-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FFuelAy6vZIKnFIh0GkjPObEbqwBrNtZHKKL9UkV60kDBfvhJwpjboEJog8vcRP0 JSf/0UR+kF36d14ZqiKL3g== 0000950154-96-000147.txt : 19960506 0000950154-96-000147.hdr.sgml : 19960506 ACCESSION NUMBER: 0000950154-96-000147 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19960203 FILED AS OF DATE: 19960503 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: 96555750 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 & CLOTHIER -- FORM 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 FEBRUARY 3, 1996 ---------------------- 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 of (I.R.S. Employer incorporation or organization) Identification No.) 801 Market Street Philadelphia, Pennsylvania 19107-3199 - ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (215) 629-6000 -------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Name of each Title of each class 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) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES __X__ NO _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (box with X) 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 11, 1996 was $150,668,287. The number of shares of Series A Common Stock, par value $1 per share, of the registrant outstanding at April 11, 1996 was 7,617,359. The number of shares of Series B Common Stock, par value $1 per share, of the registrant outstanding at April 11, 1996 was 2,997,162. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Portions of the 1995 Annual Report to shareholders are incorporated by reference in Part II. 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, 26 discount stores in the same market area as well as in the Lehigh Valley area of Pennsylvania. The Company also operates one Home Furnishings store in northern Delaware. The Company is the successor to a business begun in 1868. 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 one store, snack bars in 25 stores, pharmacies in nine stores and beauty salons in nine stores. The Home Furnishings store, opened in 1995, carries furniture, bedding, floor coverings, curtains, draperies, lamps and a full-service interior design studio. 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 February 3, 1996, approximately 34% of sales were on a cash basis and 66% 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 February 3, 1996, the Company had 4,260 full time employees, 2,787 regular part time employees and 5,874 contingent employees who are scheduled as needed. 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. Recent Events ------------- On April 4, 1996, the Company entered into an Asset Purchase Agreement (the "May Agreement") with The May Department Stores Company ("May") for the sale by the Company to May of certain real estate interests and certain other assets, including inventory and accounts receivable, constituting the thirteen Company department stores, the home furnishings store, one distribution center, one downtown service building and one parking garage (collectively, the "Department Store Assets"). The purchase price for the Department Store Assets will be paid by May with approximately 4.2 million shares of May common stock (valued on April 4, 1996 at approximately $200,000,000) and the assumption of approximately $392,000,000 of Company liabilities. The total purchase price is subject to adjustment as set forth in the Agreement. Additionally, pursuant to the terms of an Asset Option Agreement ("Option Agreement") dated April 4, 1996, if at any time prior to consummation of the above-proposed acquisition (i) an unrelated third party acquires more than 25% of the voting power of the outstanding shares of the Company's common stock, (ii) the Company enters into an agreement relating to, or consummates a merger, consolidation or other business combination of the Company, or (iii) the Agreement otherwise terminates prior to the date of the sale by reason of the Company's default or the failure by its shareholders to approve the transaction, the Company has granted May an irrevocable option to purchase one or more of the following Company department stores: Willow Grove Park, Cherry Hill Mall, Concord Mall and the Concord Mall Home Furnishing Store. The aggregate purchase price for these four stores will be paid by May in cash of approximately $56,240,000 ($18,960,000 for Willow Grove Park, $20,640,000 for Cherry Hill Mall, $12,480,000 for Concord Mall (less an amount for present value of future lease payments ("PVOL")) and $4,160,000 for the Concord Mall Home Furnishing Store (less an amount for PVOL). The Company and May intend to consummate the purchase and sale of the Department Store Assets (the "Initial Sale") in July, 1996, subject to the terms and conditions set forth in the Agreement, including the termination or expiration of any applicable Hart-Scott-Rodino waiting period. The Company has also entered into an agreement in principle with Kimco Realty Corporation ("Kimco") for the sale by the Company to Kimco of substantially all the real estate of the Company's Clover Division and related rights (the "Clover Assets"). Kimco will pay approximately $40,000,000 for the Clover Assets and will assume certain liabilities. The sale of the Clover Assets will likely be completed in multiple closings based on the satisfaction of certain closing conditions with respect to each Clover store property to be sold. The net cash proceeds received by the Company in the Kimco transaction, along with the net cash proceeds realized by the Company in other asset sale transactions, will be transferred by the Company to May in exchange for the number of shares of May common stock determined by dividing the cash proceeds by the average daily per share closing prices for shares of May common stock for the 20 consecutive trading days immediately prior to the closing of such transfer (the "Second Sale"). The closing of the Second Sale will occur on a date no earlier than 30 days after the date of the closing of the Initial Sale and no later than the business day preceding the first anniversary of the closing of the Initial Sale. Not later than the first anniversary of the closing of the Initial Sale, the Company will dissolve and distribute to its shareholders the shares of May common stock received in the Initial Sale and the Second Sale and any other remaining assets which have not been transferred to May pursuant to the Agreement, subject to any assets held in escrow or other arrangements to adequately provide for the payment of all of the Company's remaining liabilities. 2 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 26 Clover discount stores are located in the same market area as its department stores (16 in southeastern Pennsylvania, six in southern New Jersey and two in northern Delaware), as well as in the Lehigh Valley (two stores) area 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 16 of its stores, of which five are on leased land and ten 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. 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. 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 1995. Executive Officers of the Registrant. - ------------------------------------- Office Held Name Age Office(1) Since(2) - ---- --- --------- -------- Francis R. Strawbridge, III(3) 58 Chairman of the Board 1984 Peter S. Strawbridge(3) 57 President 1979 Robert G. Muskas 57 Executive Vice President 1980 Warren W. White 64 Executive Vice President 1979 Steven L. Strawbridge(3) 52 Vice President, Treasurer and Secretary 1982 Ronald B. Avellino 57 Vice President 1987 Louis F. Busico 61 Vice President 1979 George T. Gorman 44 Vice President 1996 Harry T. Hinkel 57 Vice President 1993 Robert A. Hoffner 53 Vice President 1984 Charles D. Hollander 65 Vice President 1988 3 Office Held Name Age Office(1) Since(2) - ---- --- --------- -------- Alexander B. Jervis 52 Vice President 1992 Alice T. Kanigowski 57 Vice President 1986 John J. Leahy 65 Vice President 1969 Thelma A. Newman 56 Vice President 1994 E. Spencer Quill 54 Vice President 1990 Thomas S. Rittenhouse 54 Vice President 1978 G. Leonard Shea 62 Vice President 1977 David W. Strawbridge(3) 56 Vice President 1978 William A. Timmons 60 Vice President 1979 __________ (1) Each executive officer has been employed by the Company as an executive officer for at least the past five years, except for George T. Gorman who was a Divisional Merchandise Manager prior to his election in 1996; 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 1995 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 "Five-Year Financial Summary" from the portions of the Company's 1995 Annual Report to shareholders filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. 4 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 1995 Annual Report to shareholders filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. 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 1995 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 1995 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. --------------------------------------------------- Directors of the Registrant --------------------------- PRINCIPAL DIRECTOR NAME OCCUPATION AGE SINCE - ---- ---------- --- -------- Jennifer S. Braxton ........ Assistant Advertising Director ... 33 1994 Isaac H. Clothier, IV ...... Attorney ......................... 63 1975 Richard H. Hall ............ Retired .......................... 69 1987 Thomas B. Harvey, Jr. ...... Attorney ......................... 60 1988 Anne C. Longstreth ......... Realtor, Emlen Wheeler Co. ....... 74 1984 Paul E. Shipley ............ Retired .......................... 66 1988 David W. Strawbridge ....... Vice President ................... 56 1971 Francis R. Strawbridge, III. Chairman of the Board ............ 58 1968 Peter S. Strawbridge ....... President ........................ 57 1968 Steven L. Strawbridge ...... Vice President, Treasurer and Secretary .................. 52 1975 Natalie B. Weintraub ....... Retired .......................... 67 1994 Warren W. White ............ Executive Vice President ......... 64 1981 Each of the directors indicated above as being employed by the Company has been so employed during the past five years. Mr. Harvey is an attorney and has been in practice since 1963. Until her retirement from the Company in 1994, Mrs. Weintraub was Vice President and General Merchandise Manager, Department Stores since 1976. Mr. Clothier has been a partner of Dechert, Price & Rhoads since 1966. Mr. Shipley retired in 1993 as a Vice President of Wilmington Trust Company, where he was employed since 1972, and he continues to be active in civic and community affairs. Until his retirement from the Company in 1991, Mr. Hall was Executive Vice President, Control, Operations and Personnel, Department Stores since 1978. Mrs. Longstreth for 37 years has been a realtor with Emlen Wheeler Co. and is active in community affairs. 