Debtor will not make any change in its directions to Obligors regarding payments to be made to a Post Office Box, unless (i) such directions are to deposit such payments to another Post Office Box or to retail store locations owned by the Debtor or any Designated Seller, and (ii) the Agent shall have received written notice of such change at least thirty (30) days prior thereto and the Agent shall have received a Post Office Box Agreement with respect to the new Post Office Box. (g) Deposits to Servicer Accounts. The Debtor will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Servicer Account cash or cash proceeds other than Collections of Receivables. (h) Change of Name, Etc. The Debtor will not change its name, identity or structure or the location of its chief executive office, unless at least 10 days prior to the effective date of any such change the Debtor delivers to the Agent (i) such documents, instruments or agreements, executed by the Debtor or a Designated Seller, as applicable, as are necessary to reflect such change and to continue the perfection of the Agent's security interests in the Affected Assets, and (ii) new or revised Servicer Account Agreements executed by the Servicer Account Banks and new revised Post Office Box Agreements with respect to the Post Office Boxes which reflect such change and enable the Agent to continue to exercise its rights contained in Section 2.8 hereof. 67 73 (i) Amendment to Receivables Purchase Agreements. The Debtor will not amend, waive, modify, or supplement any Receivables Purchase Agreement, except with the prior written consent of the Agent and the Administrative Agent; nor shall the Debtor take, or permit any Designated Seller to take, any other action under any Receivables Purchase Agreement that shall have a material adverse affect on the Agent, the Company or any Bank Investor or which violates the terms of this Agreement. (j) ERISA Matters. The Debtor will not, and will not permit any Designated Seller to, (i) engage or permit any of its respective ERISA Affiliates to engage in any prohibited transaction (as defined in Section 4975 of the Code and Section 406 of ERISA) for which an exemption is not available or has not previously been obtained from the U.S. Department of Labor; (ii) permit to exist any accumulated funding deficiency (as defined in Section 302(a) of ERISA and Section 412(a) of the Code) or funding deficiency with respect to any Benefit Plan other than a Multiemployer Plan; (iii) fail to make any payments to any Multiemployer Plan that the Debtor, any Designated Seller or any ERISA Affiliate of the Debtor or such Designated Seller is required to make under the agreement relating to such Multiemployer Plan or any law pertaining thereto; (iv) terminate any Benefit Plan so as to result in any liability; or (v) permit to exist any occurrence of any reportable event described in Title IV of ERISA which represents a material risk of a liability to the Debtor, such Designated Seller or any ERISA Affiliate of the Debtor or such Designated Seller under ERISA or the Code. Section 5.3 Covenants of the Servicer. At all times from the date hereof to the later to occur of (i) the Termination Date or (ii) the date on which the Net Investment and all other Aggregate Unpaids have been paid in full, in cash, the Servicer covenants that, unless the Agent shall otherwise consent in writing: (a) Compliance with Requirements of Law. The Servicer shall duly satisfy its obligations in all material respects on its part to be fulfilled under or in connection with each Receivable and the related Account, will maintain in effect all material qualifications 68 74 required under Requirements of Law in order to service properly each Receivable and the related Account and will comply in all material respects with all other Requirements of Law in connection with servicing each Receivable and the related Account the failure to comply with which would have a material adverse effect on the Company. (b) No Rescission or Cancellation. The Servicer shall not permit any rescission or cancellation of a Receivable except as ordered by a court of competent jurisdiction or other Governmental Authority or in the ordinary course of its business and in accordance with the Credit Guidelines. (c) Protection of Company's Rights. Except as otherwise permitted by Sections 5.2 and 6.2 hereof and this Section 5.3, the Servicer shall take no action, nor omit to take any action, which would impair the rights of the Company in any Receivable or the related Account. (d) All Consents Required. All approvals, authorizations, consents, orders or other actions of any Person or of any governmental body or official required in connection with the execution and delivery by the Servicer of this Agreement, the performance by the Servicer of the transactions contemplated by this Agreement and the fulfillment by the Servicer of the terms hereof, have been obtained. (e) Custodian. The Servicer will, at its own cost and expense, (i) maintain the books and records with respect to the Accounts and the Receivables and copies of all documents relating to each Account as custodian for the Company and (ii) clearly and unambiguously mark such books and records that indicate the Receivables have been pledged to the Company and simultaneously assigned to the Agent, for benefit of the Company and the Bank Investors, pursuant to this Agreement. (f) No Extension or Amendment of Receivables. Except as otherwise permitted in Sections 5.2, 6.2 and this Section 5.3, the Servicer will not extend, amend or otherwise modify the terms of any Receivable, or amend, modify or waive any term or 69 75 condition of any Account related thereto except as ordered by a court of competent jurisdiction or other Governmental Authority or in the ordinary course of its business and in accordance with the Credit Guidelines. (g) No Change in Business. The Servicer will not make any change in the character of its business which would impair the collectibility of the Receivables taken as a whole or otherwise result in a Material Adverse Effect. The Servicer shall not reduce the amount due under any Receivable as a result of any discount, credit, rebate, dispute, repossessed or returned goods, chargeback allowance or billing adjustment except in accordance with the Credit Guidelines. (h) No Mergers, Etc. The Servicer will not (i) consolidate or merge with or into any other Person, or (ii) sell, lease or transfer all or substantially all of its assets to any other Person; provided that the Servicer may consolidate with or merge into Belk Store Services, Inc., the Debtor or a Subsidiary of the Debtor. (i) Change in Payment Directions to Obligors. The Servicer will not make any change in the directions to Obligors regarding payments to be made to a Post Office Box or to retail store locations owned by the Debtor or any Designated Seller unless (i) such directions are to deposit such payments to another Post Office Box or to retail store locations owned by the Debtor or any Designated Seller, and (ii) the Agent shall have received written notice of such change at least thirty (30) days prior thereto and the Agent shall have received a Post Office Box Agreement with respect to the new Post Office Box. (j) Deposits to Servicer Account, Debtor Account and Collection Account. The Servicer will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Servicer Account cash or cash proceeds other than Collections of Receivables. The Servicer shall require the Debtor and each Designated Seller to remit to the Servicer all Collections received by the Debtor or such Designated Seller promptly, but in any event within three (3) Business Days or, alternatively, the Servicer may in the ordinary course of its servicing activities as of each Cycle Date net any such 70 76 amounts due from the Debtor or a Designated Seller against amounts due from the Servicer to the Debtor or such Designated Seller, and any such amounts so netted shall be included as Collections on any reports or certificates delivered hereunder by the Servicer. Any Collections received by the Servicer from the Debtor or a Designated Seller shall be deposited promptly, but in any event within two (2) Business Days of receipt, in a Servicer Account. The Servicer shall deposit all Collections into the Debtor Account or, if required by the this Agreement, into the Collection Account, within ten (10) days of the initial receipt of such Collections by the Servicer, the Debtor or any Designated Seller. Section 5.4 Financial Covenants of Debtor. (a) The Debtor shall not permit the Fixed Charge Coverage Ratio for the consecutive three-quarter period of the Debtor ending on January 30, 1999, or for any consecutive four-quarter period of the Debtor ending on a date after January 30, 1999, to be less than 1.5 to 1.0. (b) The Debtor shall not permit, the Leverage Ratio for the consecutive three-quarter period of the Debtor ending on January 30, 1999, or for any consecutive four-quarter period of the Debtor ending on a date after January 30, 1999, to be equal to or greater than 3.00 to 1.00. (c) Capitalized terms used herein and not otherwise defined are used is defined in Exhibit P hereto. 71 77 ARTICLE VI ADMINISTRATION AND COLLECTIONS Section 6.1 Appointment of Servicer. The servicing, administering and collection of the Receivables shall be conducted by such Person so designated from time to time in accordance with this Section 6.1 (the "Servicer"). Until the Company gives notice to Belk Center of the designation of a new Servicer, Belk Center is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms hereof. The Servicer may not delegate any of its rights, duties or obligations hereunder, or designate a substitute Servicer, without the prior written consent of the Agent, and provided that the Servicer shall continue to remain solely liable for the performance of the duties as Servicer hereunder notwithstanding any such delegation hereunder. The Agent may, and upon the direction of the Majority Investors the Agent shall, after the occurrence of a Servicer Default or any other Termination Event (other than an event described in either Section 7.1(o) or 7.1(p)) designate as Servicer any Person (including itself) to succeed Belk Center or any successor Servicer, on the condition in each case that any such Person so designated shall agree to perform the duties and obligations of the Servicer pursuant to the terms hereof. The Agent may notify any Obligor of its interest in the Receivables. Section 6.2 Duties of Servicer. (a) The Servicer shall take or cause to be taken all such action as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit Guidelines. Each of the Debtor, the Designated Sellers, the Company, the Agent and the Bank Investors hereby appoints as its agent the Servicer, from time to time designated pursuant to Section 6.1 hereof, to enforce its respective rights and interests in and under the Affected Assets. To the extent permitted by applicable law, the Debtor and each Designated Seller (to the extent not then acting as Servicer hereunder) hereby grants to any Servicer appointed hereunder an irrevocable power of attorney to take any and all steps in the 72 78 Debtor's and/or the applicable Designated Seller's name and on behalf of the Debtor or the applicable Designated Seller necessary or desirable, in the reasonable determination of the Servicer, to collect all amounts due under any and all Receivables, including, without limitation, endorsing the Debtor's and/or the applicable Designated Seller's name on checks and other instruments representing Collections and enforcing such Receivables and the related Accounts. The Servicer shall set aside for the account of the Debtor and the Company their respective allocable shares of the Collections of Receivables in accordance with Sections 2.5 and 2.6 hereof. The Servicer shall segregate and deposit to the Agent's account the Company's allocable share of Collections of Receivables when required pursuant to Article II hereof. The Debtor shall deliver to the Servicer and the Servicer shall hold in trust for the Debtor, the Company, the Agent and the Bank Investors, in accordance with their respective interests, all Records which evidence or relate to Receivables or Related Security. Notwithstanding anything to the contrary contained herein, upon and during the continuance of a Servicer Default or Termination Event, the Agent shall have the absolute and unlimited right to direct the Servicer (whether the Servicer is Belk Center or any other Person) to commence or settle any legal action to enforce collection of any Receivable or to foreclose upon or repossess any Related Security. The Servicer shall not make the Agent, the Company or any of the Bank Investors a party to any litigation without the prior written consent of such Person. (b) The Servicer shall, as soon as practicable following receipt thereof, turn over to the Debtor any collections of any indebtedness of any Person which is not on account of a Receivable. If the Servicer is not the Debtor or an Affiliate of the Debtor, the Servicer, by giving three Business Days' prior written notice to the Agent, may revise the percentage used to calculate the Servicing Fee so long as the revised percentage will not result in a Servicing Fee that exceeds 110% of the reasonable and appropriate out-of-pocket costs and expenses of such Servicer incurred in connection with the performance of its obligations hereunder as documented to the reasonable satisfaction of the Agent, provided, however, that at any time after the Noteholder's Percentage equals or exceeds 100%, any 73 79 compensation to the Servicer in excess of the Servicing Fee initially provided for herein shall be an obligation of the Debtor and shall not be payable, in whole or in part, from Collections allocated to the Company or the Bank Investors, as applicable. The Servicer, if other than the Debtor or an Affiliate of the Debtor, shall as soon as practicable upon demand, deliver to the Debtor all Records in its possession which evidence or relate to indebtedness of an Obligor which is not a Receivable. (c) On or before 120 days after the end of each fiscal year of the Servicer, beginning with the fiscal year ending January 30, 1999, the Servicer shall cause a firm of independent public accountants (who may also render other services to the Servicer, the Debtor, the Designated Sellers or any Affiliates of any of the foregoing) or another qualified party designated by the Agent to furnish a report to the Agent to the effect that they have compared the information contained in the Servicer Reports delivered during such fiscal year then ended with the information contained in the Accounts and the Servicer's records and computer systems for such period, and that, on the basis of such examination and comparison, such firm is of the opinion that the information contained in the Servicer Reports reconciles with the information contained in the Accounts and the Servicer's records and computer system and that the servicing of the Receivables has been conducted in compliance with this Agreement. (d) Notwithstanding anything to the contrary contained in this Article VI, the Servicer, if not the Debtor or any Affiliate of the Debtor, shall have no obligation to collect, enforce or take any other action described in this Article VI with respect to any indebtedness that does not relate to the Affected Assets other than to deliver to the Debtor the collections and documents with respect to any such indebtedness as described in Section 6.2(b) hereof. (e) In consideration of acting as Servicer hereunder, the Servicer shall be entitled to retain from Collections received by it on any day all late fees, NSF or returned check charges and all other similar charges and fees received by it. To the extent that they constitute part of Collections, the Servicer shall account for such amounts received and retained by 74 80 it in respect of a Collection Period on each related Servicer Report delivered by it hereunder. Section 6.3 Rights After Designation of New Servicer. At any time following the designation of a new Servicer (other than the Debtor or any Affiliate of the Debtor) pursuant to Section 6.1 hereof: (i) The Debtor shall, at the Agent's request, (A) assemble all of the Re cords, and shall make the same available to the Agent or its designee at a place selected by the Agent or its designee, and (B) segregate all cash, checks and other instruments (in each case known to the Debtor to represent payment on Receivables and not other indebtedness) received by it from time to time to the extent constituting Collections of Receivables in a manner acceptable to the Agent and shall, promptly upon receipt, remit all such cash (including proceeds of collected checks representing payments in respect of Receivables if such checks represented payments on Receivables and other indebtedness), checks and instruments (in each case known to the Debtor to represent payment on Receivables and not other indebtedness), duly endorsed or with duly executed instruments of transfer, to the Agent or its designee. (ii) The Debtor and each Designated Seller hereby authorize the Agent to take any and all steps in the Debtor's or such Designated Seller's name and on behalf of the Debtor and such Designated Seller necessary or desirable, in the determination of the Agent, to collect all amounts due under any and all Receivables, including, without limitation, endorsing the Debtor's or such Designated Seller's name on checks and other instruments representing Collections and enforcing such Receivables and the related Accounts. Section 6.4 Servicer Default. The occurrence of any one or more of the following events shall constitute a Servicer Default: 75 81 (a) the Servicer or, to the extent that the Debtor or any Affiliate of the Debtor is then acting as Servicer, the Debtor or such Affiliate, as applicable, shall fail (i) to observe or perform any term, covenant or agreement hereunder (other than as referred to in clauses (ii) or (iii) of this Section 6.4(a)) or under any of the other Transaction Documents to which such Person is a party or by which such Person is bound, and such failure shall remain unremedied for fifteen (15) days from the date the Debtor, the Servicer or any Affiliate of either had actual knowledge of such failure or (ii) to make any payment or deposit required to be made by it hereunder when due, provided, however, that if such failure is not the result of factors under the Servicer's control, then such failure should have continued unremedied for one (1) Business Day, or (iii) to observe or perform any term, covenant or agreement under Sections 5.3(b), 5.3(f) or 5.4(g); or (b) any representation, warranty, certification or statement made by the Servicer or the Debtor or any Affiliate of the Debtor (in the event that the Debtor or such Affiliate is then acting as the Servicer) in this Agreement or in any of the other Transaction Documents or in any certificate or report delivered by it pursuant to any of the foregoing shall prove to have been incorrect in any material respect when made or deemed made; or (c) failure of the Servicer or any of its Subsidiaries to pay when due any amounts due under any agreement under which any Indebtedness greater than $1,000,000 is governed; or the default by the Servicer or any of its Subsidiaries in the performance of any term, provision or condition contained in any agreement under which any Indebtedness greater than $1,000,000 was created or is governed, if such default permits the creditor to accelerate such Indebtedness; or any Indebtedness of the Servicer or any of its Subsidiaries greater than $1,000,000 shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the scheduled date of maturity thereof; or (d) any Event of Bankruptcy shall occur with respect to the Servicer or any of its Subsidiaries; or 76 82 (e) there shall have occurred any material adverse change in the operations of the Servicer since the end of the last fiscal year ending prior to the date of its appointment as Servicer hereunder or any other event shall have occurred which, in the commercially reasonable judgment of the Agent, materially and adversely affects the Servicer's ability to either collect the Receivables or to perform under this Agreement. Section 6.5 Responsibilities of the Debtor and the Designated Sellers. Anything herein to the contrary notwithstanding, the Debtor shall, and/or shall cause each Designated Seller to, (i) perform all of the Debtor's or such Designated Seller's obligations under the Accounts related to the Receivables to the same extent as if interests in such Receivables had not been sold pursuant to the Receivables Purchase Agreement and had not been pledged hereunder and the exercise by the Agent, the Company and the Bank Investors of their rights hereunder and under the Receivables Purchase Agreement shall not relieve the Debtor or any Designated Seller from such obligations and (ii) pay when due any taxes, including without limitation, any sales taxes payable in connection with the Receivables and their creation and satisfaction. Neither the Agent, the Company nor any of the Bank Investors shall have any obligation or liability with respect to any Receivable or related Accounts, nor shall it be obligated to perform any of the obligations of the Debtor or any Designated Seller thereunder. 77 83 ARTICLE VII TERMINATION EVENTS Section 7.1 Termination Events. The occurrence of any one or more of the following events shall constitute a Termination Event: (a) the Debtor, any Designated Seller or the Servicer shall fail to make any payment or deposit to be made by it hereunder or under the Receivables Purchase Agreement when due hereunder or thereunder, provided, however, that if such failure is not the result of the factors within the Debtor's, a Designated Seller's or the Servicer's, as applicable, control, such failure shall have continued unremedied for one (1) Business Day, provided further, that in the case of any fees payable pursuant to Section 2.7 hereof, such fee shall not be paid within one (1) Business Day of the date when due; or (b) any representation, warranty, certification or statement made by the Debtor in this Agreement, any other Transaction Document to which it is a party or in any other document delivered pursuant hereto or thereto shall prove to have been incorrect in any material respect when made or deemed made, provided, however, that in the case of any breach of the representation set forth in Section 3.1(l) hereof which does not have a material adverse effect on the Agent's security interest in the Affected Assets taken as a whole, such breach shall not constitute a Termination Event if the Debtor shall have made any payment required as a result thereof pursuant to Section 2.9(b) hereof; or (c) the Debtor, or the Servicer shall default in the performance of any covenant or undertaking (other than those covered by clause (a) above) (i) to be performed or observed under Sections 5.1(a)(iii), 5.1(a)(iv), 5.1(c), 5.1(f), 5.1(g), 5.2(a)(x), 5.2(c), 5.2(d) or 5.2(e) or (ii) to be performed or observed under any other provision hereof and such default in the case of this clause (ii) shall continue for twenty (20) days after the earlier of the date the Agent gave notice of such default to the Debtor or the Servicer, as applicable, and the date on which the Debtor or the Servicer had knowledge of such default; or 78 84 (d) any material adverse change in the operations of the Servicer or any other event which materially affects the Servicer's ability to either collect the Receivables or perform its obligations under this Agreement; or (e) any Event of Bankruptcy shall occur with respect to the Debtor, any Designated Seller or the Servicer; or (f) the Agent, on behalf of the Company and/or the Bank Investors, shall, for any reason, fail or cease to have a valid and perfected first priority security interest in the Affected Assets free and clear of any Adverse Claims; or (g) a Servicer Default shall have occurred; or (h) the Receivables Purchase Agreement shall have terminated without the prior written consent of the Agent (not to be unreasonably withheld); or (i) subject to Sections 5.2(e) and 5.3(h), the Debtor, any Designated Seller or the Servicer shall enter into any transaction or merger whereby it is not the surviving entity, provided that any Designated Seller may merge with another Designated Seller; or (j) (i) the Debtor's Percentage is less than the Minimum Debtor's Percentage as of the last day of any two consecutive Collection Periods, (ii) the Noteholder's Percentage equals or exceeds 100% at any time; or (iii) the Net Investment plus the aggregate Interest Component of all outstanding Related Commercial Paper shall exceed the Facility Limit for more than two (2) consecutive Business Days after the Debtor had knowledge of such occurrence; or (k) the Payment Rate averaged for any three consecutive Collection Periods is less than 16.00%; or (l) the Net Portfolio Yield averaged for any three consecutive Collection Periods is less than 1.00%; or 79 85 (m) the Delinquency Ratio averaged for any three consecutive Collection Periods is greater than 7.50%; or (n) the Default Ratio averaged for any three consecutive Collection periods is greater than 8.00%; or (o) the Liquidity Provider or the Credit Support Provider shall have given notice that an event of default has occurred and is continuing under any of its respective agreements with the Company; or (p) the Commercial Paper issued by the Company shall not be rated at least "A2" by Standard & Poor's and at least "P2" by Moody's. Section 7.2 Termination. (a) If a Termination Event shall have occurred and be continuing, the Agent may, or at the direction of the Majority Investors shall, by notice to the Debtor and the Servicer declare the Termination Date to have occurred; provided, however, that in the case of any event described in Section 7.1(e), 7.1(f), 7.1(j)(ii) or 7.1(j)(iii) above, the Termination Date shall be deemed to have occurred automatically upon the occurrence of such event. Upon any such declaration or automatic occurrence, the Agent may, and shall at the direction of the Majority Investors, declare all the Note and all amounts due under this Agreement to then be due and payable. (b) At all times after the declaration or automatic occurrence of the Termination Date pursuant to Section 7.2(a) other than as a result of the occurrence of a Termination Event described in 7.1(o) or 7.1(p), the Carrying Costs may (at the option of the Agent) thereafter be calculated on the basis of the Adjusted LIBOR Rate giving effect to a margin of 2.80% (as described in the definition of Adjusted LIBOR Rate) for all existing and future funding periods. 80 86 (c) If the Note is declared due and payable in accordance with this Section, the Agent may, and shall at the direction of the Majority Investors, do any one or more of the following: (i) take all necessary action to foreclose upon the Collateral; (ii) retain in satisfaction of any amounts owing from the Debtor all amounts otherwise payable to the Debtor pursuant to this Agreement to the extent necessary to pay in full all amounts (including principal and interest) due and payable under the Note and this Agreement; (iii) pursue any available remedy by proceeding at law or in equity including complete or partial foreclosure of the Lien upon the Collateral and sale of the Collateral or any portion thereof or rights or interest therein as may appear necessary or desirable (i) to collect amounts owed pursuant to the Note and any other payments then due and thereafter to become due under the Note or this Agreement or (ii) to enforce the performance and observance of any obligation, covenant, agreement or provision contained in this Agreement to be observed or performed by the Debtor; or (iv) exercise all other rights and remedies of a secured party provided under the UCC of the applicable jurisdiction and other applicable laws, all of which rights shall be cumulative. Section 7.3 Proceeds. The proceeds from the sale, disposition or liquidation of the Collateral pursuant to Section 7.2 above shall be applied to cover all reasonable expenses of the Agent in connection with the Collateral (including reasonable attorneys' fees and expenses) and then to the satisfaction of all obligations of the Debtor under the Note or this Agreement, and any remaining proceeds shall be remitted to the Debtor. 81 87 ARTICLE VIII INDEMNIFICATION; EXPENSES; RELATED MATTERS Section 8.1 Indemnities by the Debtor. With out limiting any other rights which the Agent, the Company or the Bank Investors may have hereunder or under applicable law, the Debtor hereby agrees to indemnify the Company, the Bank Investors, the Agent, the Administrative Agent, the Collateral Agent, the Liquidity Provider and the Credit Support Provider and any successors and permitted assigns and their respective officers, directors and employees (collectively, "Indemnified Parties") from and against any and all damages, losses, claims, liabilities, costs and expenses, including, without limitation, reasonable attorneys' fees (which such attorneys may be employees of the Liquidity Provider, the Credit Support Provider, the Agent, the Administrative Agent or the Collateral Agent, as applicable) and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by any of them in any action or proceeding between the Debtor, any Designated Seller or the Servicer and any of the Indemnified Parties or between any of the Indemnified Parties and any third party arising out of or as a result of this Agreement, the other Transaction Documents, the maintenance, either directly or indirectly, by the Agent, the Company or any Bank Investor of the Net Investment the security interest in the Affected Assets or any of the other transactions contemplated hereby or thereby, or otherwise arising out of or as a result of this Agreement, the other Transaction Documents, the maintenance, either directly or indirectly, by the Agent, the Company or any Bank Investor of the Net Investment the security interest in the Affected Assets or any of the other transactions contemplated hereby or thereby excluding, however, (i) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of an Indemnified Party or (ii) recourse (except as otherwise specifically provided in this Agreement) for uncollectible Receivables. Without limiting the generality of the foregoing, subject to the qualifications contained in clauses (i) and (ii) above, the Debtor shall indemnify each Indemnified Party for Indemnified Amounts relating to or resulting from: 82 88 (i) any representation or warranty made by the Debtor or any Designated Seller or the Servicer or any officers of the Debtor or any Designated Seller or the Servicer under or in connection with this Agreement, the Receivables Purchase Agreement, any of the other Transaction Documents, any Servicer Re port or any other information or report delivered by the Debtor, which shall have been false or incorrect in any material respect when made or deemed made; (ii) the failure by the Debtor or the Servicer to comply with any applicable law, rule or regulation with respect to any Receivable or the related Account, or the nonconformity of any Receivable or the related Account with any such applicable law, rule or regulation; (iii) the failure to create or maintain a valid and perfected first priority security interest in favor of the Agent, for the benefit of the Company and/or the Bank Investors, in the Debtor's interest in the Affected Assets, free and clear of any Adverse Claim; (iv) any dispute, claim, offset or defense (other than discharge in bankruptcy) of the Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related Account not being the legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services; (v) any failure of the Servicer to perform its duties or obligations in accordance with the provisions hereof; or 83 89 (vi) any products liability claim or personal injury or property damage suit or other similar or related claim or action of whatever sort arising out of or in connection with merchandise or services which are the subject of any Receivable; (vii) the failure by the Debtor or any Designated Seller or the Servicer to comply with any term, provision or covenant contained in this Agreement or any of the other Transaction Documents to which it is a party or to perform any of its respective duties under the Accounts; (viii) the Debtor's Percent age is less than the Minimum Debtor's Percent age at any time; (ix) the failure of the Debtor or any Designated Seller to pay when due any taxes, including without limitation, sales, excise or personal property taxes payable in connection with any of the Receivables; (x) any repayment by any Indemnified Party of any amount previously distributed in reduction of Net Investment which such Indemnified Party believes in good faith is required to be made; (xi) the commingling by the Debtor or any Designated Seller or the Servicer of Collections of Receivables at any time with other funds; (xii) any investigation, litigation or proceeding related to this Agreement, any of the other Transaction Documents, the use of proceeds of Advances by the Debtor or any Designated Seller, the holding of Net Investment, or any Receivable, Related Security or Account; (xiii) the failure of any Servicer Account Bank to remit any amounts held in the Servicer Accounts pursuant to the 84 90 instructions of the Servicer, the Debtor, any Designated Seller or the Agent (to the extent such Person is entitled to give such instructions in accordance with the terms hereof and of any applicable Servicer Account Agreement) whether by reason of the exercise of set-off rights or otherwise; (xiv) any inability to obtain any judgment in or utilize the court or other adjudication system of, any state in which an Obligor may be located as a result of the failure of the Debtor or any Designated Seller to qualify to do business or file any notice of business activity report or any similar report; (xv) any action taken by the Debtor, any Designated Seller or the Servicer in the enforcement or collection of any Receivable; provided, however, that if the Company enters into agreements for the purchase of interests in receivables from one or more Other Transferors, the Company shall allocate such Indemnified Amounts which are in connection with the Liquidity Provider Agreement, the Credit Support Agreement or the credit support furnished by the Credit Support Provider to the Debtor and each Other Transferor; and provided, further, that if such Indemnified Amounts are attributable to the Debtor, any Designated Seller or the Servicer and not attributable to any Other Transferor, the Debtor shall be solely liable for such Indemnified Amounts or if such Indemnified Amounts are attributable to Other Transferors and not attributable to the Debtor, any Designated Seller or the Servicer, such Other Transferors shall be solely liable for such Indemnified Amounts. Section 8.2 Indemnity for Taxes, Reserves and Expenses. (a) If after the date hereof, the adoption of any Law or bank regulatory guideline or any amendment or change in the interpretation of any existing or future Law or bank regulatory guideline by any Official Body charged with the administration, interpretation or application thereof, or the compliance with any directive 85 91 of any Official Body (in the case of any bank regulatory guideline, whether or not having the force of Law): (i) shall subject any Indemnified Party to any tax, duty or other charge (other than Excluded Taxes) with respect to this Agreement, the other Transaction Documents, the maintenance of the Net Investment, or payments of amounts due hereunder, or shall change the basis of taxation of payments to any Indemnified Party of amounts payable in respect of this Agreement, the other Transaction Documents, or the maintenance of the Net Investment, or payments of amounts due hereunder or its obligation to advance funds hereunder, under the Liquidity Provider Agreement or the credit support furnished by the Credit Support Provider or otherwise in respect of this Agreement, the other Transaction Documents, or the maintenance of the Net Investment (except for changes in the rate of general corporate, franchise, net income or other income tax or gross receipts tax); (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System) against assets of, deposits with or for the account of, or credit extended by, any Indemnified Party or shall impose on any Indemnified Party or on the United States market for certificates of deposit or the London interbank market any other condition affecting this Agreement, the other Transaction Documents, the maintenance of the Net Investment or payments of amounts due hereunder or its obligation to advance funds hereunder under the Liquidity Provider Agreement or the credit support provided by the Credit Support Provider or other wise in respect of this Agreement, the other Transaction Documents, or the maintenance or financing of the Net Investment; or 86 92 (iii) imposes upon any Indemnified Party any other expense (including, without limitation, reasonable attorneys' fees and expenses, and expenses of litigation or preparation therefor in contesting any of the foregoing) with respect to this Agreement, the other Transaction Documents, the maintenance of the Net Investment or payments of amounts due hereunder or its obligation to advance funds hereunder under the Liquidity Provider Agreement or the credit support furnished by the Credit Support Provider or otherwise in respect of this Agreement, the other Transaction Documents, or the maintenance of the Net Investment, and the result of any of the foregoing is to increase the cost to such Indemnified Party with respect to this Agreement, the other Transaction Documents, the maintenance of the Net Investment, the obligations hereunder, the funding of any advances hereunder, the Liquidity Provider Agreement or the Credit Support Agreement, by an amount deemed by such Indemnified Party to be material, then (to the extent such increased cost is not otherwise reflected in an increase in interest rates or other Carrying Costs), within ten (10) days after demand by such Indemnified Party through the Agent, the Debtor shall pay to the Agent, for the benefit of such Indemnified Party, or such additional amount or amounts as will compensate such Indemnified Party for such increased cost. (b) If any Indemnified Party shall have determined that after the date hereof, the adoption of any applicable Law or bank regulatory guideline regarding capital adequacy, or any change therein, or any change in the interpretation thereof by any Official Body, or any directive regarding capital adequacy (in the case of any bank regulatory guideline, whether or not having the force of law) of any such Official Body, has or would have the effect of reducing the rate of return on capital of such Indemnified Party (or its parent) as a consequence of such Indemnified Party's obligations hereunder or with respect hereto to a level below that which such Indemnified Party (or its parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with 87 93 respect to capital adequacy) by an amount deemed by such Indemnified Party to be material, then from time to time (to the extent such reduction is not otherwise reflected in an increase in interest rates or other Carrying Costs), within ten (10) days after demand by such Indemnified Party through the Agent, the Debtor shall pay to the Agent, for the benefit of such Indemnified Party, such additional amount or amounts as will compensate such Indemnified Party (or its parent) for such reduction. (c) The Agent will promptly notify the Debtor of any event of which it has knowledge, occurring after the date hereof, which will entitle an Indemnified Party to compensation pursuant to this Section 8.2. A notice by the Agent or the applicable Indemnified Party claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder (and a detailed explanation and calculation of such amount or amounts) shall be conclusive in the absence of manifest error. In determining such amount, the Agent or any applicable Indemnified Party may use any reasonable averaging and attributing methods. (d) Anything in this Section 8.2 to the contrary notwithstanding, if the Company enters into agreements for the acquisition of interests in receivables from one or more Other Transferors, the Company shall allocate the liability for any amounts under this Section 8.2 which are in connection with the Liquidity Provider Agreement, the Credit Support Agreement or the credit support provided by the Credit Support Provider ("Section 8.2 Costs") to the Debtor and each Other Transferor; provided, however, that if such Section 8.2 Costs are attributable to the Debtor, any Designated Seller or the Servicer and not attributable to any Other Transferor, the Debtor shall be solely liable for such Section 8.2 Costs or if such Section 8.2 Costs are attributable to Other Transferors and not attributable to the Debtor, any Designated Seller or the Servicer, such Other Transferors shall be solely liable for such Section 8.2 Costs. Section 8.3 Taxes. All payments made hereunder by the Debtor (the "payor") to the Company, any Bank Investor or the Agent (each, a "recipient") shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise 88 94 taxes and any other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority on any recipient (or any assignee of such parties) (such items other than Excluded Taxes being called "Taxes"), but excluding franchise taxes and taxes imposed on or measured by the recipient's net income or gross receipts ("Excluded Taxes"). In the event that any withholding or deduction from any payment made by the payor hereunder is required in respect of any Taxes, then such payor shall: (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authority; and (c) pay to the recipient such additional amount or amounts as is necessary to ensure that the net amount actually received by the recipient will equal the full amount such recipient would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against any recipient with respect to any payment received by such recipient hereunder, the recipient may pay such Taxes and the payor will promptly pay such additional amounts (including any penalties, interest or expenses) as shall be necessary in order that the net amount received by the recipient after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such recipient would have received had such Taxes not been asserted. If the payor fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the recipient the required receipts or other required documentary evidence, the payor shall indemnify the recipient for any incremental Taxes, interest, or penalties that may become payable by any recipient as a result of any such failure. Section 8.4 Other Costs, Expenses and Related Matters. (a) The Debtor agrees, upon receipt of a written invoice, to pay or cause to be paid, and to save 89 95 the Company, the Bank Investors and the Agent harmless against liability for the payment of, all reasonable out-of-pocket expenses (including, without limitation, reasonable attorneys', accountants' and other third parties' fees and expenses, any filing fees and expenses incurred by officers or employees of the Company, the Bank Investors and/or the Agent) or intangible, documentary or recording taxes incurred by or on behalf of the Company, any Bank Investor and the Agent (i) in connection with the negotiation, execution, delivery and preparation of this Agreement, the other Transaction Documents and any documents or instruments delivered pursuant hereto and thereto and the transactions contemplated hereby or thereby (including, without limitation, the perfection or protection of the security interest in the Affected Assets) (in the case of this clause (i), such attorneys' fees and expenses incurred by or on behalf of the Agent, the Company or the Bank Investors shall be limited to those of Skadden, Arps, Slate, Meagher & Flom LLP) and (ii) from time to time (a) relating to any amendments, waivers or consents under this Agreement and the other Transaction Documents, (b) arising in connection with the Company's, any Bank Investor's, the Agent's or the Collateral Agent's enforcement or preservation of rights (including, without limitation, the perfection and protection of the security interest in the Affected Assets under this Agreement), or (c) arising in connection with any audit, dispute, disagreement, litigation or preparation for litigation involving this Agreement or any of the other Transaction Documents, except to the extent resulting from the gross negligence or willful misconduct of the Company, such Bank Investor or the Agent (all of such amounts, collectively, "Transaction Costs"). (b) The Debtor shall pay the Agent, for the account of the Company and the Bank Investors, as applicable, on demand any Early Collection Fee due on account of the receipt by the Company or any Bank Investor of any amounts applied in reduction of the Net Investment on any day other than a Remittance Date or the last day of any applicable funding period (in the case of any LIBOR-based funding). 90 96 ARTICLE IX THE AGENT; BANK COMMITMENT Section 9.1 Authorization and Action. The Company and each Bank Investor hereby irrevocably appoints and authorizes the Agent to act as its agent under this Agreement and the other Transaction Documents with such powers and discretion as are specifically delegated to the Agent by the terms of this Agreement and the other Transaction Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 9.5 and the first sentence of Section 9.6 hereof shall include its affiliates and its own and its affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for the Company or any Bank Investor; (b) shall not be responsible to the Company or any Bank Investor for any recital, statement, representation, or warranty (whether written or oral) made in or in connection with any Transaction Document or any certificate or other document referred to or provided for in, or received by any of them under, any Transaction Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Transaction Document, or any other document referred to or provided for therein or for any failure by any of the Debtor, the Designated Sellers or the Servicer or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by either the Debtor, the Designated Sellers or the Servicer or the satisfaction of any condition or to inspect the property (including the books and records) of any of the Debtor, the Designated Sellers or the Servicer or any of their Subsidiaries or affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Transaction Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Transaction Document, except for its own gross negligence or willful misconduct. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the 91 97 negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Section 9.2 Agent's Reliance, Etc. The Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telecopy) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any of the Debtor, the Designated Sellers or the Servicer), independent accountants, and other experts selected by the Agent. As to any matters not expressly provided for by this Agreement, the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Investors, and such instructions shall be binding on the Company and all of the Bank Investors; provided, however, that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to any Transaction Document or applicable law or unless it shall first be indemnified to its satisfaction by the Bank Investors against any and all liability and expense which may be incurred by it by reason of taking any such action. Section 9.3 Termination Events. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Potential Termination Event or a Termination Event unless the Agent has received written notice from a Bank Investor or the Company specifying such Potential Termination Event or Termination Event and stating that such notice is a "Notice of Termination Event". In the event that the Agent receives such a notice of the occurrence of a Potential Termination Event or Termination Event, the Agent shall give prompt notice thereof to the Bank Investors. The Agent shall (subject to Section 9.2 hereof) take such action with respect to such Potential Termination Event or Termination Event as shall reasonably be directed by the Majority Investors, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Potential Termination Event or Termination 92 98 Event as it shall deem advisable in the best interest of the Company and the Bank Investors. Section 9.4 Rights as Bank Investor. With respect to its Commitment, NationsBank (and any successor acting as Agent) in its capacity as a Bank Investor hereunder shall have the same rights and powers hereunder as any other Bank Investor and may exercise the same as though it were not acting as the Agent, and the term "Bank Investor" or "Bank Investors" shall, unless the context otherwise indicates, include the Agent in its individual capacity. NationsBank (and any successor acting as Agent) and its affiliates may (without having to account therefor to the Company or any Bank Investor) accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust, or other business with any of the Debtor, the Designated Sellers and the Servicer or any of their Subsidiaries or affiliates as if it were not acting as Agent, and NationsBank (and any successor acting as Agent) and its affiliates may accept fees and other consideration from any of the Debtor, the Designated Sellers and the Servicer or any of their Subsidiaries or affiliates for services in connection with this Agreement or otherwise without having to account for the same to the Company or any Bank Investor. Section 9.5 Indemnification of the Agent. The Bank Investors agree to indemnify the Agent (to the extent not reimbursed by the Debtor), ratably in accordance with their Pro Rata Shares, from and against any and all liabilities, obligations, losses, damages, penal ties, actions, judgments, suits, costs, expenses (including attorneys' fees), or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent (including by the Company or any Bank Investor) in any way relating to or arising out of this Agreement or any other Transaction Document or the transactions contemplated thereby or any action taken or omitted by the Agent under this Agreement or any other Transaction Document, provided that no Bank Investors shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Person indemnified. Without limitation of the foregoing, the Bank Investors agree to reimburse the Agent, ratably in accordance with their Pro Rata Shares, promptly upon demand for any out-of-pocket 93 99 expenses (including attorneys' fees) incurred by the Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and the other Transaction Documents, to the extent that such expenses are incurred in the interests of or otherwise in respect of the Bank Investors hereunder and/or thereunder and to the extent that the Agent is not reimbursed for such expenses by the Debtor. The agreements contained in this Section shall survive payment in full of the Net Investment and all other amounts payable under this Agreement. Section 9.6 Non-Reliance. The Company and each Bank Investor agrees that it has, independently and without reliance on the Agent or the Company or any Bank Investor, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Debtor, the Designated Sellers and the Servicer and their Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent, the Company or any Bank Investor, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Transaction Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Company and the Bank Investors by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, or business of any of the Debtor, the Designated Sellers or the Servicer or any of their Subsidiaries or affiliates that may come into the possession of the Agent or any of its affiliates. Section 9.7 Resignation of Agent. The Agent may resign at any time by giving notice thereof to the Company, the Bank Investors and the Debtor. Upon any such resignation, the Majority Investors shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Investors and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Company and the Bank Investors, appoint a 94 100 successor Agent which shall be a commercial bank organized under the laws of the United States of America having combined capital and surplus of at least $100,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article IX shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. Section 9.8 Payments by the Agent. Unless specifically allocated to a Bank Investor pursuant to the terms of this Agreement, all amounts received by the Agent on behalf of the Bank Investors shall be paid by the Agent to the Bank Investors (at their respective accounts specified in their respective Assignment and Assumption Agreements) in accordance with their respective related pro rata interests in the Net Investment on the Business Day received by the Agent, unless such amounts are received after 12:00 noon on such Business Day, in which case the Agent shall use its reasonable efforts to pay such amounts to the Bank Investors on such Business Day, but, in any event, shall pay such amounts to the Bank Investors in accordance with their respective related pro rata interests in the Net Investment not later than the following Business Day. Section 9.9 Bank Commitment; Assignment to Bank Investors. (a) Bank Commitment. At any time on or prior to the Commitment Termination Date, in the event that the Company does not effect an Advance as requested under Section 2.2(a), then at any time, the Debtor shall have the right to require the Company to assign its interest in the Net Investment in whole to the Bank Investors pursuant to this Section 9.9. In addition, at any time on or prior to the Commitment Termination Date (i) upon the occurrence of a Termination Event that results in the Termination Date or (ii) the Company elects to give notice to the Debtor of a Company Termination Date, the Debtor hereby requests and directs 95 101 that the Company assign its interest in the Net Investment in whole to the Bank Investors pursuant to this Section 9.9 and the Debtor hereby agrees to pay the amounts described in Section 9.9(d) below. Provided that the Net Asset Test is satisfied, upon any such election by the Company or any such request by the Debtor, the Company shall make such assignment and the Bank Investors shall accept such assignment and shall assume all of the Company's obligations hereunder. In connection with any assignment from the Company to the Bank Investors pursuant to this Section 9.9, each Bank Investor shall, on the date of such assignment, pay to the Company an amount equal to its Assignment Amount. Upon any assignment by the Company to the Bank Investors contemplated hereunder, the Company shall cease to make any additional Advances hereunder. (b) Assignment. No Bank Investor may assign all or a portion of its interests in the Net Investment, the Receivables, and Collections, Related Security and Proceeds with respect thereto and its rights and obligations hereunder to any Person unless approved in writing by the Debtor, the Administrative Agent, on behalf of the Company, and the Agent. In the case of an assignment by the Company to the Bank Investors or by a Bank Investor to another Person, the assignor shall deliver to the assignee(s) an Assignment and Assumption Agreement in substantially the form of Exhibit G attached hereto, duly executed, assigning to the assignee a pro rata interest in the Net Investment, the Receivables, and Collections, Related Security and Proceeds with respect thereto and the assignor's rights and obligations hereunder and the assignor shall promptly execute and deliver all further instruments and documents, and take all further action, that the assignee may reasonably request, in order to protect, or more fully evidence the assignee's right, title and interest in and to such interest and to enable the Agent, on behalf of such assignee, to exercise or enforce any rights hereunder and under the 96 102 other Transaction Documents to which such assignor is or, immediately prior to such assignment, was a party. Upon any such assignment, (i) the assignee shall have all of the rights and obligations of the assignor hereunder and under the other Transaction Documents to which such assignor is or, immediately prior to such assignment, was a party with respect to such interest for all purposes of this Agreement and under the other Transaction Documents to which such assignor is or, immediately prior to such assignment, was a party (it being understood that the Bank Investors, as assignees, shall (x) be obligated to fund Advances under Section 2.2(a) in accordance with the terms thereof, notwithstanding that the Company was not so obligated and (y) not have the right to elect the commencement of the amortization of the Net Investment pursuant to the definition of "Company Termination Date", notwithstanding that the Company had such right) and (ii) the assignor shall relinquish its rights with respect to such interest for all purposes of this Agreement and under the other Transaction Documents to which such assignor is or, immediately prior to such assignment, was a party. No such assignment shall be effective unless a fully executed copy of the related Assignment and Assumption Agreement shall be delivered to the Agent and the Debtor. NationsBank, as the initial Bank Investor, agrees that it shall not assign or syndicate any portion of its Commitment unless requested to do so by the Debtor. If NationsBank is requested by the Debtor to assign or syndicate any portion of its Commitment, all costs and expenses of the Agent and NationsBank incurred in connection with such assignment or syndication shall be borne by the Debtor; otherwise all costs and expenses of the Agent and NationsBank incurred in connection with an assignment or syndication of any portion of NationsBank's Commitment hereunder shall be borne by NationsBank. No Bank Investor shall assign any portion of its Commitment hereunder without also simultaneously assigning an equal portion of its interest in the Liquidity Provider Agreement. (c) Effects of Assignment. By executing and delivering an Assignment and Assumption Agreement, the assignor and assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Assumption Agreement, the assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, the other Transaction Documents or any other instrument or document furnished pursuant hereto or thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value or this Agreement, the other Transaction Documents or any such 97 103 other instrument or document; (ii) the assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Debtor, any Designated Seller or the Servicer or the performance or observance by the Debtor, any Designated Seller or the Servicer of any of their respective obligations under this Agreement, the other Transaction Documents or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, the Receivables Purchase Agreement and such other instruments, documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Assumption Agreement and to purchase such interest; (iv) such assignee will, independently and without reliance upon the Agent, or any of its Affiliates, or the assignor and based on such agreements, documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Transaction Documents; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement, the other Transaction Documents and any other instrument or document furnished pursuant hereto or thereto as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto and to enforce its respective rights and interests in and under this Agreement, the other Transaction Documents, the Receivables, the Accounts and the Related Security; (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Transaction Documents are required to be performed by it as the assignee of the assignor; and (vii) such assignee agrees that it will not institute against the Company any proceeding of the type referred to in Section 10.9 prior to the date which is one year and one day after the payment in full of all Commercial Paper issued by the Company. (d) Debtor's Obligation to Pay Certain Amounts; Additional Assignment Amount. The Debtor shall pay to the Agent, for the account of the Company, in connection with any assignment by the Company to the Bank Investors pursuant to this Section 9.9, an aggregate amount equal to all Carrying Costs to accrue through the 98 104 end of each outstanding funding period plus all other Aggregate Unpaids (other than the Net Investment). To the extent that such Carrying Costs relate to interest or discount on Commercial Paper issued to fund the Net Investment, if the Debtor fails to make payment of such amounts at or prior to the time of assignment by the Company to the Bank Investors, such amount shall be paid by the Bank Investors (in accordance with their respective Pro Rata Shares) to the Company as additional consideration for the interests assigned to the Bank Investors and the amount of the "Net Investment" hereunder held by the Bank Investors shall be increased by an amount equal to the additional amount so paid by the Bank Investors. (e) Administration of Agreement After Assignment. After any assignment by the Company to the Bank Investors pursuant to this Section 9.9 (and the payment of all amounts owing to the Company in connection therewith), all rights of the Administrative Agent and the Collateral Agent set forth herein shall be deemed to be afforded to the Agent on behalf of the Bank Investors instead of either such party. (f) Payments. After any assignment by the Company to the Bank Investors pursuant to this Section 9.9, all payments to be made hereunder by the Debtor or the Servicer to the Bank Investors shall be made to the Agent's account as such account shall have been notified to the Debtor and the Servicer. (g) Downgrade of Bank Investor. If at any time prior to any assignment by the Company to the Bank Investors as contemplated pursuant to this Section 9.9, the short term debt rating of any Bank Investor shall be "A-2" or "P-2" from Standard & Poor's or Moody's, respectively, with negative credit implications, such Bank Investor, upon request of the Agent, shall, within 30 days of such request, assign its rights and obligations hereunder to another financial institution (which institution's short term debt shall be rated at least "A-2" and "P-2" from Standard & Poor's and Moody's, respectively, and which shall not be so rated with negative credit implications). If the short term debt rating of a Bank Investor shall be "A-3" or "P-3", or lower, from Standard & Poor's or Moody's, respectively (or such rating shall have been withdrawn by Standard & 99 105 Poor's or Moody's), such Bank Investor, upon request of the Agent, shall, within five (5) Business Days of such request, assign its rights and obligations hereunder to another financial institution (which institution's short term debt shall be rated at least "A-2" and "P-2" from Standard & Poor's and Moody's, respectively, and which shall not be so rated with negative credit implications). In either such case, if any such Bank Investor shall not have assigned its rights and obligations under this Agreement within the applicable time period described above, the Company shall have the right to require such Bank Investor to accept the assignment of such Bank Investor's Pro Rata Share of the Net Investment; such assignment shall occur in accordance with the applicable provisions of this Section 9.9. Such Bank Investor shall be obligated to pay to the Company, in connection with such assignment, in addition to the Pro Rata Share of the Net Investment, an amount equal to the interest component of the outstanding Commercial Paper issued to fund the portion of the Net Investment being assigned to such Bank Investor, as reasonably determined by the Agent. Not withstanding anything contained herein to the contrary, upon any such assignment to a downgraded Bank Investor as contemplated pursuant to the immediately preceding sentence, the aggregate available amount of the Facility Limit, solely as it relates to new Advances by the Company, shall be reduced by the amount of unused Commitment of such downgraded Bank Investor; it being understood and agreed, that nothing in this sentence or the two preceding sentences shall affect or diminish in any way any such downgraded Bank Investor's Commitment to the Debtor or such downgraded Bank Investor's other obligations and liabilities hereunder and under the other Transaction Documents. (h) Replacement of Bank Investor. (i) In the event: (v) a Bank Investor (other than NationsBank) fails to make its share of any Advance available on the applicable Advance Date therefor, (w) a Bank Investor (other than NationsBank) notifies the Agent pursuant to Section 2.3(e)(ii) hereof that it is unable to obtain matching deposits in the London 100 106 interbank market to fund an Advance or that the Adjusted LIBOR Rate applicable to such Advance will not adequately reflect its costs, (x) a Bank Investor (other than NationsBank) shall be subject to the circumstances described in Section 2.3(e)(iii) hereof, (y) a Bank Investor (other than NationsBank) shall make a claim for compensation pursuant to Section 8.2 hereof, or (z) a Bank Investor (other than NationsBank) shall not agree pursuant to Section 10.2 to any amendment or waiver requested by the Debtor, the Debtor shall have the right, in any such case, not withstanding any provision to the contrary herein, to replace such Bank Investor with another financial institution reasonably acceptable to the Company (unless it shall have previously assigned in full its interest in the Net Investment to the Bank Investors), and the Agent (and which shall have a rating of at least "A-1" and "P-1" as to its short term debt), by giving three Business Days' prior written notice to the Agent and such Bank Investor. (ii) In the event of a request by the Debtor to replace a Bank Investor under Section 9.9(h)(i), such Bank Investor agrees: (x) to assign all of its rights and delegates all of its obligations hereunder to a financial institution selected by the Borrower and reasonably acceptable to the Company (unless it shall have previously assigned in full its interest in the Net Investment to the Bank Investors), and the Agent (and which shall have a rating of at least "A-1" and "P-1" as to its short term debt), upon payment to such Bank Investor of the amount of such Bank Investor's outstanding advances in respect of the Net Investment, together with any accrued and unpaid interest thereon, all accrued and 101 107 unpaid commitment fee owing to such Bank Investor and all other amounts owing to such Bank Investor hereunder, and (y) to execute and deliver an Assignment and Assumption Agreement and such documentation as is necessary to assign to such replacement financial institution such Bank Investor's rights and obligations under the Liquidity Support Agreement and such other documents evidencing such assignment as shall be necessary or reason ably requested by the Debtor or the Agent. 