-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, YwylZlKs4yksUyTg1K8YQHS3ZGIuIQQX+NOpRHdNZvQM2oW8oTkv4eXg/HUSpgRr xKmO+YUci13CgAgRjVnnGA== 0000918507-95-000017.txt : 19950501 0000918507-95-000017.hdr.sgml : 19950501 ACCESSION NUMBER: 0000918507-95-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950128 FILED AS OF DATE: 19950427 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STRAWBRIDGE & CLOTHIER CENTRAL INDEX KEY: 0000094855 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 231131660 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-01308 FILM NUMBER: 95532210 BUSINESS ADDRESS: STREET 1: 801 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19107-3199 BUSINESS PHONE: 2156296779 MAIL ADDRESS: STREET 1: 801 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19107-3199 10-K 1 STRAWBRIDGE 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) { X } Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended January 28, 1995 or { } Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ___________ Commission File Number 0-1308 STRAWBRIDGE & CLOTHIER (Exact name of registrant as specified in its charter) Pennsylvania 23-1131660 (State or other jurisdiction (I.R.S. Employer of Identification No.) incorporation or organization) 801 Market Street Philadelphia, Pennsylvania 19107-3199 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code (215) 629-6000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Series A Common Stock, par value $1 per share (Title of class) $5 Cumulative Preferred Stock, par value $100 per share (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO _____ 1 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the Series A Common Stock and the Series B Common Stock, par value $1 per share, of the registrant held by nonaffiliates of the registrant as of April 6, 1995 was $157,881,469. The number of shares of Series A Common Stock, par value $1 per share, of the registrant outstanding at April 6, 1995 was 7,293,036. The number of shares of Series B Common Stock, par value $1 per share, of the registrant outstanding at April 6, 1995 was 3,168,789. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the 1994 Annual Report to shareholders are incorporated by reference in Part II. (2) Portions of the definitive 1995 annual meeting proxy statement filed with the Securities and Exchange Commission on April 21, 1995 pursuant to Regulation 14A are incorporated by reference in Part III. 2 PART I Item 1. Business. Strawbridge & Clothier (the "Company") operates 13 department stores at its original location in Philadelphia and in the surrounding Delaware Valley area of Pennsylvania, New Jersey and Delaware. The Company operates, under the Clover name, 25 discount stores in the same market area as well as in the Lehigh Valley and Lancaster areas of Pennsylvania. The Company also operates one Home Furnishings store in northern Delaware. The Company is the successor to a business begun in 1868. The Company will open two new Clover stores in 1995. The 26th Clover store will open on May 8, 1995 west of the Concord Mall, north of Wilmington, Delaware. The Company plans to open the 27th Clover store in August, 1995 at The Gallery shopping mall in downtown Philadelphia. All of the Company's department stores carry most of the classes of general merchandise usually offered by full-line department stores. Among the principal types of merchandise sold are men's, women's and children's apparel, including men's and boys' clothing, furnishings and footwear, women's coats, suits, dresses, furs, sportswear, intimate apparel, accessories, shoes and jewelry and infants' and children's clothing and accessories; smallwares, including cosmetics, stationery and candy; home furnishings, including domestics, draperies, lamps, housewares, furniture, rugs, television sets, audio equipment, china, glassware and silverware; and gifts. The department stores also provide various services such as interior decorating, beauty salons, restaurants, jewelry repair and fur storage. The Company has arrangements with several common carriers for the delivery by truck of merchandise to its department store customers throughout the Company's trading area. The Clover stores offer a complete range of general merchandise exclusive of major appliances and furniture. No home delivery or other services are provided except for cafeteria- style restaurant service in two stores, snack bars in all stores, pharmacies in eight stores and beauty salons in nine stores. The Company opened its first Home Furnishings store on April 21, 1995 at the Concord Mall, north of Wilmington, Delaware. The Home Furnishings store carries furniture, bedding, floor coverings, curtains, draperies, lamps and a full-service interior design studio. 3 The Company's merchandise is sold under a broad variety of brand names including the Company's own brand names, manufacturers' brand names, and several brand names owned by the Associated Merchandising Corporation, of which the Company is a member. Strawbridge & Clothier charge cards, VISA, MasterCard, American Express and Discover cards are accepted at both the department stores and Clover stores. In the fiscal year ended January 28, 1995, approximately 35% of sales were on a cash basis and 65% of sales were credit sales. The Company's stores have sales activity throughout the year. Approximately 29% of annual sales are made in the peak period of November and December. As of January 28, 1995, the Company had 4,433 full time employees, 2,849 regular part time employees and 6,661 contingent employees who are scheduled as needed. There has not been any significant change in the kinds of services rendered, or in the markets or methods of distribution, since the beginning of the fiscal year ended January 28, 1995. The general merchandise business in the Company's principal market of downtown Philadelphia and the surrounding Delaware Valley area of southeastern Pennsylvania, southern New Jersey and northern Delaware is highly competitive. The Company competes on the basis of quality of merchandise, customer service, price and store location. The Company's department and discount stores are in active competition with national chain, regional chain and local retail stores within their market areas, including conventional and discount department stores, specialty stores and mail order companies. Many of the Company's competitors have considerably larger national sales and financial resources than the Company. 4 Item 2. Properties. The Company's main department store is in downtown Philadelphia and its 12 suburban branch department stores are located in the surrounding Delaware Valley area of southeastern Pennsylvania (seven stores), southern New Jersey (three stores) and northern Delaware (two stores). The Philadelphia department store contains approximately 1,065,000 square feet of floor area. The suburban branch department stores generally contain from 150,000 to 255,000 square feet, with one store containing 108,000 square feet of floor area. All of the branch department stores are located in shopping centers or malls. The Company's 25 Clover discount stores are located in the same market area as its department stores (15 in southeastern Pennsylvania, six in southern New Jersey and one in northern Delaware), as well as in the Lehigh Valley (two stores) and Lancaster (one store) areas of Pennsylvania. The Clover stores contain from 70,000 to 157,000 square feet of floor area. The Company's Home Furnishings store is located at a shopping mall in northern Delaware and contains 54,000 square feet of floor area. The Company owns 18 of its stores, of which three are on leased land and six are subject to mortgages or similar liens. The Company leases the remainder of the stores from third parties with, in most cases, long-term renewal rights or an option to purchase. The Company also maintains warehouse and distribution facilities in Philadelphia and New Jersey. The new Clover store to be opened in northern Delaware, which contains 94,000 square feet of floor area, is owned by the Company on leased land. The new Clover store to be opened in downtown Philadelphia, which contains 130,000 square feet of floor area, will be leased by the Company. Item 3. Legal Proceedings. There are no material pending legal proceedings to which the Company or its subsidiaries is a party or of which any of their property is subject. The Company is a party to ordinary routine legal proceedings incidental to the conduct of its business, none of which are material. 5 Item 4. Submission of Matters to a Vote of Security Holders. This item is not applicable because there were no matters submitted to a vote of security holders during the fourth quarter of fiscal year 1994. Executive Officers of the Registrant. Office Held Name Age Office (1) Since(2) Francis R. Strawbridge, III(3) 57 Chairman of the Board 1984 Peter S. Strawbridge(3) 56 President 1979 Warren W. White 63 Executive Vice 1979 President Steven L. Strawbridge(3) 51 Vice President, 1982 Treasurer and Secretary Ronald B. Avellino 56 Vice President 1987 Louis F. Busico 60 Vice President 1979 Harry T. Hinkel 56 Vice President 1993 Robert A. Hoffner 52 Vice President 1984 Charles D. Hollander 64 Vice President 1988 Alexander B. Jervis 51 Vice President 1992 Alice T. Kanigowski 56 Vice President 1986 John J. Leahy 64 Vice President 1969 Robert G. Muskas 56 Vice President 1980 Thelma A. Newman 55 Vice President 1994 E. Spencer Quill 53 Vice President 1990 Thomas S. Rittenhouse 53 Vice President 1978 G. Leonard Shea 61 Vice President 1977 David W. Strawbridge(3) 55 Vice President 1978 William A. Timmons 59 Vice President 1979 6 __________ (1) Each executive officer has been employed by the Company as an executive officer for at least the past five years, except for E. Spencer Quill who was Director of Administration and Distribution prior to his election in 1990; Alexander B. Jervis who was Director of Assets Protection prior to his election in 1992; Harry T. Hinkel who was a Store Manager prior to his election in 1993; and Thelma A. Newman who was a Divisional Merchandise Manager prior to her election in 1994. (2) The executive officers of the Company are elected annually to hold office until the annual organization meeting of the Board of Directors and until their respective successors shall have been duly elected and qualified. (3) Peter S. Strawbridge and Steven L. Strawbridge are brothers and are first cousins of Francis R. Strawbridge, III and David W. Strawbridge, who also are brothers. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. The information appearing in the section captioned "Market and Dividend Information" from the portions of the Company's 1994 Annual Report to shareholders filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. Item 6. Selected Financial Data. The information appearing in the section captioned "Ten-Year Financial Summary" from the portions of the Company's 1994 Annual Report to shareholders filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information appearing in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" from the portions of the Company's 1994 Annual Report to shareholders filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. 7 Item 8. Financial Statements and Supplementary Data. The information appearing in the sections captioned "Consolidated Statements of Operations," "Consolidated Balance Sheets," "Consolidated Statements of Cash Flows," "Consolidated Statements of Shareholders' Equity," "Notes to Consolidated Financial Statements," "Statement of Management Responsibility" and "Report of Ernst & Young LLP, Independent Auditors" from the portions of the Company's 1994 Annual Report to shareholders filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. The information appearing in the section captioned "Quarterly Results of Operations" from the portions of the Company's 1994 Annual Report to shareholders filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. This item is not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. The information as to directors required by this item is incorporated herein by reference from the section captioned "Election of Directors" in the Company's definitive 1995 annual meeting proxy statement which has been filed pursuant to Regulation 14A. The required information as to executive officers is set forth in Part I hereof and incorporated herein by reference. Item 11. Executive Compensation. The information required by this item is incorporated herein by reference from the section captioned "Executive Compensation" in the Company's definitive 1995 annual meeting proxy statement which has been filed pursuant to Regulation 14A. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information called for by this item is incorporated herein by reference from the section captioned "Beneficial Ownership of Voting Securities" in the Company's definitive 1995 annual meeting proxy statement which has been filed pursuant to Regulation 14A. 8 Item 13. Certain Relationships and Related Transactions. None. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) All financial statements and schedules. A list of the financial statements and supporting schedule included in this Report appears on page F-1 hereof. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last fiscal quarter of the fiscal year covered by this Report. (c) Exhibits. (3) (i) Restated Articles of the Company filed on January 3, 1990 with the Department of State of the Commonwealth of Pennsylvania, as filed as Exhibit 3(a) to Form 10-K for the fiscal year ended February 3, 1990, are incorporated herein by reference. (ii) By-Laws, effective October 1, 1989, as filed as Exhibit 3(b) to Form 10-K for the fiscal year ended February 3, 1990, are incorporated herein by reference. (4.1) Note Purchase Agreement dated as of November 1, 1977 relating to 8 1/2% Secured Notes of S&C, Center Square, Inc. due August 1, 2003.* (4.2) Note Agreement dated November 22, 1985 relating to 11.50% Senior Notes of Strawbridge & Clothier due November 15, 2000.* 9 (4.3) Indenture dated as of October 15, 1993 relating to 6 5/8% Notes of Strawbridge & Clothier due October 15, 2003.* (4.4) Note Agreement dated September 14, 1989 relating to Strawbridge & Clothier Senior Notes, 9.20% Series A due September 30, 2004 and 9.00% Series B due September 30, 1999.* (4.5) Note Agreement dated October 13, 1992 relating to Strawbridge & Clothier 7.04% Senior Notes due October 15, 1997.* (10.1) Deferred Compensation Plan for Key Executive Employees of Strawbridge & Clothier as amended and restated effective February 1, 1985, as filed as Exhibit (10) to Form 10-K for the fiscal year ended February 2, 1985, is incorporated herein by reference.** (10.2) 1985 Stock Option Plan of Strawbridge & Clothier as amended effective February 22, 1989, as filed as Exhibit 10(b) to Form 10-K for the fiscal year ended January 28, 1989, is incorporated herein by reference.** (10.3) 1991 Stock Option Plan of Strawbridge & Clothier, as filed as Exhibit 10(c) to Form 10-K for the fiscal year ended February 1, 1992, is incorporated herein by reference.** (10.4.1) Form of Employment Agreement for executive officers of the Company as filed as Exhibit 10.4.1 to Form 10-K for the fiscal year ended January 30, 1993, is incorporated herein by reference.** * Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the document listed is not filed with this Report. Registrant agrees to furnish a copy of such document to the Commission upon request. ** Management contract or compensatory plan or arrangement required to be filed or incorporated by reference as an exhibit. 10 (10.4.2) Schedule of certain terms of Employment Agreements for the executive officers named in the Company's Summary Compensation Table for the fiscal year ended January 28, 1995.** 11 (10.5) Receivables Purchase Agreement, dated as of January 26, 1995, among the Company, Clipper Receivables Corporation, State Street Boston Capital Corporation and PNC Bank, National Association. (11) Statement re: Computation of per share earnings. (13) Portions of the 1994 Annual Report to Shareholders, included as part of this Report. (21) Subsidiaries of Strawbridge & Clothier. (23) Consent of Ernst & Young LLP, Independent Auditors. (27) Financial Data Schedule. 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STRAWBRIDGE & CLOTHIER (Registrant) By /s/Francis R. Strawbridge, III Francis R. Strawbridge, III Chairman of the Board Dated: April 26, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/Francis R. Strawbridge, III April 26, 1995 Francis R. Strawbridge, III Director and Chairman of the Board (co-principal executive officer) /s/Peter S. Strawbridge April 26, 1995 Peter S. Strawbridge Director and President (co-principal executive officer) /s/Warren W. White April 26, 1995 Warren W. White Director and Executive Vice President /s/Steven L. Strawbridge April 26, 1995 Steven L. Strawbridge Director, Vice President, Treasurer and Secretary (principal financial officer) 13 /s/David W. Strawbridge April 26, 1995 David W. Strawbridge Director and Vice President /s/Thomas S. Rittenhouse April 26, 1995 Thomas S. Rittenhouse Vice President and Controller (principal accounting officer) /s/Jennifer S. Braxton April 26, 1995 Jennifer S. Braxton Director /s/Isaac H. Clothier, IV April 26, 1995 Isaac H. Clothier, IV Director /s/Richard H. Hall April 26, 1995 Richard H. Hall Director /s/Thomas B. Harvey, Jr. April 26, 1995 Thomas B. Harvey, Jr. Director /s/Anne C. Longstreth April 26, 1995 Anne C. Longstreth Director 14 /s/Paul E. Shipley April 26, 1995 Paul E. Shipley Director /s/Natalie B. Weintraub April 26, 1995 Natalie B. Weintraub Director 15 FORM 10-K -- ITEM 14(a)(1) and (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE STRAWBRIDGE & CLOTHIER AND SUBSIDIARIES The following consolidated financial statements of Strawbridge & Clothier and subsidiaries and the report of independent auditors thereon and a statement of management responsibility, included in the 1994 Annual Report to shareholders, are incorporated by reference in Item 8: Consolidated Statements of Operations--Fiscal years ended January 28, 1995, January 29, 1994 and January 30, 1993 Consolidated Balance Sheets--January 28, 1995 and January 29, 1994 Consolidated Statements of Cash Flows--Fiscal years ended January 28, 1995, January 29, 1994 and January 30, 1993 Consolidated Statements of Shareholders' Equity--Fiscal years ended January 28, 1995, January 29, 1994 and January 30, 1993 Notes to Consolidated Financial Statements The following consolidated financial statement schedule of Strawbridge & Clothier and subsidiaries is included herein: Schedule II--Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 16 Strawbridge & Clothier and Subsidiaries Schedule II--Valuation and Qualifying Accounts (in thousands)
COL. A COL. B COL. C COL. D COL. E Additions Balance at Charged to Charged to Balance at Description Beginning Costs and Other Deductions- End of Period Expenses Accounts-- - of Period Describe Describe Fiscal year ended January 28, 1995 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $5,000 $10,281 $ $9,737(1)(2) $5,544 Fiscal year ended January 29, 1994 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $5,000 $4,724 $ $4,724 (1) $5,000 17 Fiscal year ended January 30, 1993 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $5,000 $6,638 $ $6,638 (1) $5,000 (1) Accounts written off during year, net of recoveries. (2) Includes $1,756 reclassified to accrued expenses to provide for estimated recourse obilgations on accounts receivable sold.
18 Exhibit Index Exhibit No. Page No. (10.4.2) Schedule of certain terms of Employment Agreements for the executive officers named in the Company's Summary Compensation Table for the fiscal year ended January 28, 1995. (10.5) Receivables Purchase Agreement, dated as of January 26, 1995, among the Company, Clipper Receivables Corporation, State Street Boston Capital Corporation and PNC Bank, National Association. (11) Statement re: Computation of per share earnings. (13) Portions of the 1994 Annual Report to Shareholders, included as part of this Report. (21) Subsidiaries of Strawbridge & Clothier. (23) Consent of Ernst & Young LLP, Independent Auditors. (27) Financial Data Schedule. 19 EX-10.4.2 2 SCHEDULE OF CERTAIN TERM OF EMPLOYMENT EXHIBIT 10.4.2 SCHEDULE OF CERTAIN TERMS OF EMPLOYMENT AGREEMENTS FOR THE EXECUTIVE OFFICERS NAMED IN THE COMPANY'S SUMMARY COMPENSATION TABLE FOR THE FISCAL YEAR ENDED JANUARY 28, 1995 Three-Year Term Executive Officer Salary Commencing Peter S. Strawbridge $310,000 January 31, 1994 Francis R. Strawbridge, III 300,000 January 31, 1994 Warren W. White 275,000 January 31, 1994 Robert G. Muskas 180,000 January 31, 1994 Louis F. Busico 177,000 January 31, 1994 1 EX-11 3 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Strawbridge & Clothier and Subsidiaries Exhibit 11--Statement re: Computation of Per Share Earnings
Year ended January 28, January 29, January 30, 1995 1994 1993 (in thousands, except per share data) Primary Average shares outstanding 10,411 10,316 10,196 Net effect of dilutive stock options--based on the treasury stock method using average market price 15 8 20 Total 10,426 10,324 10,216 Earnings before cumulative effect of accounting changes $20,032 $17,727 $18,020 Less: preferred stock dividends 8 17 26 20,024 17,710 17,994 Cumulative effect of accounting changes (16,850) Total $20,024 $17,710 $ 1,144 Earnings per share: Before cumulative effect of accounting changes $1.92 $1.71 $1.76 Cumulative effect of accounting changes (1.65) Net earnings $1.92 $1.71 $ .11 Fully diluted Average shares outstanding 10,411 10,316 10,196 Net effect of dilutive stock options--based on the treasury stock method using the year-end market price, if higher than average market price 15 9 23 Total 10,426 10,325 10,219 Earnings before cumulative effect of accounting changes $20,032 $17,727 $18,020 Less: preferred stock dividends 8 17 26 20,024 17,710 17,994 Cumulative effect of accounting changes (16,850) Total $20,024 $17,710 $ 1,144 Earnings per share: Before cumulative effect of accounting changes $1.92 $ 1.71 $1.76 Cumulative effect of accounting changes (1.65) Net earnings (1) $1.92 $ 1.71 $ .11 (1) This calculation is submitted in accordance with the requirements of Regulation S-K although not required by APB Opinion No. 15 because it results in dilution of less than 3%.