5 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. Each is a first cousin of Mr. Harvey and Mr. Shipley who also are first cousins. Jennifer S. Braxton is the daughter of Peter S. Strawbridge and the niece of Steven L. Strawbridge. Francis R. Strawbridge, III is a director of Mellon PSFS. Peter S. Strawbridge is a director of CoreStates Financial Corp. The required information as to executive officers is set forth in Part I hereof and incorporated herein by reference. Item 11. Executive Compensation. ----------------------- The following table sets forth certain information concerning compensation paid for the Company's last three fiscal years. SUMMARY COMPENSATION TABLE LONG-TERM ANNUAL COMPENSATION COMPENSATION -------------------- ------------ ALL OTHER SECURITIES OTHER NAME AND ANNUAL UNDERLYING COMPEN- PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS SATION(1) - ------------------ ---- -------- ------------ ---------- --------- Peter S. Strawbridge 1995 $340,000 0 0 $1,219 President and Co-Chief 1994 $310,000 0 0 $1,780 Executive Officer 1993 $310,000 0 0 $2,500 Francis R. Strawbridge, III 1995 $340,000 0 0 $1,108 Chairman of the Board 1994 $300,000 0 0 $1,892 and Co-Chief Executive 1993 $300,000 0 0 $2,458 Officer Warren W. White Executive Vice President 1995 $300,000 0 0 $ 921 and General Manager, 1994 $275,000 0 0 $2,079 Clover Stores 1993 $260,000 0 0 $2,167 Robert G. Muskas 1995 $192,500 0 0 $1,000 Executive Vice President 1994 $180,000 0 0 $2,000 for Merchandise and Sales 1993 $180,000 0 0 $1,500 Promotion, Department Stores Louis F. Busico 1995 $192,000 0 0 $1,025 Vice President and General 1994 $177,000 0 0 $1,975 Merchandise Manager, 1993 $167,000 0 0 $1,392 Clover Stores _______________ (1) Amounts contributed or accrued by the Company under the Company's 401(k) Retirement Savings Plan. 6 EMPLOYMENT AGREEMENTS AND CONSULTING ARRANGEMENT Each of the 20 current executive officers of the Company, who also are the participants in the Company's Deferred Compensation Plan, has entered into a three year renewable employment contract with the Company terminable by either party triannually, which establishes the employee's basic annual rate of compensation, subject to periodic increases and bonuses. The Company has a consulting arrangement with G. Stockton Strawbridge, the former Chairman of the Executive Committee until his retirement from the Company, whereby Mr. Strawbridge receives $100,000 per annum for consulting services to the Company. See "Beneficial Ownership of Voting Securities." DEFERRED COMPENSATION PLAN The following table illustrates estimated retirement benefits for the Company's Deferred Compensation Plan members based on years of service with the Company. PENSION PLAN TABLE YEARS OF SERVICE REMUNERATION 15 20 25 30 35 OR MORE(1) - ------------ ------- -------- -------- -------- ---------- $125,000 ..... $32,813 $ 43,750 $ 54,688 $ 65,625 $ 75,000 150,000 ..... 39,375 52,500 65,625 78,750 90,000 200,000 ..... 52,500 70,000 87,500 105,000 120,000 250,000 ..... 65,625 87,500 109,375 131,250 150,000 300,000 ..... 78,750 105,000 131,250 157,500 180,000 325,000 ..... 85,313 113,750 142,188 170,625 195,000 350,000 ..... 91,875 122,500 153,125 183,750 210,000 _______________ (1) Based on maximum service credit of 60%. Strawbridge & Clothier's Deferred Compensation Plan for Key Executive Employees, as amended and restated effective February 1, 1985, and as further amended effective as of July 1, 1994 and as of July 1, 1995, provides for the payment of monthly retirement benefits computed on the basis of 1 3/4% of the participant's "Average Monthly Earnings" for the 24 month period for which the participant's total compensation is highest during the 60 months (or during the actual number of months employed if less than 60) of the participant's service immediately preceding the participant's retirement (or other termination) or attaining age 70, whichever shall be earlier, multiplied by the participant's years of service, with an adjustment by the use of an actuarial factor for retirement prior to age 65 and after age 60 if service is less than 15 years on the date of the participant's early retirement and for retirement prior to age 60 and at or after age 50 with at least 25 years of service, with an adjustment by the use of an actuarial factor for benefit commencement prior to age 60. A minimum benefit of 50% of Average Monthly Earnings (subject to reduction by an actuarial factor for benefit commencement prior to age 60) will be paid to a participant who has 15 years of service as a participant under the Plan or who has 20 years of service with the Company including 10 years of service as a participant under the Plan. For most participants, retirement benefits under the plan may not exceed 60% of Average Monthly Earnings. The amounts of each monthly benefit in connection with retirement, disability or death, and the amounts of minimum and maximum benefits under the Plan, are subject to reduction by use of an actuarial formula in the case of any participant who elects, under the Plan's contingent annuitant option, to provide monthly benefits after the participant's death, to a contingent annuitant of choice. As of April 1, 1995, the executive officers named in the compensation table above have the following years of credited service under the Deferred Compensation Plan: P.S. Strawbridge, 34 1/2 years; F.R. Strawbridge, III, 34 1/2 years; W.W. White, 39 years; R.G. Muskas, 36 1/2 years; and L.F. Busico, 37 years. 7 STOCK OPTION GRANTS AND EXERCISES Set forth in the table below is information concerning individual grants of stock options made during the fiscal year ended February 3, 1996 to the executive officers named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR INDIVIDUAL GRANTS OPTION TERM - ---------------------------------------------------------------------------------- -------------------- NUMBER OF % OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED TO EXERCISE OR OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($) ---- ----------- ------------ ----------- ---------- ------ ------- Peter S. Strawbridge -- -- -- -- -- -- Francis R. Strawbridge, III -- -- -- -- -- -- Warren W. White -- -- -- -- -- -- Robert G. Muskas 5,000 52.6% $18.6875 11/25/06 $58,762 $148,915 Louis F. Busico -- -- -- -- -- --
Set forth in the table below is information concerning stock options exercised during the fiscal year ended February 3, 1996 and the value of stock options held at the end of the fiscal year ended February 3, 1996 by executive officers named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT FY-END OPTIONS AT FY-END ------------------------- ---------------------- -------------------- SHARES ACQUIRED VALUE EXER- UNEXER- EXER- UNEXER- NAME ON EXERCISE REALIZED CISABLE CISABLE CISABLE CISABLE ---- --------------- -------- ------- ------- ------- ------- Peter S. Strawbridge 0 $ 0 21,218 0 $ 0 N/A Francis R. Strawbridge, III 0 0 21,218 0 0 N/A Warren W. White 0 0 10,609 0 0 N/A Robert G. Muskas 406 9,643 8,401 0 18,001 N/A Louis F. Busico 0 0 5,304 0 0 N/A
8 Item 12. Security Ownership of Certain Beneficial Owners and Management. --------------------------------------------------------------- The following table sets forth the shareholdings as of April 11, 1996 of persons owning beneficially more than 5% of the outstanding shares of Series A Common Stock or Series B Common Stock of the Company, the nominees and continuing directors, certain executive officers and all executive officers and directors as a group. As is indicated below, ownership of the Series B Common Stock, which is convertible at all times into Series A Common Stock on a share-for-share basis, also is deemed to be beneficial ownership of Series A Common Stock pursuant to Rule 13d-3 under the Securities Exchange Act of 1934. 9
AMOUNT OWNED BENEFICIALLY (1)(2) ----------------------------------------------------------------- SERIES B SERIES A COMMON STOCK COMMON STOCK -------------------------------------------- -------------------- SOLE SHARED PERCENT PERCENT VOTING VOTING OF VOTING OF AND OR SERIES B AND SERIES A NAME AND ADDRESS OF INVESTMENT INVESTMENT COMMON INVESTMENT COMMON BENEFICIAL OWNER POWER POWER TOTAL STOCK(3) POWER(4) STOCK(5) - ---------------------------- ---------- ------------- --------- --------- ---------- --------- (6) (7)(8)(9)(10) (10) G. Stockton Strawbridge..... 275,649 1,137,136 1,412,785 47.1% 5,390 15.6% 801 Market Street Philadelphia, PA 19107-3199 PNC Bank, National (7)(8)(13) (14) Association(11)(12)...... 1,190,501 1,190,501 39.7 146,999 15.2 Broad and Chestnut Streets Philadelphia, PA 19101 (18) FMR Corp.(17)............... 814,600 10.7 82 Devonshire Street Boston, MA 02109 (7) (15) Peter S. Strawbridge........ 18,233 659,453 677,686 22.6 21,885 8.4 801 Market Street Philadelphia, PA 19107-3199 (8)(10) (10) Henry M. Clews.............. 481,498 481,498 16.1 5,390 6.0 22A School Street Hanover, NH 03755 (8)(10) (10) Christopher S. Clews........ 481,498 481,498 16.1 5,390 6.0 799 South Street Portsmouth, NH 03801 (16) (15) Francis R. Strawbridge, III. 33,938 219,701 253,639 8.5 21,882 3.5 801 Market Street Philadelphia, PA 19107-3199 (6) Paul E. Shipley............. 79,307 211,557 290,864 9.7 3.7 P.O. Box 4295 Greenville, DE 19807 (16) Thomas B. Harvey, Jr. ...... 30,292 136,000 166,292 5.5 2.1 40 Cranbury Neck Road Cranbury, NJ 08512 (13) Isaac H. Clothier, IV ...... 116,180 101,243 217,423 7.3 7,833 2.9 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103-2793
10
AMOUNT OWNED BENEFICIALLY (1)(2) ----------------------------------------------------------------- SERIES B SERIES A COMMON STOCK COMMON STOCK -------------------------------------------- -------------------- SOLE SHARED PERCENT PERCENT VOTING VOTING OF VOTING OF AND OR SERIES B AND SERIES A NAME AND ADDRESS OF INVESTMENT INVESTMENT COMMON INVESTMENT COMMON BENEFICIAL OWNER POWER POWER TOTAL STOCK(3) POWER(4) STOCK(5) - ---------------------------- ---------- ------------- --------- --------- ---------- --------- DIRECTORS (15) Jennifer S. Braxton......... 10 10 176 (13) Isaac H. Clothier, IV....... 116,180 101,243 217,423 7.3% 7,833 2.9% Richard H. Hall............. 4,499 4,499 525 (16) Thomas B. Harvey, Jr. ...... 30,292 136,000 166,292 5.5 2.1 Anne C. Longstreth.......... 18,168 6,325 24,493 33,187 (6) Paul E. Shipley............. 79,307 211,557 290,864 9.7 3.7 (15) David W. Strawbridge........ 29,908 29,908 11,099 (16) (15) Francis R. Strawbridge, III. 33,938 219,701 253,639 8.5 21,882 3.5 (7) (15) Peter S. Strawbridge........ 18,233 659,453 677,686 22.6 21,885 8.4 (15) Steven L. Strawbridge....... 22,830 22,830 10,947 Natalie B. Weintraub........ 2,895 2,895 323 (15) Warren W. White............. 7,288 7,288 11,243 CERTAIN EXECUTIVE OFFICERS (15) Robert G. Muskas............ 1,497 1,497 8,993 (15) Louis F. Busico............. 2,818 2,818 6,546 All executive officers and directors as a group (15) (27 persons)............. 376,097 1,198,279 1,574,376 52.5 241,966 19.4