102 108 ARTICLE X MISCELLANEOUS Section 10.1 Term of Agreement. This Agreement shall terminate on the date following the Termination Date upon which the Net Investment and all other Aggregate Unpaids have been paid in full, in each case, in cash; provided, however, that (i) the indemnification and payment provisions of Article VIII, and (ii) the agreement set forth in Section 10.9 hereof, shall be continuing and shall survive any termination of this Agreement. Section 10.2 Waivers; Amendments. (a) No failure or delay on the part of the Agent, the Company, the Administrative Agent or any Bank Investor in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law. (b) Any provision of this Agreement or any other Transaction Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Debtor, the Servicer, the Company and the Majority Investors (and, if Article IX or the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by each Bank Investor directly affected thereby, (i) increase the Commitment of a Bank Investor, (ii) reduce the Net Investment or rate of interest to accrue thereon or any fees or other amounts payable hereunder, (iii) postpone any date fixed for the payment of any scheduled distribution in respect of the Net Investment or interest with respect thereto or any fees or other amounts payable hereunder or for termination of any Commitment, (iv) change the percentage of the Commitments or the number of Bank Investors, which shall be required for the Bank Investors or any of them to take any action under this Section or any other provision of this Agreement, (v) release all or substantially all of 103 109 the property with respect to which a security interest therein has been granted hereunder to the Agent, for the benefit of the Company and the Bank Investors, the Bank Investors or (vi) extend or permit the extension of the Commitment Termination Date. In the event the Agent requests the Company's or a Bank Investor's consent pursuant to the foregoing provisions and the Agent does not receive a consent (either positive or negative) from the Company or such Bank Investor within 10 Business Days of the Company's or Bank Investor's receipt of such request, then the Company or such Bank Investor (and its percentage interest hereunder) shall be disregarded in determining whether the Agent shall have obtained sufficient consent hereunder. (c) The Agent and the Company acknowledge that the Debtor may request a future amendment to this Agreement which would allow for the addition of either another debtor or another Designated Seller. Section 10.3 Notices. Except as provided below, all communications and notices provided for here under shall be in writing (including telecopy or electronic facsimile transmission or similar writing) and shall be given to the other party at its address or telecopy number set forth below or at such other address or telecopy number as such party may hereafter specify for the purposes of notice to such party. Each such notice or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section 10.3 and confirmation is received, (ii) if given by mail three (3) Business Days following such posting, postage prepaid, U.S. certified or registered, (iii) if given by overnight courier, one (1) Business Day after deposit thereof with a national overnight courier service, or (iv) if given by any other means, when received at the address specified in this Section 10.3. However, anything in this Section to the contrary notwithstanding, the Debtor hereby authorizes the Company to effect Advances and funding period selections based on telephonic notices made by any Person which the Company in good faith believes to be acting on behalf of the Debtor. The Debtor agrees to deliver promptly to the Company a written confirmation of each telephonic notice signed by an authorized representative of Debtor. However, the absence of such confirmation shall not affect the validity of such 104 110 notice. If the written confirmation differs in any material respect from the action taken by the Company, the records of the Company shall govern absent manifest error. If to the Company: Enterprise Funding Corporation c/o Merrill Lynch Money Market, Inc. World Financial Center South Tower, 8th Floor 225 Liberty Street New York, New York 10080 Telephone: (212) 236-7200 Telecopy: (212) 236-7584 (with a copy to the Administrative Agent) Payment Information: Bankers Trust Company as depository for Enterprise Funding Corporation ABA 021-001-033 Account Number: 00362917 Ref: Enterprise Funding/Belk Attn: Neil Wechsler If to the Debtor: Belk, Inc. 2801 West Tyvola Road Charlotte, North Carolina 28217 Telephone: (704) 357-1064, ext: 4273 Telecopy: (704) 357-0711 Attn: Terry Scott Payment Information: Wachovia Bank, N.A. ABA 053-100-494 For the Account of: Belk, Inc. Account Number: 1869-007808 105 111 If to Belk Center The Belk Center, Inc. 2801 West Tyvola Road Charlotte, North Carolina 28217 Telephone: (704) 357-1064, extension 7000 Telecopy: (704) 357-1861 Attn: Oakley Orser If to the Collateral Agent: NationsBank, N.A. NationsBank Corporate Center 100 North Tryon Street Charlotte, North Carolina 28255 Attn: Michelle M. Heath-- NC1-007-10-07 Structured Finance Telephone: (704) 386-7922 Telecopy: (704) 388-9169 If to the Agent: NationsBank, N.A. NationsBank Corporate Center 100 North Tryon Street Charlotte, North Carolina 28255 Attn: Michelle M. Heath-- NC1-007-10-07 Structured Finance Telephone: (704) 386-7922 Telecopy: (704) 388-9169 Payment Information: NationsBank, N.A. ABA 053-000-196 For the Account of: Global Investment Bank Operations Account No. 1093601650000 Attn.: Camille Zerbinos If to the Administrative Agent: NationsBank, N.A. NationsBank Corporate Center 100 North Tryon Street Charlotte, North Carolina 28255 Attn: Michelle M. Heath -- NC1-007-10-07 Structured Finance Telephone: (704) 386-7922 Telecopy: (704) 388-9169 106 112 If to the Bank Investors, at their respective addresses set forth on the signature pages hereto or of the Assignment and Assumption Agreement pursuant to which it became a party hereto. Section 10.4 Governing Law; Submission to Jurisdiction; Integration. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE DEBTOR HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA AND OF ANY NORTH CAROLINA STATE COURT SITTING IN MECKLENBURG COUNTY, NORTH CAROLINA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. The Debtor hereby irrevocably waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Nothing in this Section 10.4 shall affect the right of the Company to bring any action or proceeding against the Debtor or its property in the courts of other jurisdictions. (b) This Agreement contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire Agreement among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings. (c) The Debtor and each Designated Seller hereby appoints Luther T. Moore as the authorized agent upon whom process may be served in any action arising out of or based upon this Agreement, the other Transaction Documents to which such person is a party or the transactions contemplated hereby or thereby that may be instituted in the United States District Court for the Western District of North Carolina and of any North Carolina State court sitting in Mecklenburg County, North 107 113 Carolina by the Company, the Agent, any Bank Investor, the Collateral Agent or any assignee of any of them. Section 10.5 Severability; Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 10.6 Successors and Assigns. This Agreement shall be binding on the parties hereto and their respective successors and assigns; provided, how ever, that neither the Debtor nor any Designated Seller may assign any of its rights or delegate any of its duties hereunder or under any of the other Transaction Documents to which it is a party without the prior writ ten consent of the Agent. No provision of this Agreement shall in any manner restrict the ability of the Company to assign, participate, grant security interests in, or otherwise transfer any portion of its interest in the Note or its rights and/or obligations hereunder to a Bank Investor in accordance with the terms hereof, a Liquidity Provider, a Credit Support Provider or the Collateral Agent. No Bank Investor may assign, participate, grant a security interest in or otherwise transfer any of its rights and/or obligations hereunder or any portion of its interest in the Note without the prior written consent of the Debtor, such consent not to be unreasonably withheld. (a) Each of the Debtor and each Designated Seller hereby agrees and consents to the assignment by the Company from time to time of all or any part of its rights under, interest in and title to this Agreement and in the Note to any Liquidity Provider. In addition, each of the Debtor and each Designated Seller hereby consents to and acknowledges the assignment by the 108 114 Company of all of its rights under, interest in and title to this Agreement and the Note to the Collateral Agent. Section 10.7 Confidentiality Agreement Company, Agent, Administrative Agent, Collateral Agent, Liquidity Providers and Bank Investors. Each of the Company, the Agent, the Administrative Agent, the Collateral Agent, each Liquidity Provider and each Bank Investor hereby agrees that it will not disclose the contents of this Agreement or any other proprietary or confidential information of the Debtor, any Subsidiary of the Debtor, any Designated Seller or the Servicer, to any other Person except (i) NationsBank (and any affiliate thereof), any Credit Support Provider, any potential Bank Investor or potential Liquidity Support Provider or Credit Support Provider, or such disclosing party's auditors and attorneys, employees or financial advisors and any nationally recognized rating agency; provided such entities, auditors, attorneys, employees, financial advisors or rating agencies are informed of the highly confidential nature of such information and agree not to disclose it to any other Person, or (ii) as otherwise required by applicable law or order of a court of competent jurisdiction or other Governmental Authority. Section 10.8 Confidentiality Agreement. Each of the Debtor and each Designated Seller hereby agrees that it will not disclose the contents of this Agreement or any other proprietary or confidential information of the Company, the Agent, the Administrative Agent, the Collateral Agent, any Credit Support Provider, any Liquidity Provider or any Bank Investor to any other Person except (i) its auditors and attorneys, employees or financial advisors (other than any commercial bank) and any nationally recognized rating agency, provided such auditors, attorneys, employees, financial advisors or rating agencies are informed of the highly confidential nature of such information and agree not to disclose it to any other Person or (ii) as otherwise required by applicable law, order of a court of competent jurisdiction or other Governmental Authority. Section 10.9 No Bankruptcy Petition Against the Company. Each of the Debtor, the Agent, each Designated Seller and each Bank Investor hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of all outstanding 109 115 Commercial Paper or other indebtedness of the Company, it will not institute against, or join any other Person in instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. Section 10.10 No Recourse Against Stockholders, Officers or Directors. Notwithstanding anything to the contrary contained in this Agreement, the obligations of the Company under this Agreement and all other Transaction Documents are solely the corporate obligations of the Company and shall be payable solely from the assets of the Company in excess of funds necessary to pay matured and maturing Commercial Paper. No recourse under any obligation, covenant or agreement of the Company contained in this Agreement shall be had against Merrill Lynch Money Markets Inc. (or any affiliate thereof), or any stockholder, officer or director of the Company, as such, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that this Agreement is solely a corporate obligation of the Company, and that no personal liability whatsoever shall attach to or be incurred by Merrill Lynch Money Markets Inc. (or any affiliate thereof), or the stock holders, officers or directors of the Company, as such, or any of them, under or by reason of any of the obligations, covenants or agreements of the Company contained in this Agreement, or implied therefrom, and that any and all personal liability for breaches by the Company of any of such obligations, covenants or agreements, either at common law or at equity, or by statute or constitution, of Merrill Lynch Money Markets Inc. (or any affiliate thereof) and every such stockholder, officer or director of the Company is hereby expressly waived as a condition of and consideration for the execution of this Agreement. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 110 116 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Note Purchase and Security Agreement as of the date first written above. ENTERPRISE FUNDING CORPORATION, as Company By: --------------------------------------- Name: Title: BELK, INC., as Debtor By: --------------------------------------- Name: Title: THE BELK CENTER, INC., as Servicer By: --------------------------------------- Name: Title: Commitment NATIONSBANK, N.A., as Agent $300,000,000 and a Bank Investor By: --------------------------------------- Name: Title: 117 Exhibit A Forms of Account Agreement A-1 118 Exhibit B Credit Guidelines and Collection Guidelines Provided separately to the Agent B-1 119 Exhibit C Servicer Account Banks NationsBank, N.A. 901 Main Street Dallas, Texas 75202 C-1 120 Exhibit D Form of Servicer Account Agreement [Name and Address of Servicer Account Bank] Re: [SERVICER] Servicer Account No[s]. ___________ Ladies and Gentlemen: [SERVICER] ("SERVICER") hereby notifies you that in connection with certain transactions involving accounts receivable originated under credit accounts of the Debtor or a Designated Seller, it has transferred exclusive ownership and dominion of its account no[s]. __________ maintained with you (collectively the "Accounts") to NationsBank, N.A., as agent (the "Agent"), and that SERVICER will transfer exclusive control of the Accounts to the Agent effective upon delivery to you of the Notice of Effectiveness (as hereinafter defined). In furtherance of the foregoing, SERVICER and the Agent hereby instruct you, beginning on the date of your receipt of the Notice of Effectiveness: (i) to collect the monies, checks, instruments and other items of payment mailed to the Accounts; (ii) to deposit into the Accounts all such monies, checks, instruments and other items of payment or all funds collected with respect thereto (unless otherwise instructed by the Agent); and (iii) to transfer all funds deposited and collected in the Accounts pursuant to instructions given to you by the Agent from time to time. You are hereby further instructed: (i) unless and until the Agent notifies you to the contrary at any time after your receipt of the Notice of Effectiveness, to make such transfers from the Accounts at such times and in such manner as SERVICER, in its capacity as servicer for the Agent, shall from time to time instruct to the extent such instructions are not inconsistent with the instructions set forth herein, and (ii) to permit SERVICER (in its capacity as servicer for the Agent) and D-1 121 the Agent to obtain upon request any information relating to the Accounts, including, without limitation, any information regarding the balance or activity of the Accounts. SERVICER also hereby notifies you that, beginning on the date of your receipt of the Notice of Effectiveness and notwithstanding anything herein or elsewhere to the contrary, the Agent, and not SERVICER, shall be irrevocably entitled to exercise any and all rights in respect of or in connection with the Accounts, including, without limitation, the right to specify when payments are to be made out of or in connection with the Accounts. The Agent has a continuing interest in all of the checks and their proceeds and all monies and earnings, if any, thereon in the Accounts, and you shall be the Agent's agent for the purpose of holding and collecting such property. The monies, checks, instruments and other items of payment mailed to, and funds deposited to, the Accounts will not be subject to deduction, set-off, banker's lien, or any other right in favor of any person other than the Agent (except that you may set off (i) all amounts due to you in respect of your customary fees and expenses for the routine maintenance and operation of the Accounts, and (ii) the face amount of any checks which have been credited to the Accounts but are subsequently returned unpaid because of uncollected or insufficient funds). This Agreement may not be terminated at any time by SERVICER or you without the prior written consent of the Agent. Neither this Agreement nor any provision hereof may be changed, amended, modified or waived orally but only by an instrument in writing signed by the Agent and SERVICER. You shall not assign or transfer your rights or obligations hereunder (other than to the Agent) without the prior written consent of the Agent and SERVICER. Subject to the preceding sentence, this Agreement shall be binding upon each of the parties hereto and their respective successors and assigns, and shall inure to the benefit of, and be enforceable by, the Agent, each of the parties hereto and their respective successors and assigns. D-2 122 You hereby represent that the person signing this Agreement on your behalf is duly authorized by you to so sign. You agree to give the Agent and SERVICER prompt notice if the Accounts become subject to any writ, garnishment, judgment, warrant of attachment, execution or similar process. Any notice, demand or other communication required or permitted to be given hereunder shall be in writing and may be personally served or sent by facsimile or by courier service or by United States mail and shall be deemed to have been delivered when delivered in person or by courier service or by facsimile or three (3) Business Days after deposit in the United States mail (registered or certified, with postage prepaid and properly addressed). For the purposes hereof, (i) the addresses of the parties hereto shall be as set forth below each party's name below, or, as to each party, at such other address as may be designated by such party in a written notice to the other party and the Agent and (ii) the address of the Agent shall be NationsBank, N.A., NationsBank Corporate Center, 10th Floor, Charlotte, North Carolina 28255, Attention: Michelle M. Heath, Investment Banking, or at such other address as may be designated by the Agent in a written notice to each of the parties hereto. Please agree to the terms of, and acknowledge receipt of, this notice by signing in the space provided below. The transfer of control of the Accounts, referred to in the first paragraph of this letter, shall become effective upon delivery to you of a notice (the "Notice of Effectiveness") in substantially the form attached hereto as Annex "1". D-3 123 Very truly yours, [SERVICER] By: -------------------------------- Title: ----------------------------- Attention: ------------------------- Facsimile No.: --------------------- ACKNOWLEDGED AND AGREED: [NAME OF SERVICER ACCOUNT BANK] By: ---------------------------- Title: ------------------------- Date: -------------------------- [Address] Attention: --------------------- Facsimile No.: ----------------- D-4 124 ANNEX 1 TO SERVICER ACCOUNT AGREEMENT [FORM OF NOTICE OF EFFECTIVENESS] DATED: ______________, 199_ TO: [Name of Servicer Account Bank] [Address] ATTN: ______________________ Re: Servicer Account No[s]._______ Ladies and Gentlemen: We hereby give you notice that the transfer of control of the above-referenced Servicer Account[s], as described in our letter agreement with you dated __________ __, 199_ is effective as of the date hereof. You are hereby instructed to comply immediately with the instructions set forth in that letter. Very truly yours, [SERVICER] By: -------------------------------- Title: ----------------------------- ACKNOWLEDGED AND AGREED: [NAME OF SERVICER BANK] By: ---------------------------- Title: ------------------------- Date: -------------------------- [Address] Attention: --------------------- Facsimile No.: ----------------- D-5 125 Exhibit E Form of Servicer Report E-1 126 Exhibit F Form of Additional Advance Certificate F-1 127 Exhibit G Form of Assignment and Assumption Agreement Reference is made to the Note Purchase and Security Agreement dated as of June 12, 1998, as it may be amended or modified from time to time (as so modified and amended, the "Agreement") among Belk, Inc., as Debtor (in such capacity, the "Debtor"), The Belk Center, Inc., as servicer (in such capacity, the "Servicer"), Enterprise Funding Corporation (the "Company"), NationsBank, N.A., as agent, and certain financial institutions from time to time a party thereto as Bank Investors. Terms defined in the Agreement are used herein with the same meaning. ___________________ (the "Assignor") and __________________ (the "Assignee") agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, without recourse and without representation and warranty, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to all of the Assignor's rights and obligations under the Agreement and the other Transaction Documents. Such interest expressed as a percentage of all rights and obligations of the Bank Investors being equal to the percentage equivalent of a fraction the numerator of which is $________ and the denominator of which is the Facility Limit. After giving effect to such sale and assignment, the Assignee's Commitment will be as set forth on the signature page hereto. 2. [In consideration of the payment of $___________, being ___% of the existing Net Investment, and of $___________, being ___% of the aggregate unpaid accrued Carrying Costs payable to the Assignor, receipt of which payment is hereby acknowledged, the Assignor hereby assigns to the Agent for the account of the Assignee, and the Assignee hereby purchases from the Assignor, a ___% interest in and to all of the Assignor's right, title and interest in and to the Net Investment purchased by the undersigned on _______________, 19__ G-1 128 under the Agreement.] [include if an existing Net Investment is being assigned.] 3. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Agreement, any other Transaction Document or any other instrument or document furnished pursuant thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Agreement or the Receivables, any other Transaction Document or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any of the Debtor, the Servicer or any Designated Seller or the performance or observance by any of the Debtor or the Servicer or any Designated Seller of any of its obligations under the Agreement, any other Transaction Document, or any instrument or document furnished pursuant thereto. 4. The Assignee (i) confirms that it has received a copy of the Agreement, the Receivables Purchase Agreement, the Note and the Fee Letter, together with copies of the financial statements referred to in Section 5.1 of the Agreement, to the extent delivered through the date of this Agreement, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment; (ii) agrees that it will, independently and without reliance upon the Agent, any of its Affiliates, the Assignor or any other Investor and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Agreement and any other Transaction Document; (iii) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Agreement and the other Transaction Documents as are delegated to the Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (iv) agrees that it will perform in accordance with their terms all of the G-2 129 obligations which by the terms of the Agreement are required to be per formed by it as a Bank Investor; and (vi) specifies as its address for notices and its account for payments the office and account set forth beneath its name on the signature pages hereof[; and (vii) attaches the forms prescribed by the Internal Revenue Service of the United States of America certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Agreement or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty].(1) 5. The effective date for this Assignment shall be the later of (i) the date on which the Agent receives this Assignment executed by the parties hereto and receives the consent of the Debtor and the Administrative Agent, on behalf of the Company, and (ii) the date of this Assignment (the "Effective Date"). Following the execution of this Assignment and Assumption Agreement and the consent of the Debtor and the Administrative Agent, on behalf of the Company, this Assignment and Assumption Agreement will be delivered to the Agent for acceptance and, with respect to the Assignment and Assumption Agreement, recording by the Agent. 6. Upon such acceptance and recording, as of the Effective Date, (i) the Assignee shall be a party to the Agreement and, to the extent provided in this Assignment, have the rights and obligations of a Bank Investor thereunder and (ii) the Assignor shall, to the extent provided in this Assignment, relinquish its rights and be released from its obligations under the Agreement. 7. Upon such acceptance and recording, from and after the Effective Date, the Agent shall make all payments under the Agreement in respect of the interest assigned hereby (including, without limitation, all payments in respect of such interest in Net Investment, Discount and fees) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in -------- (1) If the Assignee is organized under the laws of a jurisdiction outside the United States. G-3 130 payments under the Agreement for periods prior to the Effective Date directly between themselves. 8. This Assignment shall be governed by, and construed in accordance with, the laws of the State of New York. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] G-4 131 9. This Assignment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of the signature page to this Assignment by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Assumption Agreement to be executed by their respective officers thereunto duly authorized as of the __ day of ______, 199_. [ASSIGNOR] By: ---------------------------------- Name: Title: [ASSIGNEE] By: ---------------------------------- Name: Title: Address for notices and Account for payments: For Credit Matters: For Administrative Matters: [NAME] [NAME] - --------------------------- --------------------------- - --------------------------- --------------------------- Attn: ___________ Attn.: ___________ Telephone: (___) ___-____ Telephone: (___) ___-____ Telefax: (___) ___-____ Telefax: (___) ___-____ Account for Payments: NAME - --------------------------- ABA Number: ___-___-___ G-5 132 Account Number: ___________ Attn: ______________ Re: ________________ Consented to this __ day of ________, 199_ NATIONSBANK, N.A., as Administrative Agent By: --------------------------- Name: Title: BELK, INC. By: ---------------------------- Name: Title: Accepted this ___ day of ________, 199_ NATIONSBANK, N.A. as Agent By: ---------------------------- Name: Title: G-6 133 Exhibit H List of Actions and Suits NONE H-1 134 Exhibit I Location of Chief Executive Office and Records Location of Chief Executive Office: 2801 W. Tyvola Road Charlotte, North Carolina 28217 Location of Records: 2801 W. Tyvola Road Charlotte, North Carolina 28217 or Pierce Leahy Archives 6100 Harris Technology Boulevard Charlotte, North Carolina 28269 I-1 135 Exhibit J List of Subsidiaries, Divisions and Tradenames J-1 136 Exhibit K [Form of Debtor's, Designated Sellers' and Servicer's Counsel Opinion] [Letterhead of Counsel] _________ __, 1998 Enterprise Funding Corporation c/o Merrill Lynch Money Markets Inc. Merrill Lynch World Headquarters World Financial Center--South Tower 225 Liberty Street--8th Floor New York, New York 10080 NationsBank, N.A., as Agent 100 North Tryon Street Charlotte, North Carolina 28255 Ladies and Gentlemen: This opinion is furnished to you pursuant to Section 4.1(o) of the Note Purchase and Security Agreement dated as of June 12, 1998 (the "Agreement") among BELK, INC., a _______ Delaware corporation (the "Debtor"), The Belk Center, Inc., a North Carolina corporation, as servicer (the "Servicer"), Enterprise Funding Corporation, a Delaware corporation (the "Company"), NationsBank, N.A., a national banking association ("NationsBank") as Agent and as a Bank Investor, and certain financial institutions from time to time a party thereto as Bank Investors. Terms defined in the Agreement and not otherwise defined herein are used in this opinion with the meanings so defined. We have acted as counsel to the Designated Sellers, the Servicer and the Debtor in connection with the preparation of the Agreement, the Receivables Purchase Agreement, the other Transaction Documents and the transactions contemplated thereby. We have examined, on the date hereof, the Agreement and all Exhibits thereto, each of the Receivables Purchase Agreement and all Exhibits thereto and the Note delivered under the Agreement, certificates K-1 137 of public officials and of officers of the Debtor and the Designated Sellers and certified copies of the Designated Sellers' and the Debtor's certificates of incorporation, by-laws, resolutions of the respective Boards of Directors authorizing the Designated Sellers' and the Debtor's participation in the transactions contemplated by the Agreement and the Receivables Purchase Agreement (copies of each of the above having been delivered to you), copies of the financing statements on Form UCC-1 filed in the filing offices listed on Schedule I hereto executed by each Designated Seller, as debtor, in favor of the Debtor, as secured party, and showing thereon the Agent, on behalf of the Bank Investors and the Company, as the assignee of the secured party, substantially in the form attached hereto as Exhibit A (the "Designated Sellers' Financing Statements") and copies of the financing statements on Form UCC-1 filed in the filing offices listed on Schedule II hereto executed by Debtor, as debtor, in favor of the Agent, on behalf of the Bank Investors and the Company, as secured party, substantially in the form attached hereto as Exhibit B (the "Debtor Financing Statements"). We have also examined the closing documents delivered pursuant to the Agreement and the Receivables Purchase Agreement and copies of all such documents and records, and have made such investigations of law, as we have deemed necessary and relevant as a basis for our opinion. With respect to the accuracy of material factual matters which were not independently established, we have relied on certificates and statements of officers of the Designated Sellers, the Servicer and the Debtor. On the basis of the foregoing, we are of the opinion that: 11. The Debtor is a [corporation] duly incorporated, validly existing and in good standing under the laws of [ ], has the corporate power and authority to own its properties and to carry on its business as now being conducted, and had at all relevant times, and now has, all necessary power, authority, and legal right to acquire and own the Receivables, and is duly qualified and in good standing as a foreign corporation and is authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization, Except for qualifications and K-2 138 authorizations the lack of which, singly or in the aggregate, has not had and will not have a materially adverse affect upon the business properties of the Debtor or its ability to perform its obligations under the Transaction Documents. 12. Each of the Designated Sellers is a corporation duly incorporated, validly existing and in good standing under the laws of its governing jurisdiction, has the corporate power and authority to own its proper ties and to carry on its business as now being conducted, and had at all relevant times, and now has, all necessary power, authority, and legal right to acquire and own the Receivables, and is duly qualified and in good standing as a foreign corporation and is authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization, except for qualifications and authorizations the lack of which, singly or in the aggregate, has not had and will not have a materially adverse affect upon the business properties of the Debtor or its ability to perform its obligations under the Transaction Documents. 13. The Debtor has the power, corporate and other, and has taken all necessary corporate action to execute, deliver and perform the Agreement and the other Transaction Documents, each in accordance with its respective terms, and to consummate the transactions contemplated thereby. The Transaction Documents to which the Debtor is a party have been duly executed and delivered by the Debtor and when duly executed and delivered will constitute the legal, valid and binding obligations of the Debtor enforceable against the Debtor in accordance with their terms, Except as enforcement thereof may be limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 14. Each of the Designated Sellers has the power, corporate and other, and has taken all necessary corporate action to execute, deliver and perform the Receivables Purchase Agreement to which it is a party and each other Transaction Document to which it is a party, each in accordance with its respective terms, and to consummate the transactions contemplated thereby. Each K-3 139 Transaction Document to which a Designated Seller is a party has been duly executed and delivered by such Designated Seller and when duly executed and delivered will constitute the legal, valid and binding obligation of such Designated Seller enforceable against such Designated Seller in accordance with their terms, Except as enforcement thereof may be limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 15. The execution, delivery and performance in accordance with their terms by the Debtor of the Agreement and the other Transaction Documents and the consummation of the transactions contemplated thereby, do not and will not (i) require (a) any governmental approval or (b) any consent or approval of any stockholder of the Debtor that has not been obtained, (ii) violate or conflict with, result in a breach of, or constitute a default under (a) the certificate of incorporation or the by-laws of the Debtor, (b) any other agreement to which the Debtor is a party or by which the Debtor or any of its properties may be bound, or (c) any applicable law, or any order, rule, or regulation applicable to the Debtor of any court or of any federal or state regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over the Debtor or any of its properties, or (iii) result in or require the creation or imposition of any Lien upon any of the as sets, property or revenue of the Debtor other than as contemplated by the Agreement. 16. The execution, delivery and performance in accordance with their terms by each Designated Seller of the Receivables Purchase Agreement and the other Transaction Documents to which it is a party and the consummation of the transactions contemplated thereby do not and will not (i) require (a) any governmental approval or (b) any consent or approval of any stockholder of such Designated Seller that has not been obtained, (ii) violate or conflict with, result in a breach of, or constitute a default under (a) the certificate of incorporation or the by-laws of such Designated Seller, (b) any other agreement to which such Designated Seller is a party or by which such Designated Seller or any of its properties may be bound, or (c) any applicable law, or any order, rule, or regulation K-4 140 applicable to such Designated Seller of any court or of any federal or state regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over such Designated Seller or any of its properties, or (iii) result in or require the creation or imposition of any Lien upon any of the assets, property or revenue of such Designated Seller other than as contemplated by the Receivables Purchase Agreement. 17. Except as set forth in the schedule attached hereto, there are not, in any court or before any arbitrator of any kind or before or by any governmental or non-governmental body, any actions, suits, proceedings or investigations, pending or to the best of our knowledge after due inquiry, threatened (i) against the Debtor or the business or any property of the Debtor Except actions, suits or proceedings that, if adversely deter mined, would not, singly or in the aggregate, have a Material Adverse Effect or (ii) relating to the Agreement or any other Transaction Document. 18. Except as set forth in the schedule attached hereto, there are not, in any court or before any arbitrator of any kind or before or by any governmental or non-governmental body, any actions, suits, proceedings or investigations, pending, or to the best of our knowledge after due inquiry, threatened (i) against the Designated Sellers or the business or any property of the Designated Sellers Except actions, suits or proceedings that, if adversely determined, would not, singly or in the aggregate, have a Material Adverse Effect or (ii) relating to the Receivables Purchase Agreement, or any other Transaction Document. 19. The Receivables constitute ["accounts"] ["general intangibles"] ["chattel paper"] as [that] [such] term[s][is][are] defined in the Uniform Commercial Code as in effect in [XYZ]. 20. Each Receivables Purchase Agreement creates a valid "security interest" (as that term is defined in Section 1-201(37) of the Uniform Commercial Code (including the conflict of laws rules thereof) as in effect in each applicable jurisdiction (the "UCC"), including New York (the "New York UCC") and _______ (the "XYZ UCC"), under Article 9 of the New York UCC K-5 141 ("Security Interest") in favor of the Debtor in the Receivables conveyed thereby and in the proceeds thereof (Except that the Security Interest will attach to any Receivable created after the date hereof only when the applicable Designated Seller possesses rights in such Receivable). The internal laws of [XYZ] govern the perfection by the filing of financing statements of the Debtor's Security Interest in the Receivables and the proceeds thereof. The Designated Sellers' Financing Statements have been filed in the filing office(s) located in XYZ listed on Schedule I hereto, which [is] [are] the only office(s) in which filings are required under the [XYZ] UCC to perfect the Debtor's Security Interest in the Receivables and the proceeds thereof, and accordingly the Debtor's Security Interest will, on the date of the initial transfer under each of the Receivables Purchase Agreements, be perfected under Article 9 of the [XYZ] UCC in each Receivable conveyed thereby and in the proceeds thereof. All filing fees and all taxes required to be paid as a condition to or upon the filing of the Designated Sellers' Financing Statements in XYZ have been paid in full. As of the date hereof, there were no (i) UCC financing statements naming a Designated Seller as debtor, seller or assignor and covering any Receivables or any interest therein or (ii) notices of the filing of any federal tax lien (filed pursuant to Section 6323 of the Internal Revenue Code) or lien of the Pension Benefit Guaranty Corporation (filed pursuant to Section 4068 of the Employment Retirement Insurance Act) covering any Receivable or any interest therein. The filing of the Designated Sellers' Financing Statements in the filing offices listed on Schedule I will create a first priority Security Interest in each Receivable. Such perfection and priority will continue, provided that appropriate continuation statements are timely filed where and when required under the UCC. 21. The Agreement creates a valid "security interest" (as that term is defined in Section 1-201(37) of the Uniform Commercial Code (including the conflict of laws rules thereof) as in effect in each applicable jurisdiction (the "UCC"), including New York (the "New York UCC") and _______ (the "XYZ UCC"), under Article 9 of the New York UCC ("Security Interest") in favor of the Company in each Receivable (Except that the Security Interest will attach only when the Debtor possesses rights in such Receivable). The internal laws of [XYZ] K-6 142 govern the perfection by the filing of financing statements of the Company's Security Interest in the Receivables and the proceeds thereof. The Debtor Financing Statement(s) have been filed in the filing office(s) located in [XYZ] listed on Schedule II hereto, which [is] [are] the only office(s) in which filings are required under the [XYZ] UCC to perfect the Company's Security Interest in the Receivables and the proceeds thereof, and accordingly the Company's Security Interest in each Receivable and the proceeds thereof will, on the date of the initial transfer under the Agreement, be perfected under Article 9 of the XYZ UCC. All filing fees and all taxes required to be paid as a condition to or upon the filing of the Debtor Financing Statement(s) in [XYZ] have been paid in full. As of the date hereof, there were no (i) UCC financing statements naming the Debtor as debtor, seller or assignor and covering any Receivables or any interest therein or (ii) notices of the filing of any federal tax lien (filed pursuant to Section 6323 of the Internal Revenue Code) or lien of the Pension Benefit Guaranty Corporation (filed pursuant to Section 4068 of the Employment Retirement Insurance Act) covering any Receivable or any interest therein. The filing of the Debtor Financing Statement(s) in the filing offices listed on Schedule II will create a first priority Security Interest in each Receivable. Such perfection and priority will continue, provided that appropriate continuation statements are timely filed where and when required under the UCC. In giving the opinions in paragraphs 10 and 11, we have assumed that (1) the Designated Sellers' and the Debtor's chief executive offices will continue to be located in [XYZ], and (2) the Designated Sellers and the Debtor have kept and will continue to keep all of their respective records concerning Receivables located only in [XYZ]. The conclusions expressed in paragraphs 10 and 11 are subject to the accuracy of the personnel in the filing offices referred to above with regard to the filing, indexing and recording of financing statements and notices of Liens, and to the correctness of reports to us by ____________, who performed the searches of such records and who made the filings on behalf of the Designated Sellers and the Debtor in XYZ. In giving the opinions set forth in paragraphs 10 and 11, we have assumed that all filings as K-7 143 appropriate in the event of a change in the name, identity or corporate structure of the debtor (or seller or assignor) named in any financing statements and all continuation statements necessary under the UCC to maintain the perfection of the Debtor's Security Interest and the Company's Security Interest in the Receivables and the proceeds thereof will be duly and timely filed. In giving such opinions, we also do not express any opinion as to (a) transactions excluded from Article 9 of the UCC by virtue of Section 9-104 of the UCC, (b) any security interest in proceeds Except to the extent that the validity and perfection of any interest in proceeds (as such term is defined under the UCC) thereof that is covered by the Designated Sellers' Financing Statements or the Debtor Financing Statements or any duly filed financing statement referred to above may be permitted by Section 9-306 of the UCC, and (c) any security interest that is terminated or released. The foregoing opinions and conclusions were given only in respect of the laws of XYZ, the Uniform Commercial Code as in effect on the date hereof in the State of New York and, to the extent specifically referred to herein, the Federal laws of the United States of America. This opinion has been delivered at your request for the purposes contemplated by the Agreement. Without our prior written consent, this opinion is not to be utilized or quoted for any other purpose and no one other than you is entitled to rely thereon; provided, that any Bank Investor, Liquidity Provider, any Credit Support Provider and any placement agent or dealer of the Company's commercial paper may rely on this opinion as of it were addressed to them. Very truly yours, K-8 144 Exhibit L [FORM OF [ASSISTANT] SECRETARY'S CERTIFICATE] I, __________________, the undersigned ___________ of (the "Company"), a ________, DO HEREBY CERTIFY that: 1. Attached hereto as Annex A is a true and complete copy of the [Operating Agreement] [Certificate of Incorporation] of the Company as in effect on the date hereof. 2. Attached hereto as Annex B is a true and complete copy of the By-laws of the Company as in effect on the date hereof. 3. Attached hereto as Annex C is a true and complete copy of the resolutions duly adopted by the [Manager] [Board of Directors] of the Company [adopted by consent] as of _________________, 199_, authorizing the execution, delivery and performance of each of the documents mentioned therein, which resolutions have not been revoked, modified, amended or rescinded and are still in full force and effect. 4. The below-named persons have been duly qualified as and at all times since ________________, 199_, to and including the date hereof have been officers or representatives of the Company holding the respective offices or positions below set opposite their names and are authorized to execute on behalf of the Company the below-mentioned Note Purchase and Security Agreement and all other Transaction Documents (as defined in such Note Purchase and Security Agreement) to which the Company is a party: Name Office [OFFICE] [OFFICE] 5. The representations and warranties of the Company contained in Section [3.1][3.2] of the Note Purchase and Security Agreement dated as of June 12, 1998 among the Company, Belk, Inc., Belk Center, Inc., Enterprise Funding Corporation, NationsBank, N.A. and L-1 145 certain financial institutions named therein are true and correct as if made on the date hereof. WITNESS my hand and seal of the Company as of this ____ day of, 1998. ------------------------- [Assistant] Secretary L-2 146 Exhibit M Form of Note June 12, 1998 $300,000,000 Reference is hereby made to that certain Note Pur chase and Security Agreement dated as of June 12, 1998 (as amended, supplemented or otherwise modified in accordance with the terms thereof and in effect from time to time, the "Note Purchase and Security Agreement") by and between Belk, Inc., a Delaware corporation (the "Issuer"), The Belk Center, Inc., Enterprise Funding Corporation, a Delaware corporation (the "Company") and NationsBank, N.A., a national banking association (the "Agent" or the "Bank Investor," as applicable). All capitalized terms used but not defined herein shall have the meanings assigned thereto in the Note Purchase and Security Agreement, as applicable. FOR VALUE RECEIVED, the Debtor hereby promises to pay to the order of the Agent, for the account of the Company or the Bank Investor at the principal office of the Agent at NationsBank Corporate Center, 100 N. Tryon Street, Charlotte, North Carolina 28255 a principal sum equal to THREE HUNDRED MILLION DOLLARS ($300,000,000), in lawful money of the United States of America and in immediately available funds. The date and amount of each Advance extended by the Company or the Bank Investor, as the case may be, to the Debtor under the Note Purchase and Security Agreement, and each payment of principal thereof, shall be recorded by the Agent, for the account of the Company, or the Bank Investor, as appropriate, on its books and, prior to any transfer of this Note (or, at the discretion of the Company, and/or the Bank Investor, as appropriate, at any other time), endorsed by the Agent, on behalf of the Company and the Bank Investor on the schedule attached hereto or any continuation thereof. Although the stated principal amount of this Note is as stated above, this Note shall be enforceable only with respect to the Debtor's obligation to pay the principal hereof only to M-1 147 the extent of the unpaid principal amount of the Advances outstanding under the Note Purchase and Security Agreement at the time such enforcement shall be sought. Interest on the outstanding principal amount of this Note shall accrue at the rate or rates necessary for the payment to the holder hereof, on the dates provided for in the Note Purchase and Security Agreement, of Carrying Costs payable to the holder hereof on such date or dates; in all events interest hereunder in an amount equal to the Interest Component of all Related Commercial Paper maturing on any day shall be due and payable on such day. Interest due and payable hereunder shall be payable in accordance with the priorities set forth in Section 2.5(a) of the Note Purchase and Security Agreement. Principal will be due and payable (i) on each Remittance Date, and such amounts shall be payable in accordance with the priorities set forth in Section 2.5(b) of the Note Purchase and Security Agreement, and (ii) at such other times as may be required pursuant to the Note Purchase and Security Agreement. On any day, an amount determined to be due and payable pursuant to Section 2.9(a) of the Note Purchase and Security Agreement shall be due and payable hereunder. The entire outstanding principal amount of this Note and accrued interest thereon will be due and payable on the date which is twelve (12) months after the Termination Date. The Debtor's obligation to make payments hereunder shall be a limited recourse obligation of the Debtor, payable solely from the Collateral. Subject to Section 8.4 of the Note Purchase and Security Agreement, the Debtor shall pay all reasonable out-of-pocket costs of collection of any amount due hereunder when incurred, including without limitation, reasonable attorney's fees and expenses, and including all reasonable out-of-pocket costs and expenses actually incurred in connection with the pursuit by the holder of any of its rights or remedies referred to herein or in the Note Purchase and Security Agreement or the protection of or realization upon collateral, and all such costs shall be payable in accordance with the Note Purchase and Security Agreement. M-2 148 The Debtor waives presentment, notice of dishonor, protest and other notice or formality with respect to this Note. M-3 149 THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. BELK, INC. By: ----------------------- Name: Title: M-4 150 Exhibit N List of Post Office Boxes Post Office Box No. 1098 Charlotte, North Carolina 28201-1099 Location: 2901 South Interstate 85 Service Road Charlotte, North Carolina 28228-9975 Post Office Box No. 1099 Charlotte, North Carolina 28201-1099 Location: 2901 South Interstate 85 Service Road Charlotte, North Carolina 28228-9975 N-1 151 Exhibit O Form of Post Office Box Agreement ______________________, 19__ NationsBank, N.A. 100 North Tryon Street Charlotte, North Carolina 28255 Attention: Michelle Heath The Belk Center, Inc. Gentlemen: We have assigned, transferred and conveyed to you all right, title and interest in and to and exclusive dominion and control of all items of mail addressed to Post Office Box[es] No[s]. ___ maintained with the United States Postal Service which Post Office Box[es] [have][has] been assigned by the United States Postal Service to the undersigned, The Belk Center, Inc. (the "Company"). We will transfer exclusive control of the Post Office Box[es] to you upon delivery by you to the United States Postal Service of the Notice of Effectiveness (as hereinafter defined), a copy of which shall be forwarded by you to us. The Company further certifies that on and after the date beginning on the day of the delivery of the Notice of Effectiveness, you, and not we, shall have all rights with respect to the Post Office Box[es] as if such Post Office Box[es] had been originally assigned by the United States Postal Service exclusively to you, and at any time on or after such date, you may take any action with respect to the Post Office Box[es] and all items of mail addressed thereto as though you were the original and exclusive assignee or otherwise directing delivery of all items of mail addressed to the Post Office Box[es]. We hereby expressly acknowledge and agree that our assignment to you hereunder is entire, absolute and exclusive and that we, after the delivery of the Notice of Effectiveness, shall have no right whatsoever to receive, remove or otherwise direct delivery of any items of mail addressed to the Post Office Box[es]. O-1 152 At all times during the effectiveness of this Agreement, we shall pay all rent, fees or other expenses relating to the the Post Office Box[es]; provided, that you may, if you so choose, pay such amounts on behalf of us. We shall notify you immediately upon receipt of any knowledge regarding the termination or potential termination of the Post Office Box[es]. The transfer of control of the Post Office Box[es], referred to in the first paragraph of this letter, shall become effective upon delivery by you to the United States Postal Service of a notice (the "Notice of Effectiveness") in substantially the form attached hereto as Annex "1". Very truly yours, THE BELK CENTER INC. By: ----------------------- Title: Acknowledged by: NationsBank, N.A. By: ---------------------------- Title: O-2 153 ANNEX 1 TO POST OFFICE BOX AGREEMENT [FORM OF NOTICE OF EFFECTIVENESS] DATED: ______________, 199_ TO: [Address of Post Office Location] Attention: Postmaster Re: Post Office Box No[s]._______ Ladies and Gentlemen: We hereby give you notice that the transfer of control of the above-referenced Post Office Box[es], as described in the letter agreement between us and The Belk Center, Inc. (a copy of which is attached hereto)dated June 12, 1998, is effective as of the date hereof. You are hereby requested to honor the terms set forth in that letter. In furtherance of the foregoing, we hereby notify you that the following persons are authorized to exercise all rights granted to NationsBank, N.A. by the above-referenced letter: Michelle Heath Stan Meihaus Brian Krum Elliot Lemon Chris Parrish Robert Wood O-3 154 Very truly yours, NATIONSBANK, N.A. By: ---------------------------------------- Title: ------------------------------------- ACKNOWLEDGED AND AGREED: THE BELK CENTER, INC. By: ------------------------- Title: ---------------------- Date: ----------------------- O-4 155 ' Exhibit P Financial Covenant Definitions "Capital Lease" means any lease of Property by a Person as lessee which, in accordance with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. "Consolidated EBITDA" means, for any period, the sum of (a) Consolidated Net Income for such period, plus (b) an amount which, in the determination of Consolidated Net Income for such period, has been deducted for (i) Interest Expense, (ii) total federal, state, local and foreign income, value-added and similar taxes and (iii) depreciation and amortization expense, all deter mined in accordance with GAAP. "Consolidated Net Income" means, for any period, net income (excluding extraordinary items) of the Consolidated Parties determined on a consolidated basis in accordance with GAAP. "Consolidated Parties" means, collectively, the Debtor and its Subsidiaries. "Fixed Charge Coverage Ratio" means, as of the end of each fiscal quarter of the Consolidated Parties, commencing January 30, 1999, for the consecutive four-quarter period ending on such date (or in the case of January 30, 1999, the consecutive three-quarter period ending on such date), the ratio of (a) the sum of (i) Consolidated EBITDA plus (ii) Rental Expense to (b) the sum of (i) Interest Expense plus (ii) Scheduled Funded Debt Payments plus (iii) Rental Expense. "Funded Debt" means, with respect to any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money; (b) all obligations of such Person for the deferred purchase price of Property or services (other than current trade payables incurred in the ordinary course of such Person's business); (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments; (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to Property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement P-1 156 in the event of default are limited to repossession or sale of such Property); (d) all Capital Lease obligations of such Person; (f) all obligations of such Person, contingent or otherwise, as an account party under acceptances, standby letters of credit or similar extensions of credit; (g) all debt of another Person of the type referred to in clauses (a)-(f) above secured by (or for which the holder of such debt has an existing right, contingent or otherwise, to be secured by) any lien on, or payable out of the proceeds of production from, Property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed; (h) all Guaranty Obligations of such Person with respect to debt of the type referred to in clauses (a)-(f) above of another Person; and (i) debt of the type referred to in clauses (a)-(f) above of any partnership or unincorporated joint venture in which such Person is a general partner or a joint venturer, all as determined on a consolidated basis in accordance with GAAP. "Guaranty Obligations" means, with respect to any Person, without duplication, any obligation of such Person (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing or intended to guarantee any indebtedness of any other Person (the "obligor") in any manner, whether directly or indirectly, and including without limitation any obligation, whether or not contingent, (a) to purchase any such indebtedness or any Property constituting direct or indirect security therefor, (b) to advance or provide funds or other support for the payment or purchase of any such indebtedness or to maintain working capital, equity capital or to otherwise maintain the net worth or solvency of the obligor, (c) to lease or purchase Property, securities or services primarily for the purpose of assuring the holder of such indebtedness of the ability of the obligor to make payment of such obligation or (d) to otherwise assure or hold harmless the holder of such indebtedness against loss in respect thereof. The amount of any Guaranty Obligation hereunder shall be deemed to be an amount equal to the outstanding principal amount (or the maximum principal amount, if larger) of the indebtedness in respect of which such Guaranty Obligation is made. "Interest Expense" means, for any period, aggregate interest expense (including (a) the P-2 157 amortization of debt discount and premium, (b) the interest component under Capital Leases, (c) those charges owed and allocated (including, without limitation, the implied interest component) to third parties with respect to accounts receivable securitizations transacted in the ordinary course of business and (d) the implied interest component under synthetic leases, off-balance sheet loans or similar off-balance sheet financing products) of the Consolidated Parties, determined on a consolidated basis in accordance with GAAP. "Leverage Ratio" means, for the consecutive three-quarter period of the Debtor ending on January 30, 1999, or for any consecutive four-quarter period of the Debtor ending on a date after January 30, 1999, the ratio of (a) Funded Debt of the Consolidated Parties on the last day of such period to (b) Consolidated EBITDA for such period. "Operating Lease" means any lease of Property by a Person which, in accordance with GAAP, would not be accounted for as a Capital Lease. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Rental Expense" means, for any period, aggregate rental expenses of the Consolidated Parties under Operating Leases with respect to leases of real or personal (or mixed) property, determined on a consolidated basis in accordance with GAAP. "Scheduled Funded Debt Payments" means, with respect to the Consolidated Parties as of the end of each fiscal quarter, commencing January 30, 1999, the sum of all scheduled payments of principal on Funded Debt for the consecutive four-quarter period ending on such date (or, in the case of January 30, 1999, the consecutive three-quarter period ending on such date)(including the principal component of payments due on Capital Leases during the applicable period), determined on a consolidated basis in accordance with GAAP. P-3 EX-10.2 3 RECEIVABLES PURCHASE AGREEMENT 6-12-98 1 EXHIBIT 10.2 ================================================================================ RECEIVABLES PURCHASE AGREEMENT among BELK-SIMPSON COMPANY, GREENVILLE, SOUTH CAROLINA, as Seller and BELK, INC., as Purchaser and THE BELK CENTER, INC. as Servicer Dated as of June 12, 1998 ================================================================================ 2 RECEIVABLES PURCHASE AGREEMENT This RECEIVABLES PURCHASE AGREEMENT, dated as of June 12, 1998 (as amended, supplemented or otherwise modified and in effect from time to time, this "Agreement"), among BELK-SIMPSON COMPANY, GREENVILLE, SOUTH CAROLINA, a South Carolina corporation, as seller (in such capacity, the "Seller"), BELK, INC., a Delaware corporation, as purchaser (in such capacity, the "Purchaser"), THE BELK CENTER, INC., a North Carolina corporation, as servicer (the "Servicer" or "Belk Center"). W I T N E S S E T H : WHEREAS, the Purchaser desires to purchase from time to time certain accounts receivable existing on the Closing Date and acquired or generated thereafter in the normal course of the Seller's business pursuant to certain revolving consumer credit card accounts; WHEREAS, the Seller desires to sell and assign from time to time such accounts receivable to the Purchaser upon the terms and conditions hereinafter set forth; WHEREAS, the Servicer has agreed to service the accounts receivable sold to the Purchaser by the Seller hereunder; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed by and among the Purchaser, the Seller and the Servicer as follows: 2 3 ARTICLE I DEFINITIONS SECTION 1.1. Definitions. All capitalized terms used herein shall have the meanings specified herein or, if not so specified, the meaning specified in, or incorporated by reference into, the Note Purchase Agreement, and shall include in the singular number the plural and in the plural number the singular: "Agent" shall mean NationsBank, N.A., as agent on behalf of Enterprise and the Bank Investors pursuant to the Note Purchase Agreement, and any successor thereto appointed pursuant to Article IX thereof. "Bank Investors" shall have the meaning specified in the Note Pledge Agreement. "Closing Date" shall mean June 12, 1998. "Eligible Receivable" shall have the meaning specified in the Note Purchase Agreement. "Enterprise" shall mean Enterprise Funding Corporation, a Delaware corporation, and its successors and assigns. "Event of Bankruptcy" shall have the meaning specified in the Note Purchase Agreement. "Note Purchase Agreement" shall mean the Note Purchase and Security Agreement, dated as of June 12, 1998, by and among the Purchaser, Belk Center, as Servicer, Enterprise Funding Corporation and NationsBank, N.A., as Agent and Bank Investor, as such agreement may be amended, modified or supplemented from time to time. "Outstanding Principal Balance" shall have the meaning specified in the Note Purchase Agreement. "Purchase Date" shall have the meaning assigned in Section 3.2(b) hereof. "Purchase Rate" shall mean 100%. "Purchase Period" shall mean, with respect to Receivables sold by the Seller to the Purchaser after the Closing Date, the Collection Period reported upon in the most recent Servicer Report. "Purchase Price" shall have the meaning set forth in Section 3.1 hereof. "Purchaser" shall mean Belk, Inc., a Delaware corporation, and its successors and assigns hereunder. 3 4 "Receivable" shall mean, for purposes of this Agreement, the indebtedness owed to the Seller by any Obligor under an Account (whether such Account is in existence as of the Cut-Off Date or thereafter created), whether constituting an account, chattel paper, instrument, investment property or general intangible, arising in connection with the sale or lease of merchandise or the rendering of services, and which in all cases shall include the right to payment of any Finance Charges and other obligations of such Obligor with respect thereto. "Related Security" means with respect to any Receivable, all of the Seller's rights, title and interest in, to and under: (i) all of the Seller's interest, if any, in the merchandise (including returned or repossessed merchandise), if any, the sale of which gave rise to such Receivable; (ii) all other security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Account related to such Receivable or otherwise, together with all financing statements signed by an Obligor describing any collateral securing such Receivable; (iii) all guarantees, indemnities, warranties, insurance (and proceeds and premium refunds thereof) or other agreements or arrangements of any kind from time to time supporting or securing payment of such Receivable whether pursuant to the Account related to such Receivable or otherwise; (iv) all Records related to such Receivable; and (v) all Proceeds of any of the foregoing. "Relevant UCC" shall mean the Uniform Commercial Code as in effect in the State of New York; provided, however, that if by reason of mandatory provisions of law, the perfection or non-perfection of a security interest in any property conveyed hereunder is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or non-perfection. "Secured Obligations" shall have the meaning set forth in Section 2.1(d) hereof. "Termination Date" shall have the meaning specified in Section 4.1. SECTION 1.2. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the Relevant UCC, and not specifically defined herein, are used herein as defined in such Article 9. 4 5 SECTION 1.3. Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." ARTICLE II PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES SECTION 2.1. Sale. (a) Upon the terms and subject to the conditions set forth herein, the Seller hereby sells, assigns, transfers and conveys to the Purchaser, and the Purchaser hereby purchases from the Seller, on the terms and subject to the conditions specifically set forth herein, all of the Seller's right, title and interest, whether now owned or hereafter acquired, in, to and under the Receivables outstanding on the Cut-Off Date and thereafter owned by the Seller, through any Termination Date applicable to the Seller (but not thereafter), together with all Related Security and Collections with respect thereto and all proceeds of the foregoing. The foregoing sale, assignment, transfer and conveyance does not constitute an assumption by the Purchaser of any obligations of the Seller or any other Person to Obligors or to any other Person in connection with the Receivables or under any Related Security, Account Agreement or other agreement and instrument relating to the Receivables. With respect to Receivables sold by the Seller on the Closing Date, such Receivables shall be deemed to be all the Receivables of the Seller that exist as of the close of business on the Cut-Off Date. With respect to Receivables sold by the Seller after the Closing Date, such Receivables shall be deemed to be all the Receivables created or acquired by the Seller after the close of business on the Cut-Off Date. (b) In connection with the foregoing sale, the Seller agrees to deliver to the Purchaser on or prior to the Closing Date, a financing statement or statements with respect to the Receivables and the other property described in Section 2.1(a) sold by the Seller hereunder meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect and protect the interests of the Purchaser created hereby under the Relevant UCC against all creditors of and purchasers from the Seller. Any expenses of the filing of such financing statements shall be borne solely by the Seller. (c) The Seller agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents and take all actions as may be necessary or as the Purchaser may reasonably request in order to perfect or protect the interest of the Purchaser in the Receivables purchased hereunder or to enable the Purchaser to exercise or enforce any of its rights hereunder. Without limiting the foregoing, the Seller will, in order to accurately reflect this purchase and sale transaction, execute and file such financing or continuation statements or amendments thereto or assignments thereof (as permitted pursuant hereto) as may be requested by the Purchaser, and upon the request of the Purchaser, mark its master data processing records and other documents with a legend describing the purchase by the Purchaser of the Receivables and the subsequent grant of a security interest therein to the Agent pursuant to the Note Pledge Agreement and stating "THE RECEIVABLES IN THESE FILES HAVE BEEN ACQUIRED BY AND 5 6 CONVEYED TO BELK, INC., AND SUCH RECEIVABLES HAVE BEEN PLEDGED BY BELK, INC. TO NATIONSBANK, N.A., AS AGENT FOR THE BENEFIT OF ENTERPRISE FUNDING CORPORATION AND THOSE CERTAIN BANK INVESTORS PURSUANT TO THE NOTE PURCHASE AND SECURITY AGREEMENT, DATED AS OF JUNE 12, 1998, AS AMENDED FROM TIME TO TIME, AMONG BELK, INC., NATIONSBANK, N.A., ENTERPRISE FUNDING CORPORATION AND THE OTHER SIGNATORIES NAMED THEREIN." The Seller shall, upon request of the Purchaser, obtain such additional search reports as the Purchaser shall request. To the fullest extent permitted by applicable law, the Purchaser shall be permitted to sign and file continuation statements and amendments thereto and assignments thereof without the Seller's signature. Carbon, photographic or other reproduction of this Agreement or any financing statement shall be sufficient as a financing statement. (d) It is the express intent of the Seller and the Purchaser that the conveyance of the Receivables by the Seller to the Purchaser pursuant to this Agreement be construed as a sale of such Receivables by the Seller to the Purchaser. Further, it is not the intention of the Seller or the Purchaser that such conveyance be deemed a grant of a security interest in the Receivables by the Seller to the Purchaser to secure a debt or other obligation of the Seller. However, in the event, that, notwithstanding the express intent of the parties, the Receivables are construed to constitute property of the Seller, then (i) this Agreement also shall be deemed to be, and hereby is, a security agreement within the meaning of the Relevant UCC; and (ii) the conveyance by the Seller provided for in this Agreement shall be deemed to be, and the Seller hereby grants to the Purchaser, a security interest in, to and under all of the Seller's right, title and interest in, to and under the Receivables outstanding on the Closing Date and thereafter owned by the Seller, together with all Related Security and Collections with respect thereto and all proceeds of the foregoing, to secure the rights of the Purchaser set forth in this Agreement or as may be determined in connection therewith by applicable law (collectively, the "Secured Obligations"). The Seller and the Purchaser shall, to the extent consistent with this Agreement, take such actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in the Receivables, such security interest would be deemed to be a perfected security interest in favor of the Purchaser under applicable law and will be maintained as such throughout the term of this Agreement. SECTION 2.2. Servicing of Receivables. The servicing, administering and collection of the Receivables shall be conducted by Belk Center, which hereby agrees to perform, take or cause to be taken all such action as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations and with the care and diligence which Belk Center employs in servicing similar receivables, in accordance with the Credit Guidelines. The Purchaser hereby appoints Belk Center as its agent to enforce the Purchaser's rights and interests in, to and under the Receivables, the Related Security and the Collections with respect thereto. Belk Center shall hold in trust for the Purchaser, in accordance with its interests, all Records which evidence or relate to the Receivables or Related Security, Collections and proceeds with respect thereto. Notwithstanding anything to the contrary 6 7 contained herein, from and after the occurrence of a Termination Event (other than a Termination Event described in Section 7.1(o) or 7.1(p) of the Note Purchase Agreement) or a Servicer Default (each as defined in the Note Purchase Agreement), the Agent or Enterprise shall have the absolute and unlimited right to terminate Belk Center's servicing activities described in this Section 2.2. In consideration of the foregoing, the Purchaser agrees to pay Belk Center a servicing fee of 2.00% per annum on the aggregate Outstanding Principal Balance of Receivables sold, payable monthly, as well as an amount equal to all late fees, returned check or NSF charges and similar charges received from Obligors with respect to Receivables, for its performance of the duties and obligations described in this Section 2.2; provided that any such monthly payment shall be reduced by any amounts payable in such month by Enterprise or the Bank Investors to Belk Center, in its capacity as Servicer pursuant to the Note Purchase Agreement. ARTICLE III CONSIDERATION AND PAYMENT; RECEIVABLES SECTION 3.1. Purchase Price. (a) The Purchase Price for the Receivables and related property conveyed on any date to the Purchaser by the Seller under this Agreement shall be a dollar amount equal to the product of the aggregate Outstanding Principal Balance of such Receivables. SECTION 3.2. Payment of Purchase Price. The Purchase Price for the Receivables sold on any date shall be paid by payment of cash in immediately available funds to the Seller. ARTICLE IV TERM AND TERMINATION SECTION 4.1. Term. This Agreement shall commence as of the date of execution and delivery hereof and shall continue in full force and effect until the date following the earlier of (i) the date designated by the Purchaser or the Seller as the termination date at any time following sixty (60) day's written notice to the other (with a copy thereof to the Agent), (ii) the close of business on the third Business Day following a conveyance of Receivables by the Seller to the Purchaser for which the Purchaser does not pay the Purchase Price in accordance with the provisions hereof, (iii) upon the occurrence of an Event of Bankruptcy with respect to the Seller, (iv) the date on which either the Purchaser or the Seller defaults on its obligations hereunder, which default continues unremedied for more than thirty (30) days after written notice, or (v) upon the occurrence of an Event of Bankruptcy with respect to the Purchaser (any such date described above, being a "Termination Date"); provided, however, that the termination of this Agreement pursuant to this Section 4.1 shall not discharge any Person from any obligations incurred prior to such termination, including, without limitation, any obligations to make any payments with respect to the interest of the Purchaser in any Receivable sold prior to such termination. 7 8 SECTION 4.2. Effect of Termination. Following the termination of this Agreement pursuant to Section 4.1, the Seller shall not sell, and the Purchaser shall not purchase, any Receivables from any the Seller. No termination or rejection or failure to assume the executory obligations of this Agreement in any Event of Bankruptcy with respect to the Seller or the Purchaser shall be deemed to impair or affect the obligations pertaining to any executed sale or executed obligations. Without limiting the foregoing, prior to termination, the failure of the Seller to deliver computer records of Receivables or any reports regarding the Receivables shall not render such transfer or obligation executory, nor shall the continued duties of the parties pursuant to Section 5.1 of this Agreement render an executed sale executory. ARTICLE V MISCELLANEOUS PROVISIONS SECTION 5.1. Amendment. This Agreement and the rights and obligations of the parties hereunder may not be changed orally, but only by an instrument in writing signed by the Purchaser and the Seller and consented to in writing by the Agent. Any reconveyance executed in accordance with the provisions hereof shall not be considered an amendment to this Agreement. SECTION 5.2. GOVERNING LAW; Submission to Jurisdiction. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (b) The parties hereto hereby submit to the nonexclusive jurisdiction of the United States District Court for the Western District of North Carolina and of any North Carolina state court sitting in Mecklenburg County for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Each party hereto hereby irrevocably waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Nothing in this Section 5.2 shall affect the right of the Purchaser to bring any other action or proceeding against the Seller or its property in the courts of other jurisdictions. SECTION 5.3. Notices. Except as provided below, all communications and notices provided for hereunder shall be in writing (including telecopy or electronic facsimile transmission or similar writing) and shall be given to the other party at its address or telecopy number set forth below or at such other address or telecopy number as such party may hereafter specify for the purposes of notice to such party. Each such notice or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section 5.3 and confirmation is received, (ii) if given by mail three Business Days following such posting, postage prepaid, U.S. certified or registered, (iii) if given by overnight courier, one 8 9 Business Day after deposit thereof with a national overnight courier service, or (iv) if given by any other means, when received at the address specified in this Section 5.3. If to the Purchaser: Belk, Inc. 2801 West Tyvola Road Charlotte, North Carolina 28217 Telephone: (704) 357-1064, ext: 4273 Telecopy: (704) 357-0711 Attn: Terry L. Scott with a copy to: NationsBank, N.A. NationsBank Corporate Center 100 North Tryon Street NC1-007-10-07 Charlotte, NC 28255 Attention: Michelle M. Heath, Structured Finance Telephone: (704) 386-7922 Telecopy: (704) 388-9169 If to the Seller: Belk-Simpson, Company, Greenville, South Carolina c/o Belk Stores Services, Inc. 2801 West Tyvola Road Charlotte, North Carolina 28217 Telephone: (704) 357-1064, ext: 4273 Telecopy: (704) 357-0711 Attn: Terry L. Scott If to the Servicer: The Belk Center, Inc. 2801 West Tyvola Road Charlotte, North Carolina 28217 Telephone: (704) 357-1064, extension 7000 Telecopy: (704) 357-1861 Attn: Oakley Orser or, as to each party, at such other address as shall be designated by such party in a written notice to each other party. 9 10 SECTION 5.4. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions, or terms shall be deemed severable from the remaining covenants, agreements, provisions, or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement. SECTION 5.5. Assignment. This Agreement may not be assigned by the parties hereto, except that the Purchaser may assign its rights hereunder pursuant to the Note Purchase Agreement to the Agent, for the benefit of Enterprise and the Bank Investors, and that Enterprise may assign any or all of its rights to any Liquidity Provider and may grant a security interest in its rights hereunder to the Collateral Agent. The Purchaser hereby notifies the Seller that (and the Seller hereby acknowledges that), pursuant to the Note Purchase Agreement, the Purchaser has assigned its rights hereunder to the Agent, for the benefit of Enterprise and the Bank Investors. SECTION 5.6. Further Assurances. The Purchaser and the Seller agree to do and perform, from time to time, any and all acts and to execute any and all further instruments required, or reasonably requested by the other party, more fully to effect the purposes of this Agreement, including, without limitation, the execution of any financing statements or continuation statements or equivalent documents relating to the Receivables for filing under the provisions of the Relevant UCC or other laws of any applicable jurisdiction. SECTION 5.7. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Purchaser, the Seller or the Agent, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privilege provided by law. SECTION 5.8. Counterparts. This Agreement may be executed in two or more counterparts including telecopy transmission thereof (and by different parties on separate counterparts) , each of which shall be an original, but all of which together shall constitute one and the same instrument. SECTION 5.9. Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. The Agent, on behalf of Enterprise and the Bank Investors, is an intended third-party beneficiary of the Seller's obligations hereunder. SECTION 5.10. Merger and Integration. Except as specifically stated otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement. This Agreement may not be modified, amended, waived or supplemented except as provided herein. SECTION 5.11. Headings. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. 10 11 IN WITNESS WHEREOF, the Purchaser, the Seller and the Servicer each have caused this Receivables Purchase Agreement to be duly executed by their respective officers as of the day and year first above written. BELK-SIMPSON COMPANY, GREENVILLE, SOUTH CAROLINA., as the Seller By: /s/ John M. Belk ----------------------------------- Name: John M. Belk Title: Chairman BELK, INC., as Purchaser By: /s/ John M. Belk ----------------------------------- Name: John M. Belk Title: Chairman THE BELK CENTER, INC., as Servicer By: /s/ James M. Berry ----------------------------------- Name: James M. Berry Title: Vice President 11 EX-10.3 4 AMENDMENT #1/NOTE PURCHASE & SECURITY AGREEMENT 1 EXHIBIT 10.3 AMENDMENT NO. 1 TO NOTE PURCHASE AND SECURITY AGREEMENT THIS AMENDMENT AGREEMENT is made and entered into as of the 30th day of January, 1999 (the "Effective Date"), by and among BELK, INC., a Delaware corporation (the "Debtor"); THE BELK CENTER, INC., a North Carolina corporation, as servicer (the "Servicer"); ENTERPRISE FUNDING CORPORATION, a Delaware corporation (the "Company"); and NATIONSBANK, N.A., a national banking association ("NationsBank"), as agent for the Company and the Bank Investors (in such capacity, the "Agent") and as a Bank Investor. W I T N E S S E T H: WHEREAS, the Debtor, the Servicer, the Company, and NationsBank, as Agent and as a Bank Investor have entered into the Note Purchase and Security Agreement dated as of June 12, 1998 (as amended, the "Note Purchase Agreement"); and WHEREAS, Belk Stores of Virginia LLC, a North Carolina limited liability company ("Belk Stores of Virginia"), is a Subsidiary of Belk and will generate Receivables; and WHEREAS, on the date hereof, Belk Stores of Virginia is executing a Receivables Purchase Agreement; and WHEREAS, the parties wish to amend the Note Purchase Agreement in the manner herein set forth effective as of the date hereof; NOW, THEREFORE, in consideration of the mutual covenants contained herein and in consideration of the execution by Belk Stores of Virginia of a Receivables Purchase Agreement, the parties do hereby agree as follows: 1. Definitions. Unless the context otherwise requires, all terms used herein without definition shall have the definition provided therefor in the Note Purchase Agreement. 2. Amendments to Note Purchase Agreement. The Note Purchase Agreement is hereby amended, effective as of the Effective Date, as follows: (a) The following definition of "Belk Virginia" is added to Section 1.1 of the Note Purchase Agreement in the proper alphabetical order: "'Belk Virginia' means Belk Stores of Virginia LLC. (b) The definition of "Designated Seller" in Section 1.1 of the Note Purchase Agreement is hereby deleted and replaced by the following definition of "Designated Sellers": 2 "'Designated Sellers' means, collectively, Belk Simpson and Belk Virginia." (c) The definition of "Receivables Purchase Agreement" in Section 1.1 of the Note Purchase Agreement is hereby amended in its entirety so that as amended it reads as follows: "Receivables Purchase Agreement" means, collectively, (a) the Receivables Purchase Agreement, dated as of June 12, 1998, by and between Belk, Inc., as purchaser, Belk Simpson, as seller, and The Belk Center, Inc., as servicer; and (b) the Receivables Purchase Agreement, dated as of January 30, 1999, by and between Belk, Inc., as purchaser, Belk Virginia, as seller, and The Belk Center, Inc., as servicer. 3. Entire Agreement. This Amendment Agreement sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, conditions, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and no one of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as in this Amendment Agreement otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any other party to the other. None of the terms or conditions of this Amendment Agreement may be changed, modified, waived or canceled orally or otherwise, except by writing in accordance with the terms of the Note Purchase Agreement, specifying such change, modification, waiver or cancellation of such terms or conditions, or of any proceeding or succeeding breach thereof. 4. Full Force and Effect of Transaction Documents. Except as hereby specifically amended, modified or supplemented, the Note Purchase Agreement and all of the other Transaction Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms. 5. Counterparts. This Amendment Agreement may be executed in one or more counterparts each of which shall be an original but all of which together shall constitute one and the same instrument. [Remainder of page intentionally left blank] 2 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. BELK, INC. By: /s/ John M. Belk ------------------------------------ Name: John M. Belk Title: Chairman THE BELK CENTER, INC., as Servicer By: /s/ James M. Berry ------------------------------------ Name: James M. Berry Title: Vice President ENTERPRISE FUNDING COMPANY By: /s/ Kevin P. Burns ------------------------------------ Name: Kevin P. Burns Title: Chairman NATIONSBANK, N.A., as a Bank Investor By: /s/ Elliott T. Lemon ------------------------------------ Name: Elliott T. Lemon Title: Vice President NATIONSBANK, N.A., as Agent By: /s/ Elliott T. Lemon ------------------------------------ Name: Elliott T. Lemon Title: Vice President SIGNATURE PAGE 1 EX-10.4 5 RECEIVABLE PURCHASE AGREEMENT 1-30-99 1 EXHIBIT 10.4 ================================================================================ RECEIVABLES PURCHASE AGREEMENT among BELK STORES OF VIRGINIA LLC, as Seller and BELK, INC., as Purchaser and THE BELK CENTER, INC. as Servicer Dated as of January 30, 1999 ================================================================================ 2 RECEIVABLES PURCHASE AGREEMENT This RECEIVABLES PURCHASE AGREEMENT, dated as of January 30, 1999 (as amended, supplemented or otherwise modified and in effect from time to time, this "Agreement"), among BELK STORES OF VIRGINIA LLC, a North Carolina limited liability company, as seller (in such capacity, the "Seller"), BELK, INC., a Delaware corporation, as purchaser (in such capacity, the "Purchaser"), THE BELK CENTER, INC., a North Carolina corporation, as servicer (the "Servicer" or "Belk Center"). W I T N E S S E T H : WHEREAS, the Purchaser desires to purchase from time to time certain accounts receivable existing on the Closing Date and acquired or generated thereafter in the normal course of the Seller's business pursuant to certain revolving consumer credit card accounts; WHEREAS, the Seller desires to sell and assign from time to time such accounts receivable to the Purchaser upon the terms and conditions hereinafter set forth; WHEREAS, the Servicer has agreed to service the accounts receivable sold to the Purchaser by the Seller hereunder; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed by and among the Purchaser, the Seller and the Servicer as follows: 2 3 ARTICLE I DEFINITIONS SECTION 1.1. Definitions. All capitalized terms used herein shall have the meanings specified herein or, if not so specified, the meaning specified in, or incorporated by reference into, the Note Purchase Agreement, and shall include in the singular number the plural and in the plural number the singular: "Agent" shall mean NationsBank, N.A., as agent on behalf of Enterprise and the Bank Investors pursuant to the Note Purchase Agreement, and any successor thereto appointed pursuant to Article IX thereof. "Bank Investors" shall have the meaning specified in the Note Pledge Agreement. "Closing Date" shall mean January 30, 1999. "Eligible Receivable" shall have the meaning specified in the Note Purchase Agreement. "Enterprise" shall mean Enterprise Funding Corporation, a Delaware corporation, and its successors and assigns. "Event of Bankruptcy" shall have the meaning specified in the Note Purchase Agreement. "Note Purchase Agreement" shall mean the Note Purchase and Security Agreement, dated as of June 12, 1998, by and among the Purchaser, Belk Center, as Servicer, Enterprise Funding Corporation and NationsBank, N.A., as Agent and Bank Investor, as such agreement has been amended by the Amendment No. 1 to Note Purchase and Security Agreement dated as of the date hereof, and as such agreement may be further amended, modified or supplemented from time to time. "Outstanding Principal Balance" shall have the meaning specified in the Note Purchase Agreement. "Purchase Date" shall have the meaning assigned in Section 3.2(b) hereof. "Purchase Rate" shall mean 100%. "Purchase Period" shall mean, with respect to Receivables sold by the Seller to the Purchaser after the Closing Date, the Collection Period reported upon in the most recent Servicer Report. "Purchase Price" shall have the meaning set forth in Section 3.1 hereof. 3 4 "Purchaser" shall mean Belk, Inc., a Delaware corporation, and its successors and assigns hereunder. "Receivable" shall mean, for purposes of this Agreement, the indebtedness owed to the Seller by any Obligor under an Account (whether such Account is in existence as of the Cut-Off Date or thereafter created), whether constituting an account, chattel paper, instrument, investment property or general intangible, arising in connection with the sale or lease of merchandise or the rendering of services, and which in all cases shall include the right to payment of any Finance Charges and other obligations of such Obligor with respect thereto. "Related Security" means with respect to any Receivable, all of the Seller's rights, title and interest in, to and under: (i) all of the Seller's interest, if any, in the merchandise (including returned or repossessed merchandise), if any, the sale of which gave rise to such Receivable; (ii) all other security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Account related to such Receivable or otherwise, together with all financing statements signed by an Obligor describing any collateral securing such Receivable; (iii) all guarantees, indemnities, warranties, insurance (and proceeds and premium refunds thereof) or other agreements or arrangements of any kind from time to time supporting or securing payment of such Receivable whether pursuant to the Account related to such Receivable or otherwise; (iv) all Records related to such Receivable; and (v) all Proceeds of any of the foregoing. "Relevant UCC" shall mean the Uniform Commercial Code as in effect in the State of New York; provided, however, that if by reason of mandatory provisions of law, the perfection or non-perfection of a security interest in any property conveyed hereunder is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or non-perfection. "Secured Obligations" shall have the meaning set forth in Section 2.1(d) hereof. "Termination Date" shall have the meaning specified in Section 4.1. SECTION 1.2. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 4 5 9 of the Relevant UCC, and not specifically defined herein, are used herein as defined in such Article 9. SECTION 1.3. Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." ARTICLE II PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES SECTION 2.1. Sale. (a) Upon the terms and subject to the conditions set forth herein, the Seller hereby sells, assigns, transfers and conveys to the Purchaser, and the Purchaser hereby purchases from the Seller, on the terms and subject to the conditions specifically set forth herein, all of the Seller's right, title and interest, whether now owned or hereafter acquired, in, to and under the Receivables outstanding on the Closing Date and thereafter owned by the Seller, through any Termination Date applicable to the Seller (but not thereafter), together with all Related Security and Collections with respect thereto and all proceeds of the foregoing. The foregoing sale, assignment, transfer and conveyance does not constitute an assumption by the Purchaser of any obligations of the Seller or any other Person to Obligors or to any other Person in connection with the Receivables or under any Related Security, Account Agreement or other agreement and instrument relating to the Receivables. With respect to Receivables sold by the Seller on the Closing Date, such Receivables shall be deemed to be all the Receivables of the Seller that exist as of the close of business on the Closing Date. With respect to Receivables sold by the Seller after the Closing Date, such Receivables shall be deemed to be all the Receivables created or acquired by the Seller after the close of business on the Closing Date. (b) In connection with the foregoing sale, the Seller agrees to deliver to the Purchaser on or prior to the Closing Date, a financing statement or statements with respect to the Receivables and the other property described in Section 2.1(a) sold by the Seller hereunder meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect and protect the interests of the Purchaser created hereby under the Relevant UCC against all creditors of and purchasers from the Seller. Any expenses of the filing of such financing statements shall be borne solely by the Seller. (c) The Seller agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents and take all actions as may be necessary or as the Purchaser may reasonably request in order to perfect or protect the interest of the Purchaser in the Receivables purchased hereunder or to enable the Purchaser to exercise or enforce any of its rights hereunder. Without limiting the foregoing, the Seller will, in order to accurately reflect this purchase and sale transaction, execute and file such financing or continuation statements or amendments thereto or assignments thereof (as permitted pursuant hereto) as may be requested by the Purchaser, and upon the request of the Purchaser, mark its master data processing records and other documents with a legend describing the purchase by the Purchaser of the Receivables and the subsequent grant of a 5 6 security interest therein to the Agent pursuant to the Note Pledge Agreement and stating "THE RECEIVABLES IN THESE FILES HAVE BEEN ACQUIRED BY AND CONVEYED TO BELK, INC., AND SUCH RECEIVABLES HAVE BEEN PLEDGED BY BELK, INC. TO NATIONSBANK, N.A., AS AGENT FOR THE BENEFIT OF ENTERPRISE FUNDING CORPORATION AND THOSE CERTAIN BANK INVESTORS PURSUANT TO THE NOTE PURCHASE AND SECURITY AGREEMENT, DATED AS OF JUNE 12, 1998, AS AMENDED FROM TIME TO TIME, AMONG BELK, INC., NATIONSBANK, N.A., ENTERPRISE FUNDING CORPORATION AND THE OTHER SIGNATORIES NAMED THEREIN." The Seller shall, upon request of the Purchaser, obtain such additional search reports as the Purchaser shall request. To the fullest extent permitted by applicable law, the Purchaser shall be permitted to sign and file continuation statements and amendments thereto and assignments thereof without the Seller's signature. Carbon, photographic or other reproduction of this Agreement or any financing statement shall be sufficient as a financing statement. (d) It is the express intent of the Seller and the Purchaser that the conveyance of the Receivables by the Seller to the Purchaser pursuant to this Agreement be construed as a sale of such Receivables by the Seller to the Purchaser. Further, it is not the intention of the Seller or the Purchaser that such conveyance be deemed a grant of a security interest in the Receivables by the Seller to the Purchaser to secure a debt or other obligation of the Seller. However, in the event, that, notwithstanding the express intent of the parties, the Receivables are construed to constitute property of the Seller, then (i) this Agreement also shall be deemed to be, and hereby is, a security agreement within the meaning of the Relevant UCC; and (ii) the conveyance by the Seller provided for in this Agreement shall be deemed to be, and the Seller hereby grants to the Purchaser, a security interest in, to and under all of the Seller's right, title and interest in, to and under the Receivables outstanding on the Closing Date and thereafter owned by the Seller, together with all Related Security and Collections with respect thereto and all proceeds of the foregoing, to secure the rights of the Purchaser set forth in this Agreement or as may be determined in connection therewith by applicable law (collectively, the "Secured Obligations"). The Seller and the Purchaser shall, to the extent consistent with this Agreement, take such actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in the Receivables, such security interest would be deemed to be a perfected security interest in favor of the Purchaser under applicable law and will be maintained as such throughout the term of this Agreement. SECTION 2.2. Servicing of Receivables. The servicing, administering and collection of the Receivables shall be conducted by Belk Center, which hereby agrees to perform, take or cause to be taken all such action as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations and with the care and diligence which Belk Center employs in servicing similar receivables, in accordance with the Credit Guidelines. The Purchaser hereby appoints Belk Center as its agent to enforce the Purchaser's rights and interests in, to and under the Receivables, the Related Security and the Collections with respect thereto. Belk Center shall hold in trust for the Purchaser, in accordance 6 7 with its interests, all Records which evidence or relate to the Receivables or Related Security, Collections and proceeds with respect thereto. Notwithstanding anything to the contrary contained herein, from and after the occurrence of a Termination Event (other than a Termination Event described in Section 7.1(o) or 7.1(p) of the Note Purchase Agreement) or a Servicer Default (each as defined in the Note Purchase Agreement), the Agent or Enterprise shall have the absolute and unlimited right to terminate Belk Center's servicing activities described in this Section 2.2. In consideration of the foregoing, the Purchaser agrees to pay Belk Center a servicing fee of 2.00% per annum on the aggregate Outstanding Principal Balance of Receivables sold, payable monthly, as well as an amount equal to all late fees, returned check or NSF charges and similar charges received from Obligors with respect to Receivables, for its performance of the duties and obligations described in this Section 2.2; provided that any such monthly payment shall be reduced by any amounts payable in such month by Enterprise or the Bank Investors to Belk Center, in its capacity as Servicer pursuant to the Note Purchase Agreement. ARTICLE III CONSIDERATION AND PAYMENT; RECEIVABLES SECTION 3.1. Purchase Price. (a) The Purchase Price for the Receivables and related property conveyed on any date to the Purchaser by the Seller under this Agreement shall be a dollar amount equal to the product of the aggregate Outstanding Principal Balance of such Receivables. SECTION 3.2. Payment of Purchase Price. The Purchase Price for the Receivables sold on any date shall be paid by payment of cash in immediately available funds to the Seller. ARTICLE IV TERM AND TERMINATION SECTION 4.1. Term. This Agreement shall commence as of the date of execution and delivery hereof and shall continue in full force and effect until the date following the earlier of (i) the date designated by the Purchaser or the Seller as the termination date at any time following sixty (60) day's written notice to the other (with a copy thereof to the Agent), (ii) the close of business on the third Business Day following a conveyance of Receivables by the Seller to the Purchaser for which the Purchaser does not pay the Purchase Price in accordance with the provisions hereof, (iii) upon the occurrence of an Event of Bankruptcy with respect to the Seller, (iv) the date on which either the Purchaser or the Seller defaults on its obligations hereunder, which default continues unremedied for more than thirty (30) days after written notice, or (v) upon the occurrence of an Event of Bankruptcy with respect to the Purchaser (any such date described above, being a "Termination Date") ; provided, however, that the termination of this Agreement pursuant to this Section 4.1 shall not discharge any Person from any obligations incurred prior to such termination, including, without limitation, any obligations to make any 7 8 payments with respect to the interest of the Purchaser in any Receivable sold prior to such termination. SECTION 4.2. Effect of Termination. Following the termination of this Agreement pursuant to Section 4.1, the Seller shall not sell, and the Purchaser shall not purchase, any Receivables from any the Seller. No termination or rejection or failure to assume the executory obligations of this Agreement in any Event of Bankruptcy with respect to the Seller or the Purchaser shall be deemed to impair or affect the obligations pertaining to any executed sale or executed obligations. Without limiting the foregoing, prior to termination, the failure of the Seller to deliver computer records of Receivables or any reports regarding the Receivables shall not render such transfer or obligation executory, nor shall the continued duties of the parties pursuant to Section 5.1 of this Agreement render an executed sale executory. ARTICLE V MISCELLANEOUS PROVISIONS SECTION 5.1. Amendment. This Agreement and the rights and obligations of the parties hereunder may not be changed orally, but only by an instrument in writing signed by the Purchaser and the Seller and consented to in writing by the Agent. Any reconveyance executed in accordance with the provisions hereof shall not be considered an amendment to this Agreement. SECTION 5.2. GOVERNING LAW; Submission to Jurisdiction. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (b) The parties hereto hereby submit to the nonexclusive jurisdiction of the United States District Court for the Western District of North Carolina and of any North Carolina state court sitting in Mecklenburg County for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Each party hereto hereby irrevocably waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Nothing in this Section 5.2 shall affect the right of the Purchaser to bring any other action or proceeding against the Seller or its property in the courts of other jurisdictions. SECTION 5.3. Notices. Except as provided below, all communications and notices provided for hereunder shall be in writing (including telecopy or electronic facsimile transmission or similar writing) and shall be given to the other party at its address or telecopy number set forth below or at such other address or telecopy number as such party may hereafter specify for the purposes of notice to such party. Each such notice or other communication shall be effective (i) if 8 9 given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section 5.3 and confirmation is received, (ii) if given by mail three Business Days following such posting, postage prepaid, U.S. certified or registered, (iii) if given by overnight courier, one Business Day after deposit thereof with a national overnight courier service, or (iv) if given by any other means, when received at the address specified in this Section 5.3. If to the Purchaser: Belk, Inc. 2801 West Tyvola Road Charlotte, North Carolina 28217 Telephone: (704) 357-1064, ext: 4273 Telecopy: (704) 357-0711 Attn: Terry L. Scott with a copy to: NationsBank, N.A. NationsBank Corporate Center 100 North Tryon Street NC1-007-10-07 Charlotte, NC 28255 Attention: Michelle M. Heath, Structured Finance Telephone: (704) 386-7922 Telecopy: (704) 388-9169 If to the Seller: Belk Stores of Virginia LLC c/o Belk Stores Services, Inc. 2801 West Tyvola Road Charlotte, North Carolina 28217 Telephone: (704) 357-1064, ext: 4273 Telecopy: (704) 357-0711 Attn: Terry L. Scott If to the Servicer: The Belk Center, Inc. 2801 West Tyvola Road Charlotte, North Carolina 28217 Telephone: (704) 357-1064, extension 7000 Telecopy: (704) 357-1861 Attn: Oakley Orser 9 10 or, as to each party, at such other address as shall be designated by such party in a written notice to each other party. SECTION 5.4. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions, or terms shall be deemed severable from the remaining covenants, agreements, provisions, or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement. SECTION 5.5. Assignment. This Agreement may not be assigned by the parties hereto, except that the Purchaser may assign its rights hereunder pursuant to the Note Purchase Agreement to the Agent, for the benefit of Enterprise and the Bank Investors, and that Enterprise may assign any or all of its rights to any Liquidity Provider and may grant a security interest in its rights hereunder to the Collateral Agent. The Purchaser hereby notifies the Seller that (and the Seller hereby acknowledges that), pursuant to the Note Purchase Agreement, the Purchaser has assigned its rights hereunder to the Agent, for the benefit of Enterprise and the Bank Investors. SECTION 5.6. Further Assurances. The Purchaser and the Seller agree to do and perform, from time to time, any and all acts and to execute any and all further instruments required, or reasonably requested by the other party, more fully to effect the purposes of this Agreement, including, without limitation, the execution of any financing statements or continuation statements or equivalent documents relating to the Receivables for filing under the provisions of the Relevant UCC or other laws of any applicable jurisdiction. SECTION 5.7. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Purchaser, the Seller or the Agent, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privilege provided by law. SECTION 5.8. Counterparts. This Agreement may be executed in two or more counterparts including telecopy transmission thereof (and by different parties on separate counterparts) , each of which shall be an original, but all of which together shall constitute one and the same instrument. SECTION 5.9. Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. The Agent, on behalf of Enterprise and the Bank Investors, is an intended third-party beneficiary of the Seller's obligations hereunder. SECTION 5.10. Merger and Integration. Except as specifically stated otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter 10 11 hereof, and all prior understandings, written or oral, are superseded by this Agreement. This Agreement may not be modified, amended, waived or supplemented except as provided herein. SECTION 5.11. Headings. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. 11 12 IN WITNESS WHEREOF, the Purchaser, the Seller and the Servicer each have caused this Receivables Purchase Agreement to be duly executed by their respective officers as of the day and year first above written. BELK STORES OF VIRGINIA LLC, as the Seller By: /s/ John M. Belk ----------------------------------- Name: John M. Belk Title: Manager BELK, INC., as Purchaser By: /s/ John M. Belk ----------------------------------- Name: John M. Belk Title: Chairman THE BELK CENTER, INC., as Servicer By: /s/ James M. Berry ----------------------------------- Name: James M. Berry Title: Vice President SIGNATURE PAGE 1 EX-10.5 6 AMENDMENT #2/NOTE PURCHASE & SECURITY AGREEMENT 1 EXHIBIT 10.5 AMENDMENT NO. 2 TO NOTE PURCHASE AND SECURITY AGREEMENT AMENDMENT NO. 2 TO NOTE PURCHASE AND SECURITY AGREEMENT (this "Amendment"), dated as of April 28, 1999, among BELK, INC., a Delaware corporation (the "Debtor"), THE BELK CENTER, INC., a North Carolina corporation, as servicer (the "Servicer"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation (the "Company") and NATIONSBANK, N.A., a national banking association ("NationsBank"), as agent for the Company and the Bank Investors (in such capacity, the "Agent"), amending that certain Note Purchase and Security Agreement, dated as of June 12, 1998, among the Debtor, the Servicer, the Company, the Agent and NationsBank, as a Bank Investor (the "Agreement"). WHEREAS, on the terms and conditions set forth herein, the parties to the Agreement wish to amend the Agreement as provided herein. NOW, THEREFORE, the parties hereby agree as follows: SECTION 1. Defined Terms. As used in this Amendment capitalized terms have the same meanings assigned thereto in the Agreement. SECTION 2. Amendment of Certain Definition. In Section 1.1 of the Agreement, the definition of "Commitment Termination Date" shall be amended such that the reference to "June 11, 1999" shall be amended to read "April 27, 2000". SECTION 3. Representations and Warranties. (a) The Debtor hereby makes to the Agent, the Company and the Bank Investors, on and as of the date hereof, all of the representations and warranties set forth in Section 3.1 of the Agreement, except that to the extent that any of such representations and warranties expressly relate to an earlier date, such representations and warranties shall be true and correct as of such earlier date. (b) The Servicer hereby makes to the Agent, the Company and the Bank Investors, on and as of the date hereof, all of the representations and warranties set forth in Section 3.2 of the Agreement, except that to the extent that any of such representations and warranties expressly relate to an earlier date, such representations 2 and warranties shall be true and correct as of such earlier date. SECTION 4. Effectiveness. This Amendment shall become effective on the later of (i) the first day on or after which it is executed by all the parties hereto, and (ii) April 28, 1999. SECTION 5. Costs and Expenses. The Debtor shall pay all of the Company's and the Agent's cost and expenses (including out of pocket expenses and reasonable attorneys fees and disbursements) incurred by them in connection with the preparation, execution and delivery of this Amendment. SECTION 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 7. Severability; Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same instrument. Any provisions of this Amendment which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 8. Captions. The captions in this Amendment are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. SECTION 9. Ratification. Except as expressly affected by the provisions hereof, the Agreement as amended shall remain in full force and effect in accordance with its terms and ratified and confirmed by the parties hereto. On and after the date hereof, each reference in the Agreement to "this Agreement", "hereunder", "herein" or words of like import shall mean and be a reference to the Agreement as amended by this Amendment. 3 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first written above. ENTERPRISE FUNDING CORPORATION, as Company By: /s/ KEVIN P. BURNS --------------------------------- Name: Kevin P. Burns Title: Vice President BELK, INC., as Debtor By: /s/ JOHN M. BELK --------------------------------- Name: John M. Belk Title: Chairman and CEO THE BELK CENTER, INC., as Servicer By: /s/ JAMES M. BERRY --------------------------------- Name: James M. Berry Title: Vice President NATIONSBANK, N.A., as Agent and a Bank Investor By: /s/ ELLIOTT T. LEMON --------------------------------- Name: Elliott T. Lemon Title: Vice President EX-10.6 7 LETTER OF CREDIT & REIMBURSEMENT AGREEMENT 1 EXHIBIT 10.6 [EXECUTION COPY] ================================================================================ LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT BY AND BETWEEN BELK, INC. AND FIRST UNION NATIONAL BANK DATED AS OF JULY 1, 1998 ================================================================================ 2 TABLE OF CONTENTS (This Table of Contents is not a part of the Agreement but rather is for convenience of reference only.)