2 EX-10.5 4 RECEIVABLES PURCHASE AGREEMENT RECEIVABLES PURCHASE AGREEMENT Dated as of January 26, 1995 Among STRAWBRIDGE & CLOTHIER as Seller and Servicer and CLIPPER RECEIVABLES CORPORATION as Purchaser and STATE STREET BOSTON CAPITAL CORPORATION as Administrator and PNC BANK, NATIONAL ASSOCIATION as Relationship Bank 1 || TABLE OF CONTENTS ARTICLE I PURCHASES AND REINVESTMENTS . . . . . . . 2 SECTION 1.01. Commitments to Purchase; Limits on Purchaser's Obligations . . . . . . . . . . . 2 SECTION 1.02. Purchase Procedures; Assignment of Purchaser's Interests . . . . . . . . . . . . 2 SECTION 1.03. Reinvestments of Certain Collections; Payment of Remaining Collections . . . . . . . 2 SECTION 1.04. Asset Interest . . . . . . . . . . . . . . . . 4 ARTICLE II COMPUTATIONAL RULES . . . . . . . . . 5 SECTION 2.01. Computation of Purchaser's Total Investment. 5 SECTION 2.02. Computation of Earned Discount . . . . . . . . 5 SECTION 2.03. Estimates of Earned Discount Rate, Fees, etc . 5 ARTICLE III SETTLEMENTS . . . . . . . . . . . 6 SECTION 3.01. Settlement Procedures . . . . . . . . . . . . 6 SECTION 3.02. Deemed Collections; Reduction of Purchaser's Total Investment, Etc . . . . . . 9 SECTION 3.03. Payments and Computations, Etc. . . . . . . . 10 SECTION 3.04. Treatment of Collections and Deemed Collections 11 ARTICLE IV FEES AND YIELD PROTECTION . . . . . . . 11 SECTION 4.01. Fees . . . . . . . . . . . . . . . . . . . . . 11 SECTION 4.02. Yield Protection . . . . . . . . . . . . . . . 12 ARTICLE V CONDITIONS OF PURCHASES . . . . . . . . 14 SECTION 5.01. Conditions Precedent to Initial Purchase . . . 14 SECTION 5.02. Conditions Precedent to All Purchases and Reinvestments . . . . . . . . . . . . . . 16 ARTICLE VI REPRESENTATIONS AND WARRANTIES . . . . . . 17 SECTION 6.01. Representations and Warranties of Seller . . . 17 2 ARTICLE VII GENERAL COVENANTS OF SELLER . . . . . . . 21 SECTION 7.01. Affirmative Covenants of Seller . . . . . . . 21 SECTION 7.02. Reporting Requirements of Seller . . . . . . . 22 SECTION 7.03. Negative Covenants of Seller . . . . . . . . . 24 ARTICLE VIII ADMINISTRATION AND COLLECTION . . . . . . 25 SECTION 8.01. Designation of Servicer . . . . . . . . . . . 25 SECTION 8.02. Duties of Servicer . . . . . . . . . . . . . . 26 SECTION 8.03. Rights of the Administrator . . . . . . . . . 27 SECTION 8.04. Responsibilities of Seller . . . . . . . . . . 28 SECTION 8.05. Further Action Evidencing Purchases and Reinvestments . . . . . . . . . . . . . . 29 SECTION 8.06. Application of Collections . . . . . . . . . . 30 ARTICLE IX SECURITY INTEREST . . . . . . . . . 30 SECTION 9.01. Grant of Security Interest . . . . . . . . . . 30 SECTION 9.02. Further Assurances . . . . . . . . . . . . . . 30 SECTION 9.03. Remedies . . . . . . . . . . . . . . . . . . . 31 ARTICLE X LIQUIDATION EVENTS . . . . . . . . . 31 SECTION 10.01. Liquidation Events . . . . . . . . . . . . . . 31 SECTION 10.02. Remedies . . . . . . . . . . . . . . . . . . . 33 ARTICLE XI THE ADMINISTRATOR; RELATIONSHIP BANK . . . . . 34 SECTION 11.01. Authorization and Action . . . . . . . . . . . 34 SECTION 11.02. Administrator's and Relationship Bank's Reliance, Etc . . . . . . . . . . . . . 34 SECTION 11.03. State Street Capital and PNC Bank and Affiliates 35 ARTICLE XII ASSIGNMENT OF PURCHASER'S INTEREST . . . . . 35 SECTION 12.01. Restrictions on Assignments . . . . . . . . . 35 SECTION 12.02. Rights of Assignee . . . . . . . . . . . . . . 36 SECTION 12.03. Evidence of Assignment . . . . . . . . . . . . 36 SECTION 12.04. Rights of the Banks and Collateral Agent . . . 36 ARTICLE XIII INDEMNIFICATION . . . . . . . . . . 37 SECTION 13.01. Indemnities by Seller . . . . . . . . . . . . 37 ARTICLE XIV MISCELLANEOUS . . . . . . . . . . 39 SECTION 14.01. Amendments, Etc . . . . . . . . . . . . . . . 39 SECTION 14.02. Notices, Etc. . . . . . . . . . . . . . . . . 39 SECTION 14.03. No Waiver; Remedies . . . . . . . . . . . . . 40 SECTION 14.04. Binding Effect; Survival . . . . . . . . . . . 40 SECTION 14.05. Costs, Expenses and Taxes . . . . . . . . . . 41 SECTION 14.06. No Proceedings . . . . . . . . . . . . . . . . 41 SECTION 14.07. Confidentiality of Program Information . . . . 41 SECTION 14.08. Confidentiality of Seller Information . . . . 43 SECTION 14.09. Captions and Cross References . . . . . . . . 45 SECTION 14.10. Integration . . . . . . . . . . . . . . . . . 45 SECTION 14.11. Governing Law . . . . . . . . . . . . . . . . 45 SECTION 14.12. Waiver Of Jury Trial . . . . . . . . . . . . . 45 SECTION 14.13. Consent To Jurisdiction; Waiver Of Immunities . . . . . . . . . . . . . . . . 45 SECTION 14.14. Execution in Counterparts . . . . . . . . . . 46 SECTION 14.15. No Recourse Against Other Parties . . . . . . 46 4 APPENDICES APPENDIX A Definitions SCHEDULES SCHEDULE 6.01(i) Description of Material Adverse Changes SCHEDULE 6.01(j) Description of Litigation SCHEDULE 6.01(n) List of Offices of Seller where Records Are Kept SCHEDULE 6.01(o) List of Lock-Box Banks SCHEDULE 6.01(p)-1 Forms of Contracts SCHEDULE 6.01(p)-2 Description of Credit and Collection Policy SCHEDULE A Fiscal Months EXHIBITS EXHIBIT 3.01(a) Information Package to be Provided as of Cut- Off Date EXHIBIT 5.01(g) Form of Lock-Box Agreement EXHIBIT 5.01(h) Form of Opinion of Counsel for Seller|| 5 RECEIVABLES PURCHASE AGREEMENT Dated as of January 26, 1995 THIS IS A RECEIVABLES PURCHASE AGREEMENT, among STRAWBRIDGE & CLOTHIER, a Pennsylvania corporation ("Seller"), CLIPPER RECEIVABLES CORPORATION, a Delaware corporation ("Purchaser"), STATE STREET BOSTON CAPITAL CORPORATION, a Massachusetts corporation ("State Street Capital"), as administrator for Purchaser under the Program Administration Agreement (in such capacity, the "Administrator") and PNC BANK, NATIONAL ASSOCIATION, a national banking association, as a referral agent for Purchaser under the Relationship Bank Agreement (in such capacity, together with any successors thereto in such capacity, the "Relationship Bank" and in its individual capacity, "PNC Bank"). Unless otherwise indicated, capitalized terms used in this Agreement are defined in Appendix A. Background 1. Seller is engaged in the business of retail sales, and in connection therewith issues private label credit cards. 2. Seller has, and expects to have, Pool Receivables in which Seller intends to sell an undivided interest. Seller has requested Purchaser, and Purchaser has agreed, subject to the terms and conditions contained in this Agreement, to purchase such undivided interest, referred to herein as the Asset Interest, from Seller from time to time during the term of this Agreement. 3. Seller and Purchaser desire that, subject to the terms and conditions of this Agreement, certain of the daily Collections in respect of the Asset Interest be reinvested in Pool Receivables, which reinvestment shall constitute part of the Asset Interest. 4. State Street Capital has been requested, and is willing, to act as the Administrator. 5. PNC Bank has been requested, and is willing, to act as the Relationship Bank. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto, intending to be legally bound hereby, agree as follows: 6 ARTICLE I PURCHASES AND REINVESTMENTS SECTION 1.01. Commitments to Purchase; Limits on Purchaser's Obligations. Upon the terms and subject to the conditions of this Agreement, from time to time prior to the Termination Date, Seller may request that Purchaser purchase from Seller ownership interests in the Pool Assets (each being a "Purchase") and Purchaser shall make such Purchase; provided that no Purchase shall be made by Purchaser to the extent that, after giving effect thereto, either (a) the then Purchaser's Total Investment would exceed $50,000,000, or such larger amount as may be mutually agreed to in writing by the parties hereto (the "Purchase Limit"), or (b) the Asset Interest, expressed as a percentage of Net Pool Balance, would exceed 95% (the "Allocation Limit"); and provided further that each Purchase made pursuant to this Section 1.01 shall have a Purchase Price of at least $5,000,000 and shall be in integral multiples of $1,000,000. SECTION 1.02. Purchase Procedures; Assignment of Purchaser's Interests. (a) Notice of Purchase. Each Purchase from Seller by Purchaser shall be made on notice from Seller to the Administrator received by the Administrator not later than 11:00 a.m. (New York City time) on the Business Day before the date of such proposed Purchase. Each such notice of a proposed Purchase shall specify the desired amount and date of such Purchase. The "Purchase Price" for each Purchase shall be the lesser of (i) the amount requested by Seller pursuant to this Section 1.02(a) and (ii) the amount permitted pursuant to Section 1.01. (b) Funding of Purchase. On the date of each Purchase, Purchaser shall, upon satisfaction of the applicable conditions set forth in Article V, make available to the Administrator at the Administrator's Office the amount of its Purchase in same day funds, and after receipt by the Administrator of such funds, the Administrator will make such funds immediately available to Seller at such office or to such account as Seller shall designate in writing to the Administrator on or prior to the date hereof (or such other office or account as Seller shall designate from time to time). (c) Assignment of Asset Interests. Seller hereby sells, assigns and transfers to Purchaser, effective on and as of the date of each Purchase by the Purchaser hereunder, the Asset Interest in the Pool Assets. SECTION 1.03. Reinvestments of Certain Collections; Payment of Remaining Collections. (a) On the close of business on each 7 Business Day during the period from the date hereof to the Termination Date, Servicer shall, out of all Collections received on such day from Pool Receivables: (i) determine the portion of such Collections attributable on such day to the Asset Interest by multiplying (x) the amount of such Collections times (y) the Asset Interest (expressed as a percentage of Net Pool Balance); (ii) out of the portion of such Collections allocated to the Asset Interest pursuant to clause (i), set aside and hold in trust for Purchaser an amount equal to the sum of the estimated amount of Earned Discount accrued in respect of the Purchaser's Total Investment (based on rate information provided by the Administrator pursuant to Section 2.03), all other amounts due to Purchaser, the Administrator or the Relationship Bank hereunder and the Servicer's Fee (in each case, accrued through such day) and not so previously set aside; provided that unless the Administrator or the Relationship Bank shall request it to do so in writing (which writing shall set forth the reason for such request), Servicer shall not be required to hold Collections that have been set aside in a separate deposit account containing only such Collections; (iii) apply the Collections allocated to the Asset Interest pursuant to clause (i) and not required to be set aside pursuant to clause (ii) to the purchase from Seller of ownership interests in Pool Assets (each such purchase being a "Reinvestment"); provided that (A) if the then Asset Interest, expressed as a percentage of Net Pool Balance, would exceed the Allocation Limit, then, Servicer shall not reinvest, but shall set aside and hold for the benefit of Purchaser, a portion of such Collections which, together with other Collections previously set aside and then so held, shall equal the amount necessary to reduce the Asset Interest to the Allocation Limit; and (B) if the conditions precedent to Reinvestment in clause (a), (b) or (d) of Section 5.02 are not satisfied then Servicer shall not reinvest, but shall set aside and hold for the benefit of Purchaser, any of such remaining Collections; and (iv) pay to Seller (A) the portion of such Collections not allocated to the Asset Interest pursuant to clause (i) and (B) the Collections applied to Reinvestment pursuant to clause (iii). (b) Unreinvested Collections. Servicer shall set aside and hold in trust for the benefit of Purchaser all Collections which pursuant to clause (iii) of Section 1.03(a), may not be reinvested in Pool Assets; provided that unless the Administrator 8 or the Relationship Bank shall request it to do so in writing (which writing shall set forth the reason for such request), Servicer shall not be required to hold Collections that have been set aside in a separate deposit account containing only such Collections. If, prior to the date when such Collections are required to be paid to the Administrator for the benefit of Purchaser pursuant to Section 1.03(c), the amount of Collections so set aside exceeds the amount, if any, necessary to reduce the Asset Interest to the Allocation Limit, and the conditions precedent to Reinvestment set forth in clauses (a), (b) and (d) of Section 5.02 are satisfied, then the Servicer shall apply such Collections (or, if less, a portion of such Collections equal to the amount of such excess) to the making of a Reinvestment. (c) Reduction of Purchaser's Total Investment. The Purchaser's Total Investment shall not be reduced by the amount of Collections set aside pursuant to this Section unless and until such Collections are actually delivered to the Administrator pursuant hereto. SECTION 1.04. Asset Interest. (a) Components of Asset Interest. On any date the Asset Interest will represent Purchaser's combined undivided percentage ownership interest in (i) all then outstanding Pool Receivables, (ii) related Contracts, (iii) all Related Security with respect to such Pool Receivables, (iv) the Accounts, (v) all Collections with respect to, and other proceeds of, such Pool Receivables, Contracts and Related Security as at such date and (vi) all books and records evidencing or related to the foregoing (collectively, the "Pool Assets"). (b) Computation of Asset Interest. On any date, the Asset Interest will be equal the following fraction (expressed as a percentage): PTI + LR NPB where: PTI = the then Purchaser's Total Investment. LR = the then Loss Reserve. NPB = the then Net Pool Balance; provided, however, that the Asset Interest, as computed as of the day immediately preceding the Termination Date, will remain constant at all times on and after the Termination Date until the Final Payout Date, unless at any time the Administrator requests a recalculation of the Asset Interest and such recalculation produces a higher Asset Interest, in which case the Asset 9 Interest shall remain constant at such higher amount following such recalculation until the Final Payout Date, or, if earlier, until the date of the next such recalculation of a higher Asset Interest; and provided, further, that the Asset Interest shall not exceed 100%. (c) Frequency of Computation. The Asset Interest shall be computed, as provided in Sections 1.04 and 3.01, as of the Cut- Off Date for each Settlement Period. In addition, the Administrator may require Servicer to provide an Information Package for purposes of computing the Asset Interest as of any other date, utilizing the then most recently available information, and the Servicer agrees to do so within 3 Business Days of its receipt of the Administrator's written request. ARTICLE II COMPUTATIONAL RULES SECTION 2.01. Computation of Purchaser's Total Investment. In making any determination of Purchaser's Total Investment, the following rules shall apply: (a) Purchaser's Total Investment shall not be considered reduced by any allocation, setting aside or distribution of any portion of Collections unless such Collections shall have been actually delivered to the Administrator pursuant hereto; and (b) Purchaser's Total Investment shall not be considered reduced by any distribution of any portion of Collections if at any time such distribution is rescinded or otherwise returned for any reason. SECTION 2.02. Computation of Earned Discount. In making any determination of Earned Discount, the following rules shall apply: (a) the Administrator shall determine the Earned Discount accruing with respect to the Purchaser's Total Investment, in accordance with the definition of Earned Discount; (b) no provision of this Agreement shall require the payment or permit the collection of Earned Discount in excess of the maximum permitted by applicable law; and (c) Earned Discount shall not be considered paid by any distribution if at any time such distribution is rescinded or otherwise returned for any reason. 10 SECTION 2.03. Estimates of Earned Discount Rate, Fees, etc. For purposes of determining the amounts required to be set aside by Servicer pursuant to Section 1.03, the Administrator shall notify Servicer from time to time of the Earned Discount Rate applicable to the Purchaser's Total Investment and the rates at which fees and other amounts are accruing hereunder. It is understood and agreed that (i) the Earned Discount Rate may change from time to time, (ii) certain rate information provided by the Administrator to Servicer shall be based upon the Administrator's good faith estimate, (iii) the amount of Earned Discount actually accrued with respect to any Settlement Period may exceed, or be less than, the amount set aside with respect thereto by Servicer, and (iv) the amount of fees or other payables accrued hereunder with respect to any Settlement Period may exceed, or be less than, the amount set aside with respect thereto by Servicer. Failure to set aside any amount so accrued shall not relieve Servicer of its obligation to remit Collections to the Administrator with respect to such accrued amount, as and to the extent provided in Section 3.01. ARTICLE III SETTLEMENTS SECTION 3.01. Settlement Procedures. The parties hereto will take the following actions with respect to each Settlement Period: (a) Information Package. On the seventh Business Day following the Cut-Off Date for such Settlement Period, Servicer shall deliver to the Relationship Bank and the Administrator a diskette containing the information described in Exhibit 3.01 (each, an "Information Package"). (b) Earned Discount; Other Amounts Due. On the first Business Day following such Cut-Off Date, the Administrator shall notify Servicer of (i) the amount of Earned Discount that will have accrued in respect of the Purchaser's Total Investment during such Settlement Period, and (ii) all fees and other amounts accrued and payable by Seller under this Agreement (other than Purchaser's Total Investment). (c) Settlement Date Procedure - Reinvestment Period. On the fifteenth day of each month, or if such day is not a Business Day, the next succeeding Business Day (each, a "Settlement Date") prior to the Termination Date, the Servicer shall distribute from Collections set aside pursuant to Section 1.03(a)(ii) and (iii) and (b) during the 11 immediately preceding Settlement Period the following amounts in the following order: (1) to the Administrator, an amount equal to the Earned Discount accrued during such Settlement Period, plus any previously accrued Earned Discount not paid on a prior Settlement Date, which amount shall be distributed by the Administrator to the Purchaser for application to such Earned Discount; (2) to the Administrator, an amount equal to the Program Fee and the Commitment Fee accrued during such Settlement Period, plus any previously accrued Program Fee and Commitment Fee not paid on a prior Settlement Date; (3) to the Servicer, if the Servicer is not Seller, an amount equal to the Servicer's Fee accrued during such Settlement Period, to the extent that such Servicer's Fee does not exceed the Servicer's Fee that would have accrued if such Servicer's Fee had been calculated using a Servicer's Fee Rate of 2%; (4) to the Administrator, all other amounts then due under this Agreement to the Administrator, the Relationship Bank, the Purchaser, the Affected Parties or the Indemnified Parties; (5) to the Administrator, an amount equal to the amount, if any, necessary to reduce the Asset Interest to the Allocation Limit, which amount shall be distributed by the Administrator to the Purchaser for application to the Purchaser's Total Investment; (6) to the Servicer, an amount equal to the Servicer's Fee accrued during such Settlement Period to the extent not paid pursuant to subparagraph (3) above, plus any previously accrued Servicer's Fee not paid on a prior Settlement Date; and (7) to the Seller, any remaining amounts. (d) Settlement Date Procedure - Liquidation Period. On each Settlement Date during the Liquidation Period, the Servicer shall distribute from Purchaser's Share of Collections received, or deemed received pursuant to Section 3.02, during the immediately preceding Settlement Period the following amounts in the following order: (1) to the Administrator, an amount equal to the Earned Discount accrued during such Settlement Period, 12 plus any previously accrued Earned Discount not paid on a prior Settlement Date, which amount shall be distributed by the Administrator to the Purchaser for application to such Earned Discount; (2) to the Administrator, an amount equal to the Program Fee and Commitment Fee accrued during such Settlement Period, plus any previously accrued Program Fee and Commitment Fee not paid on a prior Settlement Date; (3) to the Servicer, if the Servicer is not Seller, an amount equal to the Servicer's Fee accrued during such preceding Settlement Period, to the extent that such Servicer's Fee does not exceed the Servicer's Fee that would have accrued if such Servicer's Fee had been calculated using a Servicer's Fee Rate of 2%; (4) to the Administrator, all other amounts then due under this Agreement to the Administrator, the Relationship Bank, the Purchaser, the Affected Parties or the Indemnified Parties; (5) to the Administrator, an amount equal to the remaining Purchaser's Share of Collections until the Purchaser's Total Investment is reduced to zero, which amount shall be distributed by the Administrator to the Purchaser for application to the Purchaser's Total Investment; (6) to the Servicer, an amount equal to the Servicer's Fee accrued during such Settlement Period, to the extent not paid pursuant to subparagraph (3) above, plus any previously accrued Servicer's Fee not paid on a prior Settlement Date; and (7) to the Seller, any remaining amounts. (e) Order of Application of Purchaser's Total Investment. Upon receipt by the Administrator of funds distributed pursuant to this Section 3.01 with respect to any Settlement Period on account of Purchaser's Total Investment, the Administrator shall apply them to the items specified in the subclauses below, in the order of priority of such subclauses: (i) to that portion of the Purchaser's Total Investment funded by Liquidity Loans until reduced to zero; 13 (ii) to that portion of the Purchaser's Total Investment funded by Commercial Paper Notes until reduced to zero; and (iii) to that portion of the Purchaser's Total Investment funded by a Credit Draw until reduced to zero. (f) Non-Distribution of Servicer's Fee. Unless the Administrator gives written notice to the contrary to Servicer (which notice may be given at any time), the amounts (if any) set aside pursuant to Section 1.03 in respect of Servicer's Fee may be retained by Servicer, in which case no distribution shall be made in respect of Servicer's Fee pursuant to clause (c) or (d) above. (g) Delayed Payment. If on any day described in this Section 3.01 because Collections during the relevant Settlement Period were less than the aggregate amounts payable, Servicer shall not make any payment otherwise required, the next available Collections in respect of the Asset Interest shall be applied to such payment, and no Reinvestment shall be permitted hereunder until such amount payable has been paid in full. SECTION 3.02. Deemed Collections; Reduction of Purchaser's Total Investment, Etc. (a) Deemed Collections. If on any day (i) the Unpaid Balance of any Pool Receivable is (A) reduced as a result of any defective, rejected or returned merchandise or services, any cash discount, or any incorrect billing or other adjustment by Seller or any Affiliate of Seller, (B) reduced or cancelled as a result of a setoff in respect of any claim by the Obligor thereof against Seller or any Affiliate of Seller or any other Person (whether such claim arises out of the same or a related or an unrelated transaction), or (C) reduced on account of the obligation of Seller to pay to the related Obligor any rebate or refund, or (D) less than the amount included in calculating the Net Pool Balance for purposes of any Information Package, or 14 (ii) any of the representations or warranties of Seller set forth in Section 6.01(l) or (p) were not true when made with respect to any Pool Receivable, or any of the representations or warranties of Seller set forth in Section 6.01(l) are no longer true with respect to any Pool Receivable, then, on such day, Seller shall be deemed to have received a Collection of such Pool Receivable (I) in the case of clause (i) above, in the amount of such reduction or cancellation or the difference between the actual Unpaid Balance and the amount included in calculating such Net Pool Balance, as applicable; and (II) in the case of clause (ii) above, in the amount of the Unpaid Balance of such Pool Receivable. (b) Seller's Optional Reduction of Purchaser's Total Investment. Seller may at any time elect to reduce the Purchaser's Total Investment as follows: (i) Seller shall give the Administrator at least 3 Business Days' prior written notice of such reduction (including the amount of such proposed reduction and the proposed date on which such reduction will commence), (ii) on the proposed date of commencement of such reduction and on each day thereafter, Servicer shall refrain from reinvesting Collections pursuant to Section 1.03 until the amount thereof not so reinvested shall equal the amount of such reduction, and (iii) Servicer shall hold such Collections in trust for Purchaser, pending payment to the Administrator, as provided in Section 1.03; provided that, (A) the amount of any such reduction shall be not less than $1,000,000 and the Purchaser's Total Investment after giving effect to such reduction shall be not less than $10,000,000 (unless such reduction reduces Purchaser's Total Investment to zero), and (B) Seller shall use reasonable efforts to attempt to choose a reduction amount, and the date of commencement thereof, so that such reduction shall commence and conclude in the same Settlement Period to the extent possible. 