11 (1) Includes, pursuant to Rule 13d-3, shares as to which sole or shared voting power (which includes the power to vote, or to direct the voting of, such shares) and/or sole or shared investment power (which includes the power to dispose, or to direct the disposition, of such shares) is possessed. Also includes shares subject to stock options as discussed in footnote (15) below. Does not include any shares as to which neither voting power nor investment power is possessed, even where the traditional economic interest in the shares (i.e., the right to receive dividends and the right to receive proceeds upon sale) is possessed. (2) The shares of Series B Common Stock beneficially owned by all of the persons indicated in the table total 2,119,719 shares, which ownership of Series B Common Stock, together with the 386,522 shares of Series A Common Stock owned by such persons, represents 56.1% of the combined voting power of the Series A and Series B Common Stock. In addition, approximately 758,470 shares of Series B Common Stock are beneficially owned by other members of the Strawbridge family and the Clothier family and trusts for their benefit. Such ownership of Series B Common Stock, together with the approximately 283,634 shares of Series A Common Stock owned by such family members and trusts, represent 21.0% of the voting power. (3) Percentages of less than 1% are not shown. There were 2,997,162 shares of Series B Common Stock outstanding on April 11, 1996. (4) The voting and investment power is sole unless otherwise indicated. The amounts shown do not include shares of Series A Common Stock deemed to be beneficially owned pursuant to Rule 13d-3 by virtue of ownership of Series B Common Stock which is convertible on a share-for-share basis into Series A Common Stock. (5) The percentages represent the amount owned beneficially which includes shares of Series A Common Stock deemed to be owned pursuant to Rule 13d-3 by virtue of ownership by the person or group of Series B Common Stock. The percentages are based on the outstanding shares of Series A Common Stock (7,617,359 at April 11, 1996), plus the shares of Series B Common Stock owned beneficially by the person or group. Percentages of less than 1% are not shown. (6) Includes 211,001 shares as to which G.S. Strawbridge has sole voting power and shares investment power with P.E. Shipley. (7) Includes 655,441 shares as to which G.S. Strawbridge, P.S. Strawbridge and PNC Bank, National Association share voting and investment power. (8) Includes 418,825 shares as to which G.S. Strawbridge, H.M. Clews, C.S. Clews and PNC Bank, National Association share voting and investment power. (9) Not included are the 211,001 shares referred to in footnote (6) above. (10) Includes 62,673 Series B shares and 5,390 Series A shares as to which G.S. Strawbridge, H.M. Clews and C.S. Clews share voting and investment power. (11) The information relating to this person is presented in reliance upon information set forth in a Schedule 13G filed with the Securities and Exchange Commission reporting as of December 31, 1995. (12) Does not include any shares held by the bank in purely custodial accounts. (13) Includes 94,302 shares as to which I.H. Clothier, IV and PNC Bank, National Association share voting and investment power. 12 (14) With respect to 89,334 of the shares, the voting or investment power is shared. (15) The numbers shown include shares of Series A Common Stock owned by the individual or the members of the group through the Company's 401(k) Retirement Savings Plan as of March 31, 1996 as follows: F.R. Strawbridge, III, 656 shares; S.L. Strawbridge, 308 shares; J.S. Braxton, 84 shares; D.W. Strawbridge, 490 shares; P.S. Strawbridge, 667 shares; W.W. White, 634 shares; R.G. Muskas, 501 shares; L.F. Busico, 477 shares; and all executive officers and directors as a group (21 persons) a total of 8,940 shares. The numbers shown also include shares of Series A Common Stock which the individual or members of the group have the right to acquire within 60 days upon the exercise of stock options, as follows: F.R. Strawbridge, III, 21,218 shares; S.L. Strawbridge, 10,609 shares; D.W. Strawbridge, 10,609 shares; P.S. Strawbridge, 21,218 shares; W.W. White, 10,609 shares; R.G. Muskas, 8,401 shares; L.F. Busico, 5,304 shares; and all executive officers and directors as a group (20 persons) a total of 173,427 shares. In computing the percent of each series owned by an individual or the group, the number of shares subject to options held by the individual or the group are deemed outstanding. (16) Includes 136,000 shares as to which F.R. Strawbridge, III and T.B. Harvey, Jr. share voting and investment power with another co-trustee. (17) The information relating to this person is presented in reliance upon information set forth in a Schedule 13G filed with the Securities and Exchange Commission reporting as of February 29, 1996. (18) FMR Corp. has no power to vote or to direct the vote of 254,300 of the shares. 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. --------- (2.1) Asset Purchase Agreement, dated April 4, 1996, between the Company and The May Department Stores Company. (2.2) Asset Option Agreement, dated April 14, 1996, between the Company, S&C, Cherry Hill, Inc., S&C, Concord, Inc. and The May Department Stores Company. (3) (i) Restated Articles of the Company filed on July 28, 1995 with the Department of State of the Commonwealth of Pennsylvania. 13 (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.* (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.** (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 February 3, 1996.** (10.4.3) Form of Supplemental Agreement for the executive officers of the Company.** (10.4.4) Form of Supplemental Employment Agreement to Employment Agreement for the executive officers of the Company.** - ------------ * 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. 14 (10.5) Strawbridge & Clothier Separation Pay Plan dated as of February 26, 1996.** (10.6) Amended and Restated Receivables Purchase Agreement, dated as of November 20, 1995, among the Company, S&C, Funding, Inc., Market Street Capital Corp. and PNC Bank, National Association. (10.7) Credit Agreement, dated as of November 21, 1995, among the Company, certain banks party thereto and PNC Bank, National Association as Administrative Agent and CoreStates Bank, N.A. and First Fidelity Bank, N.A. as Co-Agents. (10.7.1) Waiver and First Amendment to the Credit Agreement dated as of December 20, 1995. (11) Statement re: Computation of per share earnings. (13) Portions of the 1995 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. (99) Press Release, dated April 4, 1996, issued by the Company. 15 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: May 1, 1996 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 May 1, 1996 ------------------------------------ Francis R. Strawbridge, III Director and Chairman of the Board (co-principal executive officer) /s/Peter S. Strawbridge May 1, 1996 ------------------------------------ Peter S. Strawbridge Director and President (co-principal executive officer) /s/Warren W. White May 1, 1996 ------------------------------------ Warren W. White Director and Executive Vice President /s/Steven L. Strawbridge May 1, 1996 ------------------------------------ Steven L. Strawbridge Director, Vice President, Treasurer and Secretary (principal financial officer) /s/David W. Strawbridge May 1, 1996 ------------------------------------ David W. Strawbridge Director and Vice President /s/Thomas S. Rittenhouse May 1, 1996 ------------------------------------ Thomas S. Rittenhouse Vice President-Operations, Administration & Controller (principal accounting officer) S-1 /s/Jennifer S. Braxton May 1, 1996 ------------------------------------ Jennifer S. Braxton Director /s/Isaac H. Clothier, IV May 1, 1996 ------------------------------------ Isaac H. Clothier, IV Director /s/Richard H. Hall May 1, 1996 ------------------------------------ Richard H. Hall Director /s/Thomas B. Harvey, Jr. May 1, 1996 ------------------------------------ Thomas B. Harvey, Jr. Director /s/Anne C. Longstreth May 1, 1996 ------------------------------------ Anne C. Longstreth Director /s/Paul E. Shipley May 1, 1996 ------------------------------------ Paul E. Shipley Director /s/Natalie B. Weintraub May 1, 1996 ------------------------------------ Natalie B. Weintraub Director S-2 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 1995 Annual Report to shareholders, are incorporated by reference in Item 8: Consolidated Statements of Operations--Fiscal years ended February 3, 1996, January 28, 1995 and January 29, 1994 Consolidated Balance Sheets--February 3, 1996 and January 28, 1995 Consolidated Statements of Cash Flows--Fiscal years ended February 3, 1996, January 28, 1995 and January 29, 1994 Consolidated Statements of Shareholders' Equity--Fiscal years ended February 3, 1996, January 28, 1995 and January 29, 1994 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. F-1 Exhibit Index Exhibit No. Page No. (2.1) Asset Purchase Agreement, dated April 4, 1996, between the Company and The May Department Stores Company. (2.2) Asset Option Agreement, dated April 4, 1996, between the Company, S&C, Cherry Hill, Inc., S&C, Concord, Inc. and The May Department Stores Company. (3)(i) Restated Articles of the Company filed on July 28, 1995 with the Department of State of the Commonwealth of Pennsylvania. (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 February 3, 1996. (10.4.3) Form of Supplemental Agreement for the executive officers of the Company.** (10.4.4) Form of Supplemental Agreement to the Employment Agreement for the executive officers of the Company.** (10.5) Strawbridge & Clothier Separation Pay Plan dated as of February 26, 1996.** (10.6) Amended and Restated Receivables Purchase Agreement, dated as of November 20, 1995, among the Company, S&C, Funding, Inc., Market Street Capital Corp. and PNC Bank, National Association. (10.7) Credit Agreement, dated as of November 21, 1995, among the Company, certain banks party thereto and PNC Bank, National Association as Administrative Agent and CoreStates Bank, N.A. and First Fidelity Bank, N.A. as Co-Agents. (10.7.1) Waiver and First Amendment to the Credit Agreement dated as of December 20, 1995. (11) Statement re: Computation of per share earnings. (13) Portions of the 1995 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. (99) Press Release, dated April 14, 1996, issued by the Company.