Page ---- ARTICLE I DEFINITIONS............................................................................................1 1.1 Definitions.....................................................................................1 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE BORROWER........................................................8 2.1 Incorporation...................................................................................8 2.2 Power and Authority.............................................................................8 2.3 Financial Condition.............................................................................8 2.4 Title to Assets.................................................................................9 2.5 Contingent Liabilities..........................................................................9 2.6 Litigation......................................................................................9 2.7 Taxes...........................................................................................9 2.8 Contract or Restriction.........................................................................9 2.9 Trademarks, Franchises and Licenses.............................................................9 2.10 No Default.....................................................................................10 2.11 Governmental Authority.........................................................................10 2.12 No Untrue Statements...........................................................................10 2.13 ERISA Requirements.............................................................................10 2.14 Pollution and Environmental Control; Hazardous Substances......................................10 ARTICLE III REIMBURSEMENT AND OTHER PAYMENTS....................................................................10 3.1 Letter of Credit...............................................................................10 3.2 Reimbursement and Other Payments...............................................................11 3.3 Tender Advances................................................................................11 3.4 Commission and Fees............................................................................12 3.5 Increased Costs Due to Change in Law...........................................................13 3.6 Computation....................................................................................13 3.7 Payment Procedure..............................................................................13 3.8 Business Days..................................................................................13 3.9 Extension of Expiration Date...................................................................13 3.10 Obligations Absolute...........................................................................14 ARTICLE IV [RESERVED]...........................................................................................14 ARTICLE V AFFIRMATIVE COVENANTS.................................................................................14 5.1 Repayment of Obligations.......................................................................14
3 5.2 Performance Under Reimbursement Agreement......................................................15 5.3 Financial and Business Information about the Borrower..........................................15 5.4 Notice of Certain Events.......................................................................16 5.5 Corporate Existence............................................................................17 5.6 Payment of Indebtedness; Performance of Other Obligations......................................17 5.7 Maintenance of Books and Records; Inspection...................................................17 5.8 Comply with ERISA..............................................................................17 5.9 Maintenance of Properties; Conduct of Business.................................................18 5.10 Insurance......................................................................................18 5.11 Observe all Laws...............................................................................18 5.12 Year 2000......................................................................................18 5.13 Subsidiary Guaranties..........................................................................18 ARTICLE VI NEGATIVE COVENANTS...................................................................................19 6.1 Merger and Dissolution; Sale of Assets.........................................................19 6.2 Acquisitions...................................................................................19 6.3 Indebtedness...................................................................................19 6.4 Liens and Encumbrances.........................................................................20 6.5 Transactions With Related Persons..............................................................20 6.6 Sale and Leaseback.............................................................................20 6.7 New Business...................................................................................20 6.8 Subsidiaries...................................................................................20 6.9 Guaranties.....................................................................................21 6.10 Restrictive Transactions.......................................................................21 6.11 Hazardous Wastes...............................................................................21 6.12 Fiscal Year....................................................................................21 6.13 Amendments.....................................................................................21 6.14 Leverage Ratio.................................................................................21 6.15 Fixed Charge Coverage Ratio....................................................................21 6.16 Net Worth......................................................................................22 ARTICLE VII CONDITIONS TO ISSUANCE OF LETTER OF CREDIT..........................................................22 7.1 Conditions to Issuance.........................................................................22 7.2 Additional Conditions Precedent to Issuance of the Letter of Credit............................23 7.3 Conditions Precedent to Each Tender Advance....................................................23 ARTICLE VIII DEFAULT............................................................................................24 8.1 Events of Default..............................................................................24 8.2 No Remedy Exclusive............................................................................26 ARTICLE IX PLEDGED BONDS........................................................................................26 9.1 The Pledge.....................................................................................26 9.2 Remedies Upon Default..........................................................................27 9.3 Valid Perfected First Lien.....................................................................27
ii 4 9.4 Release of Pledged Bonds.......................................................................28 ARTICLE X MISCELLANEOUS.........................................................................................28 10.1 Indemnification................................................................................28 10.2 Transfer of Letter of Credit...................................................................29 10.3 Reduction of Letter of Credit..................................................................29 10.4 Liability of the Bank..........................................................................29 10.5 Successors and Assigns.........................................................................30 10.6 Notices........................................................................................30 10.7 Amendment......................................................................................30 10.8 Effect of Delay and Waivers....................................................................30 10.9 Counterparts...................................................................................31 10.10 Severability...................................................................................31 10.11 Payment of Expenses............................................................................31 10.12 Set Off........................................................................................31 10.13 Governing Law..................................................................................31 10.14 References.....................................................................................31 10.15 Taxes, Etc.....................................................................................32 10.16 Consent to Jurisdiction........................................................................32 10.17 Indirect Means.................................................................................32 Exhibit A - Irrevocable Letter of Credit........................................................................A-1 Exhibit B - List of Subsidiaries................................................................................B-1 Exhibit C - Form of Borrower's Counsel Opinion..................................................................C-1 Exhibit D - Form of Bond Counsel Reliance Letter................................................................D-1
iii 5 THIS LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT, dated as of July 1, 1998 (the "Agreement" or "Reimbursement Agreement"), is by and between BELK, INC., a Delaware corporation (the "Borrower") and FIRST UNION NATIONAL BANK, a national banking association organized and existing under the laws of the United States with its principal offices located in Charlotte, North Carolina (the "Bank"); W I T N E S S E T H: WHEREAS, arrangements have been made pursuant to a Trust Indenture dated as of July 1, 1998, between Borrower and First Union National Bank, as Trustee (in such capacity, the "Trustee") (as amended, the "Indenture") for the issuance and sale by the Borrower of its Taxable Variable Rate Demand Revenue Bonds, Series 1998 in the original aggregate principal amount of up to $125,000,000 (the "Bonds"); and WHEREAS, in order to enhance the marketability of the Bonds, the Borrower has requested that the Bank issue an irrevocable direct-pay letter of credit in the form attached hereto as Exhibit A (such letter of credit or any successor or substitute letter of credit issued by the Bank herein individually and collectively called the "Letter of Credit") in an amount of up to $126,849,316, of which $125,000,000 will support the principal of the Bonds, and $1,849,316 will support up to 45 days' interest on the Bonds at an assumed rate of twelve percent (12%) per annum; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, including the covenants, terms and conditions hereinafter appearing, and to induce the Bank to issue the Letter of Credit, the Borrower does hereby covenant and agree with the Bank as follows: ARTICLE I DEFINITIONS 1.1 Definitions. The terms defined in this Article I have, for all purposes of this Agreement, the meanings specified hereinabove or in this Article, unless defined elsewhere herein or the context clearly requires otherwise. "Affiliate" means, with respect to any Person, any other Person (i) directly or indirectly controlling (including, but not limited to, all directors and officers of such Person), controlled by, or under direct or indirect common control with, such Person or (ii) that directly or indirectly owns more than 5% of the voting securities of such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership or voting securities, by contract or otherwise. 6 "Agreement" means this Letter of Credit and Reimbursement Agreement, as the same may from time to time be amended, modified or supplemented in accordance with the terms hereof. "Applicable Law" means all applicable provisions of constitutions, laws, statutes, ordinances, rules, treaties, regulations, permits, licenses, approvals, interpretations and orders of all Governmental Authorities and all orders and decrees of all courts and arbitrators. "Bankruptcy Code" means 11 U.S.C. ss. 101 et seq., as amended. "Big Five" means the listing of the largest certified public accounting firms currently comprised of Arthur Andersen, Ernst & Young, KPMG, Deloitte and Touche, and PricewaterhouseCoopers, or any similar listing as may be expanded or reduced in the future. "Bond Documents" means, collectively, the Indenture, the Bonds, the Remarketing Agreement, the Placement Agreement, the Private Placement Memorandum and any other documents relating to the issuance of the Bonds, as the same may be amended, modified or supplemented from time to time in accordance with their respective terms. "Business Day" means any day not a Saturday, Sunday or legal holiday, on which commercial banks in Charlotte, North Carolina are open for business. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests or equivalents in capital stock (whether voting or nonvoting, and whether common or preferred) of such corporation, and (ii) with respect to any Person that is not a corporation, any and all partnership, membership, limited liability company or other equity interests of such Person; and in each case, any and all warrants, rights or options to purchase any of the foregoing. "Commitment Letter" means that certain commitment letter from the Bank to the Borrower dated June 25, 1998, and accepted and executed by the Borrower on or before the date of issuance of the Bonds. "Comprehensive Income" means comprehensive income of Borrower and Subsidiaries on a consolidated basis determined in accordance with Generally Accepted Accounting Principles. "Consistent Basis" means, in reference to the application of Generally Accepted Accounting Principles, that the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preceding period, except as to any changes consented to by the Bank or required by Generally Accepted Accounting Principles. "Consolidated Net Income" means, for any period of computation thereof, the net income of the Borrower and its Subsidiaries (excluding extraordinary items) as determined on a 2 7 consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. "Consolidated Tangible Net Worth" means, at any date of determination, the total stockholders' equity (including Capital Stock, additional paid-in capital and retained earnings after deducting treasury stock), less any intangible assets (excluding Lease Intangibles) of the Borrower and its Subsidiaries and calculated on a consolidated basis in accordance with Generally Accepted Accounting Principles. "Contingent Obligation" means, with respect to any Person, any direct or indirect liability of such Person with respect to any Indebtedness, liability or other obligation (the "primary obligation") of another Person (the "primary obligor"), whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor in respect thereof to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss or failure or inability to perform in respect thereof; provided, however, that, with respect to the Borrower and its Subsidiaries, the term Contingent Obligation shall not include endorsements for collection or deposit in the ordinary course of business. "Conversion Draft" shall have the meaning as provided in the Letter of Credit. "Date of Issuance" means the date of issuance of the Letter of Credit. "EBITDA" means, for any period, the aggregate of (i) Consolidated Net Income for such period, plus (ii) the sum of the following: (a) interest expense, (b) federal, state, local and other income taxes, and (c) depreciation, amortization and non-cash charges incurred solely in compliance with FASB Statement of Financial Accounting Standards No. 121, all to the extent taken into account in the calculation of such Consolidated Net Income for such period and determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. "Environmental Laws" means any and all federal, state and local laws, statutes, ordinances, rules, regulations, permits, licenses, approvals, interpretations, rules of common law and orders of courts or Governmental Authorities, relating to the protection of human health or occupational safety or the environment, now or hereafter in effect and in each case as amended from time to time, including requirements pertaining to the manufacture, processing, distribution, use, treatment, storage, disposal, transportation, handling, reporting, licensing, permitting, investigation or remediation of Hazardous Substances. 3 8 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, including any rules and regulations promulgated thereunder. "Event of Default" has the meaning specified in Article VIII hereof. "Expiration Date" means July 23, 2001, the expiration date of the Letter of Credit, as such date may be extended pursuant to the terms of Section 3.9 hereof. "Financing Charges" means those charges owed and allocated to third parties with respect to any on or off balance sheet asset financing transaction to which Borrower or any Subsidiary of Borrower is a party, such transactions to include, without limitation, securitizations, sales to commercial paper conduits, synthetic leases, or other similar financing technique. "Fixed Charge Coverage Ratio" means, as of the last day of any fiscal quarter of the Borrower and its Subsidiaries, commencing January 30, 1999, for the consecutive four-quarter period ending on such date (or in the case of the fiscal quarter ending on January 30, 1999, the consecutive three-quarter period ending on such date), the ratio of (i) EBITDA for such period plus, to the extent deducted in arriving at EBITDA, lease, rental and all other payments made in respect of or in connection with operating leases, to (ii) Fixed Charges for such period. "Fixed Charges" means, for any period, the aggregate (without duplication) of the following, all determined on a consolidated basis for the Borrower and its Subsidiaries in accordance with Generally Accepted Accounting Principles for such period: (a) interest expense for such period, (b) to the extent deducted in arriving at EBITDA, lease, rental and all other payments made in respect of or in connection with operating leases, (c) Financing Charges, and (d) the aggregate (without duplication) of all scheduled payments of principal on Funded Debt with an original maturity of more than one year required to have been made by the Borrower and its Subsidiaries during such period (whether or not such payments are actually made). "Funded Debt" means all Indebtedness for borrowed money of the Borrower and its Subsidiaries on a consolidated basis (including, without limitation, all current maturities and borrowings under short term loans) plus all indebtedness incurred in connection with or arising from any on or off balance sheet asset financing transaction to which Borrower or any Subsidiary of Borrower is a party, such transactions to include, without limitation, securitizations, sales to commercial paper conduits, synthetic leases, or other similar financing technique. "Generally Accepted Accounting Principles" means those principles of accounting set forth in pronouncements of the Financial Accounting Standards Board and its predecessors or pronouncements of the American Institute of Certified Public Accountants or those principles of accounting which have other substantial authoritative support and are applicable in the circumstances as of the date of application, as such principles are from time to time supplemented or amended. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any central bank thereof, any municipal, local, city or county 4 9 government, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Hazardous Substances" means any substances or materials (i) that are or become defined as hazardous wastes, hazardous substances, pollutants, contaminants or toxic substances under any Environmental Law, (ii) that are defined by any Environmental Law as toxic, explosive, corrosive, ignitable, infectious, radioactive, mutagenic or otherwise hazardous, (iii) the presence of which require investigation or response under any Environmental Law, (iv) that constitute a nuisance, trespass or health or safety hazard to Persons or neighboring properties, (v) that consist of underground or aboveground storage tanks, whether empty, filled or partially filled with any substance or (vi) that contain, without limitation, asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived substances or wastes, crude oil, nuclear fuel, natural gas or synthetic gas. "Hedge Agreement" means any interest or foreign currency rate swap, cap, collar, option, hedge, forward rate or other similar agreement or arrangement designed to protect against fluctuations in interest rates or currency exchange rates. "Indebtedness" means, with respect to any Person (without duplication), (i) all indebtedness and obligations of such Person for borrowed money or in respect of loans or advances of any kind, (ii) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments, (iii) all reimbursement obligations of such Person with respect to surety bonds, letters of credit and bankers' acceptances (in each case, whether or not drawn or matured and in the stated amount thereof), (iv) all obligations of such Person to pay the deferred purchase price of property or services, (v) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, (vi) all obligations of such Person as lessee under leases that are or are required to be, in accordance with Generally Accepted Accounting Principles, recorded as capital leases, (vii) all Contingent Obligations of such Person and (viii) all indebtedness referred to in clauses (i) through (vii) above secured by any Lien on any property or asset owned or held by such Person regardless of whether the indebtedness secured thereby shall have been assumed by such Person or is nonrecourse to the credit of such Person. "Lease Intangibles" means the amount of lease intangibles appearing on the balance sheet of the Borrower determined in accordance with Generally Accepted Accounting Principles. "Leverage Ratio" means, as of the last day of any fiscal quarter, the ratio of (i) Funded Debt as of such date to (ii) EBITDA for the period of four consecutive fiscal quarters then ending. "LIBOR Market Index Rate" means, for any day, the fluctuating rate per annum (rounded upward, if necessary, to the next higher 1/100th of 1%) which is equal to: 5 10 (i) (a) the rate for deposits in Dollars which appears on the Telerate Page 3750 at approximately 11:00 a.m. (London time) on such day for a term equal to one month, from time to time, with each change in such rate to be effective as of the opening of business on the effective date of the change in such rate; provided, that if the day for which such rate is to be determined is not a Business Day, the LIBOR Market Index Rate for such day shall be such rate for the next preceding Business Day; provided further, that if such rate is not reported on Telerate Page 3750, such rate shall be the rate determined by the Bank from another recognized source or interbank quotation, divided by (b) 1.00 minus the reserve requirement (expressed as a percentage) with respect to eurocurrency liabilities prescribed for member banks of the Federal Reserve System by the Board of Governors of the Federal Reserve System from time to time (if and only to the extent that the Bank has eurocurrency liabilities subject thereto) and any other similar reserve requirements imposed against a category of liabilities which includes eurocurrency deposits or a category of assets which includes eurocurrency loans. (ii) If, for any reason, the rate described in clause (i) (a) is not available, such rate shall be the rate per annum at which, in the reasonable opinion of the Bank, Dollars in an amount substantially equal to the amount of the draw under the Letter of Credit are being offered by leading reference banks for settlement in the London interbank market at approximately 11:00 a.m. (London time), on the second Business Day next preceding the applicable date for a term equal to one month. "Material Adverse Effect" means, with respect to the Borrower or any of its Subsidiaries, a material adverse effect on the properties, business, prospects, operations or condition (financial or otherwise) of any such Person or the ability of any such Person to perform its obligations under this Agreement, the Letter of Credit or the Indenture, in each case to which it is a party. "Permitted Liens" means any of the following liens securing any indebtedness of the Borrower and its Subsidiaries on their property, real or personal, whether now owned or hereafter acquired: (i) Liens of carriers, warehousemen, mechanics, contractors and materialmen incurred in the ordinary course of business for sums not yet due and payable or that are being contested in good faith and in appropriate proceedings and for which bonds have been posted or other security acceptable to the Bank provided, such bonds or other security to be in amounts sufficient to pay off the liens during the pendency of any controversies relating to them; (ii) Liens incurred in the ordinary course of business in connection with worker's compensation, unemployment insurance or other forms of governmental insurance or benefits, or liens to secure the performance of letters of credit, bids, tenders, statutory obligations, leases and contracts (other than for borrowed funds) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds; 6 11 (iii) Liens of suppliers of inventory purchased on credit in the ordinary course of business; (iv) Liens for current taxes, assessments or other governmental charges that are not delinquent or remain payable without any penalty or that are being contested in good faith and by appropriate proceedings and if reasonably requested by the Bank, the Borrower shall establish reserves satisfactory to the Bank with respect thereto; (v) Liens securing Indebtedness as permitted by the Bank from time to time; and (vi) Liens set forth on Schedule 1.1 "Person" means an individual, partnership, corporation, limited liability company, trust, unincorporated organization, association, joint venture or a government or agency or political subdivision or instrumentality thereof. "Placement Agreement" shall have the meaning as provided in the Indenture. "Pledged Bond Collateral" shall have the meaning as provided in Section 9.1 hereof. "Pledged Bonds" shall have the meaning as provided in Section 9.1 hereof. "Private Placement Memorandum" shall have the meaning as provided in the Indenture. "Remarketing Agent" shall have the meaning as provided in Section 1101 of the Indenture. "Remarketing Agreement" shall have the meaning as provided in the Indenture. "State" means the State of North Carolina. "Subsidiary" means, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time. Unless the context indicates otherwise, all references herein to Subsidiaries are references to Subsidiaries of the Borrower. "Tender Advance" has the meaning assigned to that term in Section 3.3 of this Agreement. 7 12 "Tender Agent" shall have the meaning as provided in Section 1102 of the Indenture. "Tender Draft" has the meaning assigned to that term in the Letter of Credit. "Trustee" means any Person or group of Persons at the time serving as trustee under the Indenture. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE BORROWER The Borrower represents and warrants to the Bank (which representations and warranties shall survive the delivery of the documents mentioned herein and the issuance of the Letter of Credit) that: 2.1 Incorporation. Each of the Borrower and its Subsidiaries is a corporation or limited liability company duly organized, existing and in good standing under the laws of the state of its incorporation, has the power to own its properties and to carry on its business as now being conducted, and is duly qualified as a foreign entity to do business in every jurisdiction in which the nature of its business makes such qualification necessary except where failure to qualify would not have a Material Adverse Effect on the Borrower's or Subsidiaries' business and is in good standing in each such jurisdiction. 2.2 Power and Authority. Each of the Borrower and its Subsidiaries is duly authorized under all applicable provisions of law to execute, deliver and perform this Agreement and all corporate action on its part required for the lawful execution, delivery and performance hereof and thereof has been duly taken; and this Agreement, upon the due execution and delivery hereof or thereof, will be the valid and binding obligation of the Borrower enforceable in accordance with its terms. Neither the execution of this Agreement, nor the fulfillment of or compliance with the provisions and terms hereof or thereof, will (A) conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a violation of or default under, the Articles of Incorporation, Bylaws or any other organizational documents of the Borrower or any Subsidiary, or any agreement or instrument to which the Borrower or any Subsidiary is now a party or any applicable law, regulation, judgment, writ, order or decree to which the Borrower, any Subsidiary or any of their respective properties are subject to the extent such conflict, violation or default would have a Material Adverse Effect on the business of the Borrower or any Subsidiary, taken as a whole or (B) create any lien, charge or encumbrance upon any of the property or assets of the Borrower or any Subsidiary pursuant to the terms of any agreement or instrument to which the Borrower or any Subsidiary is a party or by which it or any of its properties, are bound to the extent such lien, charge or encumbrance would, taken as a whole, have a Material Adverse Effect on the business of the Borrower or any Subsidiary. 2.3 Financial Condition. The balance sheets of the Borrower and its Subsidiaries for the fiscal year ended as of January 31, 1998 and for the period ending May 2, 1998 and the 8 13 related statements of income and statement of cash flows for the year and period then ended, copies of which have been furnished to the Bank, are correct and complete in all material respects and fairly present the financial condition of Borrower and its Subsidiaries as at the dates of said balance sheets and the results of their operations for such period. Neither the Borrower nor any of its Subsidiaries has any material direct or contingent liabilities as of the date of this Agreement which are not provided for or reflected in either of the balance sheets dated January 31, 1998 or May 2, 1998 or referred to in notes thereto. All such financial statements have been prepared in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis maintained throughout the period involved. There has been no material adverse change in the business, properties or condition, financial or otherwise, of the Borrower or any of its Subsidiaries since May 2, 1998. 2.4 Title to Assets. The Borrower and its Subsidiaries have good and marketable title to their respective properties and assets, including the properties and assets reflected in the most recent financial statements and notes thereto described in Section 2.3 hereof, except for such assets as have been disposed of since the date of said financial statements in the ordinary course of business, or as are no longer useful in the conduct of business or where such failure would not have Material Adverse Effect on the business of the Borrower or any Subsidiary, and all such properties and assets are free and clear of all liens, mortgages, pledges, encumbrances or charges of any kind except liens reflected in such financial statements or Permitted Liens. 2.5 Contingent Liabilities. Neither the Borrower nor any Subsidiary has guaranteed any obligations of others or, to the best of the Borrower's knowledge, is contingently liable in any manner, direct or indirect, except as required or permitted by Sections 5.13, 6.8 and 6.9 hereof. 2.6 Litigation. There are no pending or, to the best of the Borrower's knowledge, threatened actions, suits or proceedings before any court, arbitrator or governmental or administrative body or agency which may have a Material Adverse Effect on the properties, business or condition, financial or otherwise, of the Borrower or any Subsidiary. 2.7 Taxes. Each of the Borrower and its Subsidiaries has filed all tax returns required to be filed by it and all taxes due with respect thereto have been paid or adequate provision made therefor. 2.8 Contract or Restriction. Neither the Borrower nor any Subsidiary is a party to or bound by any contract or agreement or subject to any charter or other corporate restrictions, or subject to the renegotiation of any contract, which does or may have a Material Adverse Effect on its business, properties or condition, financial or otherwise. 2.9 Trademarks, Franchises and Licenses. Each of the Borrower and its Subsidiaries owns, possesses, or has the right to use all necessary patents, licenses, franchises, trademarks, trademark rights, trade names, trade name rights and copyrights to conduct its businesses as now conducted, without known conflict with any patent, license, franchise, trademark, trade name, or copyright of any other Persons. 9 14 2.10 No Default. Neither the Borrower nor any Subsidiary is in default in the performance, observance or fulfillment of any of its material obligations, covenants or conditions contained in any agreement or instrument to which it is a party. 2.11 Governmental Authority. The Borrower has received the written approval of all Governmental Authorities, if any, necessary to carry out the terms of this Agreement, and no further governmental consents or approvals are required in the making or performance of this Agreement by the Borrower and its Subsidiaries. 2.12 No Untrue Statements. Neither this Agreement nor any reports, schedules, certificates, information, exhibits, agreements or instruments heretofore or simultaneously with the execution of this Agreement delivered to the Bank or the Trustee by the Borrower or any Subsidiary in connection with the negotiation of this Agreement or the issuance and sale of the Bonds contains any material misrepresentation or untrue statement of any material fact or omits to state any material fact necessary to make this Agreement or any such reports, schedules, certificates, information, exhibits, agreements or instruments not materially misleading. 2.13 ERISA Requirements. Neither the Borrower nor any Subsidiary has incurred any material accumulated funding deficiency within the meaning of ERISA, or incurred any material liability to the Pension Benefit Guaranty Corporation established under ERISA (or any successor thereto under ERISA) in connection with any employee pension benefit plan established or maintained by it or by any Person under common control with any of them (within the meaning of Section 414(c) of the Internal Revenue Code of 1986, as amended, or of Section 4001(b) of ERISA), or in which employees of any of them are entitled to participate. No Reportable Event (as defined in ERISA) in connection with any such plan has occurred or is continuing. 2.14 Pollution and Environmental Control; Hazardous Substances. Each of the Borrower and its Subsidiaries has obtained all permits, licenses and other authorizations which are required under, and is in material compliance with, all Environmental Laws. Neither the Borrower nor any Subsidiary, nor to the Borrower's knowledge any previous owner of any real property owned or occupied by the Borrower or any Subsidiary, has disposed of any Hazardous Substances on any portion of any such real property except in compliance with Applicable Law. ARTICLE III REIMBURSEMENT AND OTHER PAYMENTS 3.1 Letter of Credit. The Bank agrees, on the terms and conditions hereinafter set forth, to issue and deliver the Letter of Credit in favor of the Trustee in substantially the form of Exhibit A attached hereto upon fulfillment of the applicable conditions set forth in Article VII hereof. The Bank agrees that any and all payments under the Letter of Credit will be made with the Bank's own funds. 10 15 3.2 Reimbursement and Other Payments. Except as otherwise provided in Section 3.3 below, the Borrower shall pay to the Bank: (a) on or before 3:00 P.M. (Charlotte, North Carolina time) on the date that any amount is drawn under the Letter of Credit, a sum (together with interest on such sum from the date such amount is drawn until the same is paid, at the rate per annum provided in clause (b) of this Section 3.2) equal to such amount so drawn under the Letter of Credit; (b) on demand, interest on any and all amounts remaining unpaid by the Borrower when drawn hereunder from the date such amounts are drawn until payment thereof in full, at a fluctuating interest rate per annum equal to the LIBOR Market Index Rate plus 2.60%; and (c) on demand, all charges, commissions, costs and expenses set forth in Sections 3.4 and 3.5 hereof. 3.3 Tender Advances. (a) If the Bank shall make any payment of that portion of the purchase price corresponding to principal and interest of the Bonds drawn under the Letter of Credit pursuant to a Tender Draft and the conditions set forth in Section 7.3 shall have been fulfilled, such payment shall constitute a tender advance made by the Bank to the Borrower on the date and in the amount of such payment (a "Tender Advance"); provided that if the conditions of said Section 7.3 have not been fulfilled, the amount so drawn pursuant to the Tender Draft shall be payable in accordance with the terms of Section 3.2(a) above. Notwithstanding any other provision hereof, the Borrower shall repay the unpaid amount of each Tender Advance, together with all unpaid interest thereon, on the earlier to occur of: (i) such date as any Bonds purchased pursuant to a Tender Draft are resold as provided in Section 3.3(d) hereof; (ii) on the date one year following the date of such Tender Advance; or (iii) the Expiration Date. The Borrower may prepay the outstanding amount of any Tender Advance in whole or in part, together with accrued interest to the date of such prepayment on the amount prepaid. The Borrower shall notify the Bank prior to 11:00 A.M. Charlotte, North Carolina time on the date of such prepayment of the amount to be prepaid, except to the extent the prepayment is being made from the proceeds of remarketed bonds. (b) The Borrower shall pay interest on the unpaid amount of each Tender Advance from the date of such Tender Advance until such amount is paid in full, payable monthly, in arrears, on the first day of each month during the term of each Tender Advance and on the date such amount is paid in full, at a fluctuating interest rate per annum equal to the LIBOR Market Index Rate plus 0.60%, provided, that the unpaid amount of any Tender Advance which is not paid when due shall bear interest at a 11 16 fluctuating interest rate per annum equal to the LIBOR Market Index Rate plus 2.60%, payable on demand and on the date such amount is paid in full. (c) Pursuant to Article IX, the Borrower has agreed that, in accordance with the terms of the Indenture, Bonds purchased with proceeds of any Tender Draft shall be delivered by the Tender Agent to the Bank or its designee to be held by the Bank or its designee in pledge as collateral securing the Borrower's payment obligations to the Bank hereunder. Bonds so delivered to the Bank or its designee shall be registered in the name of the Borrower, as provided for in Section 9.1. (d) Prior to or simultaneously with the resale of Pledged Bonds, the Borrower shall prepay the then outstanding Tender Advances (in the order in which they were made) by paying to the Bank an amount equal to the sum of (A) the amounts advanced by the Bank pursuant to the corresponding Tender Drafts relating to such Bonds, plus (B) the aggregate amount of accrued and unpaid interest on such Tender Advances. Such payment shall be applied by the Bank in reimbursement of such drawings (and as prepayment of Tender Advances resulting from such drawings in the manner described above), and, upon receipt by the Bank of a certificate completed and signed by the Trustee in substantially the form of Annex F to the Letter of Credit, the Borrower irrevocably authorizes the Bank to rely on such certificate and to reinstate the Letter of Credit in accordance therewith. Funds held by the Tender Agent as a result of sales of the Pledged Bonds by the Remarketing Agent shall be paid to the Bank by the Tender Agent to be applied to the amounts owing by Borrower to the Bank pursuant to this paragraph (d). Upon payment to the Bank of the amount of such Tender Advance to be prepaid, together with accrued interest on such Tender Advance to the date of such prepayment on the amount to be prepaid, the principal amount outstanding of Tender Advances shall be reduced by the amount of such prepayment and interest shall cease to accrue on the amount prepaid. 3.4 Commission and Fees. (a) The Borrower shall pay to the Bank a fee or commission (i) at the rate of 0.375% per annum for each year from the Date of Issuance to the fifth year anniversary thereof, and (ii) thereafter, at a rate to be determined by the Bank, but not to exceed 0.60%, on the amount available to be drawn under the Letter of Credit (computed on the date that such commission is payable) from and including the Date of Issuance until the Termination Date, payable (x) as to the first year of the initial period for which the Letter of Credit is issued on the Date of Issuance; and (y) thereafter payable annually in advance on the anniversary of the Date of Issuance, provided, however, that after the time period in (x) above and in the absence of a then existing Event of Default, if the Letter of Credit is terminated by the Borrower after such payment is made but prior to the following anniversary of the Date of Issuance, the Bank shall refund to the Borrower the pro rata amount of such payment for the remaining portion of the current period for which the Letter of Credit is issued. 12 17 (b) The Borrower shall pay to the Bank, upon transfer of the Letter of Credit in accordance with its terms, a transfer fee of $1,000. (c) The Borrower shall pay to the Bank, upon each drawing under the Letter of Credit in accordance with its terms, a fee of $50 per drawing. 3.5 Increased Costs Due to Change in Law. In the event of any change in any existing or future law, regulation, ruling or other interpretation having influence over the Bank (except for changes in the rate of tax on the overall net income of the Bank) which shall either: (a) impose, modify or make applicable any reserve, special deposit, capital requirement, assessment or similar requirement against the Letter of Credit; or (b) impose on the Bank any other condition regarding the Letter of Credit, and the result of any event referred to in clause (a) or (b) above shall be to increase the cost (including a reasonable allocation of resources) or decrease the yield to the Bank of issuing or maintaining the Letter of Credit (which increase in cost shall be the result of the Bank's reasonable allocation of the aggregate of such cost increases or yield decreases resulting from such events), then, upon demand by the Bank, the Borrower shall immediately pay to the Bank, from time to time as specified by the Bank, additional amounts which shall be sufficient to compensate the Bank for such increased cost or decreased yield. A statement of charges submitted by the Bank shall be conclusive, absent manifest error, as to the amount owed. 3.6 Computation. All payments of interest, commission and other charges under this Agreement shall be computed on the per annum basis of a year of 360 days and calculated for the actual number of days elapsed. 3.7 Payment Procedure. All payments made by the Borrower under this Agreement shall be made to the Bank in lawful currency of the United States of America and in immediately available funds at the Bank's office in Charlotte, North Carolina before 12:00 Noon (Charlotte, North Carolina time) on the date when due, except for payments made pursuant to Section 3.2(a). 3.8 Business Days. If the date for any payment hereunder falls on a day which is not a Business Day, then for all purposes of this Agreement the same shall be deemed to have fallen on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payments of interest or commission, as the case may be. 3.9 Extension of Expiration Date. The Letter of Credit shall terminate on the earlier of (i) the date of termination pursuant to the terms of the Letter of Credit or (ii) the Expiration Date; provided, that prior to any anniversary of the Date of Issuance, the Bank may, in its sole discretion, extend the applicable Expiration Date for an additional one year period. If extended, the Bank shall notify the Borrower and the Trustee in writing at least one hundred twenty (120) days prior to the anniversary of the Date of Issuance by U.S. certified mail, return receipt requested or express courier that such Expiration Date has been extended. The Bank shall be under no obligation or commitment to extend any applicable Expiration Date and no such obligation or commitment on the part of the Bank shall be inferred from the provisions of this Section 3.9. Failure on the part of the Bank to notify the Borrower and the Trustee as to an 13 18 extension of the applicable Expiration Date shall be deemed to be a refusal to extend such Expiration Date. 3.10 Obligations Absolute. The obligations of the Borrower under this Agreement shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances: (a) any lack of validity or enforceability of the Letter of Credit, the Bonds, any of the other Bond Documents or any other agreement or instrument related thereto; (b) any amendment or waiver of or any consent to departure from the terms of the Letter of Credit, the Bonds, any of the other Bond Documents or any other agreement or instrument related thereto; (c) the existence of any claim, setoff, defense or other right which the Borrower may have at any time against the Trustee, any beneficiary or any transferee of the Letter of Credit (or any Person for whom the Trustee, any such beneficiary or any such transferee may be acting), the Bank or any other Person, whether in connection with this Agreement, the Letter of Credit, the Bond Documents or any unrelated transaction; (d) any statement, draft or other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect, or any statement therein being untrue or inaccurate in any respect whatsoever; or (e) the surrender or impairment of any security for the performance or observance of any of the terms of this Agreement. ARTICLE IV [Reserved] ARTICLE V AFFIRMATIVE COVENANTS Until all the obligations of the Borrower hereunder to be performed and paid shall have been performed and paid in full, and for so long as the Letter of Credit shall be outstanding, the Borrower covenants and agrees that, unless the Bank consents otherwise in writing: 5.1 Repayment of Obligations. The Borrower will promptly repay the payment obligations of the Borrower hereunder when due, according to the terms of this Agreement. 14 19 5.2 Performance Under Reimbursement Agreement. The Borrower will, and will cause each of its Subsidiaries to, perform all obligations required to be performed by each of them under the terms of this Agreement and any other agreements now or hereafter existing or entered into between the Borrower, its Subsidiaries and the Bank, subject to any applicable notice and cure provisions contained therein. 5.3 Financial and Business Information about the Borrower. The Borrower shall deliver to the Bank: (a) As soon as practicable and in any event within 45 days after the close of each fiscal quarter of the Borrower, beginning with the close of the current fiscal quarter for the Borrower and its Subsidiaries on a consolidated basis, balance sheets and statements of income and cash flows for or relating to the quarter then ended, all prepared in accordance with Generally Accepted Accounting Principles (subject to normal year-end adjustments), applied on a Consistent Basis, and certified by the chief financial officer of the Borrower. The requirements of this paragraph shall be fully satisfied upon the delivery to the Bank within the time period specified above of the Borrower's quarterly report on form 10-Q with respect to any fiscal quarter, provided, that the financial statements and accompanying notes are fully disclosed within such filing; (b) As soon as practicable and in any event within 90 days after the close of each fiscal year of the Borrower, beginning with the close of the current fiscal year, an audited consolidated balance sheet of Borrower and its Subsidiaries as of the close of such fiscal year and audited consolidated statements of income and cash flows for the fiscal year then ended prepared by a Big Five independent certified public accounting firm in accordance with Generally Accepted Accounting Principles, applied on a Consistent Basis, and accompanied by a report thereon by such certified public accountants and, with respect to such audited financial statements, containing an opinion that is not qualified with respect to scope limitations imposed by Borrower, as to going concern or with respect to accounting principles followed by Borrower not in accordance with Generally Accepted Accounting Principles; (c) Concurrently with the delivery of the financial statements described in subsection (b) above, a certificate from the independent certified public accountants stating that in making their examination of the financial statements of the Borrower and its Subsidiaries, they obtained no knowledge of the occurrence or existence of any condition or event which constitutes or would constitute, upon the giving of notice or lapse of time or both, any Event of Default, or a statement specifying the nature and period of existence of any such condition or event disclosed by their examination; (d) Concurrently with the delivery of the financial statements described in subsections (a) and (b) above or at such other times as the Bank may reasonably request, a certificate from the chief financial officer of the Borrower certifying to the Bank that to the best of their knowledge after review of this Agreement and appropriate inquiry, the 15 20 Borrower has kept, observed, performed and fulfilled each and every covenant, obligation and agreement binding upon the Borrower contained in this Agreement, accompanied by a worksheet completed in accordance with Generally Accepted Accounting Principles detailing the Borrower's compliance with the financial covenants contained in Sections 6.14, 6.15 and 6.16 hereto in form satisfactory to the Bank, and that no Event of Default, or any event which with the giving of notice or lapse of time or both would constitute an Event of Default, has occurred or specifying any such Event of Default; (e) Immediately upon issuance, each report to the Securities and Exchange Commission and each notice, financial report or proxy statement rendered to its shareholders; (f) Immediately upon the Borrower's receipt thereof, copies of any management letter or other written communications from certified public accountants the effect of which would have a Material Adverse Effect on the business of the Borrower or any Subsidiary; and (g) Upon the Bank's request, such other information about the financial condition, business or operations of the Borrower and its Subsidiaries as the Bank may from time to time reasonably request. 5.4 Notice of Certain Events. The Borrower shall promptly, after any officer of the Borrower learns or obtains knowledge of the occurrence thereof, give written notice to the Bank of: (a) any litigation or proceedings brought against the Borrower or any of its Subsidiaries or any attachments, judgments, liens, levies or orders (other than Permitted Liens) that may be placed on or assessed against or threatened against the Borrower or any of its Subsidiaries which are (i) not otherwise covered by insurance or are contested by the insurer and (ii) in the aggregate exceed $5,000,000 in uninsured exposure and the Borrower shall set up such reserves as required by Generally Accepted Accounting Principles. (b) any written notice of a violation received by the Borrower or any of its Subsidiaries from any governmental regulatory body or law enforcement authority which, if such violation were established, might have a Material Adverse Effect on the business of the Borrower or any of its Subsidiaries; (c) any other matter that has resulted in a Material Adverse Effect on the Borrower or any of its Subsidiaries; (d) any breach or violation of or noncompliance with any covenant or condition of this Agreement or any Event of Default hereunder; and (e) any change in the name of the Borrower or any Subsidiary. 