15 SECTION 3.03. Payments and Computations, Etc. (a) Payments. All amounts to be paid or deposited by Seller or Servicer to the Administrator or any other Person hereunder (other than amounts payable under Section 4.02) shall be paid or deposited in accordance with the terms hereof no later than 11:00 a.m. (New York City time) on the day when due in lawful money of the United States of America in same day funds (i) in the case of amounts to be paid or deposited in respect of accrued and unpaid Earned Discount or in reduction of Purchaser's Total Investment, to the Collateral Agent at First National Bank of Chicago, Chicago, Illinois, account #21-201949-6 and (ii) in the case of all fees, expenses and other amounts (other than amounts payable under Section 4.02), to the Administrator at State Street Bank, Boston, Massachusetts, Account #13585872; Attention: Clipper Receivables. (b) Late Payments. Seller or Servicer, as applicable, shall, to the extent permitted by law, pay to Purchaser interest on all amounts not paid or deposited when due hereunder at 1% per annum above the Alternate Base Rate, payable on demand, provided, however, that such interest rate shall not at any time exceed the maximum rate permitted by applicable law. (c) Method of Computation. All computations of interest, Earned Discount, any fees payable under Sections 4.01(b) and (c) and any other fees payable by Seller to Purchaser, the Administrator or the Relationship Bank in connection with Purchases or the Asset Interest hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) elapsed. SECTION 3.04. Treatment of Collections and Deemed Collections. Seller shall forthwith deliver to Servicer all Collections deemed received by Seller pursuant to Section 3.02(a), and Servicer shall hold or distribute such Collections as Earned Discount, accrued Servicer's Fee, repayment of Purchaser's Total Investment, etc. to the same extent as if such Collections had actually been received on the date of such delivery to Servicer. If Collections are then being paid to the Collateral Agent, or lock boxes or accounts directly or indirectly owned or controlled by the Collateral Agent, Servicer shall forthwith cause such deemed Collections to be paid to the Collateral Agent or to such lock boxes or accounts, as applicable, or as the Collateral Agent shall request in writing. So long as Seller shall hold any Collections or deemed Collections required to be paid to Servicer, the Administrator or Collateral Agent, it shall hold such Collections in trust and shall clearly mark its records to reflect such trust; provided that unless the Administrator or the Relationship Bank shall request it to do so in writing, Seller shall not be required to 16 hold such Collections in a separate deposit account containing only such Collections. ARTICLE IV FEES AND YIELD PROTECTION SECTION 4.01. Fees. (a) Arrangement Fee. Seller shall pay to the Relationship Bank, an arrangement fee ("Arrangement Fee") payable on such dates and in such amounts as are set forth in the letter dated December 15, 1994 from the Relationship Bank to Seller. (b) Other Fees. Seller shall pay to Purchaser certain fees, payable on such dates and in such amounts as are set forth in the letter dated the date hereof from the Relationship Bank to Seller (as amended from time to time, the "Fee Letter"). SECTION 4.02. Yield Protection. (a) If (i) Regulation D or (ii) any Regulatory Change occurring after the date hereof (A) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Federal Reserve Board, but excluding any reserve included in the determination of Earned Discount), special deposit or similar requirement against assets of any Affected Party, deposits or obligations with or for the account of any Affected Party or with or for the account of any affiliate (or entity deemed by the Federal Reserve Board to be an affiliate) of any Affected Party, or credit extended by any Affected Party; or (B) shall change the amount of capital maintained or required or requested or directed to be maintained by any Affected Party; (C) shall impose any other condition affecting any Asset Interest owned or funded in whole or in part by any Affected Party, or its obligations or rights, if any, to make Purchases or Reinvestments or to provide funding therefor; or (D) shall change the rate for, or the manner in which the Federal Deposit Insurance Corporation (or a successor thereto) assesses, deposit insurance premiums or similar charges; and the result of any of the foregoing is or would be 17 (x) to increase the cost to (or in the case of Regulation D referred to above, to impose a cost on) an Affected Party funding or making or maintaining any Purchases or Reinvestments, any purchases, reinvestments, or loans or other extensions of credit under the Liquidity Agreement, or any Credit Draw, or any commitment of such Affected Party with respect to any of the foregoing, (y) to reduce the amount of any sum received or receivable by an Affected Party under this Agreement, or under the Liquidity Agreement or the Credit Agreement with respect thereto, or (z) in the reasonable determination of such Affected Party, to reduce the rate of return on the capital of an Affected Party as a consequence of its obligations hereunder or arising in connection herewith to a level below that which such Affected Party could otherwise have achieved but for Regulation D or such Regulatory Change, then within thirty days after demand by such Affected Party (which demand shall be accompanied by a statement setting forth the basis of such demand), Seller shall pay directly to such Affected Party such additional amount or amounts as will compensate such Affected Party for such additional or increased cost or such reduction. This Section 4.02(a) shall not apply to taxes. (b) Each Affected Party will promptly notify Seller and the Administrator of any event of which it has knowledge which will entitle such Affected Party to compensation pursuant to this Section 4.02; provided, however, no failure to give or delay in giving such notification shall adversely affect the rights of any Affected Party to such compensation. (c) In determining any amount provided for or referred to in this Section 4.02, an Affected Party may use any reasonable averaging and attribution methods that it (in its sole discretion) shall deem applicable. Any Affected Party when making a claim under this Section 4.02 shall submit to Seller a statement as to such increased cost or reduced return (including calculation thereof in reasonable detail), which statement shall, in the absence of demonstrable error, be conclusive and binding upon Seller. (d) Subject to Section 4.02(f), any and all payments made under this Agreement shall be made free and clear of, and without deduction for, any and all present or future Taxes. If any amount of Taxes shall be required by law to be deducted from or in respect of any sum payable hereunder to any Foreign assignee or participant of Purchaser, (i) the sum payable shall be increased as may be necessary so that after making all required 18 deductions (including deductions applicable to additional sums payable under this Section 4.02(d)), such Foreign assignee or participant of Purchaser, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) Seller shall make such deductions and (iii) Seller shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (e) Each Foreign assignee or participant of Purchaser, on or prior to the date pursuant to which it becomes an assignee or participant of Purchaser, and from time to time thereafter if requested in writing by Seller (unless such Foreign assignee or participant of Purchaser can no longer lawfully do so due to a change in law subsequent to the date it became an assignee or participant of Purchaser hereunder), shall provide Seller with Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Foreign assignee or participant of Purchaser is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest to zero or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (f) For any period with respect to which a Foreign assignee or participant of Purchaser has failed to provide the Seller with the appropriate form described in Section 4.02(e) (other than if such failure is due to a change in law occurring subsequent to the date on which a form originally was required to be provided), such Foreign assignee or participant of Purchaser shall not be entitled to payments of additional amounts under Section 4.02(d). SECTION 4.03. Funding Losses. In the event that any Liquidity Bank shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Liquidity Bank to make any Liquidity Loan or maintain any Liquidity Loan) as a result of (i) any settlement with respect to any portion of Purchaser's Total Investment funded by a Liquidity Loan being made on any day other than a Settlement Date, or (ii) any Purchase not being made in accordance with a request therefore under Section 1.02 (other than by reason of (a) a default by such Liquidity Bank, (b) Purchaser's failure to make available to the Administrator the required funds as set forth in Section 1.02(b) or (c) the Administrator's failure to make available the required funds to Seller as set forth in Section 1.02(b)), then, upon written notice from the Administrator to Seller and Servicer, Seller shall pay to Servicer, and Servicer shall pay to the Administrator for the Account of such Liquidity Bank, the amount of such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in 19 the absence of manifest error, be conclusive and binding upon the Seller and Servicer. ARTICLE V CONDITIONS OF PURCHASES SECTION 5.01. Conditions Precedent to Initial Purchase. The initial Purchase hereunder is subject to the condition precedent that the Administrator shall have received, on or before the date of such Purchase, the following, each (unless otherwise indicated) dated such date and in form and substance satisfactory to the Administrator: (a) A copy of the resolutions of the Board of Directors of Seller approving this Agreement and the other Transaction Documents to be delivered by it hereunder and the transactions contemplated hereby, certified by its Secretary or Assistant Secretary; (b) A good standing certificate for Seller issued by the Secretary of State of Pennsylvania. (c) A certificate of the Secretary or Assistant Secretary of Seller certifying the names and true signatures of the officers authorized on its behalf to sign this Agree- ment and the other Transaction Documents to be delivered by it hereunder (on which certificate the Administrator and Purchaser may conclusively rely until such time as the Administrator shall receive from Seller a revised certificate meeting the requirements of this subsection (c)); (d) The Articles of Incorporation of Seller, duly certified by the Secretary of State of Pennsylvania, as of a recent date acceptable to Administrator, together with a copy of the by-laws of Seller, duly certified by the Secretary or an Assistant Secretary of Seller; (e) Acknowledgment copies of proper financing statements (Form UCC-1), filed on or prior to the date of the initial Purchase, naming Seller as the debtor and seller of Receivables or an undivided interest therein and Purchaser as the secured party and purchaser, or other, similar instruments or documents, as may be necessary or, in the opinion of the Administrator, desirable under the UCC or any comparable law of all appropriate jurisdictions to perfect Purchaser's interests in the Pool Assets; (f) A search report provided in writing to the Administrator, listing all effective financing statements 20 that name Seller as debtor and that are filed in the jurisdictions in which filings were made pursuant to subsection (e) above and in such other jurisdictions that Administrator shall reasonably request, together with copies of such financing statements (none of which shall cover any Pool Assets); (g) Duly executed copies of Lock-Box Agreements with each of the Lock-Box Banks; (h) A favorable opinion of Morgan, Lewis & Bockius, counsel to Seller, in substantially the form of Exhibit 5.01(h); (i) Such powers of attorney as the Administrator shall reasonably request to enable the Administrator to collect all amounts due under any and all Pool Receivables; (j) A pro forma Information Package, prepared in respect of the proposed initial Purchase, assuming a Cut-Off Date of December 31, 1994; (k) A report in form and substance satisfactory to the Administrator from the Relationship Bank as to a pre-closing due diligence audit of Seller by the Relationship Bank; (l) The Liquidity Agreement, duly executed by Purchaser, the Liquidity Agent and each Liquidity Bank; (m) Written approval by the Credit Bank of this Agreement and the transactions contemplated hereby; (n) Letters from the rating agencies then rating the Commercial Paper Notes, confirming in effect that the existing ratings of the Commercial Paper Notes will remain in effect after giving effect to the transactions contemplated hereby; and (o) The Fee Letter, duly executed by Seller. SECTION 5.02. Conditions Precedent to All Purchases and Reinvestments. Each Purchase (including the initial Purchase) and each Reinvestment hereunder shall be subject to the further conditions precedent that on the date of such Purchase or Reinvestment the following statements shall be true (and Seller by accepting the amount of such Purchase or by receiving the proceeds of such Reinvestment shall be deemed to have certified that): (a) the representations and warranties contained in Section 6.01 are correct in all material respects on and as 21 of such day as though made on and as of such day and shall be deemed to have been made on such day, (b) no event has occurred and is continuing, or would result from such Purchase or Reinvestment, that constitutes a Liquidation Event or Unmatured Liquidation Event, (c) after giving effect to each proposed Purchase or Reinvestment, Purchaser's Total Investment will not exceed the Purchase Limit and the Asset Interest, expressed as a percentage of Net Pool Balance, will not exceed the Allocation Limit, and (d) the Termination Date shall not have occurred; provided, however, the absence of the occurrence and continuance of an Unmatured Liquidation Event shall not be a condition precedent to any Reinvestment or any Purchase which does not cause the Purchaser's Total Investment, after giving effect to such Reinvestment or Purchase, to exceed the Purchaser's Total Investment as of the opening of business of the day of such Reinvestment or Purchase. ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.01. Representations and Warranties of Seller. Seller represents and warrants as follows: (a) Organization and Good Standing. Seller has been duly organized and is validly existing as a corporation in good standing under the laws of the Commonwealth of Pennsylvania, with power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted, and had at all relevant times, and now has, all necessary power, authority, and legal right to acquire and own the Pool Receivables. (b) Due Qualification. Seller is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the failure to so qualify or obtain such licenses or approvals would have a Material Adverse Effect. (c) Power and Authority; Due Authorization. Seller (i) has all necessary power, authority and legal right to (A) execute and deliver this Agreement and the other Transaction Documents to which it is a party, (B) carry out 22 the terms of the Transaction Documents to which it is a party, and (C) sell and assign the Asset Interest on the terms and conditions herein provided and (ii) has duly authorized by all necessary corporate action the execution, delivery and performance of this Agreement and the other Transaction Documents and the sale and assignment of the Asset Interest on the terms and conditions herein provided. (d) Valid Sale; Binding Obligations. This Agreement constitutes a valid sale, transfer, and assignment of the Asset Interest to Purchaser, enforceable against creditors of, and purchasers from, Seller; and this Agreement constitutes, and each other Transaction Document to be executed by Seller when duly executed and delivered will constitute, a legal, valid and binding obligation of Seller enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) No Violation. The consummation of the transactions contemplated by this Agreement and the other Transaction Documents and the fulfillment of the terms hereof will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, (A) the articles of incorporation or by-laws of Seller, or (B) in any material respect, any indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument to which Seller is a party or by which it or any of its properties is bound, (ii) result in the creation or imposition of any Lien upon any of Seller's properties pursuant to the terms of any such indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument, other than this Agreement, or (iii) violate any law or any order, rule, or regulation applicable to Seller of any court or of any federal or state regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over Seller or any of its properties. (f) No Proceedings. There are no proceedings or investigations pending, or, to Seller's knowledge, threatened, before any court, regulatory body, administrative agency, or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement or any other Transaction Document to which Seller is a party, (ii) seeking to prevent the sale and assignment of any Asset Interest or the consummation of any of the 23 other transactions contemplated by this Agreement or any other Transaction Document to which Seller is a party, or (iii) seeking any determination or ruling that might have a Material Adverse Effect or seeking to adversely affect the federal income tax attributes of the Purchases or Reinvestments hereunder. (g) Bulk Sales Act. No transaction contemplated hereby requires compliance with any bulk sales act or similar law. (h) Government Approvals. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by Seller of this Agreement or any other Transaction Document, except for the filing of the UCC financing statements referred to in Article V, all of which, at the time required in Article V, shall have been duly made and shall be in full force and effect. (i) Financial Condition. (x) The consolidated balance sheets of Seller and its consolidated subsidiaries as at January 29, 1994, and the related statements of income and shareholders' equity of Seller and its consolidated subsidiaries for the fiscal year then ended, certified by Ernst & Young, independent certified public accountants, and the consolidated balance sheets of Seller and its consolidated subsidiaries as at October 29, 1994 and the related statements of income and shareholders' equity of Seller and its consolidated subsidiaries for the nine month period then ended, copies of which have been furnished to the Administrator, fairly present the consolidated financial condition, business and results of operations of Seller and its consolidated subsidiaries as at such dates and the consolidated results of the operations of Seller and its consolidated subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles consistently applied, and (y) since January 29, 1994 there has been no material adverse change in any such condition, business or results of operations except as described in Schedule 6.01(i). (j) Litigation. No injunction, decree or other decision has been issued or made by any court, governmental agency or instrumentality thereof that prevents, and no threat by any person has been made to attempt to obtain any such decision that would prevent, Seller from conducting a material part of its business operations, except as described in Schedule 6.01(j). 24 (k) Margin Regulations. The use of all funds obtained by Seller under this Agreement will not conflict with or contravene any of Regulations G, T, U and X promulgated by the Board of Governors of the Federal Reserve System from time to time. (l) Quality of Title. Each Pool Receivable, together with each other Pool Asset, is owned by Seller free and clear of any Lien (other than any Lien arising solely as the result of any action taken by Purchaser (or any assignee thereof) or by the Administrator); when Purchaser makes a Purchase or Reinvestment, it shall have acquired and shall at all times thereafter continuously maintain a valid and perfected first priority undivided percentage ownership interest to the extent of the Asset Interest in each Pool Receivable, and each other Pool Asset, free and clear of any Lien (other than any Lien arising solely as the result of any action taken by Purchaser (or any assignee thereof) or by the Administrator); and no financing statement or other instrument similar in effect covering any Pool Receivable, or any other Pool Asset is on file in any recording office except such as may be filed (i) in favor of Purchaser or the Administrator in accordance with this Agreement or in connection with any Lien arising solely as the result of any action taken by Purchaser (or any assignee thereof) or by the Administrator, or (ii) in favor of the Collateral Agent. (m) Accurate Reports. No Information Package (if prepared by Seller or its Affiliate, or to the extent information therein was supplied by Seller or its Affiliate) or other information, exhibit, financial statement, document, book, record or report furnished or to be furnished by or on behalf of Seller or its Affiliates to the Administrator, Purchaser or the Relationship Bank in connection with this Agreement was or will be inaccurate in any material respect as of the date it was or will be dated or (except as otherwise disclosed to the Administrator, Purchaser, and the Relationship Bank at such time) as of the date so furnished, or contained or will contain any material misstatement of fact or omitted or will omit to state a material fact or any fact necessary to make the statements contained therein not materially misleading. (n) Offices. The chief place of business and chief executive office of Seller are located at the address of Seller referred to in Section 14.02, and the offices where Seller keeps all its books, records and documents evidencing Pool Receivables, the related Accounts and Contracts and all other agreements related to such Pool Receivables are located at the addresses specified in Schedule 6.01(n) (or at such other locations, notified to the Administrator in accordance with Section 7.01(f), in jurisdictions where all 25 action required by Section 8.05 has been taken and completed). (o) Lock-Box Accounts. The names and addresses of all the Lock-Box Banks, together with the account numbers of the lock-box accounts of Seller at such Lock-Box Banks, are specified in Schedule 6.01(o) (or have been notified to the Administrator and the Relationship Bank in accordance with Section 7.03(d)). (p) Eligible Receivables. Each Receivable included in the Net Pool Balance as an Eligible Receivable on the date of any Purchase, Reinvestment or other calculation of the Net Pool Balance shall be an Eligible Receivable on such date. (q) Servicing Programs. No license or approval is required for the Administrator's use of any program used by Servicer in the servicing of the Receivables, other than those which have been obtained and are in full force and effect. (r) No Disclosure Required. Under applicable laws and regulations in effect on the date hereof, Seller is not required to file a copy of this Agreement with the Securities and Exchange Commission or any other governmental authority. ARTICLE VII GENERAL COVENANTS OF SELLER SECTION 7.01. Affirmative Covenants of Seller. From the date hereof until the Final Payout Date, Seller will, unless the Administrator shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply in all material respects with all applicable laws, rules, regulations and orders, including those with respect to the Pool Receivables and related Accounts and Contracts. (b) Preservation of Corporate Existence. Preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would have a Material Adverse Effect. 26 (c) Audits. (i) At any time and from time to time during regular business hours, permit the Administrator, the Relationship Bank or any of their agents or representatives, upon at least two Business Days' prior notice (provided that no such notice shall be required if a Liquidation Event shall have occurred and be continuing) (A) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of Seller relating to Pool Receivables, including, without limitation, the related Accounts and Contracts and other agreements, and (B) to visit the offices and properties of Seller for the purpose of examining such materials described in clause (i)(A) next above, and to discuss matters relating to Pool Receivables or Seller's performance hereunder with any of the officers or employees of Seller having knowledge of such matters; and (ii) without limiting the provisions of clause (i) next above, from time to time on request of Administrator or the Relationship Bank, permit internal auditors or other employees of the Relationship Bank to conduct, at Seller's reasonable expense, a review of Seller's books and records. (d) Keeping of Records and Books of Account. Maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Pool Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Pool Receivables (including, without limitation, records adequate to permit the daily identification of each new Pool Receivable and all Collections of and adjustments to each existing Pool Receivable). (e) Performance and Compliance with Receivables and Contracts. At its expense timely and fully perform and comply with all provisions, covenants and other promises required to be observed by it under the Contracts related to the Pool Receivables and all other agreements related to such Pool Receivables, except insofar as the failure to perform and comply would not materially and adversely affect the rights of Purchaser hereunder or the collectability of such Pool Receivables. (f) Location of Records. Keep its chief place of business and chief executive office, and the offices where it keeps its records concerning the Pool Receivables, all related Accounts and Contracts and all other agreements related to such Pool Receivables (and all original documents relating thereto), at the address(es) of Seller referred to in Section 6.01(n) or, upon 30 days' prior written notice to 27 the Administrator, at such other locations in jurisdictions where all action required by Section 8.05 shall have been taken and completed. (g) Credit and Collection Policies. Comply in all material respects with its Credit and Collection Policy in regard to each Pool Receivable and the related Contract. (h) Collections. Instruct all Obligors to cause all Collections of Pool Receivables to be deposited directly with a Lock-Box Bank. From and after the occurrence of a Liquidation Event, deposit all collections received in Seller's stores or otherwise received by Seller into an account at a Lock-Box Bank within one Business Day of receipt. SECTION 7.02. Reporting Requirements of Seller. From the date hereof until the Final Payout Date, Seller shall, unless the Administrator and the Relationship Bank shall otherwise consent in writing, furnish to the Administrator and the Relationship Bank: (a) Quarterly Financial Statements. As soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of Seller, copies of the financial statements of Seller and its Subsidiaries prepared on a consolidated basis in conformity with generally accepted accounting principles, duly certified by the chief financial officer of Seller; (b) Annual Financial Statements. As soon as available and in any event within 90 days after the end of each fiscal year of Seller, copies of the financial statements of Seller and its Subsidiaries prepared on a consolidated basis in conformity with generally accepted accounting principles and duly certified by independent certified public accountants of recognized standing selected by Seller; (c) Reports to Holders and Exchanges. In addition to the reports required by subsections (a) and (b) next above, promptly upon the Administrator's or Relationship Bank's request, copies of any reports which Seller sends to any of its securityholders, and any reports or registration statements that Seller files with the Securities and Exchange Commission or any national securities exchange other than registration statements relating to employee benefit plans and to registrations of securities for selling securities; (d) ERISA. Promptly after the filing or receiving thereof, copies of all reports and notices with respect to any Reportable Event as defined in Article IV of ERISA which 28 Seller files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which Seller receives from the Pension Benefit Guaranty Corporation; (e) Liquidation Events. As soon as possible and in any event within three Business Days after the occurrence of each Liquidation Event and each Unmatured Liquidation Event, a written statement of the Chairman, President, Treasurer or any Vice President of Seller setting forth details of such event and the action that Seller proposes to take with respect thereto; (f) Litigation. As soon as possible and in any event within three Business Days of Seller's knowledge thereof, notice of (i) any litigation, investigation or proceeding which could have a Material Adverse Effect and (ii) any material adverse development in previously disclosed litigation; (g) Change in Credit and Collection Policy. Prior to its effective date, notice of (i) any material change in the character of Seller's business or (ii) any change in the Credit and Collection Policy; and (h) Other. Promptly, from time to time, such other information, documents, records or reports respecting the Receivables or the condition or operations, financial or otherwise, of Seller as the Administrator or the Relationship Bank may from time to time reasonably request in order to protect the interests of the Administrator or Purchaser under this Agreement. SECTION 7.03. Negative Covenants of Seller. From the date hereof until the Final Payout Date, Seller shall not, without the prior written consent of the Administrator: (a) Sales, Liens, Etc. Except as otherwise provided herein, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Lien upon or with respect to, any Pool Receivable or related Account or Contract or Related Security, or any interest therein, or any lock-box account to which any Collections of any Pool Receivable are sent, or any right to receive income or proceeds from or in respect of any of the foregoing. (b) Extension or Amendment of Pool Receivables. Except as otherwise permitted in Section 8.02 or as ordered by a court of competent jurisdiction, extend, amend or otherwise modify the terms of any Pool Receivable, or amend, modify or waive any term or condition of any Contract related thereto. 