STRAWBRIDGE & CLOTHIER AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (in thousands) - -------------------------------------------------------------------------------------------------------- COL. A | COL. B | COL. C | COL. D | COL. E - -----------------------------------|------------|-----------------------------|--------------|---------- | | ADDITIONS | | | |-----------------------------| | | | (1) (2) | | | | Charged Charged | | DESCRIPTION | Balance at | to Costs to Other | | Balance | Beginning | and Accounts-- | Deductions-- | at End | of Period | Expenses Describe | Describe | of Period - -------------------------------------------------------------------------------------------------------- Fiscal year ended February 3, 1996: - ----------------------------------- Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $5,544 $14,177 $-0- $17,781(1)(2) $1,940 ====== ======= ==== ======= ====== Fiscal year ended January 28, 1995: - ----------------------------------- Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $5,000 $10,281 $-0- $ 9,737(1)(3) $5,544 ====== ======= ==== ======= ====== Fiscal year ended January 29, 1994: - ----------------------------------- Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $5,000 $ 4,724 $-0- $ 4,724(1) $5,000 ====== ======= ==== ======= ====== (1) Accounts written off during year, net of recoveries. (2) Includes $7,560 reclassified to accrued expenses to provide for estimated recourse obligations on accounts receivable sold. (3) Includes $1,756 reclassified to accrued expenses to provide for estimated recourse obligations on accounts receivable sold.
EX-2.1 2 EXHIBIT 2-1 Exhibit 2.1 ASSET PURCHASE AGREEMENT BETWEEN THE MAY DEPARTMENT STORES COMPANY AND STRAWBRIDGE & CLOTHIER DATED AS OF APRIL 4, 1996 ============================================================================= TABLE OF CONTENTS ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.1 "Accounts Receivable" . . . . . . . . . . 2 Section 1.2 "Affiliates" . . . . . . . . . . . . . . 2 Section 1.3 "Aged Department Store Inventory" . . . . 2 Section 1.4 "Alternative Transaction" . . . . . . . . 3 Section 1.5 "Assumed Department Store Liabilities" . 3 Section 1.6 "Assumed Long-Term Liabilities Amount" . 4 Section 1.7 "Bill of Sale" . . . . . . . . . . . . . 4 Section 1.8 "Business Day" . . . . . . . . . . . . . 4 Section 1.9 "Buyer Filings" . . . . . . . . . . . . . 4 Section 1.10 "Buyer Financial Statements". . . . . . . 4 Section 1.11 "Buyer Registration Statement" . . . . . 5 Section 1.12 "Closing Balance Sheet Accounts Receivable Amount" . . . . . . . . . . 5 Section 1.13 "Closing Balance Sheet Cash Amount" . . . 5 Section 1.14 "Closing Balance Sheet Inventory Amount". 5 Section 1.15 "Closing Balance Sheet Net Working Capital Amount" . . . . . . . . . . . 5 Section 1.16 "Closing Balance Sheet Payables Amount" . 6 Section 1.17 "Closing Cash Transfer" . . . . . . . . . 6 Section 1.18 "Closing Settlement Schedule" . . . . . . 6 Section 1.19 "Code". . . . . . . . . . . . . . . . . . 6 Section 1.20 "Cost Complement" . . . . . . . . . . . . 6 Section 1.21 "Department Store Assets" . . . . . . . . 6 Section 1.22 "Department Store Cash" . . . . . . . . . 7 Section 1.23 "Department Store Contracts". . . . . . . 7 Section 1.24 "Department Store Distribution Centers" . 8 Section 1.25 "Department Store Division" . . . . . . . 8 Section 1.26 "Department Store Division Balance Sheet" 8 Section 1.27 "Department Store Equipment, Machinery and Fixtures" . . . . . . . . . . . . 8 Section 1.28 "Department Store Files and Records". . . 8 Section 1.29 "Department Store Intellectual Property". 8 Section 1.30 "Department Store Inventory". . . . . . . 9 Section 1.31 "Department Store Land" . . . . . . . . . 9 Section 1.32 "Department Store Leases" . . . . . . . . 9 Section 1.33 "Department Store Leased Real Property" . 9 Section 1.34 "Department Store Merchandise on Order" . 10 Section 1.35 "Department Store Premises" . . . . . . . 10 Section 1.36 "Department Store Purchase Orders". . . . 10 Section 1.37 "Department Store Real Property". . . . . 10 Section 1.38 "Department Stores" . . . . . . . . . . . 10 Section 1.39 "Department Store Space Leases" . . . . . 10 Section 1.40 "Department Store Subsidiaries" . . . . . 10 Section 1.41 "Disposition Proceeds". . . . . . . . . . 10 Section 1.42 "Effective Time". . . . . . . . . . . . . 11 Section 1.43 "Employee Benefit Plan" . . . . . . . . . 11 Section 1.44 "Employee Pension Benefit Plan" . . . . . 11 Section 1.45 "Employee Welfare Benefit Plan" . . . . . 11 Section 1.46 "ERISA" . . . . . . . . . . . . . . . . . 11 Section 1.47 "Escrow Agent". . . . . . . . . . . . . . 11 (1) Section 1.48 "Escrow Agreement". . . . . . . . . . . . 11 Section 1.49 "Escrowed Stock Consideration". . . . . . 11 Section 1.50 "Excluded Assets" . . . . . . . . . . . . 11 Section 1.51 "Excluded Liabilities". . . . . . . . . . 12 Section 1.52 "Face Amount" . . . . . . . . . . . . . . 14 Section 1.53 "First Closing" . . . . . . . . . . . . . 15 Section 1.54 "First Closing Date". . . . . . . . . . . 15 Section 1.55 "First Closing Estimated Stock Delivery". 15 Section 1.56 "First Closing Stock Consideration" . . . 15 Section 1.57 "GAAP". . . . . . . . . . . . . . . . . . 15 Section 1.58 "Government" . . . . . . . . . . . . . . 15 Section 1.59 "HSR Act" . . . . . . . . . . . . . . . . 15 Section 1.60 "Improvements". . . . . . . . . . . . . . 16 Section 1.61 "Inventory Date". . . . . . . . . . . . . 16 Section 1.62 "Licenses and Permits". . . . . . . . . . 16 Section 1.63 "Lien" . . . . . . . . . . . . . . . . . 16 Section 1.64 "Material Adverse Effect" . . . . . . . . 16 Section 1.65 "May Common Stock". . . . . . . . . . . . 16 Section 1.66 "Multiemployer Plan". . . . . . . . . . . 17 Section 1.67 "NYSE". . . . . . . . . . . . . . . . . . 17 Section 1.68 "Other Department Store Contracts". . . . 17 Section 1.69 "P&L Accounts". . . . . . . . . . . . . . 17 Section 1.70 "PBGC". . . . . . . . . . . . . . . . . . 17 Section 1.71 "Permitted Encumbrances" . . . . . . . . 17 Section 1.72 "Person". . . . . . . . . . . . . . . . . 17 Section 1.73 "Preliminary Closing Date Balance Sheet". 18 Section 1.74 "Pro Forma Department Store Division Financial Statements" . . . . . . . . 18 Section 1.75 "Proxy Statement/Prospectus". . . . . . . 18 Section 1.76 "Reorganization". . . . . . . . . . . . . 18 Section 1.77 "SEC" . . . . . . . . . . . . . . . . . . 18 Section 1.78 "Second Closing". . . . . . . . . . . . . 18 Section 1.79 "Second Closing Cash Amount". . . . . . . 18 Section 1.80 "Second Closing Date" . . . . . . . . . . 18 Section 1.81 "Second Closing May Stock Price". . . . . 19 Section 1.82 "Second Closing Stock Consideration". . . 19 Section 1.83 "Securities Act". . . . . . . . . . . . . 19 Section 1.84 "Securities Exchange Act" . . . . . . . . 19 Section 1.85 "Seller Common Stock" . . . . . . . . . . 19 Section 1.86 "Seller Filings". . . . . . . . . . . . . 19 Section 1.87 "Seller Financial Statements" . . . . . . 19 Section 1.88 "Seller Series A Common Stock". . . . . . 19 Section 1.89 "Seller Series B Common Stock". . . . . . 20 Section 1.90 "Sellers" . . . . . . . . . . . . . . . . 20 Section 1.91 "Significant Subsidiary". . . . . . . . . 20 Section 1.92 "Stock Consideration" . . . . . . . . . . 20 Section 1.93 "Subsidiaries". . . . . . . . . . . . . . 20 Section 1.94 "Taxes" . . . . . . . . . . . . . . . . . 20 Section 1.95 "Tax Returns" . . . . . . . . . . . . . . 20 Section 1.96 "Ticketed Retail Price" . . . . . . . . . 20 Section 1.97 "Trading Day" . . . . . . . . . . . . . . 21 Section 1.98 "Transferring Employees". . . . . . . . . 21 Section 1.99 "WARN". . . . . . . . . . . . . . . . . . 21 (2) ARTICLE II PURCHASE AND SALE; THE FIRST CLOSING . . . . . . . . . . . . . 21 Section 2.1 Purchase and Sale of the Department Store Assets . . . . . . . . . . . . . 21 Section 2.2 Consideration for the Department Store Assets . . . . . . . . . . . . . 22 Section 2.3 Time and Place of First Closing . . . . . 22 Section 2.4 Deliveries by the Seller . . . . . . . . 22 Section 2.5 Deliveries by the Buyer . . . . . . . . . 24 Section 2.6 Escrow Deliveries . . . . . . . . . . . . 24 Section 2.7 Escrow . . . . . . . . . . . . . . . . . 24 Section 2.8 Purchase Price Adjustment . . . . . . . . 24 ARTICLE III THE SECOND CLOSING. . . . . . . . . . . . . . . . . . . . . . . 29 Section 3.1 Purchase and Sale of the Second Closing Cash Amount . . . . . . . . . . . . . 29 Section 3.2 Consideration for the Second Closing Cash Amount . . . . . . . . . . . . . 29 Section 3.3 Time and Place of Second Closing . . . . 29 Section 3.4 Deliveries by the Seller . . . . . . . . 29 Section 3.5 Deliveries by the Buyer . . . . . . . . . 30 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLER. . . . . . . . . . 30 Section 4.1 Corporate Organization . . . . . . . . . 30 Section 4.2 Due Authorization . . . . . . . . . . . . 30 Section 4.3 Department Store Subsidiaries Stock . . . 31 Section 4.4 Consents and Approvals; No Violation . . 31 Section 4.5 Financial Statements; SEC Filings . . . . 