16 21 5.5 Corporate Existence. Except as provided in Section 6.1, the Borrower will, and will cause each of its Subsidiaries to, maintain and preserve its corporate existence and all rights, privileges and franchises now enjoyed. 5.6 Payment of Indebtedness; Performance of Other Obligations. The Borrower will, and will cause each of its Subsidiaries to pay, all material Indebtedness before such Indebtedness shall become past due, all material taxes, assessments and other governmental charges that may be levied or assessed upon it when due and all other material obligations in accordance with customary trade practices, and comply in all material respects with all acts, rules, regulations and orders of any legislative, administrative or judicial body or official applicable to any part thereof or to the operation of its business; provided, however, that the Borrower or any Subsidiary may in good faith by appropriate proceedings and with due diligence contest any such Indebtedness, taxes, assessments, governmental charges, acts, rules, regulations, orders and directions that do not in the Bank's reasonable judgment materially and adversely affect the Borrower's business and if requested by the Bank, shall establish reserves reasonably satisfactory to the Bank. The Borrower will, and will cause each of its Subsidiaries to, observe and remain in compliance in all material respects with all laws, ordinances, governmental rules and regulations to which it is subject and obtain all licenses, permits, franchises or other governmental authorizations necessary to the ownership of its properties or the conduct of its business, and observe and perform all covenants and conditions of all material agreements and instruments to which it is a party, where failure to comply would have a Material Adverse Effect on the business of the Borrower or any Subsidiary. 5.7 Maintenance of Books and Records; Inspection. The Borrower will, and will cause each of its Subsidiaries to, (i) maintain adequate books, accounts and records, and prepare all financial statements required under this Agreement in accordance with Generally Accepted Accounting Principles (subject, in the case of unaudited interim statements, to normal year-end adjustments) and in material compliance with the regulations of any governmental regulatory body having jurisdiction over it; and (ii) permit employees or agents of the Bank at any time during normal business hours and upon reasonable notice to inspect the properties of the Borrower and its Subsidiaries, and to examine or audit the books of the Borrower and its Subsidiaries, accounts and records and make copies and memoranda of them, and to discuss the affairs, finances and accounts of the Borrower with its executive officers, and independent public accountants (and by this provision the Borrower and its Subsidiaries authorize said accountants to discuss the finances and affairs of the Borrower and its Subsidiaries), all at such reasonable times and as often as may be reasonably requested, but in any event at least twice during each fiscal year of the Borrower. 5.8 Comply with ERISA. The Borrower will, and will cause each of its Subsidiaries to, (i) at all times make prompt payment of contributions required to meet the minimum funding standards set forth in ERISA with respect to any employee benefit plan, except to the extent that failure to make such payment would not have a Material Adverse Effect on the business of the Borrower or any Subsidiary; (ii) not withdraw from participation in, permit the termination or partial termination of, or permit the occurrence of any other event with respect to any employee 17 22 benefit plan that could result in liability to the Pension Benefit Guaranty Corporation, except to the extent that such withdrawal, termination, partial termination or occurrence would not have a Material Adverse Effect on the business of the Borrower or any Subsidiary; (iii) notify the Bank as soon as practicable of any "reportable event" (as defined in Section 4043(b) of ERISA) and of any additional act or condition arising in connection with any employee benefit plan which the Borrower or any of its Subsidiaries believe might constitute grounds for the termination thereof by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States district court of a trustee to administer such plan; and (iv) furnish to the Bank upon the Bank's request, such additional information about any employee benefit plan as may be reasonably requested. Neither the Borrower nor any of its Subsidiaries will permit the occurrence of any "prohibited transaction" (as defined in ERISA). 5.9 Maintenance of Properties; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, conduct its business in an orderly, efficient and customary manner, keep its properties used in the operations of its business in good working order and condition (normal wear and tear excepted), and from time to time make all needed repairs to, renewals of or replacements of its properties (except where failure to make such repairs, renewals or replacements would not have a Material Adverse Effect on the business of the Borrower or any of its Subsidiaries or to the extent that any of such properties is obsolete or is being replaced) so that the efficiency of such property shall be fully maintained and preserved. The Borrower and its Subsidiaries shall file or cause to be filed in a timely manner all reports, applications, estimates and licenses that shall be required by any Governmental Authority and which, if not timely filed, would have a Material Adverse Effect on the Borrower or any of its Subsidiaries. 5.10 Insurance. Maintain insurance with financially sound and reputable insurance companies against such risks and in such amounts as are customarily maintained by similar businesses as that of the Borrower and its Subsidiaries. 5.11 Observe all Laws. The Borrower will conform to and duly observe all laws, regulations and other valid requirements of any regulatory authority with respect to the conduct of its business, except to the extent that failure to do so would not have a Material Adverse Effect on the business of the Borrower or any of its Subsidiaries. 5.12 Year 2000. The Borrower has taken all action deemed reasonably necessary by Borrower to assure that the Borrower's and its Subsidiaries' computer based systems are able to operate, and effectively process data including dates, on and after January 1, 2000. At the request of the Bank, the Borrower will provide the Bank with assurances acceptable to the Bank of the Borrower's year 2000 compatibility. 5.13 Subsidiary Guaranties. All Subsidiaries of the Borrower (excluding any Subsidiary operating as an insurance or banking entity) shall, within sixty (60) days of the Date of Issuance, execute and deliver to the Bank a guaranty agreement in form reasonably acceptable to Bank and Borrower, unconditionally guaranteeing the obligations under this Agreement and the Letter of Credit and any Subsidiary created or acquired subsequent to the Date of Issuance (excluding any Subsidiary operating as an insurance or banking entity) shall, within thirty (30) 18 23 days of the date of creation or acquisition, execute a guaranty agreement supplement in form reasonably acceptable to the Bank and the Borrower; provided, that, subject to the requirements of Section 6.8 hereof, failure to provide such guarantees shall not create or result in an Event of Default, but shall require the Borrower to deliver to the Bank as soon as practicable and in any event within 45 days after the close of each fiscal quarter of the Borrower, beginning with the close of the first fiscal quarter subsequent to the deadline for delivery of the guaranty agreements or guaranty agreement supplements required above, consolidating balance sheets and statements of income and cash flows of the Borrower and its Subsidiaries for or relating to the quarter then ended, all prepared in accordance with Generally Accepted Accounting Principles (subject to normal year-end adjustments and the absence of notes), applied on a Consistent Basis, and certified by the chief financial officer of the Borrower. ARTICLE VI NEGATIVE COVENANTS Until all the obligations of the Borrower hereunder to be performed and paid shall have been performed and paid in full, and for so long as the Letter of Credit shall be outstanding, the Borrower covenants and agrees that, unless the Bank consents otherwise in writing, the Borrower will not, and will not permit any Subsidiary to, either directly or indirectly: 6.1 Merger and Dissolution; Sale of Assets. Except for the transactions contained on Schedule 6.1, liquidate, windup or dissolve, or enter into any consolidation, merger, share exchange, syndicate or other combination, or sell, lease, transfer or otherwise dispose of, in a single transaction or a series of related transactions, all or substantially all of its business or assets or any portion thereof if such portion of its business or assets represents ten percent (10%) or more of the net revenues, profits or assets of the Borrower or such Subsidiary (except for sales of inventory in the ordinary course of business); provided, that (i) subject to the requirements of Section 6.8 hereof, any Subsidiary may be wound up and dissolved if the proceeds of the dissolution are transferred to the Borrower or another Subsidiary of the Borrower, and (ii) any Subsidiary may be merged into another Subsidiary or into the Borrower. 6.2 Acquisitions. Except for the transactions contained on Schedule 6.2, acquire the business or all or a substantial portion of the assets of any Person, unless the effect of such acquisition on a pro forma basis measured over a period commencing four (4) fiscal quarters prior to the effective date of the acquisition and continuing thereafter until such acquisition has been effective for a total period of four (4) fiscal quarters would not result in an Event of Default. 6.3 Indebtedness. Create, incur or suffer to exist any Indebtedness or the equivalent (including any Indebtedness incurred as a general partner or as a joint venturer) except for: (a) the obligations owed to the Bank under this Agreement; (b) the obligations owed by the Borrower under the Indenture or any other Bond Document; (c) current trade accounts payable or accrued by the Borrower or any of its Subsidiaries in the ordinary course of its business, provided that the same shall be paid when due in accordance with customary trade terms unless 19 24 contested by appropriate proceedings; (d) Indebtedness secured by Permitted Liens; (e) unsecured Indebtedness, provided that the effect of such unsecured Indebtedness on a pro forma basis measured over a period commencing four (4) fiscal quarters prior to the date the unsecured Indebtedness is incurred would not result in an Event of Default; (f) purchase money Indebtedness of the Borrower and its Subsidiaries in an aggregate amount not to exceed $5,000,000 on any date of determination; (g) Indebtedness existing on the Date of Issuance and not otherwise permitted under this Section 6.3, as set forth on Schedule 6.3; and (h) any other Indebtedness specifically permitted by the Bank. 6.4 Liens and Encumbrances. Create, assume or suffer to exist any lien, deed of trust, mortgage, encumbrance or security interest (including the interest of a conditional seller of goods) securing a charge or obligation, on or of any of its property, real or personal, whether now owned or hereafter acquired, except for (a) Permitted Liens and (b) liens necessary to secure purchase money Indebtedness, subject to the dollar limitation contained in Section 6.3(f). 6.5 Transactions With Related Persons. Except as otherwise permitted hereunder, make any loan or advance to, purchase, assume or guarantee any note to or from, or enter into any transaction with, any of its officers, directors, shareholders or Affiliates, or any member of the immediate family of any of its officers, directors, shareholders or Affiliates, or subcontract any operations to any Affiliate, except (a) as otherwise permitted hereunder; (b) for transactions with its officers, directors, shareholders or Affiliates in an aggregate amount not to exceed $2,000,000 in any fiscal year; and (c) in the ordinary course of and pursuant to the reasonable requirements of its business, consistent with past practices and upon fair and reasonable terms that are fully disclosed to the Bank and are no less favorable to it than would obtain in a comparable arm's length transaction with a Person not an Affiliate of the Borrower or such Subsidiary, as the case may be, provided, however, that the restrictions contained in this Section 6.5 shall not prohibit the Borrower or any Subsidiary from entering into any such transactions with another Subsidiary of the Borrower. 6.6 Sale and Leaseback. Subsequent to the Date of Issuance, enter into any arrangement with any Person providing for the leasing by the Borrower or any of its Subsidiaries of any asset that has been sold or transferred by the Borrower or any of its Subsidiaries to such Person, if the book value of the assets of the Borrower and its Subsidiaries which have been sold and leased back, including the transaction currently being contemplated, in the aggregate represent more than 10% of the book value of the assets of the Borrower and its Subsidiaries as of the Borrower's last fiscal quarter end. 6.7 New Business. Engage in any business other than the business in which it is currently engaged or a business reasonably related thereto. 6.8 Subsidiaries. Unless the requirements of Section 5.13 have been satisfied and as otherwise provided on Schedule 6.8, create any new Subsidiary or transfer any assets to a Subsidiary if the formation of such new Subsidiary or the transfer of assets to such Subsidiary would cause any one of the aggregate of net revenues or profits or assets of all the Subsidiaries on a consolidated basis to exceed five percent (5%) of any one of the net revenues or profits or 20 25 assets of the Borrower and its Subsidiaries on a consolidated basis, unless such new Subsidiary or Subsidiary to which assets are transferred executes and delivers a guaranty agreement supplement in form reasonably acceptable to the Bank and the Borrower, unconditionally guaranteeing the obligations under this Agreement and the Letter of Credit. 6.9 Guaranties. Guarantee or otherwise, in any way, become liable with respect to the obligations or liabilities of any Person, except for (a) guaranties issued in favor of the Bank; (b) guaranties which do not exceed $10,000,000 in the aggregate at any time; (c) endorsements for collection or deposit in the ordinary course of business; (d) the guaranty by the Borrower of certain letter of credit obligations of Belk International, Inc.; (e) the guaranties by the Subsidiaries pursuant to Sections 5.13 and 6.8 hereof; and (f) any guaranty by the Borrower or any Subsidiary of any Indebtedness or obligation of the Borrower or any Subsidiary to the extent such Indebtedness or obligation is permitted hereunder. 6.10 Restrictive Transactions. Enter into any transaction that materially and adversely affects the Borrower's ability to repay any Indebtedness or the obligations hereunder. 6.11 Hazardous Wastes. Permit, in violation of any federal, state or local laws, regulations or orders, any hazardous or toxic wastes, contaminants, oil, radioactive or other materials the removal of which is required or the maintenance of which is restricted, prohibited or penalized by any federal, state or local agency, authority or governmental unit to be brought on to any real property owned by the Borrower or any Subsidiary, or if so brought or found located thereon, the same shall be immediately removed, if required by Applicable Law, with proper disposal, and all required environmental cleanup procedures shall be diligently undertaken pursuant to all such laws, ordinances and regulations. 6.12 Fiscal Year. Change its fiscal year end. 6.13 Amendments. Amend, modify or change in any manner the Borrower's Articles of Incorporation or Bylaws, or any agreement entered into by the Borrower with respect to its Capital Stock, or enter into any new agreement with respect to its Capital Stock if such amendment or new agreement would have an adverse effect on the enforcement of this Agreement or would otherwise have a Material Adverse Effect on the business of the Borrower or any of its Subsidiaries. 6.14 Leverage Ratio. Permit the Leverage Ratio (i) as of the last day of the first quarter of any fiscal year to be greater than 3.25 to 1.0; (ii) as of the last day of the second quarter of any fiscal year to be greater than 3.25 to 1.0; (iii) as of the last day of the third quarter of any fiscal year to be greater than 3.7 to 1.0; and (iv) as of the last day of any fiscal year to be greater than 3.0 to 1.0. 6.15 Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio as of the last day of any fiscal quarter to be less than 1.5 to 1.0. 21 26 6.16 Net Worth. Permit Consolidated Tangible Net Worth as of the last day of any fiscal quarter to be less than the sum of (i) $650,000,000, plus (ii) 50% of Comprehensive Income for each fiscal year, beginning as of the fiscal year ending on January 30, 1999, provided that Comprehensive Income for any such fiscal year shall be taken into account for purposes of this calculation only if positive, plus (iii) 100% of the increase in the stated capital and additional paid-in capital accounts of the Borrower and its Subsidiaries resulting from the issuance or purchase of equity securities (including pursuant to the exercise of options, rights or warrants or pursuant to the conversion of convertible securities) or other Capital Stock, excluding any stock issuance and stock purchase, where the proceeds of the issuance are used to purchase stock from other shareholders or their estates, all determined as of the end of each fiscal year on a consolidated basis in accordance with Generally Accepted Accounting Principles,. ARTICLE VII CONDITIONS TO ISSUANCE OF LETTER OF CREDIT 7.1 Conditions to Issuance. The obligation of the Bank to issue the Letter of Credit shall be subject to the Bank's receipt of the following, in form satisfactory to the Bank: (a) two executed counterparts of this Agreement; (b) executed counterparts of each of the Bond Documents (except for the Bonds, as to which a specimen copy may be furnished); (c) an opinion of counsel for the Borrower dated the Date of Issuance addressed to the Bank, and substantially in the form attached hereto as Exhibit C, or otherwise in form and substance acceptable to, the Bank; (d) (i) a copy of the Certificate of Incorporation of the Borrower, certified as of June 8, 1998, by the Secretary of State of the State of Delaware; (ii) a certificate from the Borrower that since June 8, 1998, no change has been made to the Articles of Incorporation of the Borrower; and (iii) a certificate dated no earlier than 60 days prior to the Date of Issuance of the Secretary of State of Delaware as to the good standing of the Borrower; (e) a certificate from the secretary or an assistant secretary of the Borrower certifying to and attaching copies of its bylaws and resolutions of its board of directors authorizing and approving the transactions contemplated by this Agreement and as to the incumbency of each of its officers executing any of such documents; (f) an opinion from Robinson, Bradshaw & Hinson, P.A., Special Bond Counsel, or a letter in substantially the form of Exhibit D hereto consenting to the Bank's reliance on certain opinions delivered by such counsel in form and substance satisfactory to the Bank and its counsel; 22 27 (g) copies of all governmental approvals required in connection with this transaction, including resolution of the Borrower authorizing the issuance of the Bonds; (h) evidence of payment to the Bank of the initial annual letter of credit commission pursuant to Section 3.4 of this Agreement; (i) an executed counterpart of the Commitment Letter; and (j) such other documents, instruments and certifications as the Bank may reasonably require. 7.2 Additional Conditions Precedent to Issuance of the Letter of Credit. The obligation of the Bank to issue the Letter of Credit shall be subject to the following further conditions precedent: (a) On the date of issuance the following statements shall be true and the Bank shall have received a certificate signed by an authorized officer of the Borrower, dated the date of issuance, stating that: (i) The representations and warranties contained in Article II of this Agreement and Section 701 of the Indenture, are true and correct on and as of the date of issuance of the Letter of Credit as though made on and as of such date; and (ii) No event has occurred or would result from the issuance of the Letter of Credit, which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both; and (b) There shall have been no introduction of or change in, or in the interpretation of, any law or regulation that would make it unlawful or unduly burdensome for the Bank to issue the Letter of Credit, no outbreak or escalation of hostilities or other calamity or crisis affecting the Bank, no suspension of or material limitation on trading on the New York Stock Exchange or any other national securities exchange, no declaration of a general banking moratorium by United States or North Carolina banking authorities, and no establishment of any new restrictions on transactions in securities or on banks materially affecting the free market for securities or the extension of credit by banks. 7.3 Conditions Precedent to Each Tender Advance. Each payment made by the Bank under the Letter of Credit pursuant to a Tender Draft shall constitute a Tender Advance hereunder only if on the date of such payment the following statements shall be true: 23 28 (a) The representations and warranties contained in Article II of this Agreement and Section 701 of the Indenture are true and correct on and as of the date of such Tender Advance as though made on and as of such date; and (b) No event has occurred or would result from such Tender Advance, which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both. Unless the Borrower shall have previously advised the Bank in writing or the Bank has actual knowledge that one or more of the above statements is no longer true, the Borrower shall be deemed to have represented and warranted, on the date of payment by the Bank under the Letter of Credit pursuant to a Tender Draft, that on the date of such payment the above statements are true and correct. ARTICLE VIII DEFAULT 8.1 Events of Default. Each of the following shall constitute an Event of Default under this Agreement, whereupon all obligations of the Borrower hereunder, whether then owing or contingently owing, will, at the option of the Bank or its successors or assigns, immediately become due and payable by the Borrower without presentation, demand, protest or notice of any kind, all of which are hereby expressly waived, and the Borrower will pay the reasonable attorneys' fees incurred by the Bank, or its successors or assigns, in connection with such Event of Default, or its successors or assigns, as security for the obligations hereunder: (a) Failure of the Borrower to pay when due (i) any payment of principal, interest, commission, charge or expense referred to in Article III hereof, except for amounts owed by the Borrower pursuant to a Tender Advance under Section 3.3 and (ii) any payment of principal or interest referred to in Section 3.3 hereof and such failure shall continue for a period of five (5) Business Days after notice of such failure is given by the Bank to the Borrower; or (b) The occurrence of an "event of default" or an "Event of Default" under any of the Bond Documents or the Indenture; or (c) The Borrower or any Subsidiary defaults in the payment of principal or interest on any other Indebtedness (other than the indebtedness to the Bank arising hereunder) the aggregate outstanding amount of which Indebtedness is in excess of $5,000,000 beyond any period of grace provided with respect thereto, or in the performance of any other agreement, term or condition contained in any agreement under which any such obligation is created, if the effect of such default is to cause, or permit the holder or holders of such obligation to cause such obligation to become due prior to its stated maturity; or 24 29 (d) Any representation, warranty, certification or statement made by the Borrower herein, or in any writing furnished by or on behalf of the Borrower or any Subsidiary pursuant to this Agreement or the Indenture shall have been false, misleading or incomplete in any material respect on the date as of which made; or (e) The Borrower or any Subsidiary defaults in the performance or observance of any agreement, covenant, term or condition binding on it contained herein and such default shall not have been remedied within thirty (30) days (or any shorter period set forth in such agreement or document) after the earlier of: (i) the Borrower having knowledge thereof; or (ii) written notice having been received by it from the Bank; or (f) With respect to the Borrower or any Subsidiary, (i) the commencement of its liquidation or dissolution or the suspension of its business or the entry of an order or decree approving or requiring the same, (ii) the filing by it of a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganization, arrangement, readjustment of its debts or for any other relief under the Bankruptcy Reform Act of 1978, as amended (the "Bankruptcy Code"), or under any other insolvency act or law, state or federal, now or hereafter existing, or any other action by it indicating its consent to, approval of, or acquiescence in any such petition or proceeding, (iii) the application by it for (or the consent or acquiescence to) the appointment of a receiver or a trustee or an assignment for the benefit of creditors, or (iv) its inability or admission in writing of its inability to pay its debts as they mature; or (g) With respect to the Borrower or any Subsidiary, (i) the filing of an involuntary petition against it in bankruptcy or seeking reorganization, arrangement, readjustment of its debts or for any other relief under the Bankruptcy Code or under any other insolvency act or law, state or federal, now or hereafter existing, or the involuntary appointment of a receiver or trustee for it or for all or a substantial part of its property, and the continuance of any of such action for sixty (60) days undismissed or undischarged, or (ii) the issuance of an order for attachment, execution or similar process against any substantial part of its property and the continuance of any such order for sixty (60) days undismissed or undischarged; or (h) The entry of an order in any proceedings against the Borrower decreeing the dissolution or split-up of the Borrower; or (i) The (a) entry of a final judgment against the Borrower or any Subsidiary, which with other outstanding final judgments against the Borrower and its Subsidiaries exceeds an aggregate of $10,000,000 and is not otherwise fully covered by insurance or for which coverage is denied by the insurer, if within thirty (30) days after entry thereof such judgment shall not have been discharged or execution thereof stayed pending appeal or (b) the attachment or levy against any property of the Borrower or any Subsidiary in excess of $1,000,000 in the aggregate which attachment or levy remains undischarged or unstayed for a period of ninety (90) days; or 25 30 (j) The dissolution or termination of the existence of the Borrower; or then upon the occurrence of an Event of Default and at any time thereafter, the Bank may (A) pursuant to Section 802 of the Indenture, advise the Trustee that an Event of Default has occurred and instruct the Trustee to declare the principal of all Bonds then outstanding and interest thereon to be immediately due and payable, and (B) proceed hereunder and, to the extent therein provided, under the Bond Documents, in such order as it may elect, and exercise all other rights and remedies available to it at law; and the Bank shall have no obligation to proceed against any Person, to exhaust any other remedy or remedies which it may have, or to resort to any other or particular security, whether held by or available to the Bank. 8.2 No Remedy Exclusive. No remedy herein conferred upon or reserved to the Bank is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder, or now or hereafter existing at law or in equity. ARTICLE IX PLEDGED BONDS 9.1 The Pledge. The Borrower hereby pledges, assigns, hypothecates, transfers, and delivers to the Bank all its right, title and interest to, and hereby grants to the Bank a first lien on, and security interest in, all right, title and interest of the Borrower in and to the following (hereinafter collectively called the "Pledged Bond Collateral"): (i) all Bonds delivered by the owners thereof to the Tender Agent (as defined in the Indenture) or Remarketing Agent (as defined in the Indenture) and purchased on behalf of the Borrower with proceeds of drawings under the Letter of Credit (the "Pledged Bonds"); (ii) all income, earnings, profits, interest, premium or other payments in whatever form in respect of the Pledged Bonds; and (iii) all proceeds (cash and non-cash) arising out of the sale, exchange, collection, enforcement or other disposition of all or any portion of the Pledged Bonds. The Pledged Bond Collateral shall serve as security for the payment and performance when due of all obligations of the Borrower hereunder. The Borrower shall deliver, or cause to be delivered, the Pledged Bonds to the Bank or to a pledge agent designated by the Bank immediately upon receipt thereof or, in the case of Pledged Bonds held under a book-entry system administered by The Depository Trust Company ("DTC"), New York, New York (or any other clearing corporation), the Borrower shall cause the Pledged Bonds to be reflected on the records of DTC (or such other clearing corporation) as a position held by the Bank (or a pledge 26 31 agent acceptable to the Bank) as a DTC participant (or a participant in such other clearing corporation) and the Bank (or its pledge agent) shall reflect on its records that the Pledged Bonds are owned beneficially by the Borrower subject to the pledge in favor of the Bank. 9.2 Remedies Upon Default. If any Event of Default shall have occurred and be continuing, the Bank, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon the Borrower or any other person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Pledged Bond Collateral, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase, contract to sell or otherwise dispose of and deliver said Pledged Bond Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker's board or at any of the Bank's offices or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk, with the right to the Bank upon any such sale or sales, public or private, to purchase the whole or any part of said Pledged Bond Collateral so sold, free of any right or equity of redemption in the Borrower, which right or equity is hereby expressly waived or released. The Bank shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care, safekeeping or otherwise of any and all of the Pledged Bond Collateral or in any way relating to the rights of the Bank hereunder, including reasonable attorneys' fees and legal expenses, to the payment in whole or in part of the obligations of the Borrower hereunder in such order as the Bank may elect, the Borrower remaining liable for any deficiency remaining unpaid after such application, and only after so applying such net proceeds and after the payment by the Bank of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the Uniform Commercial Code, need the Bank account for the surplus, if any, to the Borrower. The Borrower agrees that the Bank need not give more than ten days' notice of the time and place of any public sale or of the time after which a private sale or other intended disposition is to take place and that such notice is reasonable notification of such matters. No notification need be given to the Borrower if it has signed after an Event of Default a statement renouncing or modifying any right to notification of sale or other intended disposition. In addition to the rights and remedies granted to the Bank in this Agreement and in any other instrument or agreement securing, evidencing or relating to any of the obligations of the Borrower hereunder, the Bank shall have all the rights and remedies of a secured party under the Uniform Commercial Code in effect in the State at that time. 9.3 Valid Perfected First Lien. The Borrower covenants that the pledge, assignment and delivery of the Pledged Bond Collateral hereunder will create a valid, perfected, first priority security interest in all right, title or interest of the Borrower in or to such Pledged Bond Collateral, and the proceeds thereof, subject to no prior pledge, lien, mortgage, hypothecation, security interest, charge, option or encumbrance or to any agreement purporting to grant to any third party a security interest in the property or assets of the Borrower which would include the Pledged Bond Collateral. The Borrower covenants and agrees that it will defend the Bank's 27 32 right, title and security interest in and to the Pledged Bond Collateral and the proceeds thereof against the claims and demands of all persons whomsoever. 9.4 Release of Pledged Bonds. The Pledged Bonds shall not be released: (a) in connection with Pledged Bonds purchased with the proceeds of a Tender Draft, (i) until the Bank shall have been reimbursed in full for any drawings under the Letter of Credit in order to purchase Pledged Bonds or First Union Capital Markets has received the proceeds from the remarketing of the Pledged Bonds, and (ii) until the amount available to be drawn under the Letter of Credit shall have been reinstated in an amount equal to the principal amount (and related interest) of the Pledged Bonds to be so released. If the Borrower, or the Remarketing Agent or the Tender Agent on behalf of the Borrower, reimburses the Bank for any such Tender Advances and such payment is accompanied by a certificate completed and signed by the Trustee in substantially the form of Annex F to the Letter of Credit, the Bank or its Agent may release from the lien of this Article IX and deliver to the Borrower (or its order) or the Remarketing Agent (if such reimbursement is made by the Remarketing Agent or Tender Agent on behalf of the Borrower or if such Bonds are to be remarketed) Pledged Bonds in a principal amount equal to the amount of such reimbursement; and (b) in connection with Pledged Bonds that are purchased with the proceeds of a Conversion Draft, until the Bank is reimbursed in full pursuant to Section 3.2 hereof with respect to the drawing under the Letter of Credit in connection with the presentation of such Conversion Draft. Upon such reimbursement, there may be released from the lien of this Article IX and delivered to the Borrower (or its order) Pledged Bonds in a principal amount equal to the amount of such reimbursement. With respect to a Tender Draft, the Bank will instruct the Tender Agent not to release Pledged Bonds until the Tender Agent receives notice from the Bank that the Letter of Credit has been reinstated in the principal amount of the Pledged Bonds to be released. ARTICLE X MISCELLANEOUS 10.1 Indemnification. (a) The Borrower hereby indemnifies and holds the Bank harmless from and against any and all claims, damages, losses, liabilities, costs or expenses whatsoever which the Bank may incur (or which may be claimed against the Bank by any Person): (i) by reason of or in connection with the execution and delivery or transfer of, or payment or failure to pay under, the Letter of Credit, provided that the Borrower shall not be required to indemnify the Bank for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by the willful misconduct or gross 28 33 negligence of the Bank or failure of the Bank to pay a draw which strictly conforms to the terms of the Letter of Credit or (ii) by reason of or in connection with the execution, delivery or performance of any of the Bond Documents or any transaction contemplated by any thereof. Anything herein to the contrary notwithstanding, nothing in this Section 10.1 is intended or shall be construed to limit the Borrower's reimbursement obligation contained in Article III hereof. Without prejudice to the survival of any other obligation of the Borrower, the indemnities and obligations of the Borrower contained in this Section 10.1 shall survive the payment in full of amounts payable pursuant to Article III and the Expiration Date. 10.2 Transfer of Letter of Credit. The Letter of Credit may be transferred and assigned in accordance with its terms. 10.3 Reduction of Letter of Credit. (a) The Letter of Credit is subject to reduction pursuant to its terms. (b) If the amount available to be drawn under the Letter of Credit shall be permanently reduced in accordance with the terms thereof, then the Bank shall have the right to require the Trustee to surrender the Letter of Credit to the Bank and to issue on such date, in substitution for such outstanding Letter of Credit, a substitute irrevocable letter of credit, substantially in the form of the Letter of Credit but with such changes therein as shall be appropriate to give effect to such reduction, dated such date, for the amount to which the amount available to be drawn under the Letter of Credit shall have been reduced. 10.4 Liability of the Bank. The Borrower, to the extent permitted by applicable law, assumes all risks of the acts or omissions of the Trustee and any beneficiary or transferee of the Letter of Credit with respect to its use of the Letter of Credit. Neither the Bank nor any of its officers, directors, employees, agents or consultants shall be liable or responsible for: (a) the use which may be made of the Letter of Credit or for any acts or omissions of the Trustee or any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement(s) thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (c) payment by the Bank against presentation of documents which do not comply on their face with the terms of the Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in any way related to the making or failure to make payment under the Letter of Credit; 29 34 In furtherance and not in limitation of the foregoing, the Bank may accept documents that appear on their face to comply with the terms of the Letter of Credit, without responsibility for further investigation, regardless of any notice or information to the contrary. 10.5 Successors and Assigns. This Agreement shall be binding upon the Borrower, its successors and assigns and all rights against the Borrower arising under this Agreement shall be for the sole benefit of the Bank, its successors and assigns, all of whom shall be entitled to enforce performance and observance of this Agreement to the same extent as if they were parties hereto. 10.6 Notices. All notices, requests and demands to or upon the respective parties hereto shall be deemed to have been given or made when hand delivered or mailed first class, certified or registered mail, postage prepaid, addressed as follows or to such other address as the parties hereto shall have been given notice pursuant to this Section 10.6: The Bank: First Union National Bank 301 South Tryon Street, M-7 Charlotte, North Carolina 28288-0742 Attention: Hal A. Telimen also: First Union National Bank 301 South Tryon Street, M-2 Charlotte, North Carolina 28288-0145 Attention: William W. Tyson The Borrower: Belk, Inc. 2801 West Tyvola Road Charlotte, North Carolina 28217-4500 Attention: Luther T. Moore, Esq. except in cases where it is expressly herein provided that such notice, request or demand is not effective until received by the party to whom it is addressed, in which event said notice, request or demand shall be effective only upon receipt by the addressee. 10.7 Amendment. This Agreement may be amended, modified or discharged only upon an agreement in writing of the Borrower and the Bank. 10.8 Effect of Delay and Waivers. No delay or omission to exercise any right or power accruing upon any default, omission or failure of performance hereunder shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Bank to exercise any remedy now or hereafter existing at law or in equity or by statute, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. 30 35 In the event any provision contained in this Agreement should be breached by any party and thereafter waived by the other party so empowered to act, such waiver shall be limited to the particular breach hereunder. No waiver, amendment, release or modification of this Agreement shall be established by conduct, custom or course of dealing, but solely by an instrument in writing duly executed by the parties thereunto duly authorized by this Agreement. 10.9 Counterparts. This Agreement may be executed simultaneously in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.10 Severability. The invalidity or unenforceability of any one or more phrases, sentences, clauses or Sections contained in this Agreement shall not affect the validity or enforceability of the remaining portions of this Agreement, or any part thereof. 10.11 Payment of Expenses. The Borrower shall be liable for the payment of all fees and expenses, including reasonable attorneys' fees (based on actual hours at standard billing rates and without regard to any statutory presumption), incurred in connection with the preparation, execution, and enforcement of this Agreement, the modification hereof, and the exercise of any rights and remedies of the Bank hereunder. The obligations of the Borrower contained in this Section 10.11 shall survive (i) the payment in full of amounts payable pursuant to Article III and (ii) the Expiration Date. 10.12 Set Off. Upon the occurrence of an Event of Default hereunder, the Bank is hereby authorized, without notice to the Borrower, to set off, appropriate and apply any and all monies, securities and other properties of the Borrower hereafter held or received by or in transit to the Bank from or for the Borrower, against the obligations of the Borrower irrespective of whether the Bank shall have made any demand hereunder; provided, however, that the Bank hereby waives any such right, and any other right which it may have at law or otherwise to set off and apply such deposits at any time held, if, when and after there shall be a drawing under the Letter of Credit during the pendency of any proceeding by or against the Borrower seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of either of them or either of their debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, custodian, trustee or other similar official for either of them or for any substantial part of either of their property. 10.13 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina. The Borrower hereby acknowledges that the Letter of Credit shall be governed by and construed in accordance with Uniform Customs and Practice for Documentary Credits (1993 revisions), International Chamber of Commerce Publication No. 500. 10.14 References. The words "herein", "hereof", "hereunder" and other words of similar import when used in this Agreement refer to this Agreement as a whole, and not to any particular article, section or subsection. 31 36 10.15 Taxes, Etc. Any taxes (excluding income taxes) payable or ruled payable by federal or state authority in respect of the Letter of Credit or this Agreement shall be paid by the Borrower upon demand by the Bank, together with interest and penalties, if any. 10.16 Consent to Jurisdiction. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS DAY RECEIVED, THE BORROWER HEREBY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE COURT WITHIN MECKLENBURG COUNTY, NORTH CAROLINA OR ANY FEDERAL COURT LOCATED WITHIN THE WESTERN DISTRICT OF THE STATE OF NORTH CAROLINA FOR ANY PROCEEDING INSTITUTED HEREUNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF DOCUMENT EXECUTED IN CONNECTION HEREWITH, OR ANY PROCEEDING TO WHICH THE BANK OR THE BORROWER IS A PARTY, INCLUDING ANY ACTIONS BASED UPON, ARISING OUT OF, OR IN CONNECTION WITH ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE BANK OR THE BORROWER. THE BORROWER IRREVOCABLY AGREES TO BE BOUND (SUBJECT TO ANY AVAILABLE RIGHT OF APPEAL) BY ANY JUDGMENT RENDERED OR RELIEF GRANTED THEREBY AND FURTHER WAIVES ANY OBJECTION THAT IT MAY HAVE BASED ON LACK OF JURISDICTION OR IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY SUCH PROCEEDING. THE BORROWER CONSENTS THAT ALL SERVICE OF PROCESS BE MADE BY REGISTERED OR CERTIFIED MAIL DIRECTED TO IT AT ITS ADDRESS SET FORTH HEREIN, AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER POSTAGE PREPAID AND PROPERLY ADDRESSED. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. 10.17 Indirect Means. Any act which the Borrower is prohibited from doing shall not be done indirectly through a Subsidiary or by any other indirect means. [Signature pages to follow] 32 37 IN WITNESS WHEREOF, the Borrower and the Bank have caused this Agreement to be executed in their respective names and their respective seals to be hereunto affixed and attested by their duly authorized representatives, all as of the date first above written. THE BORROWER: BELK, INC. By: ____________________________________ ATTEST: Title: ____________________________________ _______________________ Assistant Secretary (CORPORATE SEAL) 33 38 THE BANK: FIRST UNION NATIONAL BANK By: ____________________________________ Title: ____________________________________ 34 39 IRREVOCABLE LETTER OF CREDIT Date: July 23, 1998 LETTER OF CREDIT NO. S159736 First Union National Bank, as Trustee Corporate Trust Department 230 South Tryon Street Charlotte, North Carolina 28288-1179 Attention: Ms. Shannon Schwartz Ladies and Gentlemen: We (the "Bank") hereby issue to you, First Union National Bank, as Trustee ("you" or the "Trustee") under the Trust Indenture dated as of July 1, 1998 between Belk, Inc. (the "Borrower") and you (as amended or supplemented, the "Indenture"), pursuant to which $125,000,000 Belk, Inc. Taxable Variable Rate Demand Revenue Bonds, Series 1998 (the "Bonds") have been issued, this Irrevocable Letter of Credit No. S159736 (the "Letter of Credit") for the account of the Borrower in the amount of $126,849,316 (the "Initial Stated Amount" and, as from time to time reduced and reinstated as hereinafter provided, the "Amount Available"), of which (i) subject to the provisions below reducing amounts available hereunder, $125,000,000 (as from time to time reduced and reinstated as hereinafter provided, the "Principal Amount Available") shall be available for the payment of principal or the portion of the purchase price corresponding to principal of the Bonds and (ii) subject to the provisions below reducing amounts available hereunder, $1,849,316 (as from time to time reduced and reinstated as hereinafter provided, for the "Interest Amount Available") shall be available for the payment of up to 45 days' interest or the portion of the purchase price corresponding to interest on the Bonds at an assumed rate of twelve percent (12%) per annum. Subject to such aggregate limits and to the conditions set forth herein, funds may be drawn upon hereunder (i) with respect to payment of the unpaid principal amount or the portion of purchase price corresponding to the principal of the Bonds and (ii) with respect to payment of up to 45 days' interest accrued and payable or the portion of purchase price corresponding to interest accrued on the Bonds on or prior to their stated maturity date. This Letter of Credit is effective immediately and expires as of the close of business at our Presentation Office (as hereinafter defined) on July 23, 2001 (the "Expiration Date") or earlier as hereinafter provided. Prior to any anniversary of the Closing Date, the Bank may, in its sole discretion, extend the applicable Expiration Date for an additional one year period. The Bank shall notify the Borrower and you, or any successor Trustee, in writing at least one hundred twenty (120) days prior to the applicable Expiration Date by U. S. certified mail, return receipt requested or express courier that such Expiration Date has been extended. The Bank shall be under no obligation or commitment to extend any applicable Expiration Date and no such obligation or commitment on the part of the Bank shall be inferred from the provisions of this paragraph. Failure on the part of the Bank to notify the Borrower and you as to 40 an extension of the applicable Expiration Date shall be deemed to be a refusal to extend such Expiration Date. All drawings under this Letter of Credit will be paid with our own funds. We hereby irrevocably authorize you to draw on us, in an aggregate amount not to exceed the Amount Available and in accordance with the terms and conditions and subject to the reductions in amount as hereinafter set forth, (1) in a single drawing (subject to the provisions contained in the next following paragraph) by your draft drawn on us at sight, presented for payment on a day on which banks in the State of North Carolina are open for the transaction of business of the nature required pursuant to the Indenture (a "Business Day") and referring therein to the number of this Letter of Credit, and accompanied by your written and completed certificate signed by you in the form of Annex A attached hereto (such draft accompanied by such certificate being your "Interest Draft"), an amount not exceeding the Interest Amount Available on the date of such drawing; (2) in one or more drawings by one or more of your drafts drawn on us at sight, presented for payment on a Business Day and referring therein to the number of this Letter of Credit, and accompanied by your written completed certificate signed by you in the form of Annex B attached hereto (any such draft accompanied by such certificate being your "Tender Draft"), an aggregate amount not exceeding the Amount Available on the date of such drawing; (3) in one or more drawings by one or more of your drafts drawn on us at sight, presented for payment on a Business Day and referring therein to the number of this Letter of Credit, and accompanied by your written and completed certificate signed by you in the form of Annex C attached hereto (any such draft accompanied by such certificate being your "Partial Redemption Draft"), an aggregate amount not exceeding the Amount Available on the date of such drawing; (4) in a single drawing by your draft drawn on us at sight presented for payment on a Business Day and referring therein to the number of this Letter of Credit, and accompanied by your written and completed certificate signed by you in the form of Annex D hereto (any such draft accompanied by such certificate being your "Conversion Draft"), an amount not exceeding the Amount Available on the date of such drawing; and (5) in a single drawing by your draft drawing on us at sight, presented for payment on a Business Day and referring therein to the number of this Letter of Credit, and accompanied by your written and completed certificate signed by you in the form of Annex E attached hereto (such draft accompanied by such certificate being your "Final Draft"), an amount not exceeding the Amount Available on the date of such drawing. If you shall draw on us by an Interest Draft and you shall not have received from us within ten (10) calendar days from the date of such drawing a notice to the effect that we have not been reimbursed for such drawing and that the interest portion of the Letter of Credit will not be reinstated, then (x) your right to draw on us in a single drawing by your Interest Draft under clause (1) of the immediately preceding paragraph shall be automatically reinstated and (y) effective as of the eleventh (11th) calendar day from the date of such drawing, you shall again be authorized to draw on us by your Interest Draft in accordance with said clause (1). The provisions of this paragraph providing for the reinstatement of your right to draw on us by your Interest Draft in a succeeding single drawing shall be applicable to each successive drawing by your Interest Draft under clause (1) of the immediately preceding paragraph so long as this Letter of Credit shall not have terminated as set forth below. 