29 (c) Change in Business or Credit and Collection Policy. Make any change in the character of its business or in the Credit and Collection Policy, which change would, in either case, impair the collectibility of any Pool Receivable or otherwise adversely affect the interests or remedies of Purchaser under this Agreement or any other Transaction Document. (d) Change in Payment Instructions to Obligors. Add or terminate any bank as a Lock-Box Bank from those listed in Schedule 6.01(o) or make any change in its instructions to Obligors regarding payments to be made to Seller or Servicer or payments to be made to any Lock-Box Bank, unless the Administrator and the Relationship Bank shall have received notice of such addition, termination or change and duly executed copies of Lock-Box Agreements with each new Lock-Box Bank and shall have approved the identity of such Lock-Box Bank. (e) Mergers, Sales, Etc. Be a party to any merger or consolidation, or, except in the ordinary course of its business, sell, transfer, convey or lease all or substantially all of its assets, or sell or assign with or without recourse any Pool Receivables or any interest therein (other than pursuant hereto), or permit any Subsidiary to be a party to any merger or consolidation, except for any such merger or consolidation, sale, transfer, conveyance, lease or assignment of or by any wholly-owned Subsidiary into Seller or into, with or to any other wholly- owned Subsidiary. (f) Deposits to Special Accounts. Deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account cash or cash proceeds other than Collections. ARTICLE VIII ADMINISTRATION AND COLLECTION SECTION 8.01. Designation of Servicer. (a) Seller as Initial Servicer. The servicing, administering and collection of the Pool Receivables shall be conducted by the Person designated as Servicer hereunder ("Servicer") from time to time in accordance with this Section 8.01. Until the Administrator or the Relationship Bank gives to Seller a Successor Notice (as defined in Section 8.01(b)), Seller is hereby designated as, and hereby agrees to perform the duties and obligations of, Servicer pursuant to the terms hereof. 30 (b) Successor Notice; Liquidation Events. Upon Seller's receipt of a notice from the Administrator or Relationship Bank of the Administrator's or Relationship Bank's designation of a new Servicer (a "Successor Notice"), Seller agrees that it will terminate its activities as Servicer hereunder in a manner that the Administrator reasonably believes will facilitate the transition of the performance of such activities to the new Servicer, and the Administrator (or its designee) shall assume each and all of Seller's obligations to service and administer such Receivables, on the terms and subject to the conditions herein set forth, and Seller shall use its best efforts to assist the Administrator (or its designee) in assuming such obligations. The Administrator and Relationship Bank agree not to give Seller a Successor Notice until after the occurrence of any Liquidation Event, in which case such Successor Notice may be given at any time in the Administrator's or the Relationship Bank's discretion. If Seller disputes the occurrence of a Liquidation Event, Seller may take appropriate action to resolve such dispute; provided that Seller must terminate its activities hereunder as Servicer and allow the newly designated Servicer to perform such activities on the date provided by the Administrator or Relationship Bank as described above, notwithstanding the commencement or continuation of any proceeding to resolve the aforementioned dispute; provided, further that in the event that such dispute is resolved in favor of Seller and no other Liquidation Event has occurred and is continuing, at Seller's written request, Seller shall be reinstated as Servicer. (c) Subcontracts. Servicer may, with the prior consent of the Administrator, subcontract with any other person for servicing, administering or collecting the Pool Receivables, provided that (i) Servicer shall remain liable for the performance of the duties and obligations of Servicer pursuant to the terms hereof and (ii) such subcontract provides for termination upon the occurrence of a Liquidation Event. (d) Servicer's Fee. Seller shall be responsible for the payment of (and, if paid by Purchaser or Administrator, shall on demand reimburse Purchaser or the Administrator for) Seller's Portion of the Servicing Fee. "Seller's Portion of the Servicing Fee" for any Settlement Period means an amount equal to (i) (w) the Servicer's Fee Rate times (x) the aggregate Unpaid Balance of the Pool Receivables as of the first day of such Settlement Period times (y) 1/360 times (z) the number of days in such Settlement Period minus (ii) the Servicer's Fee for such Settlement Period. SECTION 8.02. Duties of Servicer. (a) Appointment; Duties in General. Each of Seller, Purchaser and the Administrator hereby appoints as its agent Servicer, as from time to time designated pursuant to Section 31 8.01, to enforce its rights and interests in and under the Pool Receivables, the Related Security and the related Contracts. Servicer shall take or cause to be taken all such actions as may be necessary or advisable to collect each Pool Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. (b) Allocation of Collections; Segregation. Servicer shall set aside for the account of Seller and Purchaser their respective allocable shares of the Collections of Pool Receivables in accordance with Section 1.03 but shall not be required (unless otherwise requested by the Administrator or the Relationship Bank) to segregate the funds constituting such portions of such Collections prior to the remittance thereof in accordance with said Section. If instructed by the Administrator or the Relationship Bank, Servicer shall segregate and deposit with a bank designated by the Relationship Bank, with the approval of the Administrator, Purchaser's Share of Collections of Pool Receivables, set aside for Purchaser on the first Business Day following receipt by Servicer of such Collections in immediately available funds. (c) Modification of Receivables. So long as no Liquidation Event or Unmatured Liquidation Event shall have occurred and be continuing, Seller, while it is Servicer, may, in accordance with the Credit and Collection Policy, (i) extend the maturity or adjust the Unpaid Balance of, or defer payment of, or otherwise modify the terms of any Receivable as Seller may determine to be appropriate to maximize Collections thereof; provided that, after giving effect to such extension of maturity or such adjustment, the Asset Interest, expressed as a percentage of Net Pool Balance, will not exceed the Allocation Limit, and the aggregate Unpaid Balance of the Receivables so extended, adjusted, deferred or modified in any monthly period does not exceed 10% of the Net Pool Balance for such period, and (ii) adjust the Unpaid Balance of any Receivable to reflect the reductions or cancellations described in the first sentence of Section 3.02(a). (d) Documents and Records. Seller shall deliver to Servicer, and Servicer shall hold in trust for Seller and Purchaser in accordance with their respective interests, all documents, instruments and records (including, without limitation, computer tapes or disks) that evidence or relate to Pool Receivables. (e) Certain Duties to Seller. Servicer shall, as soon as practicable following receipt, turn over to Seller (i) that portion of Collections of Pool Receivables representing Seller's undivided interest therein, and (ii) the Collections of any Receivable which is not a Pool Receivable. Servicer, if other than Seller, shall, as soon as practicable upon demand, deliver 32 to Seller all documents, instruments and records in its possession that evidence or relate to Receivables of Seller other than Pool Receivables, and copies of documents, instruments and records in its possession that evidence or relate to Pool Receivables. (f) Termination. Servicer's authorization under this Agreement shall terminate upon the Final Payout Date. (g) Power of Attorney. Seller hereby grants to Servicer an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of Seller all steps which are necessary or advisable to endorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by Seller or transmitted or received by Purchaser (whether or not from Seller) in connection with any Receivable. SECTION 8.03. Rights of the Administrator. (a) Notice to Obligors. At any time the Administrator may notify the Obligors of Pool Receivables, or any of them, of the ownership of Asset Interests by Purchaser. (b) Notice to Lock-Box Banks. At any time following the earliest to occur of (i) the occurrence of a Liquidation Event, (ii) the commencement of the Liquidation Period, and (iii) the warranty in Section 6.01(i) shall no longer be true, the Administrator is hereby authorized to give notice to the Lock-Box Banks, as provided in the Lock-Box Agreements, of the transfer to the Administrator of dominion and control over the lock-boxes and related accounts to which the Obligors of Pool Receivables make payments. Seller hereby transfers to the Administrator, effective when the Administrator shall give notice to the Lock- Box Banks as provided in the Lock-Box Agreements, the exclusive dominion and control over such lock-boxes and accounts, and shall take any further action that the Administrator may reasonably request to assist with such transfer. (c) Rights on Liquidation Event. At any time following the designation of a Servicer other than Seller pursuant to Section 8.01: (i) The Administrator may direct the Obligors of Pool Receivables, or any of them, to pay all amounts payable under any Pool Receivable directly to the Collateral Agent. (ii) Seller shall, at the Administrator's or Relationship Bank's request and at Seller's expense, give notice of the ownership of the Pool Receivables by Purchaser to each said Obligor and direct that payments be made directly to the Collateral Agent. 33 (iii) Seller shall, at the Administrator's or Relationship Bank's request, (A) assemble all of the documents, instruments and other records (including, without limitation, computer programs, tapes and disks) which evidence the Pool Receivables, and the related Accounts and Contracts and Related Security, or which are otherwise reasonably necessary or desirable to service such Pool Receivables, and make the same available to the Administrator at a place selected by the Administrator or the Relationship Bank, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Pool Receivables in a manner reasonably acceptable to the Administrator and promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Collateral Agent. (iv) Each of Seller and Purchaser hereby authorizes the Administrator, and grants to the Administrator an irrevocable power of attorney, to take any and all steps in Seller's name and on behalf of Seller and Purchaser which are reasonably necessary or desirable, in the determination of the Administrator, to collect all amounts due under any and all Pool Receivables, including, without limitation, endorsing Seller's name on checks and other instruments representing Collections and enforcing such Pool Receivables and the related Contracts; provided that the Administrator shall not exercise its rights under such Power of Attorney unless a Liquidation Event shall have occurred and be continuing. SECTION 8.04. Responsibilities of Seller. Anything herein to the contrary notwithstanding: (a) Contracts. Seller shall perform all of its obligations under the Contracts related to the Pool Receivables and under other agreements related thereto to the same extent as if the Asset Interest had not been sold hereunder, and the exercise by the Administrator or its designee of its rights hereunder shall not relieve Seller from such obligations. (b) Limitation of Liability. The Administrator, the Relationship Bank and Purchaser shall not have any obligation or liability with respect to any Pool Receivables, Contracts or Accounts related thereto or any other related agreements, nor shall any of them be obligated to perform any of the obligations of Seller thereunder. 34 SECTION 8.05. Further Action Evidencing Purchases and Reinvestments. (a) Further Assurances. Seller agrees to mark its master data processing records evidencing such Pool Receivables and the related Contracts with a legend, acceptable to the Administrator, evidencing that the Asset Interest has been sold in accordance with this Agreement. Seller agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action that the Administrator or its designee may reasonably request in order to perfect, protect or more fully evidence the Purchases hereunder and the resulting Asset Interest, or to enable Purchaser or the Administrator or its designee to exercise or enforce any of their respective rights hereunder or under any Transaction Document. Without limiting the generality of the foregoing, Seller will upon the request of the Administrator or its designee execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate. (b) Additional Financing Statements; Performance by Administrator. Seller hereby authorizes the Administrator or its designee to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Pool Assets now existing or hereafter arising in the name of Seller. If Seller fails to perform any of its agreements or obligations under this Agreement, the Administrator or its designee may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the reasonable expenses of the Administrator or its designee incurred in connection therewith shall be payable by Seller as provided in Section 14.05. (c) Continuation Statements; Opinion. Without limiting the generality of subsection (a), Seller shall, not earlier than six (6) months and not later than three (3) months prior to the fifth anniversary of the date of filing of the financing statement referred to in Section 5.01(e) or any other financing statement filed pursuant to this Agreement or in connection with any Purchase hereunder, unless the Final Payout Date shall have occurred: (i) execute and deliver and file or cause to be filed an appropriate continuation statement with respect to such financing statement; and (ii) deliver or cause to be delivered to the Administrator an opinion of the counsel for Seller referred to in Section 5.01(h) (or other counsel for Seller reasonably satisfactory to the Administrator), in form and substance reasonably satisfactory to the Administrator, 35 confirming and updating the opinion delivered pursuant to Section 5.01(h) with respect to the matters set forth in paragraph no. __ of Exhibit 5.01(h) and otherwise to the effect that Purchaser's Total Interest hereunder continues to be a valid and perfected ownership or security interest, subject to no other Liens of record except as provided herein or otherwise permitted hereunder. SECTION 8.06. Application of Collections. Any payment by an Obligor in respect of any indebtedness owed by it to Seller shall, except as otherwise specified by such Obligor, as required by the underlying Contract or law or unless the Administrator instructs otherwise, be applied, first, as a Collection of any Pool Receivable or Receivables then outstanding of such Obligor in the order of the age of such Pool Receivables, starting with the oldest of such Pool Receivable and, second, to any other indebtedness of such Obligor. ARTICLE IX SECURITY INTEREST SECTION 9.01. Grant of Security Interest. To secure all obligations of Seller and Servicer arising in connection with this Agreement and each other Transaction Document to which either of them is a party, whether now or hereafter existing, due or to become due, direct or indirect, or absolute or contingent, including, without limitation, all Indemnified Amounts, payments on account of Collections and fees, in each case pro rata according to the respective amounts thereof, Seller hereby assigns and grants to Purchaser, for the benefit of the Secured Parties, a security interest in all of Seller's right, title and interest (including specifically any undivided interest retained by Seller hereunder) now or hereafter existing in, to and under all the Pool Assets and proceeds thereof. SECTION 9.02. Further Assurances. The provisions of Section 8.05 shall apply to the security interest granted under Section 9.01 as well as to the Purchases, Reinvestments and all the Asset Interests hereunder. SECTION 9.03. Remedies. Upon the occurrence of a Liquidation Event, Purchaser shall have, with respect to the collateral granted pursuant to Section 9.01, and in addition to all other rights and remedies available to Purchaser or the Administrator under this Agreement or other applicable law, all the rights and remedies of a secured party upon default under the UCC. ARTICLE X 36 LIQUIDATION EVENTS SECTION 10.01. Liquidation Events. The following events shall be "Liquidation Events" hereunder: (a) (i) Servicer (if Seller or its Affiliate is Servicer) shall fail to deliver to Administrator an Information Package for any Settlement Period on or before 12:00, noon (New York City time) of the related Settlement Date or (ii) Servicer (if Seller or its Affiliate is Servicer) shall fail to perform or observe in any material respect any other term, covenant or agreement that is an obligation of Servicer hereunder (other than as referred to in clause (iii) next following) and such failure shall remain unremedied for five Business Days after (1) written notice thereof shall have been given by the Administrator to Seller or (2) Seller has actual knowledge thereof or (iii) Servicer (if Seller or its Affiliate is Servicer) shall fail to make any payment or deposit to be made by it hereunder when due and such failure shall remain unremedied for more than one Business Day; or (b) Any representation or warranty made or deemed to be made by Seller (or any of its officers) under or in connection with this Agreement or any Information Package or other information or report delivered pursuant hereto shall prove to have been false or incorrect in any material respect when made; provided, that with respect to the breach of the representations or warranties set forth in Section 6.01(l) or (p), compliance by Seller with the provisions of Section 3.02 in respect thereof shall be deemed to cure such breach; or (c) Seller shall fail to perform or observe in any material respect any other term, covenant or agreement contained in this Agreement or any of the other Transaction Documents to which it is a party on its part to be performed or observed and any such failure shall remain unremedied for thirty days after (i) written notice thereof shall have been given by the Administrator to Seller or (ii) Seller has actual knowledge thereof; or (d) A default shall have occurred and be continuing under any instrument or agreement evidencing, securing or providing for the issuance of indebtedness for borrowed money in excess of $10,000,000 of, or guaranteed by, Seller or any Affiliate thereof, which default if unremedied, uncured, or unwaived (with or without the passage of time or the giving of notice or both) would permit acceleration of the maturity of such indebtedness and such default shall have continued unremedied, uncured or unwaived for a period long enough to permit such acceleration and any notice of 37 default required to permit acceleration shall have been given; or any default under any agreement or instrument relating to the purchase of receivables of Seller, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default is to terminate, or permit the termination of, the commitment of any party to such agreement or instrument to purchase receivables or the right of Seller to reinvest in receivables the principal amount paid by any party to such agreement or instrument for interest in receivables; or (e) An Event of Bankruptcy shall have occurred and remain continuing with respect to Seller or any Affiliate thereof; or (f) (i) Any litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings not disclosed in writing by Seller to the Administrator and Purchaser prior to the date of execution and delivery of this Agreement is pending against Seller or any Affiliate thereof, or (ii) any material development not so disclosed has occurred in any litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings so disclosed, which, in the case of clause (i) or (ii), in the reasonable opinion of the Administrator, has a reasonable likelihood of having a Material Adverse Effect; or (g) Sixty (60) days after the Seller's long-term debt rating falls below Baa3 by Moody's or BBB- by S&P (unless Seller's long-term debt ratings have been restored to at least such levels); or (h) On any Settlement Date, after giving effect to the payments made under Section 3.01(c), the Asset Interest exceeds the Allocation Limit or the Purchaser's Total Investment exceeds the Purchase Limit; or (i) There shall exist any event or occurrence (other than general economic conditions) that is likely to cause a Material Adverse Effect; or (j) There shall have occurred any event which materially adversely impairs the ability of Seller to originate Receivables of a credit quality which are at least of the credit quality of the Receivables included in the initial Purchase; or (k) The warranty in Section 6.01(i)(y) shall not be true at any time; or 38 (l) Seller or Servicer (if Servicer is Seller or its Affiliate) is subject to a Change-in-Control; or (m) The Internal Revenue Service shall file notice of a lien pursuant to Section 6323 of the Internal Revenue Code with regard to any of the assets of Seller and such lien shall not have been released within 5 Business Days, or the Pension Benefit Guaranty Corporation shall, or shall indicate its intention to, file notice of a lien pursuant to Section 4068 of ERISA with regard to any of the assets of Seller or any of its Affiliates; or (n) The average of the Default Ratios for any three successive Cut-Off Dates exceeds 2%; or (o) The average of the Delinquency Ratios for any three successive Cut-Off Dates exceeds 16%; or (p) The average of the Dilution Ratios for any three successive Cut-Off Dates exceeds 5%; or (q) The average of the Payment Rates for any three successive Cut-Off Dates is less than 10%; or (r) The average of the Net Yield for any three consecutive Settlement Periods is less then -2.0%; or (s) The average of the Charge-Off Ratios for any three successive Cut-Off Dates exceeds 6.5%. SECTION 10.02. Remedies. (a) Optional Liquidation. Upon the occurrence of a Liquidation Event (other than a Liquidation Event described in subsection (e) of Section 10.01), the Administrator shall, at the request, or may with the consent, of Purchaser, by notice to Seller declare the Purchase Termination Date to have occurred and the Liquidation Period to have commenced. (b) Automatic Liquidation. Upon the occurrence of a Liquidation Event described in subsection (e) of Section 10.01, the Purchase Termination Date shall occur and the Liquidation Period shall commence automatically. (c) Additional Remedies. Upon any Purchase Termination Date pursuant to this Section 10.02, no Purchases or Reinvestments thereafter will be made, and the Administrator, Purchaser and the Relationship Bank shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of each applicable jurisdiction and other applicable laws, which rights shall be cumulative. 