32 Section 4.6 Absence of Changes . . . . . . . . . . . 33 Section 4.7 Absence of Undisclosed Liabilities . . . 33 Section 4.8 Litigation . . . . . . . . . . . . . . . 34 Section 4.9 Taxes . . . . . . . . . . . . . . . . . . 34 Section 4.10 Title and Related Matters . . . . . . . . 35 Section 4.11 Department Store Leases . . . . . . . . . 36 Section 4.12 Other Department Store Contracts. . . . . 36 Section 4.13 Department Store Inventory. . . . . . . . 37 Section 4.14 Department Store Intellectual Property. . 37 Section 4.15 Employee Benefit Plans. . . . . . . . . . 37 Section 4.16 Employment and Severance Agreements . . . 40 Section 4.17 Accounts Receivable . . . . . . . . . . . 40 Section 4.18 Assets Necessary to the Business. . . . . 40 Section 4.19 Proxy Statement/Prospectus; Registration Statement . . . . . . . . . . . . . . 40 Section 4.20 Brokers and Finders . . . . . . . . . . . 41 Section 4.21 Pennsylvania Business Corporation Law . . 41 Section 4.22 Voting Requirement. . . . . . . . . . . . 41 Section 4.23 Labor Matters . . . . . . . . . . . . . . 41 Section 4.24 Insurance . . . . . . . . . . . . . . . . 42 Section 4.25 Environmental . . . . . . . . . . . . . . 42 (3) ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BUYER . . . . . . . . . . 43 Section 5.1 Corporate Organization . . . . . . . . . 43 Section 5.2 Capitalization . . . . . . . . . . . . . 43 Section 5.3 Subsidiaries Stock; Significant Subsidiaries . . . . . . . . . . . . 44 Section 5.4 Due Authorization . . . . . . . . . . . . 44 Section 5.5 Consents and Approvals; No Violation . . 45 Section 5.6 Financial Statements; SEC Filings . . . . 45 Section 5.7 Absence of Changes . . . . . . . . . . . 46 Section 5.8 Absence of Undisclosed Liabilities . . . 47 Section 5.9 Litigation . . . . . . . . . . . . . . . 47 Section 5.10 Taxes . . . . . . . . . . . . . . . . . . 47 Section 5.11 Employee Benefit Plans. . . . . . . . . . 48 Section 5.12 Proxy Statement/Prospectus; Registration Statement . . . . . . . . . . . . . . 50 Section 5.13 Brokers and Finders . . . . . . . . . . . 50 Section 5.14 Ownership of Seller Common Stock. . . . . 50 ARTICLE VI COVENANTS OF THE PARTIES. . . . . . . . . . . . . . . . . . . . 51 Section 6.1 Conduct of Business of the Department Store Division . . . . . . . . . . . . 51 Section 6.2 Disposition of the Excluded Assets. . . . 56 Section 6.3 Access and Investigation. . . . . . . . . 56 Section 6.4 Proxy Statement/Prospectus; Buyer Registration Statement . . . . . . . . 57 Section 6.5 Shareholder Meeting . . . . . . . . . . . 59 Section 6.6 Acquisition Proposals . . . . . . . . . . 59 Section 6.7 Consents. . . . . . . . . . . . . . . . . 59 Section 6.8 Filings . . . . . . . . . . . . . . . . . 60 Section 6.9 Best Efforts; Further Assurances. . . . . 60 Section 6.10 Publicity . . . . . . . . . . . . . . . . 60 Section 6.11 Collective Bargaining Agreements. . . . . 61 Section 6.12 NYSE Listing. . . . . . . . . . . . . . . 61 Section 6.13 Dissolution; Dissolution Escrow and Trust 61 Section 6.14 Sales and Transfer Taxes. . . . . . . . . 62 Section 6.15 Use of Name . . . . . . . . . . . . . . . 63 Section 6.16 Temporary Use of Corporate Offices. . . . 63 Section 6.17 Temporary Continuation of R.D.I. Contract 64 Section 6.18 Island Avenue Condemnation. . . . . . . . 64 Section 6.19 Department Store Space Leases . . . . . . 64 ARTICLE VII EMPLOYEES AND EMPLOYEE PLANS. . . . . . . . . . . . . . . . . . 65 Section 7.1 Offer of Employment . . . . . . . . . . . 65 Section 7.2 Collective Bargaining Agreements. . . . . 66 Section 7.3 Severance Plans . . . . . . . . . . . . . 66 Section 7.4 Employee Benefit Plans. . . . . . . . . . 66 Section 7.5 Retirement Savings Plan and Pension Benefit Plan . . . . . . . . . . . . . 68 Section 7.6 Supplemental Executive Retirement Plan. . 70 (4) Section 7.7 Retiree Health Plan . . . . . . . . . . . 71 Section 7.8 Consulting Contracts. . . . . . . . . . . 71 ARTICLE VIII CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Section 8.1 Conditions to the Obligations of Each Party to Effect the Acquisition. . . . 72 Section 8.2 Additional Conditions to the Obligations of the Seller. . . . . . . . . . . . . 73 Section 8.3 Additional Conditions to the Obligations of the Buyer . . . . . . . . . . . . . 73 ARTICLE IX TERMINATION AND ABANDONMENT . . . . . . . . . . . . . . . . . . 75 Section 9.1 Termination . . . . . . . . . . . . . . . 75 Section 9.2 Procedure and Effect of Termination . . . 76 ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 76 Section 10.1 Survival of Representations and Warranties . . . . . . . . . . . . . 76 Section 10.2 Costs and Expenses . . . . . . . . . . . 76 Section 10.3 Notices. . . . . . . . . . . . . . . . . 76 Section 10.4 Amendment. . . . . . . . . . . . . . . . 77 Section 10.5 Entire Agreement . . . . . . . . . . . . 78 Section 10.6 Counterparts . . . . . . . . . . . . . . 78 Section 10.7 Applicable Law . . . . . . . . . . . . . 78 Section 10.8 Descriptive Headings . . . . . . . . . . 78 Section 10.9 Assignment . . . . . . . . . . . . . . . 78 Section 10.10 Validity . . . . . . . . . . . . . . . . 78 Section 10.11 Specific Performance . . . . . . . . . . 78 Section 10.12 No Third Party Beneficiary . . . . . . . 79 (5) ASSET PURCHASE AGREEMENT, dated as of April 4, 1996 (the "Agreement"), between The May Department Stores Company, a New York corporation (the "Buyer"), and Strawbridge & Clothier, a Pennsylvania corporation (the "Seller"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Seller is engaged in the business of operating department stores and discount stores; WHEREAS, the Buyer desires to purchase from the Seller the Department Store Assets and is willing to acquire the Disposition Proceeds; WHEREAS, prior to the First Closing of the transactions contemplated herein and during the twelve month period following the First Closing Date, the Seller intends to sell or otherwise dispose of the Excluded Assets through one or more asset sale transactions (the "Disposition"); WHEREAS, the Seller is willing to transfer to the Buyer the Department Store Assets and some or all of the Disposition Proceeds in exchange for the assumption by the Buyer of the Assumed Department Store Liabilities and the issuance and delivery by the Buyer of the Stock Consideration; WHEREAS, pursuant to this Agreement, the Buyer and the Seller propose to effect a tax-free reorganization under Section 368(a)(1)(C) of the Code, whereby (i) at the First Closing, the Seller will transfer to the Buyer the Department Store Assets and a portion of the proceeds from the Disposition, and in consideration therefor, the Buyer will assume the Assumed Department Store Liabilities and issue and deliver to the Seller a portion of the Stock Consideration, (ii) within 12 months following the First Closing Date the Seller will transfer the remainder of the proceeds from the Disposition to the Buyer in exchange for the balance of the Stock Consideration, and (iii) not later than the first anniversary of the First Closing Date, the Seller will dissolve, and pursuant to the dissolution and as a part of the Reorganization, will distribute to the holders of Seller Common Stock the shares received as the Stock Consideration and any other remaining assets of the Seller that have not been transferred to the Buyer pursuant to this Agreement, subject to an escrow and other arrangements that adequately provide for the payment of all liabilities of the Seller as provided in Section 6.13 of this Agreement; 1 WHEREAS, this Agreement is intended to constitute the plan of reorganization pursuant to which the Reorganization under Section 368(a)(1)(C) is effected; and WHEREAS, concurrently with the execution and delivery of this Agreement and as a condition and inducement to the Buyer's willingness to enter into this Agreement, the Seller and the Buyer have entered into an asset option agreement in the form attached hereto as Exhibit A (the "Option Agreement"); NOW, THEREFORE, in consideration of the foregoing premises and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, each of the following terms shall have the following meaning: Section 1.1 "ACCOUNTS RECEIVABLE" shall mean all of the proprietary credit card accounts of the Sellers (as defined in Section 1.90) with retail customers for retail purchases on credit, including without limitation, all such accounts that are P&L Accounts or may have been assigned, transferred or conveyed, in whole or in part, by the Sellers for financing purposes. Section 1.2 "AFFILIATES" shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such Person. Section 1.3 "AGED DEPARTMENT STORE INVENTORY" shall mean all Department Store Inventory last received by the Seller more than six (6) months prior to the Inventory Date, except that, as to Department Store Inventory in the departments listed on Schedule 1.3 (the "Extended Age Departments"), it shall mean last received more than 12 months but less than 24 months prior to the Inventory Date. 2 Section 1.4 "ALTERNATIVE TRANSACTION" shall mean any proposal or offer, other