2 41 Upon our honoring any Tender Draft presented by you hereunder, the Amount Available under this Letter of Credit shall be automatically reduced by the amount drawn under such Tender Draft, the Principal Amount Available to be drawn hereunder by you shall be automatically reduced by an amount equal to the principal component of such Tender Draft and the Interest Amount Available to be drawn hereunder by you shall be automatically reduced by an amount equal to the amount of the interest component of such Tender Draft. Upon our honoring any Partial Redemption Draft presented by you hereunder, the Amount Available under this Letter of Credit shall be automatically and permanently reduced by the amount drawn under any such Partial Redemption Draft, the Principal Amount Available to be drawn hereunder by you shall be automatically and permanently reduced by an amount equal to the principal component of such Partial Redemption Draft honored by us hereunder and the Interest Amount Available to be drawn hereunder by you shall be automatically and permanently reduced by an amount equal to the amount of the interest which would accrue on an amount of principal equal to the principal component of such Partial Redemption Draft for 45 days at an assumed rate of twelve percent (12%) per annum. Upon our honoring any Conversion Draft presented by you hereunder, the Amount Available under this Letter of Credit shall be automatically and permanently reduced by the amount drawn under any such Conversion Draft, the Principal Amount Available to be drawn hereunder by you shall be automatically and permanently reduced by an amount equal to the principal component of such Conversion Draft honored by us hereunder, and the Interest Amount Available to be drawn hereunder by you shall be automatically and permanently reduced by an amount equal to the amount of the interest component of any such Conversion Draft honored by us hereunder. The Amount Available, the Principal Amount Available and the Interest Amount Available drawn under this Letter of Credit with respect to any Tender Draft shall be reinstated as provided in this paragraph to the extent, but only to the extent, that we are reimbursed by or on behalf of the Borrower in immediately available funds delivered to us at the Presentation Office on or before 3:00 P.M. (Charlotte, North Carolina time) on a Business Day for any amount drawn in respect of principal and interest under any Tender Draft. If we receive such reimbursement by or on behalf of the Borrower, all in strict conformity with the terms and conditions of this Letter of Credit, after 3:00 P.M. (Charlotte, North Carolina time) on a Business Day prior to the termination hereof, such reimbursement will be honored as stated above as if received on the next succeeding Business Day. Any amount received by us from or on behalf of the Borrower in reimbursement of amounts drawn hereunder by a Tender Draft shall, if accompanied by your completed certificate signed by you in the form of Annex F attached hereto, be applied to the extent of the amount received by us and indicated therein to reimburse us for amounts drawn hereunder by your Tender Drafts and we will confirm to you the amount of the Principal Amount Available and the Interest Amount Available reinstated by such reimbursement by delivering to you the executed and completed acknowledgment accompanying the form of Annex F delivered by you in connection with such reimbursement. The Amount Available, the Principal Amount Available and the Interest Amount Available shall be reinstated only in compliance with the provisions of this paragraph. 3 42 Each draft and certificate presented hereunder shall be dated the date of its presentation and each such draft and certificate shall be presented at our office located at 301 South Tryon Street, M-7 Charlotte, North Carolina 28288-0742, Attention: International Operations (or at any other office in the State of North Carolina which may be designated by us by written notice delivered to you at least three Business Days prior to a date on which interest is payable on the Bonds) (the "Presentation Office") and shall be presented on a Business Day. Notwithstanding the foregoing, all drawings hereunder may be made by telecopy to (704) 383-6984 and promptly confirmed by written certificate. As an accommodation and not as a condition, you will endeavor to give the Bank telephonic notice that a draft is being submitted at (704)374-3028. If we receive any of your drafts and certificates at such office, all in strict conformity with the terms and conditions of this Letter of Credit, not later than 11:00 A.M. (Charlotte, North Carolina time) on a Business Day on or prior to the termination hereof, we will honor the same by initiating the wire of funds by 2:30 P.M. (Charlotte, North Carolina time) on the same day in accordance with your payment instructions. If we receive any of your drafts and certificates at such office, all in strict conformity with the terms and conditions of this Letter of Credit, after 11:00 A.M. (Charlotte, North Carolina time) on a Business Day prior to the termination hereof, we will honor the same on the next succeeding Business Day by initiating the wiring of funds by 2:30 P.M. (Charlotte, North Carolina time) in accordance with your payment instructions. If requested by you, payment under this Letter of Credit may be made by wire transfer of Federal Reserve Bank of Richmond funds to your account in a bank on the Federal Reserve wire system or by deposit of same day funds into a designated account that you maintain with us. In connection with the presentation of any Tender Draft or Conversion Draft, Bonds in aggregate principal amount equal to the principal amount of such Tender Draft or Conversion Draft shall be delivered to the Bank or its designee as promptly as practicable, and in any event within five Business Days after such presentation, registered in the name of the Bank, or its designee, as pledgee of the Borrower, pledged to the Bank pursuant to Section 9.1 of the Letter of Credit and Reimbursement Agreement dated as of July 1, 1998 between the Borrower and us (the "Reimbursement Agreement"). With respect to any Tender Draft, the Bank agrees that it shall not release any Bonds pledged to it until the Trustee shall have received the Bank's executed acknowledgment accompanying the form of Annex F attached hereto notifying the Trustee that the Letter of Credit has been reinstated so that the Amount Available, as so reinstated, shall equal or exceed the aggregate principal and 45 days' interest calculated at an assumed rate of twelve percent (12%) per annum on all Bonds for which drawings are available hereunder after giving effect to such release. With respect to any Conversion Draft, the Bank agrees that it shall not release any Bonds pledged to it until the Bank is reimbursed in full pursuant to Section 3.2 of the Reimbursement Agreement with respect to the drawing under the Letter of Credit in connection with the presentation of such Conversion Draft. This Letter of Credit shall terminate upon the earliest of (i) our honoring your Final Draft presented hereunder, (ii) the second day following the date on which we receive a certificate signed by you stating that the interest rate on the Bonds has been converted to a Fixed Rate, (iii) the date on which we receive a certificate signed by you stating that the Borrower has provided and you have accepted an Alternate Credit Facility (as defined in the Indenture) in accordance 4 43 with the terms of the Indenture which is effective the date of such certificate, (iv) the date on which the Bank receives notice from the Trustee that there are no longer any Bonds Outstanding (as defined in the Indenture) or (v) the Expiration Date (as extended from time to time pursuant to the provisions hereof). Notwithstanding Article 48 of UCP (as defined below), this Letter of Credit is transferable more than once. This Letter of Credit is transferable only in its entirety to any transferee whom you certify to us has succeeded you as Trustee under the Indenture, and may be successively transferred. Transfer of the Amount Available under this Letter of Credit to such transferee shall be effected by the presentation to us of this Letter of Credit accompanied by a certificate in the form of Annex G attached hereto and payment of the transfer commission referred to therein. Upon such presentation we shall forthwith transfer the same to your transferee or, if so requested by your transferee, issue a letter of credit to your transferee with provisions therein consistent with this Letter of Credit. This Letter of Credit sets forth in full our undertaking, and such undertaking shall not in any way be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein (including, without limitation, the Bonds or the Indenture), except only the certificates and the drafts referred to herein which are hereby incorporated by reference; and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement except for such certificates and such drafts. Except as otherwise provided herein, this Letter of Credit shall be governed by and construed in accordance with the Uniform Customs and Practice for Documentary Credits (1993 Revisions), International Chamber of Commerce Publication No. 500 (the "UCP") and, to the extent not inconsistent therewith, the laws of the State of North Carolina. Communications with respect to this Letter of Credit other than presentations of drafts and certificates hereunder shall be in writing and shall be addressed to us at 301 South Tryon Street, M-7, Charlotte, North Carolina 28288-0742, Attention: International Operations, specifically referring to the number of this Letter of Credit. Very truly yours, FIRST UNION NATIONAL BANK By: ____________________________________ Title: ___________________________ 5 44 ANNEX A [Form of Certificate for Interest Draft] CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT OF UP TO 45 DAYS' INTEREST IRREVOCABLE LETTER OF CREDIT NO. S159736 The undersigned, a duly authorized officer of the undersigned Trustee (the "Trustee"), hereby certifies to First Union National Bank (the "Bank"), with reference to Irrevocable Letter of Credit No. S159736 (the "Letter of Credit"; the terms defined therein and not otherwise defined herein being used herein as therein defined) issued by the Bank in favor of the Trustee, as follows: (1) The Trustee is the Trustee or a Co-Trustee under the Indenture for the holders of the Bonds. (2) The Trustee is making a drawing under the Letter of Credit with respect to a payment of interest on the Bonds, which payment is due and payable on a regular Interest Payment Date (as defined in the Indenture). On the record date for such Interest Payment Date, none of such Bonds for which interest is drawn pursuant to the draft were held of record by the Borrower, or by the Bank, or its designee, as pledgee of the Borrower. (3) [The Interest Draft accompanying this Certificate is the first Interest Draft presented by the Trustee under the Letter of Credit.]* [The Interest Draft last presented by the Trustee under the Letter of Credit was honored and paid by the Bank on ___________________, _______, and the Trustee has not received a notice within ten days of presentation of such Interest Draft from the Bank that the Bank has not been reimbursed.]** (4) The amount of the Interest Draft accompanying this Certificate is $___________. It was computed in compliance with the terms and conditions of the Bonds and the Indenture and does not exceed the Interest Amount Available to be drawn by the Trustee under the Letter of Credit. (5) Upon receipt by the undersigned of the amount demanded hereby, (a) the undersigned will apply the same directly to the payment when due of the interest amount owing on account of the Bonds pursuant to the Indenture, (b) no portion of said amount shall be applied by the undersigned for any other purpose, and (c) no portion of said amount shall be commingled with other funds held by the undersigned. 6 45 IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the ____ day of ________________, 19__. FIRST UNION NATIONAL BANK, as Trustee By: ____________________________________ Name: ___________________________ Title: ___________________________ - ------------------- * To be used in the Certificate relating to the first Interest Draft only. ** To be used in each Certificate relating to each Interest Draft other than the first Interest Draft. 7 46 ANNEX B [Form of Certificate for Tender Draft] CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT OF PRINCIPAL PURCHASE PRICE AND PORTION OF PURCHASE PRICE CORRESPONDING TO INTEREST OF BONDS TENDERED IRREVOCABLE LETTER OF CREDIT NO. S159736 The undersigned, a duly authorized officer of the undersigned Trustee (the "Trustee"), hereby certifies to First Union National Bank (the "Bank"), with reference to Irrevocable Letter of Credit No. S159736 (the "Letter of Credit"; the terms defined herein and not otherwise defined herein being used herein as therein defined) issued by the Bank in favor of the Trustee, as follows: (1) The Trustee is the Trustee or a Co-Trustee under the Indenture for the holders of the Bonds. (2) The Trustee is making a drawing under the Letter of Credit with respect to a payment, upon a tender of all or less than all of the Bonds, which are Outstanding (as defined in the Indenture), of the unpaid principal amount of the Bonds and accrued interest thereon to be purchased as a result of such tender pursuant to the terms of Article III or Section 203 (except for conversion to the Fixed Rate) of the Indenture (other than Bonds, presently held of record by the Borrower, or by the Bank, or its designee, as pledgee of the Borrower) which payment is due on the date on which this Certificate and the Tender Draft it accompanies are being presented to the Bank. (3) The amount of the Tender Draft accompanying this Certificate is equal to the sum of (i) $____________ being drawn in respect of the payment of unpaid principal of Bonds (other than Bonds presently held of record by the Borrower or by the Bank, or its designee, as pledgee of the Borrower) to be purchased as a result of a tender, which amount does not exceed the Principal Amount Available under the Letter of Credit, and (ii) $_____________ being drawn in respect of the payment of _______ days' [not to exceed 45 days'] accrued and unpaid interest on such Bonds constituting a portion of the purchase price of such Bonds being purchased as a result of a tender, which amount does not exceed the Interest Amount Available under the Letter of Credit. (4) The Trustee shall, pursuant to the Reimbursement Agreement, deliver or cause to be delivered to the Bank or its designee a principal amount of Bonds equal to the principal amount of the Tender Draft accompanying this Certificate as promptly as 8 47 practicable, and in any event within five Business Days after presentation of the Tender Draft accompanying this Certificate. (5) Upon receipt by the undersigned of the amount demanded hereby, (a) the undersigned will apply the same directly to the payment when due of the purchase price of Bonds tendered pursuant to the Indenture, (b) no portion of said amount shall be applied by the undersigned for any other purpose, and (c) no portion of said amount shall be commingled with other funds held by the undersigned. (6) The amount of the Tender Draft accompanying this Certificate was computed in compliance with the terms and conditions of the Bonds and the Indenture and does not exceed the Amount Available under the Letter of Credit. The Trustee acknowledges that, pursuant to the terms of the Letter of Credit, upon the Bank's honoring of the Tender Draft accompanying this Certificate, (i) the Amount Available under the Letter of Credit shall be automatically reduced by the aggregate amount of such Tender Draft, (ii) the Principal Amount Available under the Letter of Credit shall be automatically reduced by an amount equal to the amount of the principal component of such draft set forth in paragraph 3 above, and (iii) the Interest Amount Available under the Letter of Credit shall be automatically reduced by an amount equal to the amount of the interest component of such draft set forth in paragraph 3 above, each subject to reinstatement as set forth in the Letter of Credit. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the ____ day of ______________, ____. FIRST UNION NATIONAL BANK, as Trustee By: ____________________________________ Name: ___________________________ Title: ___________________________ 9 48 ANNEX C [Form of Certificate For Partial Redemption Draft] CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT OF PRINCIPAL AND UP TO 45 DAYS' INTEREST UPON PARTIAL REDEMPTION IRREVOCABLE LETTER OF CREDIT NO. S159736 The undersigned, a duly authorized officer of the undersigned Trustee (the "Trustee"), hereby certifies to First Union National Bank (the "Bank"), with reference to Irrevocable Letter of Credit No. S159736 (the "Letter of Credit"; the terms defined therein and not otherwise defined herein being used herein as therein defined) issued by the Bank in favor of the Trustee, as follows: (1) The Trustee is the Trustee or a Co-Trustee under the Indenture for the holders of the Bonds. (2) The Trustee is making a drawing under the Letter of Credit with respect to a payment, upon redemption of less than all of the Bonds which are Outstanding (as defined in the Indenture), of the unpaid principal amount of, and up to 45 days' accrued and unpaid interest on, the Bonds to be redeemed pursuant to the Indenture (other than Bonds presently held of record by the Borrower, or by the Bank, or its designee, as pledgee of the Borrower). (3) The amount of the Partial Redemption Draft accompanying this Certificate is $__________ and is equal to the sum of (i) $________ being drawn in respect of the payment of unpaid principal of Bonds (other than Bonds presently held of record by the Borrower or by Bank, or its designee, as pledgee of the Borrower) to be redeemed, which amount does not exceed the Principal Amount Available under the Letter of Credit and (ii) $__________ being drawn in respect of the payment of ____ days' [not to exceed 45 days'] accrued and unpaid interest on such Bonds, which amount does not exceed the Interest Amount Available under the Letter of Credit. (4) The amount of the Partial Redemption Draft accompanying this Certificate was computed in accordance with the terms and conditions of the Bonds and the Indenture and does not exceed the Amount Available under the Letter of Credit. (5) This Certificate and the Partial Redemption Draft it accompanies are dated, and are being presented to the Bank on, the date on which the unpaid principal amount of, and accrued and unpaid interest on, Bonds to be redeemed are due and 10 49 payable under the Indenture upon redemption of less than all of the Bonds which are Outstanding (as defined in the Indenture). (6) Upon receipt by the undersigned of the amount demanded hereby, (a) the undersigned will apply the same directly to the payment when due of the principal amount of and accrued and unpaid interest on the Bonds pursuant to the Indenture, (b) no portion of said amount shall be applied by the undersigned for any other purpose and (c) no portion of said amount shall be commingled with other funds held by the undersigned. The Trustee acknowledges that, pursuant to the terms of Letter of Credit, upon the Bank's honoring the Partial Redemption Draft accompanying this Certificate, (i) the Amount Available under the Letter of Credit shall be permanently reduced by the aggregate amount of such Partial Redemption Draft, (ii) the Principal Amount Available under the Letter of Credit shall be permanently reduced by an amount equal to the amount of the principal component of such draft set forth in paragraph 3 above and (iii) the Interest Amount Available under the Letter of Credit shall be permanently reduced by $____________, which is equal to an amount of interest which would accrue on an amount of principal equal to the principal component set forth in paragraph 3 above for a period of 45 days at a maximum rate of twelve percent (12%) per annum. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the ______ day of _______________, 19__. FIRST UNION NATIONAL BANK, as Trustee By: ____________________________________ Name: ___________________________ Title: ___________________________ 11 50 ANNEX D [Form of Certificate for Conversion Draft] CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT OF PRINCIPAL PLUS ACCRUED INTEREST UPON A MANDATORY PURCHASE (CONVERSION OF RATE) IRREVOCABLE LETTER OF CREDIT NO. S159736 The undersigned, a duly authorized officer of the undersigned Trustee (the "Trustee"), hereby certifies to First Union National Bank (the "Bank"), with reference to Irrevocable Letter of Credit No. S159736 (the "Letter of Credit"; the terms defined therein and not otherwise defined herein being used herein as therein defined) issued by the Bank in favor of the Trustee, as follows: (1) The Trustee is the Trustee under the Indenture for the holders of the Bonds. (2) The Trustee is making a drawing under the Letter of Credit with respect to a payment, upon a mandatory tender for purchase pursuant to Section 203 of the Indenture upon conversion to a Fixed Rate (as defined in the Indenture) of all or less than all of the Bonds which are Outstanding (as defined in the Indenture), of the unpaid principal amount of, and up to 45 days' accrued and unpaid interest on, the Bonds to be so purchased (other than Bonds presently held of record by the Borrower, or the Bank, or its designee, as pledgee of the Borrower), which payment is due on the date on which this Certificate and the Conversion Draft it accompanies are being presented to the Bank. (3) The amount of the Conversion Draft accompanying this Certificate is $__________ and is equal to the sum of (i) $__________ being drawn in respect of the payment of unpaid principal of Bonds (other than Bonds presently held of record by the Borrower, or by the Bank, or its designee, as pledgee of the Borrower) to be purchased, which amount does not exceed the Principal Amount Available under the Letter of Credit, and (ii) $_____ being drawn in respect of the payment of ____ days' [not to exceed 45 days'] accrued and unpaid interest on such Bonds, which amount does not exceed the Interest Amount Available under the Letter of Credit. (4) The amount of the Conversion Draft accompanying this Certificate was computed in compliance with the terms and conditions of the Bonds and the Indenture and does not exceed the Amount Available under the Letter of Credit. 12 51 (5) Upon receipt by the undersigned of the amount demanded hereby, (a) the undersigned will apply the same directly to the payment when due of the principal amount of, and interest accrued and unpaid on, the Bonds pursuant to the Indenture, (b) no portion of said amount shall be applied by the undersigned for any other purpose and (c) no portion of said amount shall be commingled with other funds held by the undersigned. (6) The Trustee shall, pursuant to the Reimbursement Agreement, deliver or cause to be delivered to the Bank or its agent a principal amount of Bonds equal to the principal amount of the Conversion Draft accompanying this Certificate as promptly as practicable, and in any event within five Business Days after presentation of the Conversion Draft accompanying this Certificate. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the ______ day of ______________, 19__. FIRST UNION NATIONAL BANK, as Trustee By: ____________________________________ Name: ___________________________ Title: ___________________________ 13 52 ANNEX E [Form of Certificate for Final Draft] CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT OF PRINCIPAL PLUS ACCRUED INTEREST, UPON STATED OR ACCELERATED MATURITY OR OPTIONAL OR MANDATORY REDEMPTION AS A WHOLE IRREVOCABLE LETTER OF CREDIT NO. S159736 The undersigned, a duly authorized officer of the undersigned Trustee (the "Trustee"), hereby certifies to First Union National Bank (the "Bank"), with reference to Irrevocable Letter of Credit No. S159736 (the "Letter of Credit"; the terms defined therein and not otherwise defined herein being used herein as therein defined) issued by the Bank in favor of the Trustee, as follows: (1) The Trustee is the Trustee or a Co-Trustee under the Indenture for the holders of the Bonds. (2) The Trustee is making a drawing under the Letter of Credit with respect to a payment, either at stated maturity, upon acceleration, or as a result of a redemption as a whole pursuant to the Indenture, of the unpaid principal amount of and up to 45 days' accrued and unpaid interest on, all of the Bonds which are "Outstanding" within the meaning of the Indenture (other than Bonds presently held of record by the Borrower or by the Bank, or its designee, as pledgee of the Borrower). (3) The amount of the Final Draft accompanying this Certificate is $__________ and is equal to the sum of (i) $__________ being drawn in respect of the payment of unpaid principal of Bonds (other than Bonds presently held of record by the Borrower or by the Bank, or its designee, as pledgee of the Borrower), which amount does not exceed the Principal Amount Available under the Letter of Credit, and (ii) $__________ being drawn in respect of the payment of ________ days' [not to exceed 45 days'] accrued and unpaid interest on such Bonds, which amount does not exceed the Interest Amount Available under the Letter of Credit. (4) The amount of the Final Draft accompanying this Certificate was computed in compliance with the terms and conditions of the Bonds and the Indenture and does not exceed the Amount Available under the Letter of Credit. (5) Upon receipt by the undersigned of the amount demanded hereby, (a) the undersigned will apply the same directly to the payment when due of the principal amount and accrued and unpaid interest thereon owing on account of the Bonds pursuant 14 53 to the Indenture, (b) no portion of said amount shall be applied by the undersigned for any other purpose and (c) no portion of said amount shall be commingled with other funds held by the undersigned. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the ______ day of _______________, 19__. FIRST UNION NATIONAL BANK, as Trustee By: ____________________________________ Name: ___________________________ Title: ___________________________ 15 54 ANNEX F [Form of Reinstatement Certificate For Tender Draft] CERTIFICATE FOR THE REINSTATEMENT OF AMOUNTS AVAILABLE UNDER IRREVOCABLE LETTER OF CREDIT NO. S159736 The undersigned, a duly authorized officer of the undersigned Trustee (the "Trustee"), hereby certifies to First Union National Bank (the "Bank"), with reference to Irrevocable Letter of Credit No. S159736 (the "Letter of Credit"; the terms defined therein and not otherwise defined herein being used herein as therein defined) issued by the Bank in favor of the Trustee, as follows: (1) The Trustee is the Trustee or a Co-Trustee under the Indenture for the holders of the Bonds. (2) The amount of $________ paid to you today by or on behalf of the Borrower is a payment made to reimburse you, pursuant to Section 3.2 of the Letter of Credit and Reimbursement Agreement dated as of July __, 1998 between the Borrower and the Bank, for amounts drawn under the Letter of Credit by Tender Drafts. The Trustee hereby requests that you reinstate the Letter of Credit upon receipt of such payment in an amount equal to the amount of payment so received. (3) Of the amount referred to in paragraph (2), $__________ represents the aggregate principal amount of Bonds resold or to be sold on behalf of the Borrower. (4) Of the amount referred to in paragraph (2), $__________ represents accrued and unpaid interest on the Bonds. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the ______ day of ______________, 19__. FIRST UNION NATIONAL BANK, as Trustee By: ____________________________________ Name: ___________________________ Title: ___________________________ 16 55 [attached to Annex F] ACKNOWLEDGMENT The Bank hereby confirms to the Trustee that the Principal Amount Available under the Letter of Credit has been reinstated by the amount $____________ and the Interest Amount Available under the Letter of Credit has been reinstated by the amount of $____________. This ______ day of _______________, 19__. FIRST UNION NATIONAL BANK By: ____________________________________ Name: ___________________________ Title: ___________________________ 17 56 ANNEX G [Form of Transfer Certificate] INSTRUCTION TO TRANSFER First Union National Bank 301 South Tryon Street, M-7 Charlotte, North Carolina 28288-0742 Attention: International Operations Re: Your Irrevocable Letter of Credit No. S159736 Ladies and Gentlemen: For value received, the undersigned beneficiary (the "Transferor") hereby irrevocably transfers to: ------------------------------ [Name of Transferee] ------------------------------ [Address] (the "Transferee") all rights of the Transferor with respect to the above-referenced Letter of Credit, including the right to draw under said Letter of Credit in the Amount Available. Said Transferee has succeeded the Transferor as Trustee under that certain Trust Indenture dated as of July 1, 1998 by and between Belk, Inc. and First Union National Bank as initial Trustee thereunder (as amended or supplemented, the "Indenture"), all with respect to the $125,000,000 Belk, Inc. Taxable Variable Rate Demand Revenue Bonds, Series 1998, and has complied with the provisions of the Indenture. By virtue of this transfer, the Transferee shall have the sole rights as beneficiary of said Letter of Credit, including sole rights relating to any past or future amendments thereof, whether increases or extensions or otherwise. All amendments are to be advised directly to the Transferee without necessity of any consent of or notice to the Transferor. By its signature below, the Transferee acknowledges that it has duly succeeded the Transferor as Trustee pursuant to the Trust Indenture. 18 57 The advice of such Letter of Credit is returned herewith, along with a transfer fee of $1,000.00, and we ask you to endorse the transfer on the reverse side thereof and to forward it directly to the Transferee with your customary notice of transfer. Very truly yours, FIRST UNION NATIONAL BANK, as Trustee By: _____________________________________________ [insert name and title of authorized officer] (CORPORATE SEAL) Acknowledged by: _____________________________ [Insert name of Transferee] By: _______________________ [insert name and title of authorized officer] (CORPORATE SEAL) 19 EX-10.7 8 CREDIT AGREEMENT 9-11-98 1 EXHIBIT 10.7 =============================================================================== CREDIT AGREEMENT DATED AS OF SEPTEMBER 11, 1998 by and among BELK, INC. as Borrower, and WACHOVIA BANK, N.A., as Bank =============================================================================== 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS.........................................................................................1 SECTION 1.01. Definitions.........................................................................1 SECTION 1.02. Accounting, Terms and Determinations...............................................10 SECTION 1.03. References.........................................................................10 ARTICLE II REVOLVING CREDIT FACILITY..........................................................................11 SECTION 2.01. Revolving Credit Loans.............................................................11 SECTION 2.02. Procedure for Advances of Loans....................................................11 (a) Requests for Borrowing..................................................................11 (b) Disbursement of Loans...................................................................11 (c) FMA/Commercial Loan Access Agreement....................................................12 SECTION 2.03. Repayment of Loans.................................................................12 (a) Repayment on Termination Date...........................................................12 (b) Mandatory Repayment of Excess Loans.....................................................12 (c) Prepayment under FMA/Commercial Loan Access Agreement...................................12 SECTION 2.04. Note...............................................................................12 SECTION 2.05. Termination of Credit Facility.....................................................12 SECTION 2.06. Use of Proceeds....................................................................12 SECTION 2.07. Interest...........................................................................13 (a) Interest Rate Options...................................................................13 (b) Default Rate............................................................................13 (c) Interest Payment and Computation........................................................13 (d) Maximum Rate............................................................................13 SECTION 2.08. Notice and Manner of Conversion or Continuation of Loans...........................14 SECTION 2.09. Manner of Payment..................................................................14 SECTION 2.10. Crediting of Payments and Proceeds.................................................14 ARTICLE III CHANGE IN CIRCUMSTANCES; COMPENSATION..............................................................14 SECTION 3.01. Basis for Determining Interest Rate Inadequate or Unfair...........................14 SECTION 3.02. Illegality.........................................................................15 SECTION 3.03. Increased Cost and Reduced Return..................................................15 SECTION 3.04. Base Rate Loan Substituted for Affected LIBOR Rate Loan............................16 SECTION 3.05. Compensation.......................................................................17
3 ARTICLE IV CONDITIONS TO LOAN CLOSING.........................................................................17 SECTION 4.01. Conditions to Loan Closing.........................................................17 SECTION 4.02. Conditions to all Loans............................................................18 (a) Continuation of Representations and Warranties..........................................18 (b) No Existing Default.....................................................................18 (c) Officer's Compliance Certificate........................................................18 ARTICLE V REPRESENTATIONS AND WARRANTIES.....................................................................18 SECTION 5.01. Corporate Existence and Power......................................................19 SECTION 5.02. Corporate and Governmental Authorization, Contravention............................19 SECTION 5.03. Binding Effect.....................................................................19 SECTION 5.04. Financial Information..............................................................19 SECTION 5.05. Litigation.........................................................................19 SECTION 5.06. Compliance with ERISA..............................................................20 SECTION 5.07. Taxes..............................................................................20 SECTION 5.08. Subsidiaries.......................................................................20 SECTION 5.09. Not an Investment Company..........................................................20 SECTION 5.10. Ownership of Property; Liens.......................................................20 SECTION 5.11. No Default.........................................................................20 SECTION 5.12. Full Disclosure....................................................................20 SECTION 5.13. Environmental Matters..............................................................21 SECTION 5.14. Compliance with Laws...............................................................21 SECTION 5.15. Capital Stock......................................................................21 SECTION 5.16. Margin Stock.......................................................................21 SECTION 5.17. Insolvency.........................................................................22 SECTION 5.18. Survival of Representations and Warranties, Etc....................................22 ARTICLE VI COVENANTS..........................................................................................22 SECTION 6.01. Information........................................................................22 SECTION 6.02. Notice of Certain Events...........................................................23 SECTION 6.03. Corporate Existence................................................................24 SECTION 6.04. Payment of Indebtedness; Performance of Other Obligations..........................24 SECTION 6.05. Maintenance of Books and Records; Inspection.......................................25 SECTION 6.06. Comply with ERISA..................................................................25 SECTION 6.07. Maintenance of Properties; Conduct of Business. ...................................25 SECTION 6.08. Insurance..........................................................................26 SECTION 6.09. Observe all Laws...................................................................26 SECTION 6.10. Year 2000..........................................................................26 SECTION 6.11. Subsidiary Guaranties..............................................................26 SECTION 6.12. Merger and Dissolution; Sale of Assets.............................................27
4 SECTION 6.13. Acquisitions.......................................................................27 SECTION 6.14. Indebtedness.......................................................................27 SECTION 6.15. Liens and Encumbrances.............................................................28 SECTION 6.16. Transactions With Related Persons..................................................28 SECTION 6.17. Sale and Leaseback.................................................................28 SECTION 6.18. New Business.......................................................................28 SECTION 6.19. Subsidiaries.......................................................................28 SECTION 6.20. Guaranties.........................................................................29 SECTION 6.21. Restrictive Transactions...........................................................29 SECTION 6.22. Hazardous Wastes...................................................................29 SECTION 6.23. Change in Fiscal Year..............................................................29 SECTION 6.24. Amendments.........................................................................29 SECTION 6.25. Leverage-Ratio.....................................................................29 SECTION 6.26. Fixed Charge Coverage Ratio........................................................29 SECTION 6.27. Net Worth..........................................................................29 SECTION 6.28. Additional Covenants...............................................................30 SECTION 6.29. Use of Proceeds....................................................................30 SECTION 6.30. Crestar Facility...................................................................31 ARTICLE VII DEFAULTS...........................................................................................31 SECTION 7.01. Events of Default..................................................................31 SECTION 7.02. Remedies on Default................................................................33 SECTION 7.03. Security Interest, Offset, Sharing of Offsets......................................33 ARTICLE VIII MISCELLANEOUS......................................................................................33 SECTION 8.01. Notices............................................................................33 SECTION 8.02. No Waivers.........................................................................34 SECTION 8.03. Expenses; Documentary Taxes........................................................34 SECTION 8.04. Amendments and Waivers.............................................................35 SECTION 8.05. Successors and Assigns.............................................................35 SECTION 8.06. Confidentiality....................................................................36 SECTION 8.07. Governing Law......................................................................37 SECTION 8.08. Counterparts.......................................................................37 SECTION 8.09. Severability.......................................................................37 SECTION 8.10. Captions...........................................................................37
5 SCHEDULES Schedule 1.1 Existing Liens Schedule 6.12 Purchases, Mergers and Exchanges Schedule 6.13 Acquisitions Schedule 6.14 Existing Indebtedness Schedule 6.19 Creation of Subsidiaries EXHIBITS Exhibit A Form of Promissory Note Exhibit B Form of Notice of Borrowing Exhibit C Form of Notice of Conversion/Continuation Exhibit D Form of Officer's Compliance Certificate Exhibit E Form of Assignment and Acceptance Exhibit F Form of Notice of Account Designation Exhibit G Form of Borrower Opinion 6 CREDIT AGREEMENT THIS CREDIT AGREEMENT, made as of the 11th day of September, 1998 (this "Agreement"), by and among BELK, INC., a Delaware corporation (together with its successors, the "Borrower"), and WACHOVIA BANK, N.A., a national banking association (together with its endorsees, successors and assigns, the "Bank"). BACKGROUND The Borrower desires to borrow from the Bank loans in the aggregate principal amount of up to $150,000,000, the proceeds of which will be used to finance seasonal working capital requirements, and the Bank is willing to make such loans on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the promises herein contained, and each intending to be legally bound hereby, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. The terms as defined in this Section 1.01 shall, for all purposes of this Agreement and any amendment hereto (except as herein otherwise expressly provided or unless the context otherwise requires), have the meanings set forth herein (terms defined in the singular to have the same meanings when used in the plural and vice versa): "Affiliate" means, with respect to any Person, any other Person (i) directly or indirectly controlling (including, but not limited to, all directors and officers of such Person), controlled by, or under direct or indirect common control with, such Person or (ii) that directly or indirectly owns more than 5% of the voting securities of such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "Alternate Rate" means for any Alternate Rate Loan for any day, (i) the rate per annum offered by the Bank in its discretion and agreed to by the Borrower, or (ii) in the event the Borrower and the Bank do not agree on such offered rate, three-quarters of one percent above the Federal Funds Rate for such day per annum. "Alternate Rate Loans" means the Loans or any portion of the Loans during periods which the Loans or such portion of the Loans bears interest calculated by reference to the Alternate Rate. 7 "Applicable Law" means all applicable provisions of constitutions, laws, statutes, ordinances, rules, treaties, regulations, permits, licenses, approvals, interpretations and orders of all Governmental Authorities and all orders and decrees of all courts and arbitrators. "Assignee" has the meaning set forth in Section 8.05(c). "Assignment and Acceptance" means an Assignment and Acceptance executed in accordance with Section 8.05(c) in the form attached hereto as Exhibit E. "Base Rate" means for any Base Rate Loan for any day, the rate per annum equal to the higher as of such day of (i) the Prime Rate, or (ii) one-half of one percent above the Federal Funds Rate for such day. For purposes of determining the Base Rate for any day, changes in the Prime Rate shall be effective on the date of each such change. "Base Rate Loans" means the Loans or any portion of the Loans during periods in which the Loans or such portion of the Loans bears interest calculated by reference to the Base Rate. "Big Five" means the listing of the largest certified public accounting firms currently comprised of Arthur Andersen, Ernst & Young, KPMG, Deloitte and Touche, and Price Waterhouse Coopers, or any similar listing as may be expanded or reduced in the future. "Business Day" means (i) for all purposes other than as set forth in clause (ii) below, any day other than a Saturday, Sunday or legal holiday on which banks in Charlotte, North Carolina are open for the conduct of their commercial banking business, and (ii) with respect to all notices and determinations in connection with, and payments and interest on, any LIBOR Rate Loan, any day that is a Business Day described in clause (i) and that is also a day for trading by and between banks in Dollar deposits in the London interbank market. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests or equivalents in capital stock (whether voting or nonvoting, and whether common or preferred) of such corporation, and (ii) with respect to any Person that is not a corporation, any and all partnership, membership, limited liability company or other equity interests of such Person; and in each case, any and all warrants, rights or options to purchase any of the foregoing. "CERCLA" means the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq. and its implementing regulations and amendments. "CERCLIS" means the Comprehensive Environmental Response Compensation and Liability Inventory System established pursuant to CERCLA. "Change of Law" shall have the meaning set forth in Section 3.02. 2 8 "Closing Date" means the date of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended, or any successor Federal tax code. "Commitment" means the obligation of the Bank to make Loans to the Borrower hereunder in an aggregate principal amount at any time outstanding not to exceed $150,000,000.00, as the same may be reduced or modified at any time or from time to time pursuant to the terms hereof. "Comprehensive Income" means comprehensive income of Borrower and its Subsidiaries on a consolidated basis determined in accordance with Generally Accepted Accounting Principles. "Consistent Basis" means, in reference to the application of Generally Accepted Accounting Principles, that the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preceding period, except as to any changes consented to by the Bank or required by Generally Accepted Accounting Principles. "Consolidated Net Income" means, for any period of computation thereof, the net income of the Borrower and its Subsidiaries (excluding extraordinary items) as determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. "Consolidated Tangible Net Worth" means, at any date of determination, the total stockholders' equity (including Capital Stock, additional paid-in capital and retained earnings after deducting treasury stock), less any intangible assets (excluding Lease Intangibles) of the Borrower and its Subsidiaries and calculated on a consolidated basis in accordance with Generally Accepted Accounting Principles. "Contingent Obligation" means, with respect to any Person, any direct or indirect liability of such Person with respect to any Indebtedness, liability or other obligation (the "primary obligation") of another Person (the "primary obligor"), whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor in respect thereof to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss or failure or inability to perform in respect thereof, provided, however, that, with respect to the Borrower and its Subsidiaries, the term Contingent Obligation shall not include endorsements for collection or deposit in the ordinary course of business. 3 9 "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code. "Credit Facility" means the revolving credit facility established pursuant to Article II hereof. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Dollars" or "$" means dollars in lawful currency of the United States of America. "EBITDA" means, for any period, the aggregate of (i) Consolidated Net Income for such period, plus (ii) the sum of the following: (a) interest expense, (b) federal, state, local and other income taxes, and (c) depreciation, amortization and non-cash charges incurred solely in compliance with FASB Statement of Financial Accounting Standards No. 121, all to the extent taken into account in the calculation of such Consolidated Net Income for such period and determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. "Environmental Authorizations" means all licenses, permits, orders, approvals, notices, registrations or other legal prerequisites, for conducting the business of the Borrower or any Subsidiary required by any Environmental Requirement. "Environmental Requirements" means any legal requirement relating to health, safety or the environment and applicable to the Borrower, any Subsidiary or the Properties, including but not limited to any such requirement under CERCLA or similar state legislation and all federal, state and local laws, ordinances, regulations, orders, writs, decrees and common law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor law, including any rules or regulations promulgated thereunder. Any reference to any provision of ERISA shall also be deemed to be a reference to any successor provision or provisions thereof. "Event of Default" shall have the meaning assigned to such term in Section 7.01. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the next higher 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided, that (i) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such 4 10 rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to the Bank on such day on such transactions. "Financing Charges" means those charges owed and allocated to third parties with respect to any on or off balance sheet asset financing transaction to which the Borrower or any Subsidiary of the Borrower is a party, such transactions to include, without limitation, securitizations, sales to commercial paper conduits, synthetic leases, or other similar financing techniques. "Fiscal Quarter" means any fiscal quarter of the Borrower. "Fiscal Year" means any fiscal year of the Borrower. "Fixed Charge Coverage Ratio" means, as of the last day of any Fiscal Quarter of the Borrower and its Subsidiaries, commencing January 30, 1999, for the consecutive four-quarter period ending on such date (or in the case of the Fiscal Quarter ending on January 30, 1999, the consecutive three-quarter period ending on such date), the ratio of (i) EBITDA for such period plus, to the extent deducted in arriving at EBITDA, lease, rental and all other payments made in respect of or in connection with operating leases, to (ii) Fixed Charges for such period. "Fixed Charges" means, for any period, the aggregate (without duplication) of the following, all determined on a consolidated basis for the Borrower and its Subsidiaries in accordance with Generally Accepted Accounting Principles for such period: (a) interest expense for such period, (b) to the extent deducted in arriving at EBITDA, lease, rental and all other payments made in respect of or in connection with operating leases, (c) Financing Charges, and (d) the aggregate (without duplication) of all scheduled payments of principal on Funded Debt with an original maturity of more than one year required to have been made by the Borrower and its Subsidiaries during such period (whether or not such payments are actually made). "FMA/Commercial Loan Access Agreement" means that certain Financial Management Account agreement dated September 11, 1998 between the Borrower and the Bank and that certain Financial Management Account Investment/Commercial Loan Access Agreement dated September 11, 1998 between the Borrower and the Bank, as the same may be amended or supplemented from time to time. "Funded Debt" means all Indebtedness for borrowed money of the Borrower and its Subsidiaries on a consolidated basis (including, without limitation, all current maturities and borrowings under short term loans) plus all indebtedness incurred in connection with or arising from any on or off balance sheet asset financing transaction to which the Borrower or any Subsidiary of the Borrower is a party, such transactions to include, without limitation, securitizations, sales to commercial paper conduits, synthetic leases, or other similar financing techniques. "Generally Accepted Accounting Principles" means those principles of accounting set forth in pronouncements of the Financial Accounting Standards Board and its predecessors or 5 11 Pronouncements of the American Institute of Certified Public Accountants or those principles of accounting which have other substantial authoritative support and are applicable in the circumstances as of the date of application, as such principles are from time to time supplemented or amended. "Governmental Approval" means all authorizations, consents, approvals, licenses, and exemptions of, registrations and filings with, and reports to, all Governmental Authorities. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any central bank thereof, any municipal, local, city or county government, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Guarantee" means, with respect to any Person, any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to secure, purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to provide collateral security, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness against loss in respect thereof (in whole or in part); provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hazardous Substances" means any substances or materials (i) that are or become defined as hazardous wastes, hazardous substances, pollutants, contaminants or toxic substances under any Environmental Law, (ii) that are defined by any Environmental Law, as toxic, explosive, corrosive, ignitable, infectious, radioactive, mutagenic or otherwise hazardous (iii) the presence of which require investigation or response under any Environmental Law, (iv) that constitute a nuisance, trespass or health or safety hazard to Persons or neighboring properties, (v) that consist of underground or aboveground storage tanks, whether empty, filled or partially filled with any substance or (vi) that contain, without limitation, asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived substances or wastes, crude oil, nuclear fuel, natural gas or synthetic gas. "Indebtedness" means, with respect to any Person (without duplication), (i) all indebtedness and obligations of such Person for borrowed money or in respect of loans or advances of any kind, (ii) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments, (iii) all reimbursement obligations of such Person with respect to surety bonds, letters of credit and bankers' acceptances (in each case, whether or not drawn or matured and in the stated amount thereof), (iv) all obligations of such Person to pay the deferred purchase price of property or services, (v) all indebtedness created or arising under any conditional sale or other title retention agreement 6 12 with respect to property acquired by such Person, (vi) all obligations of such Person as lessee under leases that are or are required to be, in accordance with Generally Accepted Accounting Principles, recorded as capital leases, (vii) all Contingent Obligations of such Person and (viii) all indebtedness referred to in clauses (i) through (vii) above secured by any Lien on any property or asset owned or held by such Person regardless of whether the indebtedness secured thereby has been assumed by such Person or is nonrecourse to the credit of such Person. "Lease Intangibles" means the amount of lease intangibles appearing on the balance sheet of the Borrower determined in accordance with Generally Accepted Accounting Principles. "Leverage Ratio" means, as of the last day of any Fiscal Quarter, the ratio of (i) Funded Debt as of such date to (ii) EBITDA for the period of four consecutive Fiscal Quarters then ending. "Lending Office" means the Bank's office located at its address set forth on the signature pages hereof (or identified on the signature pages hereof as its Lending Office) or such other office as the Bank may hereafter designate as its Lending Office by notice to the Borrower. "LIBOR Market Index Rate" means, as determined each Business Day, the rate per annum (rounded upward, if necessary, to the next higher 1/100th of 1%) which is equal to: (i) the rate for deposits in Dollars which appears on the Telerate Page 3750 at approximately 11:00 a.m. (London time) on such day for a term equal to one month, from time to time, with each change in such rate to be effective as of the opening of business on the effective date of the change in such rate; provided, that if the day for which such rate is to be determined is not a Business Day, the LIBOR Market Index Rate for such day shall be such rate for the next preceding Business Day; provided further, that if such rate is not reported on Telerate Page 3750, such rate shall be the rate determined by the Bank from another recognized source or interbank quotation, divided by (ii) 1.00 minus the reserve requirement (expressed as a percentage) with respect to eurocurrency liabilities prescribed for member banks of the Federal Reserve System by the Board of Governors of the Federal Reserve System from time to time (if and only to the extent that the Banks have eurocurrency liabilities subject thereto) and any other similar reserve requirements imposed against a category of liabilities which includes eurocurrency deposits or a category of assets which includes eurocurrency loans. (ii) If, for any reason, the rate described in clause (i) is not available, such rate shall be the rate per annum at which, in the reasonable opinion of the Bank, Dollars in an amount substantially equal to the amount of the applicable Loan are being offered by 7 13 leading reference banks for settlement in the London interbank market at approximately 11:00 a.m. (London time), on the second Business Day next preceding the applicable date for a term equal to one month. "LIBOR Rate Loan" means the Loans or any portion of the Loans during periods in which the Loans or such portion of the Loans bears interest calculated by reference to the LIBOR Market Index Rate. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loan" means any Revolving Credit Loan made to the Borrower under Section 2.01, and all such Loans collectively as the context requires. "Loan Documents" means this Agreement, the Note, and any other document guaranteeing, evidencing or securing the Loans. "Margin Stock" means "margin stock" as defined in Regulations T, U or X of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Material Adverse Effect" means, with respect to the Borrower or any of its Subsidiaries, a material adverse effect on the properties, business, prospects, operations or condition (financial or otherwise) of any such Person or the ability of any such Person to perform its obligations under this Agreement or the other Loan Documents, in each case to which it is a party. "Multiemployer Plan" shall have the meaning set forth in Section 4001(a)(3) of ERISA. "Note" means the Promissory Note made by the Borrower payable to the order of the Bank, substantially in the form of Exhibit A attached hereto. "Notice of Account Designation" shall have the meaning assigned thereto in Section 2.02(b). "Notice of Borrowing" shall have the meaning assigned thereto in Section 2.02(a). "Notice of Conversion/Continuation" shall have the meaning assigned thereto in Section 2.08. 8 14 "Officer's Compliance Certificate" shall have the meaning assigned thereto in Section 6.01(d). "Participant" has the meaning set forth in Section 8.05(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted Liens" means any of the following liens securing any indebtedness of the Borrower and its Subsidiaries on their property, real or personal, whether now owned or hereafter acquired: (i) Liens of carriers, warehousemen, mechanics, contractors and materialmen incurred in the ordinary course of business for sums not yet due and payable or that are being contested in good faith and in appropriate proceedings and for which bonds have been posted or other security acceptable to the Bank provided, such bonds or other security to be in amounts sufficient to pay off the liens during the pendency of any controversies relating to them; (ii) Liens incurred in the ordinary course of business in connection with worker's compensation, unemployment insurance or other forms of governmental insurance or benefits, or liens to secure the performance of letters of credit, bids, tenders, statutory obligations, leases and contracts (other than for borrowed funds) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds, (iii) Liens of suppliers of inventory purchased on credit in the ordinary course of business; (iv) Liens for current taxes, assessments or other governmental charges that are not delinquent or remain payable without any penalty or that are being contested in good faith and by appropriate proceedings and if reasonably requested by the Bank, the Borrower shall establish reserves satisfactory to the Bank with respect thereto; (v) Liens securing Indebtedness as permitted by the Bank from time to time; and (vi) Liens set forth on Schedule 1.1. "Person" means an individual, partnership, corporation, limited liability company, trust unincorporated organization, association, joint venture or a government or agency or political subdivision or instrumentality thereof. "Plan" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) 9 15 maintained by a member of the Controlled Group for employees of any member of the Controlled Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contribution. "Prime Rate" means, at any time, the rate of interest per annum publicly announced from time to time by the Bank as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in the Prime Rate occurs. The parties hereto acknowledge that the rate announced publicly by the Bank as its Prime Rate is an index or base rate and shall not necessarily be the lowest or best rate charged to its customers or other banks. "Properties" means all real property owned, leased or otherwise used or occupied by the Borrower or any Subsidiary, wherever located. "Reportable Event" has the meaning given such term in Section 4043(b) of Title V of ERISA. "Subsidiary" means, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time. Unless the context indicates otherwise, all references herein to Subsidiaries are references to Subsidiaries of the Borrower. "Termination Date" means the earliest of the dates referred to in Section 2.05. "Transferee" has the meaning set forth in Section 8.05(d). "Wholly Owned Subsidiary" means any Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Borrower. SECTION 1.02. Accounting, Terms and Determinations. Unless otherwise specified herein, all terms of an accounting character used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared substantially in accordance with Generally Accepted Accounting Principles as in effect from time to time, applied on a Consistent Basis. SECTION 1.03. References. Except as otherwise expressly provided in this Agreement: the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement 10 16 as a whole, including the Schedules hereto which are a part hereof, and not to any particular Section, Article, paragraph or other subdivision; the singular includes the plural and the plural includes the singular; "or" is not exclusive; the words "include," "includes" and "including" are not limiting; a reference to any agreement or other contract includes past and future permitted supplements, amendments, modifications and restatements thereto or thereof, a reference to an Article, Section, paragraph or other subdivision is a reference to an Article, Section, paragraph or other subdivision of this Agreement; a reference to any law includes any amendment or modification to such law and any rules and regulations promulgated thereunder; a reference to a Person includes its permitted successors and assigns; any right may be exercised at any time and from time to time; and, except as otherwise expressly provided therein, all obligations under any agreement or other contract are continuing obligations throughout the term of such agreement or contract. ARTICLE II REVOLVING CREDIT FACILITY SECTION 2.01. Revolving Credit Loans. Subject to the terms and conditions of this Agreement, the Bank agrees to make Loans to the Borrower from time to time from the Closing Date through the Termination Date as requested by the Borrower in accordance with the terms of Section 2.02; provided, that the aggregate principal amount of all outstanding Loans (after giving effect to any amount requested) shall not exceed the Commitment. Subject to the terms and conditions hereof, the Borrower may borrow, repay and reborrow Loans hereunder until the Termination Date. Partial repayments hereunder shall be in an aggregate amount of $100,000 or a whole multiple of $100,000 in excess thereof. SECTION 2.02. Procedure for Advances of Loans. (a) Requests for Borrowing. The Borrower shall give the Bank irrevocable prior written notice in the form attached hereto as Exhibit B (a "Notice of Borrowing") not later than 1: 00 p.m. (Charlotte time) on the same Business Day as each Loan of its intention to borrow specifying (i) the date of such borrowing, which shall be a Business Day, (ii) the amount of such borrowing, which shall be in an aggregate principal amount of $100,000 or a whole multiple of $100,000 in excess thereof, and (iii) whether the Loans are to be LIBOR Rate Loans or Base Rate Loans. Notices received after 1:00 p.m. (Charlotte time) shall be deemed received on the next Business Day. (b) Disbursement of Loans. Not later than 2:00 p.m. (Charlotte time) on the proposed borrowing date, the Bank will make available to the Borrower the Loans to be made on such borrowing date. The Borrower hereby irrevocably authorizes the Bank to disburse the proceeds of each borrowing requested pursuant to this Section 2.02 in immediately available funds by crediting or wiring such proceeds to the deposit account of the Borrower identified in the most recent Notice of Account Designation substantially in the form of Exhibit F hereto (a "Notice of Account Designation") delivered by the Borrower to the Bank or as may be otherwise agreed upon by the Borrower and the Bank from time to time. 11 17 (c) FMA/Commercial Loan Access Agreement. The Borrower and the Bank agree that so long as no Default or Event of Default shall have occurred and be continuing, proceeds of the Loans shall also be disbursed from time to time pursuant to the FMA/Commercial Loan Access Agreement, provided that the aggregate amount of all Loans outstanding at any time pursuant to Section 2.02(b) and this Section 2.02(c) shall not exceed the Commitment. SECTION 2.03. Repayment of Loans. (a) Repayment on Termination Date. The Borrower shall repay the outstanding principal amount of all Loans in full on the Termination Date, together with all accrued but unpaid interest thereon. (b) Mandatory Repayment of Excess Loans. If at any time the outstanding principal amount of all Loans exceeds the Commitment, the Borrower shall repay immediately upon notice from the Bank, Loans in an amount equal to such excess. Each such repayment shall be accompanied by any amount required to be paid pursuant to Section 3.05 hereof. (c) Prepayment under FMA/Commercial Loan Access Agreement. The Loans shall be prepaid from time to time in accordance with the provisions of the FMA/Commercial Loan Access Agreement. SECTION 2.04. Note. The Bank's Loans and the obligation of the Borrower to repay such Loans shall be evidenced by the Note executed by the Borrower payable to the order of the Bank representing the Borrower's obligation to pay the Bank's Commitment or, if less, the aggregate unpaid principal amount of all Loans made and to be made by the Bank to the Borrower hereunder, plus interest and all other fees, charges and other amounts due thereon. The Note shall be dated the date hereof and shall bear interest on the unpaid principal amount thereof at the applicable interest rate per annum specified in Section 2.07. SECTION 2.05. Termination of Credit Facility. The Credit Facility shall terminate on the earliest of (a) May 31, 1999, (b) the date of termination by the Bank pursuant to Section 7.02 and (c) the date on which the Bank shall give the Borrower notice of the termination of the Credit Facility and make demand for payment of the Credit Facility. It is the intention of the Borrower and the Bank that the Credit Facility be immediately due and payable in full on demand of the Bank at its option notwithstanding the inclusion in this Agreement of provisions regarding Defaults and Events of Default, the occurrence and continuation of which would permit the Bank to declare the Note and the Loans immediately due and payable as provided in Section 7.02. SECTION 2.06 Use of Proceeds. The Borrower shall use the proceeds of the Loans to finance its seasonal working capital needs. 12 18 SECTION 2.07. Interest. (a) Interest Rate Options. Subject to the provisions of this Section 2.07, at the election of the Borrower, the principal balance of the Note or any portion thereof shall bear interest per annum at (i) the Base Rate or (ii) the LIBOR Market Index Rate plus 0.60% or (iii) under the circumstances specified in Section 3.04 only, the Alternate Rate. The Borrower shall select the rate of interest applicable to any Loan at the time a Notice of Borrowing is given pursuant to Section 2.02 or at the time a Notice of Conversion/Continuation is given pursuant to Section 2.08. Each Loan or portion thereof bearing interest based on the Base Rate shall be a "Base Rate Loan," each Loan or portion thereof bearing interest based on the LIBOR Market Index Rate shall be a "LIBOR Rate Loan" and each Loan or portion thereof bearing interest based on the Alternate Rate shall be an "Alternate Rate Loan." Any Loan or any portion thereof as to which the Borrower has not duly specified an interest rate as provided herein shall be deemed a Base Rate Loan. The Borrower is deemed to have elected the LIBOR Market Index Rate plus 0.60% as the interest rate for all Loans funded pursuant to Section 2.02(c). (b) Default Rate. Upon the occurrence and during the continuance of an Event of Default, (i) the Borrower shall no longer have the option to request LIBOR Rate Loans, (ii) all outstanding LIBOR Rate Loans shall be converted to Base Rate Loans and (iii) all outstanding Loans shall bear interest at a rate per annum equal to two percent (2 %) in excess of the rate then applicable to Base Rate Loans. Interest shall continue to accrue on the Note after the filing by or against the Borrower of any petition seeking any relief in bankruptcy or under any act or law pertaining to insolvency or debtor relief, whether state, federal or foreign. (c) Interest Payment and Computation. Notwithstanding the provisions of the FMA/Commercial Loan Access Agreement, interest on each Loan shall be payable in arrears on the last Business Day of each Fiscal Quarter of the Borrower commencing October 30, 1998. All interest rates, fees and commissions provided hereunder shall be computed on the basis of a 360-day year and assessed for the actual number of days elapsed. (d) Maximum Rate. In no contingency or event whatsoever shall the aggregate of all amounts deemed interest hereunder or under the Note charged or collected pursuant to the terms of this Agreement or pursuant to the Note exceed the highest rate permissible under any Applicable Law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that the Bank has charged or received interest hereunder in excess of the highest applicable rate, the rate in effect hereunder shall automatically be reduced to the maximum rate permitted by Applicable Law and the Bank shall at its option promptly refund to the Borrower any interest received by the Bank in excess of the maximum lawful rate or shall apply such excess to the principal balance of the Loans. It is the intent hereof that the Borrower not pay or contract to pay, and that the Bank not receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be paid by the Borrower under Applicable Law. 13 19 SECTION 2.08. Notice and Manner of Conversion or Continuation of Loans. Provided that no Event of Default has occurred and is then continuing, the Borrower shall have the option to (a) convert at any time all or any portion of its outstanding Base Rate Loans in a principal amount equal to $100,000 or any whole multiple of $100,000 in excess thereof into one or more LIBOR Rate Loans, (b) convert all or any part of its outstanding LIBOR Rate Loans in a principal amount equal to $100,000 or a whole multiple of $100,000 in excess thereof into Base Rate Loans, or (c) continue such LIBOR Rate Loans as LIBOR Rate Loans. Whenever the Borrower desires to convert or continue Loans as provided above, the Borrower shall give the Bank irrevocable prior written notice in the form attached as Exhibit C (a "Notice of Conversion/Continuation") not later than 1:00 p.m. (Charlotte time) on the Business Day on which a proposed conversion or continuation of such Loan is to be effective specifying (i) the Loans to be converted or continued, (ii) the effective date of such conversion or continuation (which shall be a Business Day), and (iii) the principal amount of such Loans to be converted or continued. SECTION 2.09. Manner of Payment. Each payment by the Borrower on account of the principal of or interest on the Loans or of any fee, commission or other amounts payable to the Bank under this Agreement or the Note (other than payments made pursuant to the FMA/Commercial Loan Access Agreement, which payments shall be made as therein provided) shall be made not later than 1:00 p.m. (Charlotte time) on the date specified for payment under this Agreement to the Bank at the Bank's Lending Office in Dollars, in immediately available funds and shall be made without any set-off, counterclaim or deduction whatsoever. Any payment received after such time but before 2:00 p.m. (Charlotte time) on such day shall be deemed a payment on such date for the purposes of Section 7.01, but for all other purposes shall be deemed to have been made on the next succeeding Business Day. Any payment received after 2:00 p.m. (Charlotte time) shall be deemed to have been made on the next succeeding Business Day for all purposes. SECTION 2.10. Crediting of Payments and Proceeds. In the event that the Borrower shall fail to pay any of the Loans when due and the Loans have been accelerated pursuant to Section 7.02 or Bank demands payment of the Loans, all payments received by the Bank upon the Note and the other Loans and all net proceeds from the enforcement of the Loans shall be applied first to all expenses then due and payable by the Borrower hereunder, then to all indemnity obligations then due and payable by the Borrower hereunder, then to all fees, if any, then due and payable, then to accrued and unpaid interest on the Note, then to the principal amount of the Note. ARTICLE III CHANGE IN CIRCUMSTANCES; COMPENSATION SECTION 3.01. Basis for Determining Interest Rate Inadequate or Unfair. If: (a) the Bank determines that deposits in Dollars (in the applicable amounts) are not being offered in the London interbank market, or 14 20 (b) the Bank determines that the LIBOR Market Index Rate as determined by the Bank will not adequately and fairly reflect the cost to the Bank of funding LIBOR Rate Loans, the Bank shall forthwith give notice thereof to the Borrower, whereupon until the Bank notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Bank to make or maintain LIBOR Rate Loans shall be suspended. SECTION 3.02. Illegality. If, after the date hereof, the adoption of any Applicable Law, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority (any such event being referred to as a "Change of Law"), or compliance by the Bank (or its Lending Office) with any request or directive (whether or not having the force of law) of any Governmental Authority shall make it unlawful or impossible for the Bank (or its Lending Office) to make, maintain or fund any LIBOR Rate Loan the Bank shall forthwith give notice thereof to the Borrower, whereupon until the Bank notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of the Bank to make any LIBOR Rate Loan shall be suspended. If the Bank shall determine that it may not lawfully continue to maintain and fund any outstanding LIBOR Rate Loan to maturity and shall so specify in such notice, such Loan shall immediately become a Base Rate Loan. SECTION 3.03. Increased Cost and Reduced Return. (a) If after the date hereof, a Change of Law or compliance by the Bank (or its Lending Office) with any request or directive (whether or not having the force of law) of any Governmental Authority: (i) shall subject the Bank (or its Lending Office) to any tax, duty or other charge with respect to any LIBOR Rate Loan, the Note or its obligation to make or maintain any LIBOR Rate Loan, or shall change the basis of taxation of payments to the Bank (or its Lending Office) of the principal of or interest on any LIBOR Rate Loan or any other amounts due under this Agreement in respect of any LIBOR Rate Loan or its obligation to make or maintain any LIBOR Rate Loan (except for changes in the rate of tax on the overall net income of the Bank or its Lending Office imposed by the jurisdiction in which the Bank's principal executive office or Lending Office is located); or (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any LIBOR Rate Loan any applicable eurodollar reserve requirement included in the definition of LIBOR Market Index Rate) against assets of, deposits with or for the account of, or credit extended by, the Bank (or its Lending Office); or 15 21 (iii) shall impose on the Bank (or its Lending Office) or the London interbank market any other condition affecting any LIBOR Rate Loan, the Note or its obligation to make or maintain any LIBOR Rate Loan; and the result of any of the foregoing is to increase the cost to the Bank (or its Lending Office) of making or maintaining any LIBOR Rate Loan, or to reduce the amount of any sum received or receivable by the Bank (or its Lending Office) under this Agreement or under the Note with respect thereto, by an amount deemed by Bank to be material, then, within 15 days after demand by the Bank, the Borrower shall pay to the Bank, such additional amount or amounts as will compensate the Bank for such increased cost or reduction. (b) If the Bank shall have determined that after the date hereof the adoption of any Applicable Law regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof, or compliance by the Bank (or its Lending Office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any Governmental Authority, has or would have the effect of reducing the rate of return on the Bank's capital as a consequence of its obligations under this Agreement with respect to its Loans to a level below that which the Bank could have achieved but for such adoption, change or compliance (taking into consideration the Bank's policies with respect to capital adequacy) by an amount deemed by the Bank to be material, then from time to time, within 15 days after demand by the Bank, the Borrower shall pay to the Bank such additional amount or amounts as will compensate the Bank for such reduction. (c) The Bank will promptly notify the Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle the Bank to compensation pursuant to this Section. A certificate of the Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it and the calculation (with reasonable detail) of such amount or amounts hereunder shall be conclusive in the absence of manifest error. In determining, such amount, the Bank may use any reasonable averaging and attribution methods. (d) The provisions of this Section shall be applicable with respect to any Participant in, or Assignee or other Transferee of, the obligations of the Borrower hereunder to the Bank, and any calculations required by such provision shall be made based upon the circumstances of such Participant, Assignee or other Transferee. SECTION 3.04. Base Rate Loan Substituted for Affected LIBOR Rate Loan. If (a) the obligation of the Bank to make or maintain any LIBOR Rate Loan has been suspended pursuant to Section 3.01 or Section 3.02 or (b) the Bank has demanded compensation under Section 3.03, and if in either case the Borrower, by at least one Business Day's prior notice to the Bank shall have elected that the provisions of this Section shall apply, then, unless and until the Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply: 16 22 (i) the Loan or any portion thereof which would otherwise be a LIBOR Rate Loan shall be instead an Alternate Rate Loan, and (ii) after each LIBOR Rate Loan has been repaid, all payments of principal which would otherwise be applied to repay any such LIBOR Rate Loan shall be applied to repay an Alternate Rate Loan or Base Rate Loan instead. SECTION 3.05. Compensation. Upon the request of the Bank, delivered to the Borrower, the Borrower shall pay to the Bank, such amount or amounts as shall compensate the Bank for any loss, cost or expense incurred by the Bank as a result of: (a) any optional or mandatory payment, prepayment or conversion (pursuant to Section 3.02 or otherwise) of a LIBOR Rate Loan; or (b) any failure by the Borrower to borrow on a date specified therefor in a Notice of Borrowing or Notice of Conversion/Continuation; such compensation to include, without limitation, an amount equal to the excess, if any, of (x) the amount of interest which would have accrued on the amount so paid or prepaid or not prepaid or borrowed, minus (y) the amount of interest (as reasonably determined by the Bank) the Bank would have paid on deposits in Dollars of comparable amounts having terms comparable to such period placed with it by leading banks in the London interbank market. ARTICLE IV CONDITIONS TO LOAN CLOSING SECTION 4.01. Conditions to Loan Closing. The obligation of the Bank to make the Loans is subject to the satisfaction of the following conditions: (a) receipt by the Bank from the Borrower of a duly executed counterpart of this Agreement signed by the Borrower; (b) receipt by the Bank of the duly executed Note complying with the provisions of Section 2.04; (c) receipt by the Bank of an opinion of counsel of Luther T. Moore, Esq., counsel for the Borrower, substantially in the form of Exhibit G hereto, and covering such additional matters relating to the transactions contemplated hereby as the Bank may reasonably request; (d) receipt by the Bank of a certificate from the chief executive officer or chief financial officer of the Borrower, in form and substance satisfactory to the Bank, to the effect that all representations and warranties of the Borrower contained in this Agreement and the other Loan Documents are true, correct and complete; that the Borrower is not in violation of any of the 17 23 covenants contained in this Agreement and the other Loan Documents; that, after giving effect to the transactions contemplated by this Agreement, no Default or Event of Default has occurred and is continuing; and that the Borrower has satisfied each of the closing conditions; (e) receipt by the Bank of all documents which the Bank may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement, the Note, and any other matters relevant hereto, all in form and substance satisfactory to the Bank, including without limitation a certificate of incumbency of the Borrower, signed by the Secretary or an Assistant Secretary of the Borrower, as applicable, certifying as to the names, and incumbency of the officer or officers of the Borrower authorized to execute and deliver the Loan Documents, and certified copies of the following items as to the Borrower: (i) the Certificate of Incorporation, (ii) the Bylaws, (iii) a certificate of the Secretary of State (or other appropriate office) of the state of its incorporation as to its good standing as a corporation of such jurisdiction, and (iv) the action taken by the Board of Directors authorizing the execution, delivery and performance of this Agreement, the Note and the other Loan Documents to which the Borrower is a party; and (f) receipt by the Bank of evidence satisfactory to the Bank that on the Closing Date the Borrower is terminating and will pay in full its existing seasonal facility provided by First Union National Bank and the Bank pursuant to the Credit Agreement dated as of November 14, 1997. SECTION 4.02. Conditions to all Loans. The obligations of the Bank to make any Loan is subject to the satisfaction of the following conditions precedent on the relevant borrowing date: (a) Continuation of Representations and Warranties. The representations and warranties contained in Article V shall be true and correct on and as of such borrowing date with the same effect as if made on and as of such date; except for any representation and warranty made as of an earlier date, which representation and warranty shall remain true and correct as of such earlier date. (b) No Existing Default. No Default or Event of Default shall have occurred and be continuing hereunder on the borrowing date with respect to such Loan or after giving effect to the Loans to be made on such date. (c) Officer's Compliance Certificate; Additional Documents. The Bank shall have received the current Officer's Compliance Certificate and each additional document, instrument, legal opinion or other item of information reasonably requested by it. ARTICLE V REPRESENTATIONS AND WARRANTIES To induce the Bank to enter into this Agreement and to make the Loans, the Borrower hereby represents and warrants to the Bank as follows: 18 24 SECTION 5.01. Corporate Existence and Power. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 5.02. Corporate and Governmental Authorization, Contravention. The execution, delivery and performance by the Borrower of this Agreement, the Note and the other Loan Documents (a) are within the Borrower's corporate powers, (b) have been duly authorized by all necessary corporate action, (c) require no action by or in respect of, or filing with, any governmental body, agency or official, (d) do not contravene, or constitute a default under, any provision of Applicable Law or of the certificate of incorporation or by-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries, and (e) do not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 5.03. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower enforceable in accordance with its terms, and the Note and the other Loan Documents, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower enforceable in accordance with their respective terms; provided, that the enforceability hereof and thereof is subject in each case to general principles of equity and to bankruptcy, insolvency and similar laws affecting the enforcement of creditors' rights generally. SECTION 5.04. Financial Information. (a) The financial statements of the Borrower and its Consolidated Subsidiaries dated as of January 31, 1998, reflecting its operation during the Fiscal Year then ended, including a balance sheet, profit and loss statement and statement of cash flows, with supporting schedules, copies of which have been delivered to the Bank, and the unaudited management-prepared quarterly financial statements of the Borrower and its Consolidated Subsidiaries for the interim period ended May 2, 1998, copies of which have been delivered to the Bank, fairly present, in substantial conformity with Generally Accepted Accounting Principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such dates and their consolidated results of operations and cash flows for such periods stated. (b) Since January 31, 1998 there has been no material adverse change in the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries. SECTION 5.05. Litigation. There is no action, suit or proceeding pending, or to the knowledge of the Borrower threatened, against or affecting the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which could reasonably 19 25 be expected to have a Material Adverse Effect, or which in any manner draws into question the validity of, or could reasonably be expected to impair the ability of the Borrower to perform its obligations under, this Agreement, the Note or any of the other Loan Documents. SECTION 5.06. Compliance with ERISA. (a) The Borrower and each member of the Controlled Group have fulfilled their obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or a Plan under Title IV of ERISA. (b) Neither the Borrower nor any member of the Controlled Group is or ever has been obligated to contribute to any Multiemployer Plan. SECTION 5.07. Taxes. There have been filed on behalf of the Borrower and its Subsidiaries all Federal, state and local income, excise, property and other tax returns which are required to be filed by them and all taxes due pursuant to such returns or pursuant to any assessment received by or on behalf of the Borrower or any Subsidiary have been paid. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 5.08. Subsidiaries. Each of the Borrower's Subsidiaries is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, as the case may be, and has all corporate or limited liability company powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 5.09. Not an Investment Company. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 5.10. Ownership of Property; Liens. Each of the Borrower and its Consolidated Subsidiaries has title to its properties sufficient for the conduct of its business. None of the properties of the Borrower or any Subsidiary thereof is subject to any Lien except for Permitted Liens. SECTION 5.11. No Default. Neither the Borrower nor any of its Consolidated Subsidiaries is in default under or with respect to any agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound which could reasonably be expected to have or cause a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. SECTION 5.12. Full Disclosure. All information heretofore furnished by the Borrower to the Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Borrower to the Bank will be, true, 20 26 accurate and complete in every material respect or based on reasonable estimates on the date as of which such information is stated or certified. The Borrower has disclosed to the Bank in writing any and all facts which could reasonably be expected to have or cause a Material Adverse Effect. SECTION 5.13. Environmental Matters. To the best of the Borrower's knowledge: (a) neither the Borrower nor any of its Subsidiaries is subject to any Environmental Liability and neither the Borrower nor any Subsidiary thereof has been designated as a potentially responsible party under CERCLA or under any state statute similar to CERCLA. None of the Properties have been identified on any current or proposed (i) National Priorities List under 40 C.F.R. ss. 300, (ii) CERCLIS list or (iii) any list arising from a state statute similar to CERCLA. (b) no Hazardous Substances have been or are being used, produced, manufactured, processed, generated, stored, disposed of, managed at, or shipped or transported to or from the Properties or are otherwise present at, on, in or under the Properties, or, to the best of the knowledge of the Borrower, at or from any adjacent site or facility, except for Hazardous Substances, such as cleaning solvents, pesticides and other materials used, produced, manufactured, processed, generated, stored, disposed of, and managed in the ordinary course of business in compliance with all applicable Environmental Requirements. (c) the Borrower, and each of its Subsidiaries and Affiliates, has procured all Environmental Authorizations necessary for the conduct of its business, and is in compliance with all Environmental Requirements in connection with the operation of the Properties and the Borrower's, and each of its Subsidiary's and Affiliate's, respective businesses. SECTION 5.14. Compliance with Laws. The Borrower and each Subsidiary thereof is in compliance with all Applicable Law, including, without limitation, all Environmental Requirements, except where any failure to comply with any such laws could not reasonably be expected to, alone or in the aggregate, have a Material Adverse Effect. SECTION 5.15. Capital Stock. All Capital Stock, debentures, bonds, notes and all other securities of the Borrower and its Subsidiaries presently issued and outstanding are validly and properly issued in accordance with all Applicable Law, including, but not limited to, the "Blue Sky" laws of all applicable states and the federal securities laws. The issued shares of Capital Stock of the Borrower's Wholly Owned Subsidiaries are owned by the Borrower free and clear of any Lien or adverse claim. At least a majority of the issued shares of capital stock of each of the Borrower's other Subsidiaries (other than Wholly Owned Subsidiaries) is owned by the Borrower free and clear of any Lien or adverse claim. SECTION 5.16. Margin Stock. Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of purchasing or carrying any Margin Stock, and no part of the proceeds of any Loan will be used to purchase or carry any Margin Stock 21 27 or to extend credit to others for the purpose of purchasing or carrying any Margin Stock, or be used for any purpose which violates, or which is inconsistent with, the provisions of Regulation X. SECTION 5.17. Insolvency. After giving effect to the execution and delivery of the Loan Documents and the making of each Loan under this Agreement, the Borrower will not be "insolvent," within the meaning of such term as used in North Carolina General Statutes ss. 23-3 or as defined in ss. 101 of Title 11 of the United States Code or Section 2 of the Uniform Fraudulent Transfer Act, or any other applicable state law pertaining to fraudulent transfers, as each may be amended from time to time, or be unable to pay its debts generally as such debts become due, or have an unreasonably small capital to engage in any business or transaction, whether current or contemplated. SECTION 5.18. Survival of Representations and Warranties, Etc. All representations and warranties set forth in this Article V and all representations and warranties contained in any certificate, or any of the Loan Documents (including but not limited to any such representation or warranty made in or in connection with any amendment thereto) shall constitute representations and warranties made under this Agreement. All representations and warranties made under this Agreement shall be made or deemed to be made at and as of the Closing Date, shall survive the Closing Date and shall not be waived by the execution and delivery of this Agreement, any investigation made by or on behalf of the Bank or any borrowing hereunder. ARTICLE VI COVENANTS Until all of the Loans have been finally and indefeasibly paid in full and the Commitment terminated, unless consent has been obtained in the manner provided for in Section 8.04, the Borrower hereby covenants and agrees that: SECTION 6.01. Information. The Borrower will deliver to the Bank at its address set forth on the signature pages hereto, or such other office as may be designated by the Bank from time to time: (a) As soon as practicable and in any event within 45 days after the close of each Fiscal Quarter, beginning with the close of the current Fiscal Quarter for the Borrower and its Subsidiaries on a consolidated basis, balance sheets and statements of income and cash flows for or relating to the Fiscal Quarter then ended, all prepared in accordance with Generally Accepted Accounting Principles (subject to normal year-end adjustments), applied on a Consistent Basis, and certified by the chief financial officer of the Borrower. The requirements of this paragraph shall be fully satisfied upon the delivery to the Bank within the time period specified above of the Borrower's quarterly report on form 10-Q with respect to any Fiscal Quarter, provided, that the financial statements and accompanying notes are fully disclosed within such filing; 22 28 (b) As soon as practicable and in any event within 90 days after, the close of each Fiscal Year, beginning with the close of the current Fiscal Year, an audited consolidated balance sheet of Borrower and its Subsidiaries as of the close of such Fiscal Year and audited consolidated statements of income and cash flows for the Fiscal Year then ended prepared by a Big Five independent certified public accounting firm in accordance with Generally Accepted Accounting Principles, applied on a Consistent Basis, and accompanied by a report thereon by such certified public accountants and, with respect to such audited financial statements, containing an opinion that is not qualified with respect to scope limitations imposed by Borrower, as to going concern or with respect to accounting principles followed by Borrower not in accordance with Generally Accepted Accounting Principles; (c) Concurrently with the delivery of the financial statements described in subsection (b) above, a certificate from the independent certified public accountants stating that in making their examination of the financial statements of the Borrower and its Subsidiaries, they obtained no knowledge of the occurrence or existence of any condition or event which constitutes or would constitute, upon the giving of notice or lapse of time or both, an Event of Default, or a statement specifying the nature and period of existence of any such condition or event disclosed by their examination; (d) Concurrently with the delivery of the financial statements described in subsections (a) and (b) above or at such other times as the Bank may reasonably request, a certificate from the chief financial officer of the Borrower certifying to the Bank that to the best of their knowledge after review of this Agreement and appropriate inquiry, the Borrower has kept, observed, performed and fulfilled each and every covenant, obligation and agreement binding upon the Borrower contained in this Agreement, accompanied by a worksheet completed in accordance with Generally Accepted Accounting Principles detailing the Borrower's compliance with the financial covenants contained in Sections 6.25, 6.26 and 6.27 hereto in form satisfactory to the Bank, and that no Default or Event of Default has occurred or specifying any such Default or Event of Default; (e) Immediately upon issuance, each report to the Securities and Exchange Commission and each notice, financial report or proxy statement rendered to its shareholders; (f) Immediately upon the Borrower's receipt thereof, copies of any management letter or other written communications from certified public accountants the effect of which would have a Material Adverse Effect on the business of the Borrower or any Subsidiary; and (g) Upon the Bank's request such other information about the financial condition, business or operations of the Borrower and its Subsidiaries as the Bank may from time to time reasonably request. SECTION 6.02. Notice of Certain Events. The Borrower shall promptly, after any officer of the Borrower learns or obtains knowledge of the occurrence thereof, give written notice to the Bank of: 23 29 (a) any litigation or proceedings brought against the Borrower or any of its Subsidiaries or any attachments, judgments, liens, levies or orders (other than Permitted Liens) that may be placed on or assessed against or threatened against the Borrower or any of its Subsidiaries which are (i) not otherwise covered by insurance or are contested by the insurer and (ii) in the aggregate exceed $5,000,000 in uninsured exposure and the Borrower shall set up such reserves as required by Generally Accepted Accounting Principles. (b) any written notice of a violation received by the Borrower or any of its Subsidiaries from any governmental regulatory body or law enforcement authority which, if such violation were established, might have a Material Adverse Effect on the business of the Borrower or any of its Subsidiaries; (c) any other matter that has resulted in a Material Adverse Effect on the Borrower or any of its Subsidiaries; (d) any breach or violation of or noncompliance with any covenant or condition of this Agreement or any Event of Default hereunder; and (e) any change in the name of the Borrower or any Subsidiary. SECTION 6.03. Corporate Existence. Except as provided in Section 6.12, the Borrower will, and will cause each of its Subsidiaries to, maintain and preserve its corporate or limited liability company existence and all rights, privileges and franchises now enjoyed. SECTION 6.04. Payment of Indebtedness; Performance of Other Obligations. The Borrower will, and will cause each of its Subsidiaries to pay, all material Indebtedness before such Indebtedness shall become past due, all material taxes, assessments and other governmental charges that may be levied or assessed upon it when due and all other material obligations in accordance with customary trade practices, and comply in all material respects with all acts, rules, regulations and orders of any legislative, administrative or judicial body or official applicable to any part thereof or to the operation of its business; provided, however, that the Borrower or any Subsidiary may in good faith by appropriate proceedings and with due diligence contest any such Indebtedness, taxes, assessments, governmental charges, acts, rules, regulations, orders and directions that do not in the Bank's reasonable judgment materially and adversely affect the Borrower's business and if requested by the Bank, shall establish reserves reasonably satisfactory to the Bank. The Borrower will, and will cause each of its Subsidiaries to, observe and remain in compliance in all material respects with all laws, ordinances, governmental rules and regulations to which it is subject and obtain all licenses, permits, franchises or other governmental authorizations necessary to the ownership of its properties or the conduct of its business, and observe and perform all covenants and conditions of all material agreements and instruments to which it is a party, where failure to comply would have a Material Adverse Effect on the business of the Borrower or any Subsidiary. 24 30 SECTION 6.05. Maintenance of Books and Records; Inspection. The Borrower will, and will cause each of its Subsidiaries to, (i) maintain adequate books, accounts and records, and prepare all financial statements required under this Agreement in accordance with Generally Accepted Accounting Principles (subject, in the case of unaudited interim statements, to normal year-end adjustments) and in material compliance with the regulations of any governmental regulatory body having jurisdiction over it; and (ii) permit employees or agents of the Bank at any time during normal business hours and upon reasonable notice to inspect the properties of the Borrower and its Subsidiaries, and to examine or audit the books of the Borrower and its Subsidiaries, accounts and records and make copies and memoranda of them, and to discuss the affairs, finances and accounts of the Borrower with its executive officers, and independent public accountants (and by this provision the Borrower and its Subsidiaries authorize said accountants to discuss the finances and affairs of the Borrower and its Subsidiaries), all at such reasonable times and as often as may be reasonably requested, but in any event at least twice during each fiscal year of the Borrower. SECTION 6.06. Comply with ERISA. The Borrower will, and will cause each of its Subsidiaries to, (i) at all times make prompt payment of contributions required to meet the minimum funding standards set forth in ERISA with respect to any Plan, except to the extent that failure to make such payment would not have a Material Adverse Effect on the business of the Borrower or any Subsidiary; (ii) not withdraw from participation in, permit the termination or partial termination of, or permit the occurrence of any other event with respect to any Plan that could result in liability to the PBGC, except to the extent that such withdrawal, termination, partial termination or occurrence would not have a Material Adverse Effect on the business of the Borrower or any Subsidiary; (iii) notify the Bank as soon as practicable of any Reportable Event and of any additional act or condition arising in connection with any Plan which the Borrower or any of its Subsidiaries believe might constitute grounds for the termination thereof by the PBGC or for the appointment by the appropriate United States district court of a trustee to administer such Plan, and (iv) furnish to the Bank upon the Bank's request, such additional information about any Plan as may be reasonably requested. Neither the Borrower nor any of its Subsidiaries will permit the occurrence of any "prohibited transaction" (as defined in ERISA). SECTION 6.07. Maintenance of Properties; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, conduct its business in an orderly, efficient and customary manner, keep its properties used in the operations of its business in good working order and condition (normal wear and tear excepted), and from time to time make all needed repairs to, renewals of or replacements of its properties (except where failure to make such repairs, renewals or replacements would not have a Material Adverse Effect on the business of the Borrower or any of its Subsidiaries or to the extent that any of such properties is obsolete or is being replaced) so that the efficiency of such property shall be fully maintained and preserved. The Borrower and its Subsidiaries shall file or cause to be filed in a timely manner all reports, applications, estimates and licenses that shall be required by any Governmental Authority and which, if not timely filed, would have a Material Adverse Effect on the Borrower or any of its Subsidiaries. 