39 ARTICLE XI THE ADMINISTRATOR; RELATIONSHIP BANK SECTION 11.01. Authorization and Action. Pursuant to the Program Administration Agreement and the Relationship Bank Agreement, Purchaser has appointed and authorized the Administrator and the Relationship Bank (or their respective designees) to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrator or the Relationship Bank by the terms hereof, together with such powers as are reasonably incidental thereto. SECTION 11.02. Administrator's and Relationship Bank's Reliance, Etc. The Administrator, the Relationship Bank and their directors, officers, agents or employees shall not be liable for any action taken or omitted to be taken by it or them under or in connection with the Transaction Documents (including, without limitation, the servicing, administering or collecting of Pool Receivables as Servicer pursuant to Section 8.01), except for its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, each of the Administrator and the Relationship Bank: (a) may consult with legal counsel (including counsel for Seller), independent certified public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to Purchaser or any other holder of any interest in Pool Receivables and shall not be responsible to Purchaser or any such other holder for any statements, warranties or representations made in or in connection with any Transaction Document; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Transaction Document on the part of Seller or to inspect the property (including the books and records) of Seller; (d) shall not be responsible to Purchaser or any other holder of any interest in Pool Receivables for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Transaction Document; and (e) shall incur no liability under or in respect of this Agreement by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by facsimile or telex) reasonably believed by it to be genuine and signed or sent by the proper party or parties. SECTION 11.03. State Street Capital and PNC Bank and Affiliates. State Street Capital and PNC Bank and any of their respective Affiliates may generally engage in any kind of business with Seller or any Obligor, any of their respective Affiliates and any Person who may do business with or own 40 securities of Seller or any Obligor or any of their respective Affiliates, all as if State Street Capital and PNC Bank were not the Administrator and the Relationship Bank, respectively, and without any duty to account therefor to Purchaser or any other holder of an interest in Pool Receivables. ARTICLE XII ASSIGNMENT OF PURCHASER'S INTEREST SECTION 12.01. Restrictions on Assignments. (a) Neither Seller, individually or as Servicer, nor PNC Bank, individually or as the Relationship Bank (except as otherwise provided in the Relationship Bank Agreement), may assign its rights, or delegate its duties hereunder or any interest herein without the prior written consent of the Administrator. Purchaser may not assign its rights hereunder (although it may delegate its duties hereunder as expressly indicated herein) or the Asset Interest (or any portion thereof) to any Person without the prior written consent of Seller, which shall not be unreasonably withheld (it being recognized and understood by all parties hereto that all parties hereto shall deem it reasonable for Seller to withhold such consent if any such proposed assignment would, in the reasonable determination of Seller, cause Seller to be required to pay to any Affected Party any of the amounts referred to in Section 4.02); provided, however, that (i) Purchaser may assign all of its rights and interests in the Transaction Documents, together with all its interest in the Asset Interest, to State Street Capital or PNC Bank, or both, or any Affiliate of either of them, or to any "bankruptcy remote" special purpose entity, the business of which is administered by State Street Capital or any Affiliate of State Street Capital; and (ii) Purchaser may assign and grant a security interest in all of its rights in the Transaction Documents, together with all of its rights and interest in the Asset Interest, to the Collateral Agent, to secure Purchaser's obligations under or in connection with the Commercial Paper Notes, the Liquidity Agreement, the Credit Agreement and any letter of credit issued thereunder, and certain other obligations of Purchaser incurred in connection with the funding of the Purchases and Reinvestments hereunder, which assignment and grant of a security interest (and any subsequent assignment by the Collateral Agent) shall not be considered an "assignment" for purposes of this Section 12.01 or, prior to the enforcement of such security 41 interest, for purposes of any other provision of this Agreement. (b) Seller agrees to advise the Administrator within five Business Days after notice to Seller of any proposed assignment by Purchaser of the Asset Interest (or any portion thereof), not otherwise permitted under subsection (a), of Seller's consent or non-consent to such assignment and, if it does not consent, the reasons therefor. If Seller does not consent to such assignment, Purchaser may immediately assign such Asset Interest (or portion thereof) to State Street Capital, PNC Bank or any Affiliate of State Street Capital or PNC Bank. All of the aforementioned assignments shall be upon such terms and conditions as Purchaser and the assignee may mutually agree. SECTION 12.02. Rights of Assignee. Upon the assignment by Purchaser in accordance with this Article XII, the assignee receiving such assignment shall have all of the rights of Purchaser with respect to the Transaction Documents and the Asset Interest (or such portion thereof as has been assigned). SECTION 12.03. Evidence of Assignment. Any assignment of the Asset Interest (or any portion thereof) to any Person may be evidenced by such instrument(s) or document(s) as may be reasonably satisfactory to Purchaser, the Administrator and the assignee. SECTION 12.04. Rights of the Banks and Collateral Agent. Seller hereby agrees that, upon notice to Seller, the Collateral Agent may exercise all the rights of the Administrator hereunder, with respect to the Asset Interest (or any portions thereof), and Collections with respect thereto, which are owned by Purchaser, and all other rights and interests of Purchaser in, to or under this Agreement or any other Transaction Document. Without limiting the foregoing, upon such notice Collateral Agent may request Servicer to segregate Purchaser's allocable shares of Collections from Seller's allocable share, may give a Successor Notice pursuant to Section 8.01(a), may give or require the Administrator or Relationship Bank to give notice to the Lock-Box Banks as referred to in Section 8.03(b) and may direct the Obligors of Pool Receivables to make payments in respect thereof directly to an account designated by them, in each case, to the same extent as the Administrator might have done. 42 ARTICLE XIII INDEMNIFICATION SECTION 13.01. Indemnities by Seller. (a) General Indemnity. Without limiting any other rights which any such Person may have hereunder or under applicable law, Seller hereby agrees to indemnify each of the Administrator, Purchaser, the Liquidity Banks, the Credit Bank, the Relationship Bank, the Liquidity Agent, each of their respective Affiliates, and all successors, transferees, participants and assigns and all officers, directors, shareholders, controlling persons, employees and agents of any of the foregoing (each an "Indemnified Party"), forthwith on demand, from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by any of them arising out of or relating to the Transaction Documents or the ownership or funding of the Asset Interest or in respect of any Receivable or Account or any Contract, excluding, however, (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of any such Indemnified Party or (b) recourse (except as otherwise specifically provided in this Agreement) for Defaulted Receivables. Without limiting the foregoing, Seller shall indemnify each Indemnified Party for Indemnified Amounts arising out of or relating to: (i) the transfer by Seller of any interest in any Receivable other than the transfer of an Asset Interest to Purchaser pursuant to this Agreement and the grant of a security interest to Purchaser pursuant to Section 9.01; (ii) any representation or warranty made by Seller (or any of its officers) under or in connection with any Transaction Document, any Information Package or any other information or report delivered by or on behalf of Seller pursuant hereto, which shall have been false, incorrect or misleading in any material respect when made or deemed made; (iii) the failure by Seller to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Account or Contract, or the nonconformity of any Pool Receivable or the related Contract with any such applicable law, rule or regulation; (iv) the failure to vest and maintain vested in Purchaser an undivided percentage ownership interest, to the extent of the Asset Interest, in the Receivables in, or purporting to be in, the Receivables Pool, free and clear of any Lien, other than a Lien arising solely as a result of an 43 act of Purchaser, the Administrator or the Relationship Bank, whether existing at the time of any Purchase or Reinvestment of such Asset Interest or at any time thereafter, unless such failure is the result of the failure of Purchaser to execute any necessary financing statements; (v) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the Receivables Pool, whether at the time of any Purchase or Reinvestment or at any time thereafter; (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool (including, without limitation, a defense based on such Receivable's or the related Contract's not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services; (vii) any failure of Seller, as Servicer or otherwise,to perform its duties or obligations in accordance with the provisions of Article VIII; (viii) any products liability claim arising out of or in connection with merchandise or services that are the subject of any Pool Receivable; or (ix) any tax or governmental fee or charge (but not including taxes upon or measured by net income), all interest and penalties thereon or with respect thereto, and all out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the purchase or ownership of any Asset Interest, or any other interest in the Pool Receivables or in any goods which secure any such Pool Receivables. (b) Contest of Tax Claim; After-Tax Basis. If any Indemnified Party shall have notice of any attempt to impose or collect any tax or governmental fee or charge for which indemnification will be sought from Seller under Section 13.01(a)(ix), such Indemnified Party shall give prompt and timely notice of such attempt to Seller and Seller shall have the right, at its expense, to participate in any proceedings resisting or objecting to the imposition or collection of any 44 such tax, governmental fee or charge. Indemnification hereunder shall be in an amount necessary to make the Indemnified Party whole after taking into account any tax consequences to the Indemnified Party of the payment of any of the aforesaid taxes and the receipt of the indemnity provided hereunder or of any refund of any such tax previously indemnified hereunder, including the effect of such tax or refund on the amount of tax measured by net income or profits which is or was payable by the Indemnified Party. (c) Contribution. If for any reason the indemnification provided above in this Section 13.01 is unavailable to an Indemnified Party or is insufficient to hold an Indemnified Party harmless, then Seller shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnified Party on the one hand and Seller on the other hand but also the relative fault of such Indemnified Party as well as any other relevant equitable considerations. ARTICLE XIV MISCELLANEOUS SECTION 14.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by Seller therefrom shall in any event be effective unless the same shall be in writing and signed by (a) Seller, the Administrator and Purchaser (with respect to an amendment), provided that no amendment shall become effective without the signature of the Relationship Bank, if such amendment materially increases the obligations or liabilities of the Relationship Bank, in either its individual or agent capacity hereunder, or materially reduces any amount payable to it hereunder or (b) the Administrator and Purchaser (with respect to a waiver or consent by them) or Seller (with respect to a waiver or consent by it), as the case may be, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The parties acknowledge that, before entering into such an amendment or granting such a waiver or consent, Purchaser may also be required to obtain the approval of some or all of the Liquidity Banks or the Credit Bank or to obtain confirmation from certain rating agencies that such amendment, waiver or consent will not result in a withdrawal or reduction of the ratings of the Commercial Paper Notes. SECTION 14.02. Notices, Etc. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including facsimile communication) and shall be personally delivered or sent by express mail or 45 courier or by certified mail, postage prepaid, or by facsimile, to the intended party at the address or facsimile number of such party set forth under its name on the signature pages hereof or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, (a) if personally delivered or sent by express mail or courier or if sent by certified mail, when received, and (b) if transmitted by facsimile, when sent, receipt confirmed by telephone or electronic means. SECTION 14.03. No Waiver; Remedies. No failure on the part of the Administrator, the Relationship Bank, any Affected Party, any Indemnified Party, Purchaser or any other holder of the Asset Interest (or any portion thereof) to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Without limiting the foregoing, each of State Street Capital, individually and as Administrator, PNC Bank, individually and as Relationship Bank, the Collateral Agent, the Credit Bank and each Liquidity Bank is hereby authorized by Seller at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by State Street Capital, the Collateral Agent and such Liquidity Bank to or for the credit or the account of Seller, now or hereafter existing under this Agreement, to the Administrator, any Affected Party, any Indemnified Party or Purchaser, or their respective successors and assigns. SECTION 14.04. Binding Effect; Survival. This Agreement shall be binding upon and inure to the benefit of Seller, the Administrator, the Relationship Bank, Purchaser and their respective successors and assigns, and the provisions of Section 4.02 and Article XIII shall inure to the benefit of the Affected Parties and the Indemnified Parties, respectively, and their respective successors and assigns; provided, however, nothing in the foregoing shall be deemed to authorize any assignment not permitted by Section 12.01. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Final Payout Date. The rights and remedies with respect to any breach of any representation and warranty made by Seller pursuant to Article VI and the indemnification and payment provisions of Article XIII and Sections 4.02, 14.05, 14.06, 14.07, 14.08 and 14.15 shall be continuing and shall survive any termination of this Agreement. 46 SECTION 14.05. Costs, Expenses and Taxes. In addition to its obligations under Article XIII, Seller agrees to pay on demand: (a) all reasonable costs and expenses incurred by the Administrator, the Relationship Bank, the Credit Bank, the Collateral Agent and the Purchaser and their respective Affiliates in connection with the negotiation, preparation, execution and delivery, the administration (including periodic auditing) or the enforcement of, or any actual or claimed breach of, this Agreement and the other Transaction Documents, including, without limitation (i) the reasonable fees and expenses of counsel to any of such Persons incurred in connection with any of the foregoing or in advising such Persons as to their respective rights and remedies under any of the Transaction Documents, and (ii) all reasonable out- of-pocket expenses (including reasonable fees and expenses of independent accountants), incurred in connection with any review of Seller's books and records either prior to the execution and delivery hereof or pursuant to Section 7.01(c); and (b) all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement or the other Transaction Documents, and agrees to indemnify each Indemnified Party against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 14.06. No Proceedings. Seller, Servicer, State Street Capital (individually and as Administrator) and PNC Bank (individually and as Relationship Bank) each hereby agrees that it will not institute against Purchaser, or join any other Person in instituting against Purchaser, any insolvency proceeding (namely, any proceeding of the type referred to in the definition of Event of Bankruptcy) so long as any Commercial Paper Notes issued by Purchaser shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such Commercial Paper Notes shall have been outstanding. The foregoing shall not limit Seller's right to file any claim in or otherwise take any action with respect to any insolvency proceeding that was instituted by any Person other than Seller. SECTION 14.07. Confidentiality of Program Information. (a) Confidential Information. Each party hereto acknowledges that State Street Capital regards the structure of the transactions contemplated by this Agreement to be proprietary, and each such party severally agrees that: 47 (i) it will not disclose without the prior written consent of State Street Capital (other than to the directors, employees, auditors, counsel or affiliates (collectively, "representatives" of such party, each of whom shall be informed by such party of the confidential nature of the Program Information (as defined below) and of the terms of this Section 14.07), (A) any information regarding the pricing in, or copies of, this Agreement or any transaction contemplated hereby, (B) any information regarding the organization, business or operations of Purchaser generally or the services performed by the Administrator or the Relationship Bank for Purchaser, or (C) any information which is furnished by State Street Capital to such party and which is designated by State Street Capital to such party as confidential or not otherwise available to the general public (the information referred to in clauses (A), (B) and (C) is collectively referred to as the "Program Information"); provided, however, that such party may disclose any such Program Information (I) to any other party to this Agreement for the purposes contemplated hereby, (II) as may be required by any municipal, state, federal or other regulatory body having or claiming to have jurisdiction over such party, (III) in order to comply with any law, order, regulation, regulatory request or ruling applicable to such party, or (IV) subject to subsection (c), in the event such party is legally compelled (by interrogatories, requests for information or copies, subpoena, civil investigative demand or similar process) to disclose any such Program Information; (ii) it will use the Program Information solely for the purposes of evaluating, administering and enforcing the transactions contemplated by this Agreement and making any necessary business judgments with respect thereto; and (iii) it will, upon demand, return (and cause each of its representatives to return) to State Street Capital, all documents or other written material received from State Street Capital, as the case may be, in connection with (a)(i)(B) or (C) above and all copies thereof made by such party which contain the Program Information. (b) Availability of Confidential Information. This Section 14.07 shall be inoperative as to such portions of the Program Information which are or become generally available to the public or such party on a nonconfidential basis from a source other than State Street Capital or were known to such party on a nonconfidential basis prior to its disclosure by State Street Capital. (c) Legal Compulsion to Disclose. In the event that any party or anyone to whom such party or its representatives 48 transmits the Program Information is requested or becomes legally compelled (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any of the Program Information, such party will: (i) provide State Street Capital with prompt written notice so that State Street Capital may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Section 14.07; and (ii) unless State Street Capital waives compliance by such party with the provisions of this Section 14.07, make a timely objection to the request or confirmation to provide such Program Information on the basis that such Program Information is confidential and subject to the agreements contained in this Section 14.07. In the event that such protective order or other remedy is not obtained, or State Street Capital waives compliance with the provisions of this Section 14.07, such party will furnish only that portion of the Program Information which (in such party's good faith judgment) is legally required to be furnished and will exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded the Program Information. (d) Survival. This Section 14.07 shall survive termination of this Agreement. SECTION 14.08. Confidentiality of Seller Information. (a) Confidential Information. Each party hereto acknowledges that Seller regards certain financial and portfolio information to be confidential, and each such party severally agrees that: (i) it will not disclose without the prior written consent of Seller (other than to the directors, employees, auditors, counsel or affiliates (collectively, "representa- tives" of such party, each of whom shall be informed by such party of the confidential nature of the Seller Information (as defined below) and of the terms of this Section 14.08), (A) any financial information regarding Seller, (B) any pricing information of Seller, or (C) any information which is furnished by Seller to such party and which is designated by Seller to such party as confidential or not otherwise available to the general public (the information referred to in clauses (A), (B) and (C) is collectively referred to as the "Seller Information"); provided, however, that such party may disclose any such Seller Information (I) to any other party to this Agreement for the purposes contemplated hereby, (II) as may be required by any municipal, state, 49 federal or other regulatory body having or claiming to have jurisdiction over such party, (III) in order to comply with any law, order, regulation, regulatory request or ruling applicable to such party, (IV) subject to subsection (c), in the event such party is legally compelled (by interrogatories, requests for information or copies, subpoena, civil investigative demand or similar process) to disclose any such Seller Information, and (V) to the Credit Bank, the Liquidity Banks, any assignee or participant or potential assignee or participant of the Credit Bank or any Liquidity Bank, the rating agencies rating the Commercial Paper Notes, and the investors in and dealers of the Commercial Paper Notes; (ii) it will use the Seller Information solely for the purposes of evaluating, administering and enforcing the transactions contemplated by this Agreement and making any necessary business judgments with respect thereto; and (iii) it will, upon demand, return (and cause each of its representatives to return) to Seller, all documents or other written material received from Seller, as the case may be, and all copies thereof made by such party which contain the Seller Information. (b) Availability of Confidential Information. This Section 14.08 shall be inoperative as to such portions of the Seller Information which are or become generally available to the public or such party on a nonconfidential basis from a source other than Seller or were known to such party on a nonconfidential basis prior to its disclosure by Seller. (c) Legal Compulsion to Disclose. In the event that any party or anyone to whom such party or its representatives transmits the Seller Information is requested or becomes legally compelled (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any of the Seller Information, such party will (i) provide Seller with prompt written notice so that Seller may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Section 14.08; and (ii) unless Seller waives compliance by such party with the provisions of this Section 14.08, make a timely objection to the request or confirmation to provide such Seller Information on the basis that such Seller Information is confidential and subject to the agreements contained in this Section 14.08. 50 In the event that such protective order or other remedy is not obtained, or Seller waives compliance with the provisions of this Section 14.08, such party will furnish only that portion of the Seller Information which (in such party's good faith judgment) is legally required to be furnished and will exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded the Seller Information. (d) Survival. This Section 14.08 shall survive termination of this Agreement. SECTION 14.09. Captions and Cross References. The various captions (including, without limitation, the table of contents) in this Agreement are provided solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement. Unless otherwise indicated, references in this Agreement to any Section, Appendix, Schedule or Exhibit are to such Section of or Appendix, Schedule or Exhibit to this Agreement, as the case may be, and references in any Section, subsection, or clause to any subsection, clause or subclause are to such subsection, clause or subclause of such Section, subsection or clause. SECTION 14.10. Integration. This Agreement, together with the letter referenced in Section 4.01(a), contains a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire understanding among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings. SECTION 14.11. Governing Law. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF PURCHASER IN THE RECEIVABLES IS GOVERNED BY THE LAWS OF THE JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 14.12. Waiver Of Jury Trial. SELLER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING OR OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY TRIAL. SECTION 14.13. Consent To Jurisdiction; Waiver Of Immunities. SELLER HEREBY ACKNOWLEDGES AND AGREES THAT: 51 (a) IT IRREVOCABLY (i) SUBMITS TO THE JURISDICTION, FIRST, OF ANY UNITED STATES FEDERAL COURT, AND SECOND, IF FEDERAL JURISDICTION IS NOT AVAILABLE, OF ANY NEW YORK STATE COURT, IN EITHER CASE SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, (ii) AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED ONLY IN SUCH NEW YORK STATE OR FEDERAL COURT AND NOT IN ANY OTHER COURT, AND (iii) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING. (b) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID TO EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER OR IN CONNECTION WITH THIS AGREEMENT. SECTION 14.14. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. SECTION 14.15. No Recourse Against Other Parties. No recourse under any obligation, covenant or agreement of Purchaser contained in this Agreement shall be had against any stockholder, employee, officer, director, or incorporator of Purchaser, provided, however, that nothing in this Section 14.15 shall relieve any of the foregoing Persons from any liability which such Person may otherwise have for his/her or its gross negligence or willful misconduct. 