than a proposal or offer by the Buyer or any of its Affiliates, for a tender or exchange offer, a merger, consolidation or other business combination transaction which would involve or otherwise affect the Department Store Assets or any proposal or offer to acquire in any manner all or any portion of the Department Store Assets. Section 1.5 "ASSUMED DEPARTMENT STORE LIABILITIES" shall mean: (a) the outstanding principal balance, as of the Effective Time, under the Seller's 9.2% Series A Senior Notes due 2004; (b) the outstanding principal balance, as of the Effective Time, under the Seller's 9.0% Series B Senior Notes due 1999; (c) the outstanding principal balance, as of the Effective Time, under the Seller's 7.04% Allstate Senior Notes due 1997; (d) the outstanding principal balance, as of the Effective Time, under the Seller's 10.00% Michael Reich Mortgage Note due 2007 ; (e) the outstanding principal balance, as of the Effective Time, under the Seller's 8.75% S&C Echelon Equitable Mortgage Note due 1997; (f) the outstanding principal balance, as of the Effective Time, under the Seller's 6 5/8% Notes due 2003; (g) the accounts receivable facility payment necessary to cause all Accounts Receivable in which PNC has any interest to be transferred to the Buyers free of Lien at the First Closing; (h) the liabilities, obligations and duties of the Sellers accruing and arising after the Effective Time under the Department Store Contracts; and (i) other liabilities, obligations and duties of the Sellers (including those being assumed by the Buyer pursuant to Article VII) to the extent included in the Closing Balance Sheet Net Working Capital Amount. Section 1.6 "ASSUMED LONG-TERM LIABILITIES AMOUNT" shall mean the sum of (a) the aggregate outstanding principal amount as of the Effective Time, of the obligations described in paragraphs (a) through (e) of Section 1.5, increased by 3 the prepayment penalties, make whole/yield maintenance premiums and other prepayment charges, if any, computed as of the Effective Time, that would be required to be paid for such obligations pursuant to the terms thereof if the Buyer were to elect to prepay them as of the Effective Time; plus (b) the amount, computed as of the Effective Time, that would be required to be deposited with the trustee of the obligation described in paragraph (f) of Section 1.5 were the Buyer to elect to fully defease such obligation as of the Effective Time, including all fees, costs and expenses of the trustee or otherwise under such indenture, plus $40,000; plus (c) the amount necessary to cause all Accounts Receivable not owned by the Sellers free of Lien as described in paragraph (g) of Section 1.5 to be transferred to the Buyer free of Lien and other obligations at the First Closing; plus (d) the present value (using an annual discount rate of 9%) of all rental payments required under the Department Store Leases for (i) if the remaining years of the existing term are 25 or more, the existing term or (ii) if the remaining years of the existing term are less than 25, the remaining years of the existing term and all renewal options which would extend each of the Department Store Leases to at least 25 years. The calculation of the Assumed Long-Term Liabilities Amount shall be set forth on Schedule 1.6. Section 1.7 "BILL OF SALE" shall mean the bill of sale substantially in the form of Schedule 1.7. Section 1.8 "BUSINESS DAY" shall mean any day other than Saturday, Sunday and any day which is a legal holiday or a day on which banking institutions in New York City are authorized by law or other governmental action to close. Section 1.9 "BUYER FILINGS" shall mean the filings made by the Buyer or any Subsidiaries of the Buyer with the SEC referred to in Section 5.6(b). Section 1.10 "BUYER FINANCIAL STATEMENTS" shall mean the consolidated balance sheets of the Buyer and its Subsidiaries as of January 28, 1995 and January 29, 1994, and the related consolidated statements of earnings and consolidated statements of cash flows for each of the three fiscal years ended January 28, 1995, January 29, 1994 and January 30, 1993, incorporated by reference in the Annual Report on Form 10-K of the Buyer for the fiscal year ended January 28, 1995, as filed with the SEC and the unaudited condensed consolidated balance sheet of the Buyer as of October 28, 1995, and the related unaudited condensed consolidated statements of earnings for the 13 and 39 weeks ended October 28, 1995 and the unaudited consolidated statement of cash flows for the 39 week periods respectively then ended included in the Quarterly Report on Form 10-Q for the quarterly period ended October 28, 1995, as filed with the SEC. 4 Section 1.11 "BUYER REGISTRATION STATEMENT" shall mean the Registration Statement on Form S-4 to be filed with the SEC by the Buyer in connection with the issuance of the Stock Consideration. Section 1.12 "CLOSING BALANCE SHEET ACCOUNTS RECEIVABLE AMOUNT" shall mean the Face Amount of the accounts included in the Accounts Receivable (other than P&L Accounts) multiplied by (a) 93% where the Face Amount of the account does not reflect any amount that is 90 days or more past due, (b) 40%, where the Face Amount of the account reflects any amount that is 90 days to 209 days past due, and (c) 20% where the Face Amount of the account reflects any amount that is 210 days or more past due. No amount shall be included in the Closing Settlement Schedule for P&L Accounts. Section 1.13 "CLOSING BALANCE SHEET CASH AMOUNT" shall mean the amount of the Closing Cash Transfer plus the Department Store Cash. Section 1.14 "CLOSING BALANCE SHEET INVENTORY AMOUNT" means the amount calculated, as of the Effective Time, by multiplying the Ticketed Retail Price for all Department Store Inventory (except as provided in the next sentence) by the corresponding Cost Complement on a first-in, first-out basis. The Closing Balance Sheet Inventory Amount for each item of (a) Aged Department Store Inventory shall be equal to 50% of the Closing Balance Sheet Inventory Amount as otherwise would be calculated for such item in the preceding sentence, (b) floor sample Department Store Inventory in the Extended Age Departments noted with an asterisk on Schedule 1.3 shall be reduced (or further reduced, as the case may be) by 20% of the Closing Balance Sheet Inventory Amount as otherwise would be calculated for such floor sample in this Section 1.14, and (c) Department Store Inventory received 24 months or more prior to the Inventory Date shall be zero. Section 1.15 "CLOSING BALANCE SHEET NET WORKING CAPITAL AMOUNT" shall mean the net working capital amount of the Department Store Division, as of the Effective Time, derived from the calculation prescribed in Schedule 1.15. Section 1.16 "CLOSING BALANCE SHEET PAYABLES AMOUNT" shall mean the amount payable, as of the Effective Time, by the Seller in respect of the Department Store Division for the purchase of goods or services in the ordinary course of business and reflected on the Closing Settlement Schedule in accordance with GAAP. 5 Section 1.17 "CLOSING CASH TRANSFER" shall mean that amount of cash, if any, which is wire transferred by the Seller to the Buyer at the Effective Time pursuant to Section 2.4(a). The Seller shall have the right in its sole discretion to fix such amount, if any, but shall be obligated to establish such amount by notice to the Buyer delivered pursuant to this Agreement not later than 5 Business Days prior to the First Closing Date, and if such notice is not so delivered then such amount shall be zero. Section 1.18 "CLOSING SETTLEMENT SCHEDULE" shall have the meaning prescribed in Section 2.8(c). Section 1.19 "CODE" shall mean the Internal Revenue Code of 1986, as amended. Section 1.20 "COST COMPLEMENT" shall mean the "Applicable Cumulative Cost" to original retail price (plus any additional markup) relationship for goods purchased during the year-to-date fiscal period ending immediately prior to the Inventory Date as reflected on the Department Store Division's books and records on a first-in, first-out basis. The "Applicable Cumulative Cost" means invoice cost less cash discount taken plus freight costs from the vendor to the Department Store Distribution Centers. The Cost Complement shall be calculated on a Department Store Division departmental basis, in accordance with the retail method of accounting for merchandise inventory and cost determination and in accordance with GAAP, but excluding any internal loads and charges (such as advertising loads) and capitalized inventory costs, and reduced by all rebates, credits, allowances and discounts (such as cash discounts and cash discount loads). Section 1.21 "DEPARTMENT STORE ASSETS" shall mean: (a) the Closing Balance Sheet Cash Amount; (b) the Accounts Receivable; (c) the Department Store Equipment, Machinery and Fixtures; (d) the Department Store Files and Records; (e) the Department Store Intellectual Property; (f) the Department Store Inventory; 6 (g) the Department Store Premises; (h) the rights to $9.2 million (no less, no more) of award