25 31 SECTION 6.08. Insurance. The Borrower will, and will cause each of its Subsidiaries to, maintain insurance with financially sound and reputable insurance companies against such risks and in such amounts as are customarily maintained by similar businesses as that of the Borrower and its Subsidiaries. SECTION 6.09. Observe all Laws. The Borrower will conform to and duly observe all laws, regulations and other valid requirements of any regulatory authority with respect to the conduct of its business, except to the extent that failure to do so would not have a Material Adverse Effect on the business of the Borrower or any of its Subsidiaries. SECTION 6.10. Year 2000. The Borrower has taken all action deemed reasonably necessary by Borrower to assure that the Borrower's and its Subsidiaries' computer based systems are able to operate, and effectively process data including dates, on and after January 1, 2000. At the request of the Bank, the Borrower will provide the Bank with assurances acceptable to the Bank of the Borrower's year 2000 compatibility. SECTION 6.11. Subsidiary Guaranties. All Subsidiaries of the Borrower (excluding any Subsidiary operating as an insurance or banking entity) shall, within ninety (90) days of the Closing Date, execute and deliver to the Bank a guaranty agreement in form reasonably acceptable to Bank and Borrower, unconditionally guaranteeing the obligations under this Agreement and the Note and any Subsidiary created or acquired subsequent to the Closing Date (excluding any Subsidiary operating as an insurance or banking entity) shall, within thirty (30) days of the date of creation or acquisition, execute a guaranty agreement supplement in form reasonably acceptable to the Bank and the Borrower; provided that, subject to the requirements of Section 6.19 hereof, failure to provide such guarantees shall not create or result in an Event of Default, but shall require the Borrower to deliver to the Bank as soon as practicable and (i) in any event within 45 days after the close of each Fiscal Quarter of the Borrower, beginning with the close of the first Fiscal Quarter subsequent to the deadline for delivery of the guaranty agreements or guaranty agreement supplements required above, consolidating balance sheets and statements of income and cash flows of the Borrower and its Subsidiaries for or relating to the Fiscal Quarter then ended, and (ii) in any event within 90 days after the close of each Fiscal Year of the Borrower, beginning with the close of the first Fiscal Year subsequent to the deadline for delivery of the guaranty agreements or guaranty agreement supplements required above, consolidating balance sheets and statements of income and cash flows of the Borrower and its Subsidiaries for or relating to the Fiscal Year then ended, all prepared in the case of clause (i) and clause (ii) above in accordance with Generally Accepted Accounting Principles (in the case of such quarterly statements, subject to normal year-end adjustments and the absence of notes), applied on a Consistent Basis, and certified by the chief financial officer of the Borrower. Each Subsidiary delivering a guaranty or guaranty agreement supplement hereunder shall at the same time deliver to the Bank all documents which the Bank may reasonably request relating to the existence of the Subsidiary, the authority for and the validity of the guaranty or guaranty agreement supplement and any other matters relevant thereto, all in form and substance satisfactory to the Bank, including without limitation a certificate of incumbency of the Subsidiary, signed by the Secretary or an Assistant Secretary or other appropriate representative of the Subsidiary, as applicable, 26 32 certifying as to the names, and incumbency of the officer or other representative of the Subsidiary authorized to execute and deliver the guaranty or guaranty agreement supplement, and certified copies of the following items as to the Subsidiary: (i) the certificate of incorporation or article of organization, (ii) the bylaws or operating agreement, (iii) a certificate of the Secretary of State (or other appropriate office) of the state of its incorporation as to its good standing as a corporation or limited liability company of such jurisdiction, and (iv) the action taken by the board of directors or members authorizing the execution, delivery and performance of the guaranty or guaranty agreement supplement to which the Subsidiary is a party. SECTION 6.12. Merger and Dissolution; Sale of Assets. Except for the transactions contained on Schedule 6.12, the Borrower shall not, and shall not permit any Subsidiary to, liquidate, windup or dissolve, or enter into any consolidation, merger, share exchange, syndicate or other combination, or sell, lease, transfer or otherwise dispose of, in a single transaction or a series of related transactions, all or substantially all of its business or assets or any portion thereof if such portion of its business or assets represents ten percent (10%) or more of the net revenues, profits or assets of the Borrower or such Subsidiary (except for sales of inventory in the ordinary course of business); provided, that (i) subject to the requirements of Section 6.11 hereof, any Subsidiary may be wound up and dissolved if the proceeds of the dissolution are transferred to the Borrower or another Subsidiary of the Borrower, and (ii) any Subsidiary may be merged into another Subsidiary or into the Borrower. SECTION 6.13. Acquisitions. Except for the transactions contained on Schedule 6.13, the Borrower shall not, and shall not permit any Subsidiary to, acquire the business or all or a substantial portion of the assets of any Person, unless the effect of such acquisition on a pro forma basis measured over a period commencing four (4) Fiscal Quarters prior to the effective date of the acquisition and continuing thereafter until such acquisition has been effective for a total period of four (4) Fiscal Quarters would not result in an Event of Default. SECTION 6.14. Indebtedness. The Borrower shall not, and shall not permit any Subsidiary to, create, incur or suffer to exist any Indebtedness or the equivalent (including any Indebtedness incurred as a general partner or as a venturer) except for: (a) the obligations owed to the Bank under this Agreement and the Note; (b) the obligations owed by the Borrower under any other Loan Document; (c) current trade accounts payable or accrued by the Borrower or any of its Subsidiaries in the ordinary course of its business, provided that the same shall be paid when due in accordance with customary trade terms unless contested by appropriate proceedings; (d) Indebtedness secured by Permitted Liens; (e) unsecured Indebtedness, provided that the effect of such unsecured Indebtedness on a pro forma basis measured over a period commencing four (4) Fiscal Quarters prior to the date the unsecured Indebtedness is incurred would not result in an Event of Default; (f) purchase money Indebtedness of the Borrower and its Subsidiaries in an aggregate amount not to exceed $5,000,000 on any date of determination; (g) Indebtedness existing on the Closing Date and not otherwise permitted under this Section 6.14, as set forth on Schedule 6.14; and (h) any other Indebtedness specifically permitted by the Bank. 27 33 SECTION 6.15. Liens and Encumbrances. The Borrower shall not, and shall not permit any Subsidiary to, create, assume or suffer to exist any Lien except for (a) Permitted Liens and (b) Liens necessary to secure purchase money Indebtedness, subject to the dollar limitation contained in Section 6.14(f). SECTION 6.16. Transactions With Related Persons. Except as otherwise permitted hereunder, the Borrower shall not, and shall not permit any Subsidiary to, make any loan or advance to, purchase, assume or guarantee any note to or from, or enter into any transaction with, any of its officers, directors, shareholders or Affiliates, or any member of the immediate family of any of its officers, directors, shareholders or Affiliates, or subcontract any operations to any Affiliate, except (a) as otherwise permitted hereunder; (b) for transactions with its officers, directors, shareholders or Affiliates in an aggregate amount not to exceed $2,000,000 in any Fiscal Year; and (c) in the ordinary course of and pursuant to the reasonable requirements of its business, consistent with past practices and upon fair and reasonable terms that are fully disclosed to the Bank and are no less favorable to it than would obtain in a comparable arm's length transaction with a Person not an Affiliate of the Borrower or such Subsidiary, as the case may be, provided, however, that the restrictions contained in this Section 6.16 shall not prohibit the Borrower or any Subsidiary from entering into any such transactions with another Subsidiary of the Borrower. SECTION 6.17. Sale and Leaseback. Subsequent to the Closing Date, the Borrower shall not, and shall not permit any Subsidiary to, enter into any arrangement with any Person providing for the leasing by the Borrower or any of its Subsidiaries of any asset that has been sold or transferred by the Borrower or any of its Subsidiaries to such Person, if the book value of the assets of the Borrower and its Subsidiaries which have been sold and leased back, including the transaction currently being contemplated, in the aggregate represent more than 10% of the book value of the assets of the Borrower and its Subsidiaries as of the Borrower's last Fiscal Quarter end. SECTION 6.18. New Business. The Borrower shall not, and shall not permit any Subsidiary to, engage in any business other than the business in which it is currently engaged or a business reasonably related thereto. SECTION 6.19. Subsidiaries. Unless the requirements of Section 6.11 have been satisfied and as otherwise provided on Schedule 6.19, the Borrower shall not, and shall not permit any Subsidiary to, create any new Subsidiary or transfer any assets to a Subsidiary if the formation of such new Subsidiary or the transfer of assets to such Subsidiary would cause any one of the aggregate of net revenues or profits or assets of all the Subsidiaries on a consolidated basis to exceed five percent (5%) of any one of the net revenues or profits or assets of the Borrower and its Subsidiaries on a consolidated basis, unless such new Subsidiary or Subsidiary to which assets are transferred executes and delivers a guaranty agreement supplement in form reasonably acceptable to the Bank and the Borrower, unconditionally guaranteeing the obligations under this Agreement and the Note. 28 34 SECTION 6.20. Guaranties. The Borrower shall not, and shall not permit any Subsidiary to, guarantee or otherwise, in any way, become liable with respect to the obligations or liabilities of any Person, except for (a) guaranties issued in favor of the Bank; (b) guaranties which do not exceed $10,000,000 in the aggregate at any time; (c) endorsements for collection or deposit in the ordinary course of business; (d) the guaranty by the Borrower of certain letter of credit obligations of Belk International, Inc.; (e) the guaranties by the Subsidiaries pursuant to Sections 6.11 and 6.19 hereof; and (f) any guaranty by the Borrower or any Subsidiary of any Indebtedness or obligation of the Borrower or any Subsidiary to the extent such Indebtedness or obligation is permitted hereunder. SECTION 6.21. Restrictive Transactions. The Borrower shall not, and shall not permit any Subsidiary to, enter into any transaction that materially and adversely affects the Borrower's ability to repay any Indebtedness or the obligations hereunder. SECTION 6.22. Hazardous Wastes. Permit, in violation of any federal, state or local laws, regulations or orders, any hazardous or toxic wastes, contaminants, oil, radioactive or other materials the removal of which is required or the maintenance of which is restricted, prohibited or penalized by any federal, state or local agency, authority or governmental unit to be brought on to any real property owned by the Borrower or any Subsidiary, or if so brought or found located thereon, the same shall be immediately removed, if required by Applicable Law, with proper disposal, and all required environmental cleanup procedures shall be diligently undertaken pursuant to all such laws, ordinances and regulations. SECTION 6.23. Change in Fiscal Year. The Borrower will not change its Fiscal Year end without the consent of the Bank. SECTION 6.24. Amendments. The Borrower shall not, and shall not permit any Subsidiary to, amend, modify or change in any manner the Borrower's articles of incorporation or bylaws, or any agreement entered into by the Borrower with respect to its Capital Stock, or enter into any new agreement with respect to its Capital Stock if such amendment or new agreement would have an adverse effect on the enforcement of this Agreement or would otherwise have a Material Adverse Effect on the business of the Borrower or any of its Subsidiaries. SECTION 6.25. Leverage-Ratio. The Borrower shall not permit the Leverage Ratio (i) as of the last day of the first Fiscal Quarter of any Fiscal Year to be greater than 3.25 to 1.0; (ii) as of the last day of the second Fiscal Quarter of any Fiscal Year to be greater than 3.25 to 1.0; (iii) as of the last day of the third Fiscal Quarter of any Fiscal Year to be greater than 3.7 to 1.0; and (iv) as of the last day of any Fiscal Year to be greater than 3 .0 to 1.0. SECTION 6.26. Fixed Charge Coverage Ratio. The Borrower shall not permit the Fixed Charge Coverage Ratio as of the last day of any Fiscal Quarter to be less than 1.5 to 1.0. SECTION 6.27. Net Worth. The Borrower shall not permit Consolidated Tangible Net Worth as of the last day of any Fiscal Quarter to be less than the sum of (i) $650,000,000, plus (ii) 29 35 50% of Comprehensive Income for each Fiscal Year, beginning as of the Fiscal Year ending on January 30, 1999, provided that Comprehensive Income for any such Fiscal Year shall be taken into account for purposes of this calculation only if positive, plus (iii) 100% of the increase in the stated capital and additional paid in capital accounts of the Borrower and its Subsidiaries resulting from the issuance or purchase of equity securities (including pursuant to the exercise of options, rights or warrants or pursuant to the conversion of convertible securities) or other Capital Stock, excluding any stock issuance and stock purchase, where the proceeds of the issuance are used to purchase stock from other shareholders or their estates, all determined as of the end of each Fiscal Year on a consolidated basis in accordance with Generally Accepted Accounting Principles. SECTION 6.28. Additional Covenants. In the event that at any time this Agreement is in effect the Borrower or any Subsidiary shall enter into any agreement, guarantee, indenture or other instrument (each a "Financing Agreement") governing, relating to or guaranteeing any Financing or to amend any terms and conditions applicable to any Financing, which Financing Agreement includes covenants concerning or limiting the Borrower or any Subsidiary with respect to the matters addressed in Sections 6.01, 6.11, 6.25, 6.26 or 6.27 of this Agreement, which are more favorable to the lender or other counterparty thereunder with respect to such matters, than Sections 6.01, 6.11, 6.25, 6.26 or 6.27 of this Agreement, the Borrower shall promptly so notify the Bank. Thereupon, if the Bank shall request by written notice to the Borrower (after a determination has been made by the Bank that any such Financing Agreement contains any provisions which either individually or in the aggregate are more favorable than one of Sections 6.01, 6.11, 6.25, 6.26 or 6.27 of this Agreement), the Borrower and the Bank shall enter into an amendment to this Agreement providing for substantially the same such covenants as those provided for in such Financing Agreement, to the extent required and as may be selected by the Bank, such amendment to remain in effect, unless otherwise specified in writing by the Bank, for the entire duration of the stated term to maturity of such Financing (to and including the date to which the same may be extended at the Borrower's option), notwithstanding that such Financing might be earlier terminated by prepayment, refinancing, acceleration or otherwise, provided that if any such Financing Agreement shall be modified, supplemented, amended or restated so as to modify, amend or eliminate from such Financing Agreement any such covenant so made a part of this Agreement, then unless required by the Bank pursuant to this Section, such modification, supplement or amendment shall not operate to modify, amend or eliminate such covenant as so made a part of this Agreement. As used in this Section, "Financing" means (i) any transaction or series of transactions for the incurrence by the Borrower or any Subsidiary of any Indebtedness or for the establishment of a commitment to make advances which would constitute Indebtedness of the Borrower or any Subsidiary, which Indebtedness is not by its terms subordinate and junior to other Indebtedness of the Borrower or such Subsidiary, (ii) any obligation incurred in a transaction or series of transactions in which assets of the Borrower or any Subsidiary are sold and leased back, or (iii) a sale of accounts or other receivables or any interest therein. SECTION 6.29. Use of Proceeds. No portion of the proceeds of the Loan will be used by the Borrower or any Subsidiary (a) in connection with, either directly or indirectly, any tender offer for, or other acquisition of, stock of any corporation with a view towards obtaining control of such 30 36 other corporation, (b) directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock, or (c) for any purpose in violation of any Applicable Law. SECTION 6.30. Crestar Facility. The Borrower shall permanently reduce its Credit Facility with Crestar Bank on or before January 1, 1999 such that no more than $5,000,000.00 is thereafter outstanding and/or available to be drawn thereunder. ARTICLE VII DEFAULTS SECTION 7.01. Events of Default. The occurrence of any one or more of the following events shall constitute an Event of Default by the Borrower under this Agreement: (a) the Borrower shall fail to pay any principal of the Loans within five days after such principal shall become due or shall fail to pay any interest on the Loans within ten days after such interest shall become due, or shall fail to pay any other amount payable hereunder within ten days after such other amount becomes due; or (b) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement or any Loan Document (other than those covered by clause (a) above) for thirty days after the earlier of (i) the first day on which a responsible officer of the Borrower has knowledge of such failure, or (ii) written notice thereof has been given to the Borrower by the Bank; or (c) any representation, warranty, certification or statement made by the Borrower in Article V or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made); or (d) the Borrower or any Subsidiary shall fail to make any payment in respect of Indebtedness outstanding (other than the Note) when due or within any applicable grace period; or (e) any event or condition shall occur which results in the acceleration of the maturity of Indebtedness outstanding of the Borrower or any Subsidiary or the purchase of such Indebtedness by the Borrower (or its designee) or such Subsidiary (or its designee) prior to the scheduled maturity thereof or would enable (or, with the giving of notice or lapse of time or both, would enable) the holders of such Indebtedness or any Person acting on such holders' behalf to accelerate the maturity thereof or require the purchase thereof by the Borrower (or its designee) or such Subsidiary (or its designee) prior to the scheduled maturity thereof, without regard to whether such holders or other Person shall have exercised or waived their right to do so; or 31 37 (f) the Borrower or any Subsidiary of the Borrower shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally, or shall admit in writing its inability, to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or (g) an involuntary case or other proceeding shall be commenced against the Borrower or any Subsidiary of the Borrower seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Subsidiary of the Borrower under the federal bankruptcy laws as now or hereafter in effect; or (h) the Borrower or any member of the Controlled Group shall fail to pay when due any material amount which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans shall be filed under Title IV of ERISA by the Borrower, any member of the Controlled Group, any plan administrator or any combination of the foregoing, or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated; or the Borrower or any other member of the Controlled Group shall enter into, contribute or be obligated to contribute to, terminate or incur any withdrawal liability with respect to, a Multiemployer Plan; or (i) one or more judgments or orders for the payment of money in an aggregate amount in excess of $100,000 shall be rendered against the Borrower or any Subsidiary and such judgment or order shall continue without discharge or stay for a period of 30 days; or (j) a federal tax lien shall be filed against the Borrower under Section 6323 of the Code or a lien of the PBGC shall be filed against the Borrower or any Subsidiary under Section 4068 of ERISA and in either case such lien shall remain undischarged for a period of 60 days after the date of filing; or (k) any default or event of default shall occur under any Loan Document. 32 38 SECTION 7.02. Remedies on Default. Upon the occurrence of an Event of Default, the Bank may by notice to the Borrower, declare the Note and the Loans (together with accrued interest thereon), and the Note and the Loans (together with accrued interest thereon) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower and terminate the Credit Facility; provided, that if any Event of Default specified in clause (f) or (g) of Section 7.01 above occurs with respect to the Borrower, without any notice to the Borrower or any other act by the Bank, the Note and the Loans (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower and the Credit Facility shall be automatically terminated. SECTION 7.03. Security Interest, Offset, Sharing of Offsets. (a) In addition to, and not in limitation of, all rights of offset that the Bank or other holder of the Note may have under Applicable Law, the Borrower hereby grants to the Bank, as security for the full and punctual payment and performance of the obligations to pay to the Bank the principal of and interest on the Loans and other amounts due hereunder, a continuing lien on and security interest in all deposits and other sums credited by or due from the Bank to the Borrower or subject to withdrawal by the Borrower; and regardless of the adequacy of any collateral or other means of obtaining repayment of the Loans, the Bank may, at any time after the occurrence of an Event of Default and without notice to the Borrower, set off the whole or any portion or portions of any or all such deposits and other sums against the amounts owing under this Agreement and the Note, whether or not any other Person or Persons could also withdraw money therefrom. (b) The Borrower agrees, to the fullest extent it may effectively do so under Applicable Law, that any holder of a participation in a Note may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. ARTICLE VIII MISCELLANEOUS SECTION 8.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission or similar writing) and shall be given to such party at its address referenced below or such other address as such party may hereafter specify for the purpose by notice to the other party: 33 39 (a) If to the Borrower: Belk, Inc. 2801 West Tyvola Road Charlotte, North Carolina 28217-4500 Attention: Mr. James M. Berry Fax number: (704) 357-1883 (b) If to the Bank, to its address set forth on the signature pages hereof. Each such notice, request or other communication shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means, when delivered at the address specified in this Section; provided, that notices to the Bank under Article II or Article III shall not be effective until received. SECTION 8.02. No Waivers. No failure or delay by the Bank or Borrower in exercising any right, power or privilege hereunder or under the Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 8.03. Expenses; Documentary Taxes. (a) The Borrower shall pay (i) all out-of-pocket expenses of the Bank, including reasonable fees and disbursements of counsel for the Bank, in connection with the preparation of this Agreement and the other Loan Documents, any waiver or consent hereunder or any amendment hereof or any actual or alleged Default hereunder; provided, that the Borrower shall not be liable for the expenses of the Bank in connection with the preparation of this Agreement and the other Loan Documents to the extent such expenses exceed $10,000, and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Bank, including fees and disbursements of outside counsel, in connection with such Event of Default and collection and other enforcement proceedings resulting therefrom, including out-of-pocket expenses incurred in enforcing this Agreement and the other Loan Documents. (b) The Borrower shall indemnify the Bank against any transfer taxes, documentary taxes, assessments or charges made by any Governmental Authority by reason of the execution and delivery of this Agreement or the other Loan Documents. (c) The Borrower shall indemnify the Bank and its directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims or damages to which any of them may become subject, insofar as such losses, liabilities, claims or damages arise out of or result from any actual or proposed use by the Borrower of the proceeds of any extension of credit by the Bank hereunder or breach by the Borrower of this Agreement or any 34 40 other Loan Document or from investigation, litigation (including, without limitation, any actions taken by the Bank to enforce this Agreement or any of the other Loan Documents) or other proceeding (including, without limitation, any threatened investigation or proceeding) relating to the foregoing, and the Borrower shall reimburse the Bank and its directors, officers, employees and agents, upon demand for any expenses (including, without limitation, legal fees) incurred in connection with any such investigation or proceeding; but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence, willful misconduct or bad faith of the Person to be indemnified. SECTION 8.04. Amendments and Waivers. Any provision of this Agreement, the Note or any other Loan Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Bank. SECTION 8.05. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, that the Borrower may not assign or otherwise transfer any of its rights under this Agreement. (b) The Bank may at any time sell to one or more Persons (each a "Participant") participating interests in the Loans, the Note or any other interest of the Bank hereunder; provided, that no participating interests in the Loans, the Note or any other interest of the Bank may be sold pursuant to this paragraph (b) to a Person not an Affiliate of the Bank without the prior written consent of the Borrower. In the event of any such sale by the Bank of a participating interest the Bank's obligations under this Agreement shall remain unchanged, the Bank shall remain solely responsible for the performance thereof, the Bank shall remain the holder of the Note for all purposes under this Agreement, and the Borrower shall continue to deal solely and directly with the Bank in connection with the Bank's rights and obligations under this Agreement. In no event shall the Bank be obligated to the Participant to take or refrain from taking any action hereunder except that the Bank may agree that it will not (except as provided below), without the consent of the Participant, agree to (i) the change of any date fixed for the payment of principal of or interest on the Loan, (ii) the change of the amount of any principal, interest or fees due on any date fixed for the payment thereof with respect to the Loan, (iii) the change of the principal of the Loan, (iv) any change in the rate at which interest is payable thereon from the rate at which the Participant is entitled to receive interest in respect of such participation, (v) the release or substitution of all or any substantial part of the collateral (if any) held as security for the Loan, or (vi) the release of any guaranty given to support payment of the Loan. The Bank shall, within ten Business Days after selling a participating interest in the Loan, the Note or other interest under this Agreement, provide the Borrower with written notification stating that such sale has occurred and identifying the Participant and the interest purchased by such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Article III and Section 7.03 with respect to its participation in the Loans. (c) The Bank may at any time assign to one or more banks or financial institutions 35 41 (each an "Assignee") all, or a proportionate part of all, of its rights and obligations under this Agreement and the Note and the other Loan Documents, and the Assignee shall assume all such rights and obligations, pursuant to an Assignment and Acceptance in the form attached hereto as Exhibit E executed by such Assignee, the Bank and the Borrower; provided, that no interest may be sold by the Bank pursuant to this paragraph (c) to any Assignee which is not an Affiliate of the Bank without the consent of the Borrower. Upon (i) execution of the Assignment and Acceptance by the Bank, such Assignee, and the Borrower (if required), (ii) delivery of an executed copy of the Assignment and Acceptance to the Borrower, and (iii) payment by such Assignee to the Bank of an amount equal to the purchase price agreed between Bank and such Assignee, such Assignee shall for all purposes be a Bank party to this Agreement and shall have all the rights and obligations of a Bank under this Agreement to the same extent as if it were an original party hereto, and the Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by the Borrower or the Bank shall be required. Upon the consummation of any transfer to an Assignee pursuant to this paragraph (c), the Bank and the Borrower shall make appropriate arrangements so that, if required, new Notes are issued to such Assignee and the Bank. (d) Subject to the provisions of Section 8.06, the Borrower authorizes the Bank to disclose to any Participant, Assignee or other transferee (each a "Transferee") and any prospective Transferee any and all financial information in the Bank's possession concerning the Borrower which has been delivered to the Bank by the Borrower pursuant to this Agreement or which has been delivered to the Bank by the Borrower in connection with the Bank's credit evaluation prior to entering into this Agreement. (e) No Transferee shall be entitled to receive any greater payment under Section 3.03 than the Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent. (f) Anything in this Section to the contrary notwithstanding, the Bank may assign and pledge all or any portion of the Loan and/or obligations owing to it to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and Operating Circular issued by such Federal Reserve Bank; provided, that any payment in respect of such assigned Loan and/or obligations made by the Borrower to the Bank in accordance with the terms of this Agreement shall satisfy the Borrower's obligations hereunder in respect of such assigned Loans and/or obligations to the extent of such payment. No such assignment shall release the Bank from its obligations hereunder. SECTION 8.06. Confidentiality. The Bank agrees to exercise its best efforts to keep any information delivered or made available by the Borrower to it which is clearly indicated to be confidential information, confidential from any one other than persons employed or retained by the Bank who are or are expected to become engaged in evaluating, approving, structuring or administering the Loan; provided, however, that nothing herein shall prevent the Bank from disclosing such information (a) upon the order of any court or administrative agency, (b) upon the request or demand of any regulatory agency or authority having jurisdiction over the Bank, (c) which 36 42 has been publicly disclosed, (d) to the extent reasonably required in connection with any litigation to which the Bank or its respective Affiliates may be a party, (e) to the extent reasonably required in connection with the exercise of any remedy hereunder, (f) to the Bank's affiliates, legal counsel and independent auditors and (g) to any actual or proposed Participant, Assignee or other Transferee of all or part of its rights hereunder which has agreed in writing to be bound by the provisions of this Section. SECTION 8.07. Governing Law. This Agreement, the Note and the other Loan Documents shall be construed in accordance, with and governed by the law of the State of North Carolina. This Agreement, the Note and the other Loan Documents are intended to be effective as instruments executed under seal. SECTION 8.08. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 8.09. Severability. If any provisions of this Agreement shall be held invalid under any Applicable Law, such invalidity shall not affect any other provision of this Agreement that can be given effect without the invalid provision, and, to this end, the provisions hereof are severable. SECTION 8.10. Captions. Captions in this Agreement are for the convenience of reference only and shall not affect the meaning or interpretation of the provisions hereof. [Remainder of this page intentionally left blank] 37 43 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the year and day first above written. BORROWER: BELK, INC. [CORPORATE SEAL] By: ----------------------------- Title: 38 44 BANK: Lending Office WACHOVIA BANK, N.A. Wachovia Bank, N.A. 400 South Tryon Street Charlotte, North Carolina 28202 By: --------------------------------------- Title: ------------------------------------ ADDRESS: Wachovia Bank, N.A. 400 South Tryon Street Charlotte, North Carolina 28202 Attn: David W. Shore Telephone: (704) 378-5144 Fax: (704) 378-5181 39 45 Exhibit A to Credit Agreement dated as of September 11, 1998 by and among Belk, Inc. and Wachovia Bank, N.A. PROMISSORY NOTE $150,000,000.00 September 11, 1998 FOR VALUE RECEIVED, the undersigned BELK, INC., a Delaware corporation (the "Borrower"), hereby promises to pay to the order of WACHOVIA BANK, N.A. (together with its endorsees, successors and assigns, the "Bank"), the principal sum of One Hundred Fifty Million and No/100 Dollars ($150,000,000.00) on the dates provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of this Note on the dates and at the rate or rates provided for in the Credit Agreement. Interest on any overdue principal of and, to the extent permitted by law, overdue interest on the principal amount hereof shall bear interest at the rate or rates as provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other funds immediately available at the Bank's office set forth in the Credit Agreement. This Note evidences the Loans made by the Bank under, is the Note referred to in and issued pursuant to, and is subject to the terms and provisions of, the Credit Agreement, dated as of September 11, 1998, between the Borrower and the Bank (as the same may be modified, amended, supplemented or restated, the "Credit Agreement") to which Agreement reference is hereby made for a statement of said terms and provisions. This Note is entitled to the benefits of the Credit Agreement. Any term used herein that is defined in the Credit Agreement shall have the meaning afforded it in the Credit Agreement when used herein. The Bank may, but shall not be obligated to, record on the schedule attached to and made a part hereof, or on a continuation of such schedule, Loans extended by the Bank to the Borrower, the effective interest rates for the Loans evidenced hereby, and the principal payments and prepayments of this Note; provided, that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. Upon the occurrence and during the continuation of any Event of Default, the Bank may declare the entire unpaid principal balance hereof and all accrued interest hereon to be immediately due and payable in the manner and with the effect provided in the Credit Agreement, and may thereafter exercise any of the remedies referred to in the Credit Agreement or existing under Applicable Law. A-1 46 This Note may be prepaid in whole or in part only on the terms and conditions set forth in the Credit Agreement. TIME IS OF THE ESSENCE OF THIS CONTRACT. In addition and not in limitation of the foregoing and the provisions of the Credit Agreement, the Borrower further agrees to pay all expenses of collection, including reasonable attorneys' fees, if this Note shall be collected by law or through an attorney at law, or in bankruptcy, receivership or other court proceedings. This Note shall be governed by and construed under the internal laws of the State of North Carolina, without giving effect to principles of conflicts of laws. This Note is intended to be effective as an instrument executed under seat. PRESENTMENT, DEMAND, PROTEST AND NOTICE OF DISHONOR ARE HEREBY WAIVED BY THE BORROWER. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed under seal by a duly authorized officer as of the day and year first above written. BELK, INC. ATTEST: By: - ---------------------------- ------------------------------- Assistant Secretary Title: ---------------------------- [CORPORATE SEAL] A-2 47 Note (continued) PAYMENTS OF PRINCIPAL =======================
Amount of Unpaid Type of Interest Principal Principal Notation Date Loan* Rate Repaid Amount Made by - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
- ----------------- * I.e., a Base Rate Loan or LIBOR Rate Loan. A-3 48 Exhibit B to Credit Agreement dated as of September 11, 1998 by and among Belk, Inc. and Wachovia Bank, N.A. NOTICE OF BORROWING Wachovia Bank, N.A. 400 South Tryon Street Charlotte, North Carolina 28202 Attn: David W. Shore Ladies and Gentlemen: This irrevocable Notice of Borrowing is delivered to you under Section 2.02 (a) of the Credit Agreement dated as of September 11, 1998 (as amended, restated or otherwise modified, the "Credit Agreement"), by and among Belk, Inc. ("the Borrower") and Wachovia Bank, N.A. 1. The Borrower hereby requests that the Bank make a Loan in the aggregate principal amount of $___________ (the "Loan").(1) 2. The Borrower hereby requests that the Loan be made on the following Business Day: _______________________.(2) 3. The Borrower hereby requests that the Loan bear interest at the following interest rate, as set forth below: Principal Component of Interest Loan Rate - ------------------- -------- - -------- (1) Complete with an amount in accordance with Section 2.02 of the Credit Agreement. (2) Complete with a Business Day in accordance with Section 2.02 of the Credit Agreement. B-1 49 Wachovia Bank, N.A. Page 2 4. The principal amount of all Loans outstanding as of the date hereof (including the requested Loan) does not exceed the maximum amount permitted to be outstanding pursuant to the terms of the Credit Agreement. 5. All of the conditions applicable to the Loan requested herein as set forth in the Credit Agreement have been satisfied as of the date hereof and will remain satisfied to the date of such Loan. 6. All capitalized undefined terms used herein has the meanings assigned thereto in the Credit Agreement. IN WITNESS WHEREOF, the undersigned has executed this Notice of Borrowing this _____day of _________, ___. BELK, INC. By: ----------------------------- Name: ------------------------ Title: ----------------------- B-2 50 Exhibit C to Credit Agreement dated as of September 11, 1998 by and among Belk, Inc. and Wachovia Bank, N.A. NOTICE OF CONVERSION/CONTINUATION Wachovia Bank, N.A. 400 South Tryon Street Charlotte, North Carolina 28202 Attn: David W. Shore Ladies and Gentlemen: This irrevocable Notice of Conversion/Continuation (the "Notice") is delivered to you under Section 2.08 of the Credit Agreement dated as of September 11, 1998 (as amended, restated or otherwise modified, the "Credit Agreement"), by and among Belk, Inc. ("the Borrower") and Wachovia Bank, N.A. 1. This Notice of Conversion/Continuation is submitted for the purpose of: (Complete applicable information.) (a) [Converting] [continuing] a Loan [into] [as] a Loan.(1) (b) The aggregate outstanding principal balance of such Loan is $____________. (c) The principal amount of such Loan to be [converted] [continued] is $_________.(2) (d) The requested effective date of the [conversion] [continuation] of such Loan is __________. 2. No Default or Event of Default exists, and none will exist upon the conversion or continuation of the Loan requested herein. 3. All capitalized undefined terms used herein have the meanings assigned thereto in the Credit Agreement. C-1 51 Wachovia Bank, N.A. Page 2 IN WITNESS WHEREOF, the undersigned have executed this Notice of Conversion/Continuation this ______ day of ____________, 19__. BELK, INC. By: ------------------------------- Name: -------------------------- Title: ------------------------- 1. Delete the bracketed language and insert "Base Rate" or "LIBOR Rate", as applicable, in each blank. 2. Complete with an amount in compliance with Section 2.08 of the Credit Agreement. C-2 52 Exhibit D to Credit Agreement dated as of September 11, 1998 by and among Belk, Inc. and Wachovia Bank, N.A. OFFICER'S COMPLIANCE CERTIFICATE The undersigned, on behalf of Belk, Inc. (the "Borrower"), hereby certifies to Wachovia Bank, N.A. (the "Bank"), as follows: 1. This Certificate is delivered to you pursuant to Section 6.01 of the Credit Agreement dated as of September 11, 1998 (as amended, restated or otherwise modified, the "Credit Agreement"), by and among the Borrower and the Bank. Capitalized terms used herein and not defined herein shall have the meanings assigned thereto in the Credit Agreement. 2. I have reviewed the financial statements of the Borrower and its Subsidiaries dated as of and for the period[s] then ended and such statements fairly present the financial condition of the Borrower and its Subsidiaries as of the dates indicated and the results of its operations and cash flows for the period[s] indicated. 3. I have reviewed the terms of the Credit Agreement, the Note and the related Loan Documents and have made, or caused to be made under my supervision, a review in reasonable detail of the transactions and the condition of the Borrower and its Subsidiaries during the accounting period covered by the financial statements referred to in Paragraph 2 above. Such review has not disclosed the existence during or at the end of such accounting period of any condition or event that constitutes a Default or an Event of Default, nor do I have any knowledge of the existence of any such condition or event as at the date of this Certificate [except, [if such condition or event existed or exists, describe the nature and period of existence thereof and what action the Borrower has taken, is taking and proposes to take with respect thereto]]. 4. The Borrower and its Subsidiaries are in compliance within the covenants and restrictions contained in Article VI of the Credit Agreement. D-1 53 WITNESS the following signatures as of the ____ day of _____________, ____. BELK, INC. By: ---------------------------- Name: ----------------------- Title: ---------------------- D-2 54 Exhibit E to Credit Agreement dated as of September 11, 1998 by and among Belk, Inc. and Wachovia Bank, N.A. ASSIGNMENT AND ACCEPTANCE Dated ___________, ____ Reference is made to the Credit Agreement dated as of September 11, 1998 (the "Credit Agreement") between, Belk, Inc. (the "Borrower") and Wachovia Bank, N.A. (the "Bank"). Terms defined in the Credit Agreement are used herein with the same meaning. Wachovia Bank, N.A. (the "Assignor") and ________________ (the "Assignee") agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, a _________% interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the Effective Date (as defined below) (including, without limitation, a _________% interest (which on the Effective Date hereof is $____________) in the Loans owing to the Assignor and a ______% interest in the Note held by the Assignor (which on the Effective Date hereof is $____________). 2. The Assignor (i) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto, other than that it is the legal and beneficial owner of the interest being assigned by it hereunder, that such interest is free and clear of any adverse claim and that as of the date hereof the aggregate outstanding principal amount of the Loans owing to it (without giving effect to assignments thereof which have not yet become effective) is $___________; (ii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iii) attaches the Note referred to in paragraph 1 above and requests that the Borrower exchange such Note for [a new Note dated ____________________, _____ in the principal amount of ________________ payable to the order of the Assignee] [new Notes as follows: a Note dated __________, ____ in the principal amount of $_______________ payable to the order of the Assignee and a Note dated ___________, ____ in the principal amount of $______________ payable to the order of such Assignor]. E-1 55 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 5.04(a) thereof (or any more recent financial statements of the Borrower delivered pursuant to Section 6.01 (a) or (b) thereof) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Assignor and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is a bank or financial institution; (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank; (v) specifies as its Lending Office (and address for notices) the office set forth beneath its name on the signature pages hereof, (vi) represents and warrants that the execution, delivery and performance of this Assignment and Acceptance are within its corporate powers and have been duly authorized by all necessary corporate action [, and (vii) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement and the Notes or such other documents as are necessary to indicate that all such payments are subject to such taxes at a rate reduced by an applicable tax treaty].(1) 4. The Effective Date for this Assignment and Acceptance shall be ______________ (the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Borrower for execution by the Borrower (if required by the Credit Agreement). 5. Upon such execution and acceptance by the Borrower (if required), from and after the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent rights and obligations have been transferred to it by this Assignment and Acceptance, have the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to the extent its rights and obligations have been transferred to the Assignee by this Assignment and Acceptance, relinquish its rights (other than under Section 3.03 of the Credit Agreement) and be released from its obligations under the Credit Agreement. 6. Upon such execution by the Borrower (if required), from and after the Effective Date, the Borrower shall make all payments in respect of the interest assigned hereby to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments for periods prior to such execution by the Borrower directly between themselves. - -------- (1) If the Assignee is organized under the laws of a jurisdiction outside the United States. E-2 56 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of North Carolina. WACHOVIA BANK, N.A. By: ------------------------------ Title: --------------------------- [NAME OF ASSIGNEE] By: ------------------------------ Title: --------------------------- Lending Office: [Address] BELK, INC. By: ------------------------------ Title: --------------------------- E-3 57 Exhibit F to Credit Agreement dated as of September 11, 1998 by and among Belk, Inc. and Wachovia Bank, N.A. NOTICE OF ACCOUNT DESIGNATION Dated Wachovia Bank, N.A. 400 South Tryon Street Charlotte, North Carolina 28202 Attn: David W. Shore Ladies and Gentlemen: This Notice of Account Designation is delivered to you by Belk, Inc. (the "Borrower") under Section 2.02(b) of the Credit Agreement dated as of September 11, 1998 (as amended, restated or otherwise modified, the "Credit Agreement") by and among the Borrower and Wachovia Bank, N.A. (the "Bank"). The Bank is hereby authorized to disburse all Loan proceeds into the following account(s): [Insert name of bank/ ABA Routing Number/ and Account Number] IN WITNESS WHEREOF, the undersigned has executed this Notice of Account Designation this ____ day of _______________, 199_. [CORPORATE SEAL] BELK, INC. By: --------------------------------- Name: ---------------------------- Title: --------------------------- 58 Exhibit G to Credit Agreement dated as of September 11, 1998 by and among Belk, Inc. and Wachovia Bank, N.A. OPINION OF BORROWER'S COUNSEL [Letterhead of Borrower's Counsel] [Date] Wachovia Bank, N.A. 400 South Tryon Street Charlotte, North Carolina 28202 Gentlemen: We have acted as counsel to BELK, INC., a Delaware corporation (the "Borrower"), in connection with that certain Credit Agreement, dated as of September 11, 1998 (the "Credit Agreement"), between the Borrower and Wachovia Bank, N.A. (the "Bank"). Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. We have assumed for purposes of our opinions set forth below that the execution and delivery of the Credit Agreement by the Bank have been duly authorized by the Bank. As to questions of fact relating to the Borrower material to such opinions, we have relied upon representations of appropriate officers of the Borrower, as appropriate. Upon the basis of the foregoing, we are of the opinion that: 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware and has all corporate powers required to carry on its business as now conducted. 2. The execution, delivery and performance by the Borrower of the Credit Agreement, the Note and the other Loan Documents (i) are within the Borrower's corporate powers, (ii) have G-1 59 Wachovia Bank, N.A. Page 2 been duly authorized by all necessary corporate action, (iii) require no action by or in respect of, or filing with, any governmental body, agency or official, (iv) do not contravene, or constitute a default under, any provision of Applicable Law or of the certificate of incorporation or bylaws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument which is binding upon the Borrower and (v) except as provided in the Credit Agreement and the other Loan Documents, do not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. 3. The Credit Agreement, the Note and the other Loan Documents constitute valid and binding agreements of the Borrower, enforceable against the Borrower in accordance with their respective terms, except as such enforceability may be limited by: (i) bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity. 4. There is no action, suit or proceeding pending, or threatened, against or affecting the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or which in any manner questions the validity or enforceability of the Credit Agreement, the Note or any other Loan Documents. 5. Neither the Borrower nor any of its subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. I am qualified to practice in the State of North Carolina and do not purport to be expert on any laws other than the laws of the United States and the State of North Carolina, and this opinion is rendered only with respect to such laws. I have made no independent investigation of the laws of any other jurisdiction. We express no opinion as to the laws of any jurisdiction wherein the Bank may be located which limits rates of interest which may be charged or collected by the Bank other than in paragraph 4 with respect to the State of North Carolina. This opinion is delivered to you in connection with the transaction referenced above and may only be relied upon by you or any Assignee, Participant or other Transferee under the Credit Agreement, without our prior written consent. Very truly yours, G-2 EX-21.1 9 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 SUBSIDIARIES Belk-Simpson Company, Greenville, South Carolina Belk Administration Company Belk Accounts Receivable LLC Belk Stores Services, Inc. United Electronic Services, Inc. Belk Stores Mutual Insurance Company The Belk Center, Inc. Belk International, Inc. Belk Stores of Virginia, LLC EX-27.1 10 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JAN-30-1999 FEB-01-1998 JAN-30-1999 18,313 24,164 360,495 9,352 482,247 881,555 1,088,711 527,762 1,593,918 258,586 403,713 0 0 567 787,368 1,593,918 2,091,060 2,091,060 1,422,257 1,422,257 0 12,237 37,132 92,437 34,651 57,974 0 (1,004) 0 56,970 1.01 1.01
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