52 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. STRAWBRIDGE & CLOTHIER, as Seller and initial Servicer By Title 801 Market Street Philadelphia, Pennsylvania 19107 Facsimile No.: (215) 629-6833 Attention: Treasurer CLIPPER RECEIVABLES CORPORATION, as Purchaser By Title P.O. Box 4024 Boston, Massachusetts 02101 Facsimile No.: (617) 951-7050 Attention: R. Douglas Donaldson STATE STREET BOSTON CAPITAL CORPORATION, as Administrator By Vice President 225 Franklin Street Boston, Massachusetts 02110 Facsimile No.: (617) 350-4020 Attention: Clipper Products PNC BANK, NATIONAL ASSOCIATION, as Relationship Bank By Vice President Broad and Chestnut Streets Philadelphia, Pennsylvania 19101 Facsimile No.: (215) 585-5972 Attention: H. Todd Dissinger APPENDIX A DEFINITIONS This is Appendix A to the Receivables Purchase Agreement dated as of January 26, 1995 among Strawbridge & Clothier, Clipper Receivables Corporation, State Street Boston Capital Corporation, as Administrator and PNC Bank, National Association, as Relationship Bank (as amended, supplemented or otherwise modified from time to time, this "Agreement"). Each reference in this Appendix A to any Section, Appendix or Exhibit refers to such Section of or Appendix or Exhibit to this Agreement. A. Defined Terms. As used in this Agreement, unless the context requires a different meaning, the following terms have the meanings indicated hereinbelow: "Account" means each revolving credit card or charge account established pursuant to a Contract between Seller and any Obligor pursuant to which indebtedness may arise from time to time for the purchase of goods. "Administrator" has the meaning set forth in the preamble. "Administrator's Office" means the office of the Administrator at 225 Franklin Street, Boston, Massachusetts 02110, Attention: Clipper Funds, or such other address as shall be designated by the Administrator in writing to Seller and Purchaser. "Affected Party" means each of Purchaser, each Liquidity Bank, any assignee or participant of Purchaser or any Liquidity Bank, the Credit Bank, any assignee or participant of the Credit Bank, State Street Capital, any successor to State Street Capital as Administrator, PNC Bank, any successor to PNC Bank as Relationship Bank, any sub-agent of the Administrator, the Collateral Agent, any successor of First Chicago as Collateral Agent and any co-agent or sub-agent of the Collateral Agent. "Affiliate" when used with respect to a Person means any other Person controlling, controlled by, or under common control with, such Person. "Allocation Limit" has the meaning set forth in Section 1.01. "Alternate Base Rate" means, on any date, a fluctuating rate of interest per annum equal to the higher of 55 (a) the rate of interest most recently announced by the Liquidity Agent in Pittsburgh, Pennsylvania as its prime rate; and (b) the Federal Funds Rate (as defined below) most recently determined by the Liquidity Agent plus 0.50% per annum. The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by the Liquidity Agent in connection with extensions of credit. "Arrangement Fee" has the meaning set forth in Section 4.01(a). "Asset Interest" means an undivided ownership interest determined from time to time as provided in Section 1.04(b) in all Pool Assets. "Bank Rate" for any Settlement Period means (a) in the case of any Settlement Period other than a Settlement Period described in clause (b), an interest rate per annum equal to the sum of (x) 1.00%, plus (y) the Eurodollar Rate (Reserve Adjusted) for such Settlement Period; (b) in the case of (i) any Settlement Period on or after the first day of which Purchaser, any Liquidity Bank or the Credit Bank shall have notified the Administrator that (A) the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Person to fund the Asset Interest (or a portion thereof) at the rate described in clause (a), or (B) due to market conditions affecting the interbank eurodollar market, funds are not reasonably available to such Person in such market in order to enable it to fund such Asset Interest (or a portion thereof) at the rate described in clause (a) (and in the case of subclause (A) or (B), such Person shall not have subsequently notified the Administrator that such circumstances no longer exist), or (ii) any Settlement Period as to which the Administrator does not receive notice or determine, by no later than 12:00 noon (New York City time) on the third Business Day preceding the first day of such Settlement Period, that the Asset Interest (or portion 56 thereof) will be funded by Liquidity Loans and not by the issuance of Commercial Paper Notes, an interest rate per annum equal to the Alternate Base Rate for such Settlement Period. "Business Day" means a day on which both (a) the Administrator at its principal office in Boston, Massachusetts is open for business and (b) commercial banks in New York City and Chicago, Illinois are not authorized or required to be closed for business. "Change in Control" means (i) any person or group of related persons, excluding Permitted Shareholders, gains beneficial ownership of a majority in voting interest of the outstanding voting stock of Seller or has caused to be elected a majority of the Board of Directors of Seller or (ii) all or substantially all of the assets of Seller are sold or liquidated. As used herein, "Permitted Shareholders" means (i) Justus C. Strawbridge and Isaac H. Clothier; (ii) the respective lineal descendants of the persons set forth in (i) or their respective estates; and (iii) an inter vivos or testamentary trust whose current beneficiaries include one or more persons falling within the scope of preceding category (ii). "Charge-Off Ratio" means the product of (i) the ratio (expressed as a percentage) computed as of the Cut-Off Date by dividing (x) the aggregate Unpaid Balance of all Receivables that were charged off in accordance with the Credit and Collection Policy during the Settlement Period ending on such Cut-Off Date, minus any recoveries with respect to such charged off Receivables by (y) the aggregate Unpaid Balance of all Receivables, on the immediately preceding Cut-Off Date, other than such charged off Receivables, times (ii) 12. "Collateral Agent" means First Chicago in its capacity as collateral agent, together with any successors thereto, under the Security Agreement. "Collections" means, with respect to any Receivable, all funds which either (a) are received by Seller or Servicer from or on behalf of the related Obligors in payment of any amounts owed (including, without limitation, purchase prices, finance charges, interest and all other charges) in respect of such Receivable, or applied to such amounts owed by such Obligors (including, without limitation, insurance payments that Seller or Servicer applies in the ordinary course of its business to amounts owed in respect of such Receivable and net proceeds of sale or other disposition of repossessed goods or other collateral or property of the Obligor or any other party directly or indirectly liable for payment of such Receivable and available to be applied thereon), or (b) are 57 deemed to have been received by Seller or any other Person as a Collection pursuant to Section 3.02. "Commercial Paper Holders" means the holders from time to time of the Commercial Paper Notes. "Commercial Paper Notes" means short-term promissory notes issued or to be issued by Purchaser to fund its investments in accounts receivable or other financial assets. "Commitment Fee" has the meaning set forth in the Fee Letter. "Contract" means a contract between Seller and any Person pursuant to or under which such Person establishes a revolving credit card or charge account pursuant to which indebtedness may arise for the purchase of goods from time to time. A "related" Contract with respect to the Receivables means a Contract under which Receivables in the Receivables Pool arise or which is relevant to the collection or enforcement of such Receivables. "CP Rate" for any period means a rate per annum calculated by the Administrator equal to the sum of (i) the rate or, if more than one rate, the weighted average of the rates, determined by converting to an interest-bearing equivalent rate per annum the discount rate (or rates) at which Commercial Paper Notes on each day during such period have been sold by the commercial paper placement agents selected by the Administrator, plus (ii) the commissions and charges charged by such commercial paper placement agents with respect to such Commercial Paper Notes, expressed as a percentage of such face amount and converted to an interest-bearing equivalent rate per annum. "Credit Agreement" means and includes (a) the Credit Agreement, dated as of September 24, 1992 between Purchaser and the Credit Bank and (b) any other agreement (other than the Liquidity Agreement) hereafter entered into by Purchaser providing for the issuance of one or more letters of credit for the account of Purchaser, the making of loans to Purchaser or any other extensions of credit to or for the account of Purchaser to support all or any part of Purchaser's payment obligations under its Commercial Paper Notes or to provide an alternate means of funding Purchaser's investments in accounts receivable or other financial assets, in each case as amended, supplemented or otherwise modified from time to time. "Credit and Collection Policy" means those credit and collection policies and practices relating to Contracts, Accounts, and Receivables described in Schedule 6.01(p)-2, as modified without violating Section 7.03(c). 58 "Credit Bank" means and includes State Street Bank, as lender to Purchaser and as issuer of a letter of credit for Purchaser's account under the Credit Agreement, and any other or additional bank or other financial institution now or hereafter extending credit or having a commitment to extend credit to or for the account of Purchaser under the Credit Agreement. "Credit Draw means a loan made by the Credit Bank pursuant to the Credit Agreement or a disbursement made by the Credit Bank under a letter of credit issued pursuant to the Credit Agreement. "Cut-Off Date" means the last day of each Settlement Period. "Defaulted Receivable" means, for any Settlement Period, a Receivable: (a) as to which any payment, or part thereof, becomes 7 or more months past due during such Settlement Period, or (b) as to which the Obligor thereof is the subject of an Event of Bankruptcy and which has been, or in accordance with the Credit and Collection Policy should have been, charged off during such Settlement Period and which is not a Defaulted Receivable pursuant to clause (a). "Default Ratio" means the ratio (expressed as a percentage) computed as of a Cut-Off Date by dividing (x) the aggregate Unpaid Balance of Receivables that become Defaulted Receivables during the Settlement Period ending on such Cut-Off Date by (y) the average of the aggregate Unpaid Balance of all Receivables during such Settlement Period. "Delinquency Ratio" means the ratio (expressed as a percentage) computed as of a Cut-Off Date by dividing (x) the aggregate Unpaid Balance of Delinquent Receivables on such Cut- Off Date by (y) the aggregate Unpaid Balance of all Receivables on such date. "Delinquent Receivable" means a Receivable as to which any payment, or part thereof, remains unpaid for more than 3 months from the original due date for such payment. "Dilution Ratio" means, for any Settlement Period, the ratio (expressed as a percentage) computed by dividing (i) the aggregate amount of credits, adjustments, rebates, refunds and setoffs with respect to Receivables granted or allowed by Seller or any Affiliate of Seller during such Settlement Period by (ii) the average aggregate Unpaid Balance of all Receivables during such Settlement Period. "Dollars" means dollars in lawful money of the United States of America. "Downgraded Liquidity Bank" means a Liquidity Bank which has been the subject of a Downgrading Event. 59 "Downgrading Event" with respect to any Person means the lowering of the rating with regard to the short-term securities of such Person to below (i) A-1 by S&P or (ii) P-1 by Moody's. "Earned Discount" means for any Settlement Period: PTI x ER x ED + LF 360 where: PTI= the daily average (calculated at the close of business each day) of the Purchaser's Total Investment during such Settlement Period, ER = the Earned Discount Rate for such Settlement Period, ED = the actual number of days elapsed during such Settlement Period, and LF = the Liquidation Fee, if any, during such Settlement Period. "Earned Discount Rate" means for any Settlement Period: (a) in the case of any portion of the Purchaser's Total Investment funded by a Liquidity Loan, either (i) the Bank Rate for such Settlement Period or (ii) the Alternate Base Rate, as elected by Seller set forth in a written notice to the Administrator and the Liquidity Agent delivered at least three Business Days prior to such funding (if such three Business Day prior notice cannot be given prior to funding, the Earned Discount Rate for such Settlement Period shall be the Alternate Base Rate); (b) in the case of any portion of the Purchaser's Total Investment funded by a Credit Draw, a rate per annum equal for each day during such Settlement Period to the Alternate Base Rate in effect on such day plus 2% per annum; and (c) for any portion of the Purchaser's Total Investment funded by Commercial Paper Notes, the CP Rate for the related Settlement Period; provided, however, that on any day during a Settlement Period when any Liquidation Event or Unmatured Liquidation Event shall have occurred and be continuing, the Earned Discount Rate for the Purchaser's Total Investment shall mean the Alternate Base Rate in effect on such day plus 2%. 60 "Eligible Contract" means a Contract in one of the forms set forth in Schedule 6.01(p)-1 or otherwise approved by the Administrator. "Eligible Receivable" means, at any time, a Receivable: (a) which is originated by Seller in the ordinary course of its business; (b) which, (i) if the perfection of Purchaser's undivided ownership interest therein is governed by the laws of a jurisdiction where the Uniform Commercial Code -- Secured Transactions is in force, constitutes an account or general intangible as defined in the Uniform Commercial Code as in effect in such jurisdiction, and (ii) if the perfection of Purchaser's undivided ownership interest therein is governed by the law of any jurisdiction where the Uniform Commercial Code -- Secured Transactions is not in force, Seller has furnished to the Administrator such opinions of counsel and other evidence as has reasonably been requested, establishing to the reasonable satisfaction of the Administrator that Purchaser's undivided ownership interest and other rights with respect thereto are not significantly less protected and favorable than such rights under the Uniform Commercial Code; (c) the Obligor of which is resident of the United States, or any of its possessions or territories, is not an Affiliate of Seller, and is not a government or a governmental subdivision or agency; (d) as to which the payment terms have not been altered or extended; (e) the Obligor of which is not the Obligor of any Defaulted Receivable; (f) which is not a Defaulted Receivable or a Delinquent Receivable; (g) with regard to which the warranty of Seller in Section 6.01(l) is true and correct; (h) the sale of an undivided interest in which does not contravene or conflict with any law; (i) which is denominated and payable only in Dollars in the United States; (j) which arises under an Eligible Contract, which contract has been duly authorized by the parties thereto and that, together with such Receivable, is in full force and 61 effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable enforceable against such Obligor in accordance with its terms, is not subject to any dispute, offset, counterclaim or defense whatsoever and is not classified as a "Dispute Receivable" pursuant to the Credit and Collection Policy; (k) which, together with the Contract related thereto, does not contravene any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Contract related thereto is in violation of any such law, rule or regulation if such violation would impair the collectibility of such Receivable; (l) which (i) satisfies all applicable requirements of the Credit and Collection Policy and (ii) complies with such other criteria and requirements (other than those relating to the collectibility of such Receivable) as the Administrator may from time to time specify to Seller following ten days' notice; (m) the Unpaid Balance of which, when combined with the Unpaid Balance of all Pool Receivables as to which principal or interest has been deferred, does not exceed 10% of the Net Pool Balance; and (n) the Obligor of which has not exceeded 115% of his or her limit. "ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurodollar Rate (Reserve Adjusted)" means, with respect to any Settlement Period and any portion of the Purchaser's Total Investment, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined pursuant to the following formula: Eurodollar Rate = Eurodollar Rate (Reserve Adjusted) 1-Eurodollar Reserve Percentage where: "Eurodollar Rate" means, with respect to any Settlement Period and any portion of the Purchaser's Total Investment, the rate per annum at which Dollar deposits in immediately available funds are offered to the Eurodollar Office of the Administrator two Eurodollar Business Days prior to the 62 beginning of such period by prime banks in the interbank eurodollar market at or about 11:00 a.m., New York City time for delivery on the first day of such Settlement Period, for the number of days comprised therein and in an amount equal or comparable to the applicable portion of the Purchaser's Total Investment for such Settlement Period. "Eurodollar Business Day" means a day of the year on which dealings are carried on in the eurodollar interbank market and banks are open for business in London and are not required or authorized to close in New York City or Boston. "Eurodollar Reserve Percentage" means, with respect to any Settlement Period, the then applicable percentage (expressed as a decimal) prescribed by the Federal Reserve Board for determining reserve requirements applicable to "Eurocurrency Liabilities" pursuant to Regulation D. "Event of Bankruptcy" shall be deemed to have occurred with respect to a Person if either: (a) a case or other proceeding shall be commenced, without the application or consent of such Person, in any court, seeking the liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of such Person, the appointment of a trustee, receiver, custodian, liquidator, assignee, sequestrator or the like for such Person or all or substantially all of its assets, or any similar action with respect to such Person under any law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, and such case or proceeding shall continue undismissed, or unstayed and in effect, for a period of 60 consecutive days; or an order for relief in respect of such Person shall be entered in an involuntary case under the federal bankruptcy laws or other similar laws now or hereafter in effect; or (b) such Person shall commence a voluntary case or other proceeding under any applicable bankruptcy, insolvency, reorganization, debt arrangement, dissolution or other similar law now or hereafter in effect, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) for, such Person or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail to, or admit in writing its inability to, pay its debts generally as they become due, or, if a corporation or similar entity, its board of directors shall vote to implement any of the foregoing. 63 "Exchange Act" means the Securities and Exchange Act of 1934, as amended. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal (for each day during such period) to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of Philadelphia; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Liquidity Agent from three federal funds brokers of recognized standing selected by it. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System, or any successor thereto or to the functions thereof. "Fee Letter" has the meaning set forth in Section 4.01(b). "Final Payout Date" means the date following the Termination Date on which Purchaser's Total Investment shall have been reduced to zero and all other amounts payable by Seller under the Transaction Documents shall have been paid in full. "Finance Charge Receivables" means all amounts billed to the Obligors on any Account in respect of finance charges, late charges and other fees and charges with respect to the Accounts. "First Chicago" means The First National Bank of Chicago, a national banking association. "Foreign" means, with respect to any assignee or participant of Purchaser hereunder, any Person not organized under the laws of the United States, one of the states thereof, or the District of Columbia. "Indemnified Amounts" has the meaning set forth in Section 13.01. "Indemnified Party" has the meaning set forth in Section 13.01. "Information Package" has the meaning set forth in Section 3.01. 64 "Interest Collections" means all Collections received or deemed received for Finance Charge Receivables. "Lien" means any mortgage, lien, pledge, encumbrance, charge, title retention or other security interest of any kind, whether arising under a security agreement, mortgage, deed of trust, assignment, pledge or financing statement or arising as a matter of law, judicial process or otherwise. "Liquidation Event" has the meaning set forth in Section 10.01. "Liquidation Fee" means, for each day in any Settlement Period during the Liquidation Period, the amount, if any, by which: (a) the additional Earned Discount (calculated without taking into account any Liquidation Fee) which would have accrued on the reductions of the Purchaser's Total Investment during such Settlement Period (as so computed) if such reductions had not been made exceeds, (b) the income, if any, received by Purchaser from investing the proceeds of such reductions of the Purchaser's Total Investment. "Liquidation Period" means the period commencing on the date on which the conditions precedent to Purchases and Reinvestments set forth in Section 5.02 are not satisfied (or expressly waived by Purchaser) and the Administrator shall have notified Seller, Servicer and the Relationship Bank in writing that the Liquidation Period has commenced, and ending on the Final Payout Date. "Liquidity Agent" means PNC Bank, as agent for the Liquidity Banks under the Liquidity Agreement, or any successor to PNC Bank in such capacity. "Liquidity Agreement" means and includes (a) the Liquidity Agreement dated as of January 26, 1995 among Purchaser, as borrower, State Street Capital, as Program Administrator, PNC Bank, as Liquidity Agent, and certain other financial institutions, and (b) any other agreement hereafter entered into by Purchaser providing for the making of loans or other extensions of credit to Purchaser secured by a direct or indirect security interest in the Asset Interest (or any portion thereof), to support all or part of Purchaser's payment obligations under the Commercial Paper Notes or to provide an alternate means of funding Purchaser's investments in accounts receivable or other financial assets, and under which the amount available from such extensions of credit is limited to an amount calculated by reference to the value or eligible unpaid balance of such 65 accounts receivable or other financial assets or any portion thereof or the level of deal-specific credit enhancement available with respect thereto, as such Liquidity Agreement or other agreement may be amended, supplemented or otherwise modified from time to time. "Liquidity Bank" means any one of, and "Liquidity Banks" means all of, PNC Bank and the other commercial lending institutions that are at any time parties to the Liquidity Agreement. "Liquidity Commitment Amount" means, at any time, the then aggregate amount of the Liquidity Banks' commitments under the Liquidity Agreement. "Liquidity Loan" means a loan made by the Liquidity Bank (or simultaneous loans made by the Liquidity Banks) pursuant to the Liquidity Agreement. "Lock-Box Agreement" means a letter agreement, in substantially the form of Exhibit 5.01(g), between Seller and any Lock-Box Bank. "Lock-Box Bank" means any of the banks holding one or more lock-box accounts for receiving Collections from Pool Receivables. "Loss Reserve" means on any day, an amount equal to the product of (1) the Purchaser's Total Investment on such day multiplied by (2) the Loss Reserve Percentage at such time. "Loss Reserve Percentage" means, on any day, the sum of (1) the greatest of (A) 12%, (B) 3 times the average Charge Off Ratio for the 3 most recent Cut-Off Dates and (C) 2 times the product of (i) the average Default Ratio for the 3 most recent Cut-Off Dates times (ii) 1 divided by the average Payment Rate for the 3 most recent Cut-Off Dates, plus (2) the amount, if any, (expressed as a positive number) by which the Net Yield is less than zero as of the most recent Cut-Off Date. "Material Adverse Effect" with respect to any event or circumstance, means a material adverse effect on: (i) the business, assets, financial condition or results of operations of Seller or Servicer, and its consolidated Subsidiaries, taken as a whole; (ii) the ability of Servicer or Seller to perform its obligations under this Agreement or any other Transaction Document; 66 (iii) the validity, enforceability or collectibility of this Agreement, any other Transaction Document, the Receivables, the Accounts, or the related Contracts; or (iv) the status, existence, perfection, priority or enforceability of Purchaser's interest in the Pool Receivables. "Moody's" means Moody's Investors Service, Inc. "Net Pool Balance" at any time means an amount equal to the aggregate Unpaid Balance of the Eligible Receivables in the Receivables Pool at such time. "Net Yield" means, for any Settlement Period, the Portfolio Yield for such Settlement Period, minus, the Earned Discount Rate for such Settlement Period, minus the Servicer's Fee Rate, minus the Program Fee Rate, minus the greater of (i) the average Charge-Off Ratio for the three most recent Cut-Off Dates and (ii) 90% of the average Default Ratio for the three most recent Cut- Off Dates multiplied by 1 divided by the average Payment Rate for the three most recent Cut-Off Dates. "Obligor" means a Person obligated to make payments with respect to a Receivable, including any guarantor thereof. "Payment Rate" means the ratio (expressed as a percentage) computed as of the Cut-Off Date by dividing (x) the Collections received during the Settlement Period ending on such Cut-Off Date by (y) the aggregate Unpaid Balance of all Receivables as of the first day of such Settlement Period. "Permitted Investments" means any one or more of the following obligations or securities: (i) direct non-callable obligations of, and non- callable obligations fully guaranteed by, the United States of America, or any agency or instrumentality of the United States of America the obligations of which are backed by the full faith and credit of the United States of America; (ii) demand and time deposits in, certificates of deposits of, and bankers' acceptances issued by, any depository institution or trust company incorporated under the laws of the United States of America or any state thereof, having a combined capital and surplus of at least $500,000,000, and subject to supervision and examination by federal and/or state banking authorities, so long as at the time of such investment or contractual commitment providing for such investment the commercial paper or other short-term debt 67 obligations of such depository institution or trust company (or, in the case of a depository institution that is the principal subsidiary of a holding company, the commercial paper or other short-term debt obligations of such holding company) have one of the two highest short-term credit rating available from Moody's and S&P. (iii) repurchase obligations with respect to and collateralized by (A) any security described in clause (i) above or (B) any other security issued or guaranteed by an agency or instrumentality of the United States of America, in each case entered into with a depository institution or trust company (acting as principal) of the type described in clause (ii) above, provided that the Administrator has taken delivery of such security; (iv) commercial paper (including both non- interest-bearing discount obligations and interest- bearing obligations, but excluding Commercial Paper (Notes) payable on demand or on a specified date not more than one year after the date of issuance thereof having the highest short-term credit rating from Moody's and S&P at the time of such investment; and (v) shares in a mutual fund investing solely in short term securities of the United States government and/or securities described in clause (iii) above where the mutual fund custodian has taken delivery of the collateralizing securities, provided that (i) such fund shall have one of the two highest short-term credit rating available from Moody's and S&P and (ii) such shares shall be freely transferable by the holder on a daily basis. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, government or any agency or political subdivision thereof or any other entity. "PNC Bank" has the meaning set forth in the preamble. "Pool Assets" has the meaning set forth in Section 1.04(a). "Pool Receivable" means a Receivable in the Receivables Pool. "Portfolio Yield" means, with respect to any Settlement Period, the annualized percentage equivalent of a fraction, the numerator of which is the amount of Finance Charge Receivables accrued during such Settlement Period, and the denominator of 68 which is the aggregate Unpaid Balance of Receivables as of the last day of the immediately preceding Settlement Period. "Principal Collections" means Collections received or deemed received (other than Interest Collections) for amounts billed to the Obligors on any Account in respect of purchases of goods. "Program Administration Agreement" means the Program Administration Agreement dated as of September 24, 1992 between Purchaser and State Street Capital, as Program Administrator, as the same may be amended, supplemented or otherwise modified from time to time. "Program Fee" has the meaning set forth in the Fee Letter. "Program Fee Rate" has the meaning set forth in the Fee Letter. "Program Information" has the meaning set forth in Section 14.07. "Purchase" has the meaning set forth in Section 1.01. "Purchase Limit" has the meaning set forth in Section 1.01. "Purchase Price" has the meaning set forth in Section 1.02(a). "Purchase Termination Date" means that day (a) the Administrator declares a Purchase Termination Date in a notice to Seller in accordance with Section 10.02(a); or (b) in accordance with Section 10.02(b), becomes the Purchase Termination Date automatically. "Purchaser" has the meaning set forth in the preamble. "Purchaser's Share" of any amount means the then Asset Interest, expressed as a percentage, times such amount. "Purchaser's Total Investment" means at any time with respect to the Asset Interest an amount equal to (a) the aggregate of the amounts theretofore paid to Seller for Purchases pursuant to Section 1.01, less (b) the aggregate amount of Collections theretofore received and actually distributed to Purchaser on account of such Purchaser's Total Investment pursuant to Section 3.01. "Qualifying Liquidity Bank" means a Liquidity Bank with a rating of its short-term securities equal to or higher than 69 (i) A-1 by Standard & Poor's Ratings Group and (ii) P-1 by Moody's Investors Service, Inc. "Receivable" means any right to payment from a Person, whether constituting an account, chattel paper, instrument or a general intangible, arising under an Account, and includes the right to payment of any interest or finance charges and other obligations of such Person with respect thereto. "Receivables Pool" means at any time all then outstanding Receivables. "Regulation D" means Regulation D of the Federal Reserve Board, or any other regulation of the Federal Reserve Board that prescribes reserve requirements applicable to nonpersonal time deposits or "Eurocurrency Liabilities" as presently defined in Regulation D, as in effect from time to time. "Regulatory Change" means, relative to any Affected Party (a) any change in (or the adoption, implementation, change in phase-in or commencement of effectiveness of) any (i) United States federal or state law or foreign law applicable to such Affected Party; (ii) regulation, interpretation, directive, requirement or request (whether or not having the force of law) applicable to such Affected Party of (A) any court, government authority charged with the interpretation or administration of any law referred to in clause (a)(i) or of (B) any fiscal, monetary or other authority having jurisdiction over such Affected Party; or (iii) generally accepted accounting principles or regulatory accounting principles applicable to such Affected Party and affecting the application to such Affected Party of any law, regulation, interpretation, directive, requirement or request referred to in clause (a)(i) or (a)(ii) above; or (b) any change in the application to such Affected Party of any existing law, regulation, interpretation, directive, requirement, request or accounting principles referred to in clause (a)(i), (a)(ii) or (a)(iii) above. "Reinvestment" has the meaning set forth in Section 1.03. "Related Security" means, with respect to any Pool Receivable: (a) all of Seller's right, title and interest in and to all Contracts that relate to such Pool Receivable; (b) all of 70 Seller's interest in the merchandise (including returned merchandise), if any, relating to the sale which gave rise to such Pool Receivable; (c) all other security interests or liens and property subject thereto from time to time purporting to secure payment of such Pool Receivable, whether pursuant to the Contract related to such Pool Receivable or otherwise; (d) all UCC financing statements covering any collateral securing payment of such Pool Receivable; and (e) all guarantees and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Pool Receivable whether pursuant to the Contract related to such Pool Receivable or otherwise. The interest of Purchaser in any Related Security is only to the extent of Purchaser's undivided interest, as more fully described in the definition of Asset Interest. "Relationship Bank" has the meaning set forth in the preamble. "Relationship Bank Agreement" means the Relationship Bank Agreement, dated as of September 24, 1992, among Purchaser, the Administrator and the Relationship Bank, as such agreement may be amended, supplemented or otherwise modified from time to time. "Reporting Date" has the meaning set forth in Section 3.01(a). "S&P" means Standard & Poor's Credit Ratings Group. "Secured Parties" means Purchaser, the Administrator, the Relationship Bank, the Indemnified Parties and the Affected Parties. "Security Agreement" means the Security Agreement dated as of September 24, 1992, between Purchaser, as grantor, and the Collateral Agent, as secured party, as the same may be amended, supplemented or otherwise modified from time to time. "Seller" has the meaning set forth in the preamble. "Seller Information" has the meaning set forth in Section 14.08. "Seller's Portion of Servicing Fee" has the meaning set forth in Section 8.01(d). "Servicer" has the meaning set forth in Section 8.01(a). "Servicer Transfer Event" has the meaning set forth in Section 8.01(b). "Servicer's Fee" accrued for any day means an amount equal to (x) the Servicer's Fee Rate, times (y) the amount of the 71 Purchaser's Total Investment at the close of business on such day, times (z) 1/360. "Servicer's Fee Rate" (i) means 2.0% per annum, so long as Seller is Servicer and (ii) such higher rate as may be charged by any other Servicer, provided such rate is a market rate for servicing portfolios similar to the Pool Receivables at such time. "Settlement Date" has the meaning set forth in Section 3.01(c). "Settlement Period" means a fiscal month as described on Schedule A. "State Street Bank" means State Street Bank and Trust Company, a trust company organized under the laws of Massachusetts. "State Street Capital" has the meaning set forth in the preamble. "Subsidiary" means a corporation of which Seller and/or its other Subsidiaries own, directly or indirectly, such number of outstanding shares as have more than 50% of the ordinary voting power for the election of directors. "Successor Notice" has the meaning set forth in Section 8.01(b). "Taxes" means, in the case of any assignee or participant of Purchaser, taxes, levies, imposts, deductions, charges, withholdings and liabilities, now or hereafter imposed, levied, collected, withheld or assessed by any country (or any political subdivision thereof), excluding income or franchise taxes imposed on it by (i) the jurisdiction under the laws of which such assignee or participant or Purchaser, is organized (or by any political subdivision thereof), (ii) any jurisdiction in which an office of such assignee or participant of Purchaser funding or maintaining the ownership of Asset Interests is located (or any political subdivision thereof), or (iii) any jurisdiction in which such assignee or participant of Purchaser is already subject to tax. "Termination Date" means the earliest of (a) the date of termination (whether by scheduled expiration, termination on default or otherwise) of either the Liquidity Banks' commitments under the Liquidity Agreement or the Credit Bank's commitment under the Credit Agreement; 72 (b) the Purchase Termination Date; (c) January 26, 1996; and (d) the date on which any of the following shall occur: (1) Failure to obtain a Liquidity Agreement in substitution for the then-existing Liquidity Agreement on or before 30 days prior to the expiration of the commitments of the Liquidity Banks thereunder; or (2) (i) A Downgrading Event with respect to a Liquidity Bank shall have occurred and been continuing for not less than 45 days, (ii) the Downgraded Liquidity Bank shall not have been replaced by a Qualifying Liquidity Bank pursuant to a Liquidity Agreement in form and substance acceptable to Purchaser and the Administrator, and (iii) the commitment of such Downgraded Liquidity Bank under the Liquidity Agreement shall not have been funded or collateralized in such a manner that such Downgrading Event will not result in a reduction or withdrawal of the credit rating applied to the Commercial Paper Notes by any of the rating agencies then rating the Commercial Paper Notes; or (3) Purchaser shall become an "investment company" within the meaning of the Investment Company Act of 1940, as amended. "Transaction Documents" means this Agreement, the Lock-Box Agreements, the Fee Letter and the other documents to be executed and delivered in connection herewith. "UCC" means the Uniform Commercial Code as from time to time in effect in the applicable jurisdiction or jurisdictions. "Unmatured Liquidation Event" means any event which, with the giving of notice or lapse of time, or both, would become a Liquidation Event. "Unpaid Balance" of any Receivable means at any time the unpaid principal amount thereof, excluding any Finance Charge Receivables related thereto. B. Other Terms. All accounting terms not specifically defined herein, including Interest Expense, shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of Illinois, and not specifically defined herein, are used herein as defined in such Article 9. 73 C. Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". 74 EX-21 5 SUBSIDIARIES OF STRAWBRIDGE & CLOTHIER EXHIBIT 21 Subsidiaries of Strawbridge & Clothier Name Jurisdiction Percentage of of Ownership Incorporation S&C, Burlington, Inc. Pennsylvania 100% S&C, Center Square, Inc. Pennsylvania 100% S&C, Cherry Hill, Inc. Pennsylvania 100% S&C, Concord, Inc. Delaware 100% S&C, Echelon, Inc. Pennsylvania 100% S&C, Filbert St., Inc. Pennsylvania 100% S&C, Penrose, Inc. Pennsylvania 100% S&C, Whiteland, Inc. Pennsylvania 100% S&C, Maintenance and New Jersey 90% Construction, Inc. Anfly, Inc. Delaware 100% 8th & Filbert Parking, Inc. Pennsylvania 100% 1 EX-23 6 CONSENT OF ERNST & YOUNG LLP Exhibit 23 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Strawbridge & Clothier of our report dated March 17, 1995, included in the 1994 Annual Report to Shareholders of Strawbridge & Clothier. Our audits also included the financial statement schedule of Strawbridge & Clothier listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this schedule based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the incorporation by reference in Registration Statement No. 2-99396 on Form S-8 dated August 22, 1985, Registration Statement No. 33-37675 on Form S-8 dated November 8, 1990, Registration Statement No. 33-40928 on Form S-8 dated May 29, 1991, and Registration Statement No. 33-55782 on Form S-3 dated December 15, 1992, and the related Prospectuses of Strawbridge & Clothier of our report dated March 17, 1995, with respect to the consolidated financial statements incorporated herein by reference and our report included in the preceding paragraph with respect to the financial statement schedule included in the 1994 Annual Report (Form 10-K) of Strawbridge & Clothier. ERNST & YOUNG LLP Philadelphia, Pennsylvania April 26, 1995 1 EX-13 7 EXHIBIT 13 STRAWBRIDGE & CLOTHIER PORTIONS OF THE 1994 ANNUAL REPORT TO SHAREHOLDERS CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except number of shares and per share data)
- ------------------------------------------------------------------------------ Year Ended ---------------------------------------- JANUARY 28 January 29 January 30 1995 1994 1993 ---------- ---------- ---------- Net sales .......................... $1,003,524 $984,615 $967,794 Other income, net of other deductions ....................... 3,265 2,412 1,061 ---------- -------- -------- 1,006,789 987,027 968,855 Deduct: Cost of sales, including occupancy and buying costs ............... 745,251 733,901 718,582 Selling and administrative expenses, net of finance charges ........................ 172,029 171,835 166,678 Depreciation ..................... 29,587 28,829 28,322 Interest ......................... 19,551 20,909 21,446 Provision for doubtful accounts .. 10,281 4,724 6,638 ---------- -------- -------- 976,699 960,198 941,666 ---------- -------- -------- Earnings before income taxes and cumulative effect of accounting changes .......................... 30,090 26,829 27,189 Income taxes ....................... 10,058 9,102 9,169 ---------- -------- -------- Earnings before cumulative effect of accounting changes ............ 20,032 17,727 18,020 Cumulative effect of accounting changes: Income taxes ................... -0- -0- 9,750 Retiree health care, net of $13,600 income taxes ......... -0- -0- (26,600) ---------- -------- -------- -0- -0- (16,850) ---------- -------- -------- NET EARNINGS ....................... $ 20,032 $ 17,727 $ 1,170 ========== ======== ======== Earnings per share: Before cumulative effect of accounting changes ............. $1.92 $1.71 $1.76 Accounting changes ............... -0- -0- (1.65) ---------- -------- -------- Net earnings ..................... $1.92 $1.71 $ .11 ========== ======== ======== Average shares outstanding ......... 10,426,277 10,324,048 10,215,742
See accompanying notes. 3 CONSOLIDATED BALANCE SHEETS (in thousands, except number of shares and per share data)
- ------------------------------------------------------------------------------ Assets JANUARY 28 January 29 1995 1994 ---------- ---------- CURRENT ASSETS Cash and equivalents ............................. $ 1,575 $ 2,860 Accounts receivable .............................. 167,487 205,433 Allowance for doubtful accounts ................ (5,544) (5,000) -------- -------- 161,943 200,433 Merchandise inventories .......................... 143,790 143,132 Deferred income taxes ............................ 3,975 2,397 Prepaid expenses and other ....................... 11,219 7,379 -------- -------- TOTAL CURRENT ASSETS ............................. 322,502 356,201 PROPERTY, FIXTURES AND EQUIPMENT -- on the basis of cost Land ............................................. 20,311 20,363 Buildings and improvements ....................... 352,411 338,662 Store fixtures, furniture and equipment .......... 238,136 225,973 Allowance for depreciation (deduction) ........... (315,105) (288,581) -------- -------- 295,753 296,417 Construction in progress ......................... 12,408 3,951 -------- -------- 308,161 300,368 OTHER ASSETS ..................................... 9,129 6,483 -------- -------- $639,792 $663,052 ======== ========
4 - ------------------------------------------------------------------------------
Liabilities and Shareholders' Equity JANUARY 28 January 29 1995 1994 ---------- ---------- CURRENT LIABILITIES Notes payable to banks ........................... $ 6,500 $ 43,500 Accounts payable ................................. 59,500 60,138 Accrued expenses ................................. 24,665 20,724 Federal, state and local taxes ................... 15,357 11,203 Dividends payable ................................ 2,798 -0- Long-term debt and capital lease obligations due within one year ............................ 8,426 11,055 -------- -------- TOTAL CURRENT LIABILITIES ........................ 117,246 146,620 LONG-TERM DEBT -- due after one year ............. 161,442 162,254 CAPITAL LEASE OBLIGATIONS -- due after one year .. 40,848 43,554 ACCRUED RETIREMENT COSTS ......................... 51,105 49,795 DEFERRED INCOME TAXES ............................ -0- 3,355 OTHER LIABILITIES ................................ 6,799 5,272 SERIES PREFERRED STOCK -- no par value: authorized -- 2,000,000 shares; none issued .... -0- -0- SHAREHOLDERS' EQUITY Series A Common Stock -- par value $1 a share: authorized -- 20,000,000 shares; issued and outstanding 1994 -- 7,291,482 shares, 1993 -- 7,151,254 shares ............................... 7,291 7,151 Series B Common Stock -- par value $1 a share, convertible: authorized -- 20,000,000 shares; issued and outstanding 1994 -- 3,170,343 shares, 1993 -- 3,235,149 shares ....................... 3,170 3,235 Capital in addition to par value of shares ....... 168,222 167,024 Retained earnings ................................ 83,669 74,792 -------- -------- TOTAL SHAREHOLDERS' EQUITY ....................... 262,352 252,202 -------- -------- $639,792 $663,052 ======== ========
See accompanying notes. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) - ------------------------------------------------------------------------------
Year Ended ---------------------------------------- JANUARY 28 January 29 January 30 1995 1994 1993 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings ....................... $ 20,032 $ 17,727 $ 1,170 Adjustments to reconcile net earnings to cash flows from operating activities: Depreciation ................... 29,587 28,829 28,322 Deferred income taxes (benefit) .................... (5,377) 502 (1,309) Cumulative effect of accounting changes ...................... -0- -0- 16,850 Sale of accounts receivable .... 50,000 -0- -0- Changes in: Accounts receivable .......... (11,510) (21,016) (11,443) Merchandise inventories ...... (658) 1,829 (11,690) Accounts payable and accrued expenses ................... 3,303 (965) 4,021 Federal, state and local taxes ...................... 4,154 514 2,713 Other ........................ 3,481 4,240 (461) -------- -------- -------- TOTAL .............................. 93,012 31,660 28,173 -------- -------- -------- NET CASH USED FOR INVESTING ACTIVITIES Acquisition of property, fixtures and equipment .................... (37,970) (22,076) (22,588) Changes in other assets ............ (5,917) (879) 389 -------- -------- -------- TOTAL .............................. (43,887) (22,955) (22,199) -------- -------- -------- NET CASH USED FOR FINANCING ACTIVITIES Long-term borrowings ............... 5,000 49,255 25,000 Payment of long-term debt and capital lease obligations ........ (11,147) (66,718) (12,303) Change in short-term notes payable .......................... (37,000) 16,000 (4,500) Proceeds from stock transactions ... 1,094 1,226 1,468 Cash dividends ..................... (8,357) (10,980) (13,080) -------- -------- -------- TOTAL .............................. (50,410) (11,217) (3,415) -------- -------- -------- CHANGE IN CASH AND EQUIVALENTS ..... (1,285) (2,512) 2,559 Cash and equivalents at beginning of year .......................... 2,860 5,372 2,813 -------- -------- -------- CASH AND EQUIVALENTS AT END OF YEAR .......................... $ 1,575 $ 2,860 $ 5,372 ======== ======== ========
See accompanying notes. 6 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except per share data) - ------------------------------------------------------------------------------
CAPITAL IN SERIES SERIES ADDITION TREASURY A B TO PAR STOCK COMMON COMMON VALUE OF RETAINED (DEDUC- STOCK STOCK SHARES EARNINGS TION) TOTAL ------ ------ -------- -------- ------- -------- Balance, February 1, 1992..$6,288 $3,291 $149,208 $ 91,761 $-0- $250,548 Net earnings .............. 1,170 1,170 Cash dividends -- common (per share: $1.07 Series A; $.96 Series B) .......... (10,502) (10,502) Cash dividends -- preferred ................ (26) (26) Stock dividend (three percent) ................. 193 94 6,825 (7,112) -0- Exercise of stock options and employee stock purchases ................ 91 1,558 1 1,650 Conversions ............... 189 (189) -0- Treasury stock purchases... (1) (1) ------ ------ -------- -------- ---- -------- Balance, January 30, 1993.. 6,761 3,196 157,591 75,291 -0- 242,839 Net earnings .............. 17,727 17,727 Cash dividends -- common (per share: $1.09 Series A; $.99 Series B)............ (10,963) (10,963) Cash dividends -- preferred ................ (17) (17) Stock dividend (three percent) ................. 203 96 6,947 (7,246) -0- Exercise of stock options, employee stock purchases, and contribution to Retirement Savings Plan... 127 3 2,486 18 2,634 Conversions ............... 60 (60) -0- Treasury stock purchases... (18) (18) ------ ------ -------- -------- ---- -------- Balance, January 29, 1994.. 7,151 3,235 167,024 74,792 -0- 252,202 Net earnings .............. 20,032 20,032 Cash dividends -- common (per share: $1.10 Series A; $1.00 Series B)........... (11,147) (11,147) Cash dividends -- preferred ................ (8) (8) Employee stock purchases .. 75 1,198 1,273 Conversions ............... 65 (65) -0- ------ ------ -------- -------- ---- -------- Balance, January 28, 1995..$7,291 $3,170 $168,222 $ 83,669 $-0- $262,352 ====== ====== ======== ======== ==== ========
See accompanying notes. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ The Company operates 38 retail stores, including department and self-service stores, which sell general merchandise in Philadelphia and the surrounding Delaware Valley area of Southeastern Pennsylvania, Southern New Jersey and Northern Delaware. The Company grants credit to customers, substantially all of whom are residents of its trading area. 1. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated. Inventories: Merchandise inventories are priced at cost determined on the last-in, first-out method using internally developed price indices for most inventories. Store Preopening Costs: Such costs are charged to expense in the year incurred. Property, Fixtures and Equipment: Property, fixtures and equipment are recorded at cost, which is depreciated by the straight-line method over the estimated useful lives of the assets. Cash Equivalents: For purposes of the statement of cash flows, the Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Per Share Data: Earnings per share amounts are based on the weighted average number of shares of common stock and common stock equivalents (employee stock options) outstanding during each fiscal year, after recognition of Preferred Stock dividends. 2. INVENTORIES If the first-in, first-out method of determining inventory cost had been used, inventories would have been $34,141,000 and $34,180,000 higher than reported at January 28, 1995 and January 29, 1994, respectively. 3. ACCOUNTS RECEIVABLE The Company has an agreement whereby it can sell, on a revolving basis, up to $50,000,000 of the Company's private label credit card accounts receivable. Following the one-year revolving period, there will be a liquidation period during which the purchaser's interest in principal cash collections will be used to pay down the purchaser's investment. The Company sold $50,000,000 of receivables on January 26, 1995. No gain or loss was recognized at the date of sale. The Company remained contingently liable for approximately $6,700,000 of the sold receivables at January 28, 1995. The Company has established an accrual of $1,756,000 which management believes is an adequate reserve against any such uncollectible receivables. 4. LONG-TERM DEBT AND SHORT-TERM BORROWINGS Long-term debt -- due after one year consists of the following (in thousands):
JANUARY 28 January 29 1995 1994 ---------- ---------- 6.625% notes due October 15, 2003 ................ $ 49,612 $ 49,580 Series A Senior Notes, maturing equally from 1995 to 2004 with interest at 9.2% ............. 24,546 27,273 Series B Senior Notes, due September 30, 1999 with interest at 9.0% .......................... 20,000 20,000 Mortgage notes payable, at rates ranging from 8.50% to 10%, due in installments, maturing from 3 to 13 years .................... 14,557 16,310 Senior Note, due October 15, 1997 with interest at 7.04% .............................. 25,000 25,000 Notes payable to bank under revolving credit agreement with interest at 6.39% at January 28, 1995 and 3.80% at January 29, 1994 ......... 25,000 20,000 Senior Notes maturing equally from 1995 to 1997 with interest at 11.5% .................... 2,727 4,091 -------- -------- $161,442 $162,254 ======== ========
Among other things, certain loan agreements require that the Company maintain a ratio of current assets to current liabilities of not less than 1.5. Certain agreements restrict transactions reducing shareholders' equity and the amount available for such transactions at January 28, 1995 is $32,102,000. Fixed assets with a net book value of $31,716,000 are mortgaged by certain agreements. 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------ The carrying amounts of the Company's borrowings under its short-term bank credit lines approximate their fair values. The fair value of the Company's long-term debt (including the current portion thereof) is approximately $162,500,000 at January 28, 1995 while the carrying amount is $167,184,000. Fair values were estimated using discounted cash flow analyses, based on the Company's incremental borrowing rates for similar types of borrowing arrangements. The excess of recorded amount over fair values results because current rates exceed contractual borrowing rates on certain loans. Under the revolving credit agreement, the Company may borrow up to $25,000,000 through October 31, 1997 with various interest rate options. The Company pays a commitment fee equal to 3/16% per annum on the unused portion of the total commitment. The Company has unused short-term bank credit lines which are subject to annual confirmation and which aggregated $26,000,000 at January 28, 1995. The weighted average interest rates on short-term borrowings outstanding at January 28, 1995 and January 29, 1994 were 6.1% and 3.6%, respectively. There are no compensating balance arrangements in connection with debt or credit lines. Maturities of long-term debt for the next five fiscal years are as follows: 1995 -- $5,742,000; 1996 -- $5,754,000; 1997 -- $55,470,000; 1998 -- $4,032,000; 1999 -- $23,959,000. Interest paid, net of amounts capitalized, was: 1994 -- $19,833,000; 1993 -- $21,050,000; 1992 -- $21,242,000. 5. RETIREMENT BENEFITS Defined Benefit Plans: The Company provides pension benefits for substantially all regular employees under noncontributory defined benefit pension plans. Benefits are determined based on average compensation or years of service. The Company's funding policy is to contribute amounts consistent with the minimum funding standards of the Employee Retirement Income Security Act of 1974. Plan assets consist primarily of common equity funds, stocks and fixed income securities. Net pension cost included the following components (in thousands):
1994 1993 1992 ------- -------- ------- Service cost -- benefits earned during the period .................. $ 2,739 $ 2,488 $ 2,263 Interest cost on projected benefit obligation ......................... 6,856 6,562 6,137 Actual loss (return) on plan assets .. 420 (10,164) (7,887) Net amortization and deferral ........ (6,782) 3,601 1,595 ------- -------- ------- Net pension cost ..................... $ 3,233 $ 2,487 $ 2,108 ======= ======== =======
The expected long-term rate of return on plan assets used in determining net pension cost was 9%. The following table sets forth the funded status and amounts recognized in the Company's consolidated balance sheets for the Strawbridge & Clothier Employees Retirement Benefit Plan (in thousands):
1994 1993 ------- ------- Actuarial present value of benefit obligations: Vested ......................................... $61,643 $65,593 ======= ======= Accumulated .................................... $63,312 $67,004 ======= ======= Projected ...................................... $73,586 $80,084 Plan assets at fair value......................... 74,660 82,989 ------- ------- Plan assets in excess of projected benefit obligation ..................................... 1,074 2,905 Items not yet recognized: Net gain ....................................... (6,848) (9,165) Net obligation at transition ................... 337 394 Prior service cost ............................. 2,029 2,940 ------- ------- Accrued pension cost included in consolidated balance sheets ................................. $(3,408) $(2,926) ======= =======
The following assumptions were used in determining the actuarial present value of the projected benefit obligation:
1994 1993 ------- -------- Weighted average discount rate ................... 8.75% 7.50% Rate of increase in compensation levels .......... 5.5% 5.5%