and proceeds from the condemnation of the Seller's distribution center at 4800 South Island Avenue, Philadelphia, Pennsylvania, and which, if paid in whole or in part to the Sellers, at any time, shall be delivered by the Seller to the Buyer on the later of the First Closing or the date received by the Sellers, and shall not be included in the Closing Settlement Schedule nor in the Second Closing Cash Amount; (i) the good will of the business of the Department Store Division; and (j) all other property and assets reflected in the Department Store Division Balance Sheet, plus all items of a nature customarily carried as assets for the Department Store Division which have been or will be acquired in the ordinary course of business by the Department Store Division between the date of the Department Store Division Balance Sheet and the Effective Time, less any items which have been or, subject to Section 6.1, will be disposed of or consumed in the ordinary course of business by the Department Store Division between the date of the Department Store Division Balance Sheet and the Effective Time. Section 1.22 "DEPARTMENT STORE CASH" shall mean the amount of cash actually held in the Department Stores at the Effective Time, plus the amount of prepaid postage in postage meters in the Department Stores at the Effective Time. Section 1.23 "DEPARTMENT STORE CONTRACTS" shall mean the Department Store Leases, the Department Store Space Leases and the Other Department Store Contracts. Section 1.24 "DEPARTMENT STORE DISTRIBUTION CENTERS" shall mean the distribution centers for the Department Store Division, all of which are described on Schedule 1.24. Section 1.25 "DEPARTMENT STORE DIVISION" shall mean the business activities and operations conducted by the department store division of the Seller and shall include all of the Seller's department store business activities and operations conducted by the Seller or the Department Store Subsidiaries; and shall specifically exclude the Hopewell vacant land and, except for the Accounts Receivable, all business activities and operations of the Seller's discount store operations under the name "Clover." 7 Section 1.26 "DEPARTMENT STORE DIVISION BALANCE SHEET" shall mean the pro forma balance sheet of the Department Store Division as of February 3, 1996, attached hereto as Schedule 1.26. Section 1.27 "DEPARTMENT STORE EQUIPMENT, MACHINERY AND FIXTURES" shall mean: (a) all the building operating systems and equipment, other systems and equipment (including without limitation, all POS, ticketing, sensormatic, phone, security and energy management systems and equipment), machinery, furniture, furnishings, fixtures, trade fixtures and improvements, tooling, spare parts and supplies (including forms and packaging supplies, fuel, oil and light bulbs, and housekeeping, restaurant and other supplies) located in the Improvements as of the applicable dates on which the Buyer inspected each of the Department Store Premises; (b) all rolling stock (tractors, trailers, etc.) used in connection with the Department Store Division; and (c) any rights of the Sellers to the warranties (to the extent assignable), software, licenses and other rights to the use thereof received in connection with the aforesaid items. Section 1.28 "DEPARTMENT STORE FILES AND RECORDS" shall mean all files, plans, surveys and documents, whether in hard copy or magnetic format, of the Sellers specifically relating to the Department Store Assets or the Assumed Department Store Liabilities, including without limitation, all books and records relating to employees, purchase of goods, supplies and services, financial, accounting and operations matters and dealings with customers of the Department Store Division. Section 1.29 "DEPARTMENT STORE INTELLECTUAL PROPERTY" shall mean all trademarks, service marks, trade names, brands, private labels, patents, copyrights, know-how or trade secrets and licenses and rights with respect to the foregoing that the Sellers own or possess and which relate to the Department Store Division, including without limitation, the trade name "Strawbridge & Clothier" and those that are listed on Schedule 4.14. Section 1.30 "DEPARTMENT STORE INVENTORY" shall mean (a) all items of merchandise located in the Department Stores on the Inventory Date which are held at the Department Stores in the ordinary course of business for resale to customers in the ordinary course of business of the Department Store Division and (b) all items of Department Stores merchandise located in the Department Store Distribution Centers on the Inventory Date in the ordinary course of business of the Department Store Division which are held for delivery to the Department Stores, and in both cases which are reflected in accordance with GAAP on the books and records of the Department Store Division as inventory and which are owned by and have been paid 8 for in full (or provisions for payment have been made in the Closing Balance Sheet Payables Amount) by the Sellers, but does not include any broken, damaged, defective or incomplete merchandise, any merchandise being held for return to vendors, any merchandise held on lay-away, consignment or under similar arrangements and any merchandise owned by licensees or other third parties. Section 1.31 "DEPARTMENT STORE LAND" shall mean all parcels of land owned by the Sellers and all parcels of land demised under the Department Store Leases, in either case, at the locations described on Schedule 1.31, together with all of the Sellers' right, title and interest in and to all rights of way, easements, reciprocal easement agreements and other rights of the Sellers appurtenant to the foregoing and all right, title and interest, if any, of the Sellers in and to the strips and gores, streets, highways and alleys abutting or adjacent thereto. Department Store Land specifically excludes the Hopewell vacant land. Section 1.32 "DEPARTMENT STORE LEASES" shall mean all of the leases of the Sellers relating to the business of the Department Store Division (as lessee), all of which are listed in Schedule 1.32. Section 1.33 "DEPARTMENT STORE LEASED REAL PROPERTY" shall mean all of the Sellers' right, title and interest, as tenant, under the Department Store Leases in and to the Department Store Land described thereunder and the Improvements on the Department Store Land and/or demised under the Department Store Leases. Section 1.34 "DEPARTMENT STORE MERCHANDISE ON ORDER" shall mean the Department Stores merchandise ordered but not delivered by the Effective Time that is the subject of the Department Store Purchase Orders. Section 1.35 "DEPARTMENT STORE PREMISES" shall mean the Department Store Real Property and the Department Store Leased Real Property. Section 1.36 "DEPARTMENT STORE PURCHASE ORDERS" shall mean those purchase orders which were placed in the ordinary course of business of the Department Store Division for Department Stores merchandise to be delivered to the Department Stores or to the Department Store Distribution Centers for subsequent delivery to the Department Stores, which are not cancelled by the Sellers pursuant to Section 6.1(b)(x) or otherwise. Section 1.37 "DEPARTMENT STORE REAL PROPERTY" shall mean all of the Sellers' right, title and interest in and to the fee simple title to all of the 9 Department Store Land and the Improvements thereon, all of which are described on Schedule 1.37. Section 1.38 "DEPARTMENT STORES" shall mean the department stores in the Department Store Division, all of which are listed on Schedule 1.38. Section 1.39 "DEPARTMENT STORE SPACE LEASES" shall mean those leases (as well as other occupancy agreements) of space at the Department Store Premises under which any of the Sellers is the lessor, all of which are described on Schedule 1.39. Section 1.40 "DEPARTMENT STORE SUBSIDIARIES" shall mean the directly or indirectly owned Subsidiaries of the Seller included in the Department Store Division, all of which are identified on Schedule 4.3. Section 1.41 "DISPOSITION PROCEEDS" shall mean the cash proceeds from the Disposition which are received directly or indirectly by the Seller on or prior to the Second Closing Date after payment of or provision for any Taxes paid or payable as a result of the Disposition and any out-of-pocket costs or expenses associated with or arising out of the Disposition and after payment of or provision for any Excluded Liabilities which have not otherwise been paid or provided for at the time of the Second Closing. Section 1.42 "EFFECTIVE TIME" shall mean the close of business of the First Closing Date at which time the First Closing and all transactions contemplated thereby shall be deemed to have occurred simultaneously; provided, the First Closing has actually occurred. Section 1.43 "EMPLOYEE BENEFIT PLAN" shall mean an Employee Pension Benefit Plan, a Multiemployer Plan and an Employee Welfare Benefit Plan, where no distinction is required by the context in which the term is used. Section 1.44 "EMPLOYEE PENSION BENEFIT PLAN" shall have the meaning set forth in Section 3(2) of