The Company sponsors an unfunded, nonqualified Deferred Compensation Plan, which provides retirement benefits for certain key executive officers. The accrued liability for this plan is included in 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------ accrued retirement costs in the accompanying balance sheets. At December 31, 1994, the accumulated benefit obligation for this plan was $9,443,000, and the projected benefit obligation was $9,689,000. 401(k) Plan: The Company has a 401(k) Retirement Savings Plan, under which employees may defer a portion of their compensation. Contingent upon there having been an increase in the Company's earnings, as defined under the Plan, for the fiscal year ending within the Plan year, employee contributions not in excess of 4% of a participant's compensation will be matched by the Company at the rate of $.50 for each $1.00 contributed. Matching expense was $882,000, $479,000 and $732,000 for 1994, 1993 and 1992, respectively. All Company matching contributions are invested in a separate fund comprised of the Company's Series A Common Stock, 250,000 shares of which have been reserved for use under the 401(k) Plan. Retiree Health Care Plan: The Company provides certain health care benefits for eligible retired employees. The retiree health care plan is noncontributory for retirees who were full-time regular employees of the Company and retired prior to January 1, 1993. For eligible employees retiring on or after January 1, 1993, with fifteen years of service, the plan is contributory with retiree contributions based on years of service. Cost-sharing features include deductibles and co-payment provisions. For certain participants, the Plan limits the amount of future cost increases that will be paid by the Company. Employees hired on or after January 1, 1993 are not eligible for retiree health care benefits. The Plan is funded on a pay-as-you-go basis. Effective February 2, 1992, the Company adopted the provisions of FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires that the expected cost of retiree health care benefits be charged to expense during the years that the employees render service. The Company's past practice was to recognize these costs on a cash basis. As part of adopting the new standard, as of February 2, 1992, the Company recorded a one-time, noncash charge against earnings of $40,200,000 before taxes and $26,600,000 after taxes, or $2.60 per share. This cumulative catch-up adjustment as of February 2, 1992 represents the discounted present value of expected future retiree health care benefits attributed to employees' service rendered prior to that date. The following table presents the status of the Plan and the amounts recognized in the Company's consolidated balance sheets (in thousands):
1994 1993 ------- -------- Actuarial present value of accumulated postretirement benefit obligation: Retirees ..................................... $23,442 $25,013 Active plan participants ..................... 6,927 6,905 ------- ------- 30,369 31,918 Unrecognized net actuarial gain................... 12,577 11,203 Unrecognized prior service cost .................. 266 -0- ------- ------- Accrued postretirement benefit cost included in consolidated balance sheets ................. $43,212 $43,121 ======= =======
Postretirement benefit expense included the following components (in thousands):
1994 1993 1992 ------ ------ ------ Service cost ................... $ 375 $ 603 $ 580 Interest cost .................. 2,310 3,437 3,310 Net amortization ............... (736) -0- -0- ------ ------ ------ $1,949 $4,040 $3,890 ====== ====== ======
The following assumptions were used in determining the accumulated postretirement benefit obligation:
1994 1993 ------- ------- Discount rate ................................. 8.75% 7.5%
1994 ------------------- CURRENT FUTURE RETIREES RETIREES 1993 ----------------------------- Health care cost trend rate: Initial rate 10% 9% 13.0% Ultimate rate ............................ 6.0% 6.0% 6.0% Period to ultimate rate .................. 8 YEARS 6 YEARS 7 years
The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point would increase the accumulated postretirement benefit obligation as of January 28, 1995 by $2,642,000 and the aggregate of the service and interest cost components of postretirement benefit expense for 1994 by $248,000. 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------ 6. COMMON STOCK Series A and Series B shares are entitled to one and ten votes per share, respectively. Series B shares are convertible on a share-for-share basis into Series A shares. Series A shares are freely transferable while Series B shares are only transferable to certain permitted transferees. Series A Common Stock is entitled to cash dividends at least 10% higher than any cash dividend declared on Series B Common Stock. The Company offers Series A Common Stock to employees for purchase through payroll deductions under its 1991 Employee Stock Purchase Plan. The purchase price is 85% of the closing market price on the offering date or the purchase date, whichever is lower. During fiscal 1994, 1993 and 1992, respectively, 75,422, 74,499, and 91,183 shares were issued under the Plan at average prices of $17.00, $19.23, and $18.19. As of January 28, 1995, 403,176 shares of Series A Common Stock were available for use under the Plan. The Company also has stock option plans which provide for granting to key employees qualified and nonqualified options to purchase common stock of the Company. Generally, options are granted for a term of ten years and become exercisable immediately. No options were exercised during fiscal 1994. During fiscal 1993 and 1992, respectively, 3,154 shares and 95 shares were issued upon exercise of options at average prices of $22.46 and $23.53. Options to purchase 460,980 shares of Series A Common Stock and 145,254 shares of Series B Common Stock at an average exercise price of $25.08 were outstanding at January 28, 1995, of which 455,675 and 145,254 options, respectively, were exercisable. As of January 28, 1995, 74,288 shares of Series A Common Stock remain available for grant of options. Effective in fiscal 1993, the Company established a dividend reinvestment and stock purchase plan, whereby shareholders may invest cash dividends and optional cash payments in Series A Common Stock. The Company has registered 2,060,000 shares for use under the plan, of which 2,039,840 remain available for use at January 28, 1995. 7. INCOME TAXES Effective February 2, 1992, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FASB Statement No. 109, "Accounting for Income Taxes." As permitted by this statement, prior years' financial statements were not restated. The cumulative effect of adopting Statement 109 as of February 2, 1992 was to increase 1992 net earnings by $9,750,000, or $.95 per share. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax liabilities and assets are as follows (in thousands):
1994 1993 ------- ------- Deferred tax liabilities: Depreciation ................................ $20,456 $22,334 Other -- net ................................ 2,898 3,747 ------- ------- 23,354 26,081 Deferred tax assets: Retiree health care obligation .............. 15,158 15,096 Accruals and reserves ....................... 12,615 10,027 ------- ------- 27,773 25,123 ------- ------- Net deferred tax asset (liability) .............. $ 4,419 $ (958) ======= =======
Other assets include deferred tax assets of $444,000 at January 28, 1995. The components of income tax expense attributable to earnings before cumulative effect of accounting changes are as follows (in thousands):
1994 1993 1992 ------- ------- ------- Current: Federal ....................... $13,886 $8,299 $10,172 State ......................... 1,549 301 306 ------- ------ ------- 15,435 8,600 10,478 Deferred: Federal ....................... (3,927) 146 (1,163) State ......................... (1,450) 356 (146) ------- ------ ------- (5,377) 502 (1,309) ------- ------ ------- $10,058 $9,102 $ 9,169 ======= ====== =======
11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------ A reconciliation of the effective income tax rate with the statutory federal income tax rate is as follows:
1994 1993 1992 ---- ---- ---- Federal tax rate ................. 35.0% 35.0% 34.0% State taxes, net of federal benefit......................... 0.2 1.6 0.4 Jobs tax credit .................. (1.9) (1.9) (1.2) Other ............................ 0.1 (0.8) 0.5 ---- ---- ---- 33.4% 33.9% 33.7% ==== ==== ====
Income taxes paid were as follows: 1994 -- $11,735,000; 1993 -- $8,587,000; 1992 -- $8,465,000. 8. COMMITMENTS Leases: Capital lease assets, which are included in property, fixtures and equipment, are as follows (in thousands):
JANUARY 28 January 29 1995 1994 ---------- ---------- Land ........................................ $ 2,157 $ 2,696 Buildings ................................... 65,963 75,027 Store fixtures and equipment ................ 2,807 3,887 -------- -------- 70,927 81,610 Allowance for amortization (deduction) ............................... (33,857) (36,550) -------- -------- $ 37,070 $ 45,060 ======== ========
Amortization of capital lease assets is included in depreciation expense. Future minimum rental commitments as of January 28, 1995, for all noncancelable leases are as follows (in thousands):
Capital Operating Fiscal Year Leases Leases* - ----------- -------- --------- 1995 ...................... $ 6,554 $ 7,127 1996 ...................... 6,585 6,547 1997 ...................... 6,606 5,503 1998 ...................... 6,556 4,856 1999 ...................... 6,237 4,777 Thereafter ................ 38,634 43,317 -------- ------- Total minimum rental commitments ............. 71,172 $72,127 ======= Estimated executory costs.. (1,203) Imputed interest .......... (26,437) -------- Present value of net minimum lease payments .. $ 43,532 ========
*These amounts have not been reduced by future noncancelable sublease rentals of $6,004. Operating lease commitments include amounts for two new stores that will open in 1995. All real estate leases include renewal options for periods ranging from 5 to 100 years. Most of these leases include options to purchase at specified times. In most instances, the Company pays real estate taxes, insurance and maintenance costs. There are no guarantees, related obligations or restrictions in connection with the lease agreements. Total net rental expense amounted to (in thousands):
1994 1993 1992 ------- ------ ------ Minimum rentals ...................... $ 5,661 $5,861 $6,802 Contingent rentals, based on sales ... 1,310 1,288 1,276 Sublease rentals ..................... (1,022) (831) (659) ------- ------ ------ $ 5,949 $6,318 $7,419 ======= ====== ======
Other: Estimated cost to complete construction in progress at January 28, 1995 is approximately $20,726,000. 12 STATEMENT OF MANAGEMENT RESPONSIBILITY - ------------------------------------------------------------------------------ Strawbridge & Clothier management is responsible for the financial statements and information presented in this Annual Report. The financial statements have been prepared in conformity with generally accepted accounting principles and include certain amounts based on management's best estimates and judgements. The Company maintains a system of internal accounting controls, which provides for appropriate division of responsibility and the application of written policies and procedures. The system is designed to provide reasonable assurance, at suitable costs, that assets are safeguarded and that transactions are executed in accordance with appropriate authorization and are recorded and reported properly. An important element of the internal control environment is an ongoing internal audit program. The financial statements have been audited by Ernst & Young LLP, independent auditors, whose report appears below. Their audit includes an evaluation of the internal control structure and selected tests of transactions and records. Their audit is intended to provide a reasonable level of assurance that the financial statements are free of material misstatement. The Audit Committee of the Board of Directors is responsible for recommending the independent auditors to be retained for the coming year, subject to shareholder approval. The Audit Committee meets periodically with the independent auditors and the internal auditors to consider the scope and results of their audits and to discuss other significant matters regarding internal accounting controls and financial reporting. The independent auditors and the internal auditors have unrestricted access to the Audit Committee. REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS - ------------------------------------------------------------------------------ To the Shareholders of Strawbridge & Clothier We have audited the accompanying consolidated balance sheets of Strawbridge & Clothier as of January 28, 1995 and January 29, 1994, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three fiscal years in the period ended January 28, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Strawbridge & Clothier at January 28, 1995 and January 29, 1994, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended January 28, 1995, in conformity with generally accepted accounting principles. As discussed in Notes 5 and 7 to the financial statements, in 1992 the Company changed its methods of accounting for postretirement benefits other than pensions and for income taxes. Philadelphia, Pennsylvania March 17, 1995 ERNST & YOUNG LLP 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ OPERATIONS Sales for fiscal 1994 were $1,003,524,000, an increase of 1.9% over sales of $984,615,000 in fiscal 1993, which had increased 1.7% over fiscal 1992 sales of $967,794,000. Fiscal 1994 sales benefited from improved weather conditions in January 1995 compared to January 1994. The 1993 sales result reflects a strong Christmas selling season, offset by poor weather conditions in the Company's trading area during much of the first quarter of fiscal 1993 and January 1994. The Company's current outlook for fiscal year 1995 does not include any anticipated significant increases in the level of consumer buying patterns. Net earnings for fiscal 1994 were $20,032,000, an increase of 13.0% over 1993 net earnings of $17,727,000. Earnings for 1992 were $18,020,000, before accounting changes. The improvement in net earnings for 1994 can be attributed to the increase in sales, continued control of operating expenses and a decrease in interest expense, partially offset by an increase in the provision for doubtful accounts and a reduced LIFO benefit. Fiscal 1993 earnings declined slightly from fiscal 1992 due to increased markdowns taken to stimulate sales, a reduced LIFO benefit and increased advertising expenses. Cost of sales, including occupancy and buying costs, was 74.3% of sales in 1994, compared to 74.5% in 1993 and 74.2% in 1992. Cost of sales for all three years was negatively impacted by increased markdowns taken to stimulate sales in the Company's highly competitive trading area. Reduced occupancy and buying costs partially offset this negative impact in 1994 and 1993. The impact of the LIFO method of accounting for inventories (benefits of $39,000, $1,239,000 and $2,380,000 in fiscal 1994, 1993 and 1992, respectively) is reflected in cost of sales. Selling and administrative expenses, net of finance charges, were 17.1% of sales in 1994, compared to 17.5% of sales in 1993 and 17.2% of sales in 1992. The 1994 result reflects a decrease in benefits expense due to changes in benefit plans, increased finance charge income and continued control of operating expenses. The 1993 increase reflects a planned increase in advertising expenses to stimulate sales, partially offset by tight control of other operating expenses and increased finance charge income. Finance charge income has increased in each of the three years as a result of increased accounts receivable due to changes in the Company's credit policies with respect to its flexible charge accounts. Depreciation expense was 2.9% of sales in all three years. Interest expense was 1.9% of sales in 1994, compared to 2.1% in 1993 and 2.2% in 1992. Interest expense declined in 1994 due to the refinancing of high-rate long-term debt, partially offset by increased outstanding floating-rate debt and increased short-term borrowing rates. The decrease in 1993 from 1992 also reflects refinancing high-rate long-term debt as well as lower interest rates on short-term borrowings. The provision for doubtful accounts was 1.0% of sales in 1994, compared to .5% in 1993 and .7% in 1992. The 1994 result reflects an increase in actual write-offs and an increase in the reserve for doubtful accounts. The higher write-offs were a result of more liberal credit policies instituted in fiscal years 1993 and 1992 to stimulate credit sales and remain competitive in the credit market. The decrease in the effective tax rate from 33.9% in 1993 to 33.4% in 1994 resulted from decreases in statutory state income tax rates. The increase in the effective tax rate from 33.7% in 1992 to 33.9% in 1993 resulted from a 1% increase in the statutory federal income tax rate, partially offset by increased jobs tax credits. The jobs tax credit, which reduced the Company's effective tax rate by 1.9% in 1994, has expired. If the credit is not reinstated, management expects that the effective tax rate will increase in the future. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) - ------------------------------------------------------------------------------ FINANCIAL CONDITION AND LIQUIDITY Cash provided by operating activities for 1994 was $93.0 million compared to $31.7 million in 1993 and $28.2 million in 1992. The 1994 increase includes $50.0 million from the Company's sale of its private label credit card accounts receivable, as discussed in Note 3 to the financial statements. Improved earnings and a lower increase in accounts receivable also contributed to the 1994 increase. The slight increase in 1993 over 1992 was a result of careful control of inventory levels, partially offset by reduced collections of accounts receivable as a result of lower, more competitive, minimum payment requirements on the Company's charge accounts. The Company's capital expenditures were $38.0 million, $22.1 million and $22.6 million in fiscal 1994, 1993 and 1992, respectively. Capital expenditures for 1994 included the renovation of the women's shoes, intimate apparel and children's departments of the Philadelphia store, the total renovation of the Mercerville and Cheltenham Clover stores, the expansion of the Rising Sun Clover store and other smaller renovation projects. Capital expenditures for 1993 and 1992 were for various renovation projects. Cash used for financing activities was $50.4 million, $11.2 million and $3.4 million in fiscal 1994, 1993 and 1992, respectively. Near the end of fiscal 1994, the Company used the proceeds from the sale of $50 million of customer accounts receivable to reduce short-term floating-rate debt. On November 1, 1994, the Company renewed its Revolving Credit Agreement for three years, increasing the amount from $20.0 million to $25.0 million. Due to the timing of the Company's fiscal year-end, cash dividends paid reflects three, four and five regular quarterly common stock cash dividend payments in fiscal 1994, 1993 and 1992, respectively. The Company has $30.0 million in confirmed bank credit lines. At January 28, 1995, $4.0 million of these confirmed lines were in use, in addition to $2.5 million of unconfirmed lines. Long-term debt and capital lease obligations were 43.5% of capitalization at the end of fiscal 1994, compared to 44.9% at the end of the prior fiscal year. Anticipated capital expenditures for 1995 of $39.6 million include the opening of two new Clover stores and the Company's first home furnishings store, the renovation of the Concord department store and the renovation of the Rising Sun and the Center Square Clover stores. An additional $30.6 million is planned for capital expenditures in 1996, which includes the opening of one Clover store, the renovation of two Clover stores and the renovation of one department store. The funding for these capital expenditures is expected to be generated from operations and additional long-term financing. The Company continually investigates potential sites for new stores, and capital expenditure plans may change as opportunities for new stores develop. The Company believes its relations with banks and other credit sources are good and that it has considerable flexibility in deciding how to fund future capital expenditures and maturities of long-term debt. - ------------------------------------------------------------------------------ 15 TEN-YEAR FINANCIAL SUMMARY (amounts in thousands, except per share data)
1994 1993 1992 1991 1990 1989(1) 1988 1987 1986 1985 - ------------------------------------------------------------------------------------------------------------------------ OPERATING RESULTS Net Sales $1,003,524 $984,615 $967,794 $967,786 $981,668 $950,306 $904,196 $814,313 $739,117 $686,929 - ------------------------------------------------------------------------------------------------------------------------ Cost of Sales 745,251 733,901 718,582 718,927 730,048 687,713 660,412 592,309 536,932 494,936 - ------------------------------------------------------------------------------------------------------------------------ Interest Expense 19,551 20,909 21,446 23,048 25,481 25,386 22,112 17,694 17,066 18,258 - ------------------------------------------------------------------------------------------------------------------------ Earnings Before Income Taxes and Cumulative Effect of Accounting Changes 30,090 26,829 27,189 20,714 28,606 51,726 45,026 48,739 41,734 46,755 - ------------------------------------------------------------------------------------------------------------------------ Income Taxes 10,058 9,102 9,169 7,146 11,385 20,567 17,756 21,725 21,042 22,669 - ------------------------------------------------------------------------------------------------------------------------ Earnings Before Cumulative Effect of Accounting Changes 20,032 17,727 18,020 13,568 17,221 31,159 27,270 27,014 20,692 24,086 - ------------------------------------------------------------------------------------------------------------------------ Net Earnings 20,032 17,727 1,170(3) 13,568 17,221 31,159 27,270 27,014 20,692 24,086 OTHER OPERATING DATA Depreciation $ 29,587 $ 28,829 $ 28,322 $ 28,710 $ 27,910 $ 24,565 $ 21,904 $ 18,812 $ 16,911 $ 14,815 - ------------------------------------------------------------------------------------------------------------------------ Rent 5,949 6,318 7,419 6,320 4,475 4,088 4,229 3,704 3,183 2,596 - ------------------------------------------------------------------------------------------------------------------------ Taxes Other Than Income Taxes 25,353 25,050 25,164 25,627 25,020 23,777 21,965 20,581 18,896 17,691 DIVIDENDS Cash Dividends on Common Stock $ 11,147 $ 10,963 $ 10,502 $ 10,067 $ 9,540 $ 8,837 $ 8,178 $ 6,365 $ 5,631 $ 4,662 - ------------------------------------------------------------------------------------------------------------------------ Stock Dividends on Common Stock -- 3% 3% 3% 7% 7% 7% 7% 7% 7% PER SHARE OF COMMON STOCK(2) Earnings Before Cumulative Effect of Accounting Changes $ 1.92 $ 1.71 $ 1.76 $ 1.34 $ 1.72 $ 3.13 $ 2.77 $ 2.76 $ 2.12 $ 2.52 - ------------------------------------------------------------------------------------------------------------------------ Net Earnings 1.92 1.71 .11(3) 1.34 1.72 3.13 2.77 2.76 2.12 2.52 - ------------------------------------------------------------------------------------------------------------------------ Cash Dividends on Series A Common Stock 1.10 1.09 1.07 1.03 .99 .92 .84 .68 .33 -- - ------------------------------------------------------------------------------------------------------------------------ Cash Dividends on Series B Common Stock 1.00 .99 .96 .92 .90 .85 .79 .60 .29 -- - ------------------------------------------------------------------------------------------------------------------------ Cash Dividends on Common Stock -- -- -- -- -- -- -- -- .27 .49 - ------------------------------------------------------------------------------------------------------------------------ Book Value 25.08 24.28 23.68 24.66 24.40 23.69 21.43 19.50 17.39 15.79 FINANCIAL DATA Working Capital $ 205,256 $209,581 $212,514 $184,641 $171,504 $188,411 $178,906 $186,028 $165,418 $148,973 - ------------------------------------------------------------------------------------------------------------------------ Property, Fixtures & Equipment -- Net 308,161 300,368 307,158 312,876 322,059 301,228 279,337 233,508 197,801 188,468 - ------------------------------------------------------------------------------------------------------------------------ Total Assets 639,792 663,052 653,939 631,987 645,603 618,546 593,278 518,289 472,639 454,811 - ------------------------------------------------------------------------------------------------------------------------ Long-Term Debt 161,442 162,254 171,617 156,237 158,880 167,188 154,267 128,685 115,271 105,790 - ------------------------------------------------------------------------------------------------------------------------ Capital Lease Obligations 40,848 43,554 52,030 55,481 59,370 59,179 63,773 63,351 58,780 61,565 - ------------------------------------------------------------------------------------------------------------------------ Redeemable Preferred Stock 116 296 474 655 814 1,022 1,199 1,384 1,384 1,431 - ------------------------------------------------------------------------------------------------------------------------ Shareholders' Equity 262,352 252,202 242,839 250,548 244,153 234,777 210,761 190,050 167,922 151,504 - ------------------------------------------------------------------------------------------------------------------------ Number of Common Shares Outstanding 10,462 10,386 9,957 9,579 9,157 8,478 7,860 7,281 6,744 6,259 - ------------------------------------------------------------------------------------------------------------------------ Square Feet of Store Space 5,744 5,744 5,744 5,744 5,674 5,591 5,487 5,088 5,088 5,007
(1) 53-week fiscal year (2) Weighted average shares outstanding were: 1994 -- 10,426; 1993 -- 10,324; 1992 -- 10,216; 1991 -- 10,099; 1990 -- 9,988; 1989 -- 9,965; 1988 -- 9,835; 1987 -- 9,780; 1986 -- 9,744; 1985 -- 9,569. Net earnings give effect to dividend requirements of the preferred stock. (3) Includes cumulative effect adjustments relating to accounting changes for income taxes ($9,750 benefit; $.95 per share) and retiree health care benefits ($26,600 charge; $2.60 per share) and reduced cost of sales of $3,948 as a result of a change in LIFO accounting method, resulting in an after-tax benefit of $2,606 or $.26 per share. 16 17 QUARTERLY RESULTS OF OPERATIONS (in thousands, except per share data) - --------------------------------------------------------------------------- The following is a summary of unaudited quarterly results of operations for the 1994 and 1993 fiscal years.
Net Earnings Net Earnings (Loss) Per Net Sales Gross Profit (Loss) Common Share Fiscal ------------------ ---------------- ----------------- --------------- Quarter 1994 1993 1994 1993 1994 1993 1994 1993 - ------- -------- -------- ------- ------- ------- ------- ------ ------ First ...... $208,303 $197,151 $50,233 $44,414 $ (988) $(4,255) $(0.10) $(0.41) Second ..... 222,894 225,018 53,377 51,384 244 (1,425) 0.02 (0.14) Third ...... 226,559 223,639 58,559 56,698 526 69 0.05 0.01 Fourth ..... 345,768 338,807 96,104 98,218 20,250 23,338 1.93 2.25
MARKET AND DIVIDEND INFORMATION - ------------------------------------------------------------------------------ The Company's Series A Common Stock is traded on the over-the-counter market. There is no trading market for Series B Common Stock but it is readily convertible at any time into Series A Common Stock on a share-for-share basis. The number of shareholders of record as of January 3, 1995 was 5,309 for Series A and 247 for Series B. The following table indicates the range of high and low price quotations for the Series A Common Stock by quarter during the last two fiscal years, as obtained through NASDAQ and the quarterly cash dividends per common share.
Cash Dividends Per Share Range of High and Low ----------------------------------- Price Quotations Series A Series B Fiscal ------------------------------------ ----------------- --------------- Quarter 1994 1993 1994 1993 1994 1993 - ------- ------------------ ---------------- ------- ------- ------ ------ First ..... $20.00 $23.50 $23.25 $25.50 $0.275 $0.267 $0.25 $0.24 Second .... 19.50 21.75 21.00 24.75 0.275 0.275 0.25 0.25 Third ..... 20.75 23.50 19.25 21.75 0.275 0.275 0.25 0.25 Fourth .... 20.75 23.25 20.75 23.50 0.275 0.275 0.25 0.25
18 EX-27 8 ART. 5 FDS FOR 10-K
5 1,000 YEAR JAN-28-1995 JAN-28-1995 1,575 0 167,487 5,544 143,790 322,502 623,266 315,105 639,792 117,246 202,290 10,461 0 0 251,891 639,792 1,003,524 1,006,789 745,251 745,251 201,616 10,281 19,551 30,090 10,058 20,032 0 0 0 20,032 1.92 1.92
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