ERISA. Section 1.45 "EMPLOYEE WELFARE BENEFIT PLAN" shall have the meaning set forth in Section 3(1) of ERISA. Section 1.46 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 10 Section 1.47 "ESCROW AGENT" shall mean the escrow agent appointed pursuant to Section 2.7. Section 1.48 "ESCROW AGREEMENT" shall mean the Escrow Agreement to be entered into at the First Closing among the Buyer, the Seller and the Escrow Agent substantially in the form of Exhibit B. Section 1.49 "ESCROWED STOCK CONSIDERATION" shall mean 630,000 shares of May Common Stock that shall be delivered by the Buyer to the Escrow Agent pursuant to the Escrow Agreement. Section 1.50 "EXCLUDED ASSETS" shall mean all properties and assets of the Sellers not constituting the Department Store Assets, including those assets listed on Schedule 1.50 and the following: (a) The real property interests of the Sellers in the South Island Avenue distribution center that are the subject of condemnation proceedings; (b) All rights, title and interests of the Sellers in the Hopewell vacant land; (c) Subsidiaries' stock; (d) The Clover stores, the Clover distribution center and the Clover Burlington vacant land; and (e) American Express, Mastercard, Visa and other similar third party credit card receivables. Section 1.51 "EXCLUDED LIABILITIES" shall mean all the liabilities and obligations of the Sellers (other than the Assumed Department Store Liabilities) of whatever kind or nature, known or unknown, fixed or contingent, accrued or unaccrued, including without limitation: (a) any obligation or liability under any financing or other encumbrance on, affecting or related to any of the Department Store Assets or any of the Excluded Assets; (b) any obligations or liabilities for any Taxes, including without limitation, (i) any Taxes relating to the Department Store Assets or the 11 Assumed Department Store Liabilities in respect of any and all periods ending on or prior to the transfer of the Department Store Assets to and the assumption of the Assumed Department Store Liabilities by the Buyer or the Excluded Assets in respect of any and all periods, (ii) any income Taxes imposed on the gain, if any, realized on the transfer of the Department Store Assets and the assumption of the Assumed Department Store Liabilities, whether imposed on the Buyer, the Seller or any holder of the Seller Common Stock, or any sales, use, real property, transfer or gains or other similar Taxes arising from the transfer of the Department Store Assets to and the assumption of the Assumed Department Store Liabilities by the Buyer, (iii) any Taxes imposed in respect of the asset sale transactions consummated pursuant to the Disposition and (iv) any Taxes imposed upon the Sellers' operations (including any several liability imposed upon any Subsidiaries of the Seller under Treasury Regulation Section 1.1502-6 (and any comparable state, local or foreign law or regulation)); (c) any employment related obligations or liabilities of the Sellers in respect of the personnel employed by the Sellers, including, without limitation, obligations or liabilities arising from or in any way related to policies, authorizations, licenses and accounts required by applicable laws or any obligations for Taxes, accrued salaries, wages, commissions, bonuses, pension (including, without limitation, profit sharing), worker and unemployment compensation, vacation pay, severance pay, sick pay, benefit plan contributions or other employee benefits) for any of the Sellers' employees or any amounts for which the Sellers may become liable to any Person under the provisions of ERISA, the Family and Medical Leave Act, the Americans With Disabilities Act, the Equal Employment Opportunities Act or the regulations promulgated under any of the foregoing; (d) any obligations or liabilities which may arise under any Multiemployer Plan or any obligations or liabilities, including liabilities for post-retirement or post-termination benefits under any insurance or employee benefit plan or program or any formal or informal benefit practice maintained, or contributed to, by the Sellers; (e) any obligations or liabilities arising from or relating to any of the transactions consummated pursuant to the Disposition; (f) any obligations or liabilities with respect to any litigation commenced or claims (including, without limitation, workers' compensation, auto liability, product liability and general liability) made at any time (before, on or after the Effective Time) relating to (i) the Department Store Assets or the Assumed 12 Department Store Liabilities, (ii) the Excluded Assets, (iii) transfer of the Department Store Assets to the Buyer, and (iv) the Sellers' operations; (g) any obligations or liabilities relating to payment for inventory or amounts owed by the Sellers or any indebtedness of the Sellers to any bank, credit card company, lending institution, vendor or supplier or any indebtedness of the Sellers under any notes or commercial paper issued by the Sellers; (h) (i) any obligations or liabilities in respect of the employment of any personnel employed by the Sellers (including, without limitation, any obligations or liabilities under Seller Plans (as defined in Section 4.15(a)) or any employment contracts) at any time and/or in respect of the termination of the employment of any such personnel by the Sellers, including, without limitation, any liabilities for monies payable under labor, union or collective bargaining agreements in respect of any such personnel by the Sellers or any obligations or liabilities under WARN or any similar plant closing act, law or ordinance; and (ii) any obligations or liabilities arising in respect of any claim by employees employed by the Sellers at any time or in respect of periods prior to the Effective Time, including all amounts accrued or payable for pension, retirement or other benefits; (i) all obligations or liabilities under any agreement, the benefits of the Sellers in, to and/or under which are not included in the Department Store Assets; (j) any obligations or liabilities for returned checks arising from checks accepted or issued by the Sellers; (k) any obligations for the Sellers' liabilities under any civil rights laws, wage and hour laws or equal employment opportunity acts, laws, ordinances or regulations; (l) any obligation or liability with respect to any leased or licensed department; (m) any obligation or liability in connection with the Sellers' deferred compensation plan described in Note 5 to the Seller's Consolidated Financial Statements for the fiscal year ended January 28, 1995; 13 (n) any obligation or liability arising out of the Sellers' retiree health care plan described in Note 5 to the Seller's Consolidated Financial Statements for the fiscal year ended January 28, 1995; and (o) any obligation or liability arising out of any toxic substance or hazardous material or any other environmental condition or contamination. Section 1.52 "FACE AMOUNT" shall mean the aggregate of all amounts receivable as of the Effective Time for the Accounts Receivable reflected in the Closing Balance Sheet Net Working Capital Amount, after posting all payments (cash or check) received and credits given through the Effective Time, less the sum of: (a) all credits (such as back room discounts, billing errors and adjustments, and other allowances resulting from transactions that occurred before the Effective Time) given from the Effective Time through the 60th day following the Effective Time; plus (b) the amount of all Accounts Receivable which, as of the Effective Time, are P&L Accounts; plus (c) all amounts for purchases made during any liquidation or similar sale. The Face Amount of all Accounts Receivable in the Sellers' credit plan # 318-001, 312-001, 403-004, 406-004, 412-004, 101-903, 101-906, 101-912, 110-010, 110- 903, 136-903 and 136-906 shall be discounted to obtain a finance charge yield equivalent to the finance charge yield on a typical revolving account without deferred billing and receiving no grace period other than for payment of the account in full within 30 days; provided, however, that if the aggregate Face Amount, as of the Effective Time, of all such Accounts Receivable is less than $8,000,000, the provisions of this sentence shall not be applicable. Face Amount shall not include finance charges and late charges not billed as of the Effective Time. Section 1.53 "FIRST CLOSING" shall mean the consummation of the transactions contemplated by Article II of this Agreement in accordance with the terms and conditions set forth in Article II. Section 1.54 "FIRST CLOSING DATE" shall mean the last Business Day of the fiscal month in which all of the conditions to each party's obligations hereunder have been satisfied or waived; or such other date as the parties hereto agree upon in writing. Section 1.55 "FIRST CLOSING ESTIMATED STOCK DELIVERY" shall mean 3,570,000 shares of May Common Stock that shall be delivered by the Buyer to the Seller pursuant to Section 2.5(a). 14 Section 1.56 "FIRST CLOSING STOCK CONSIDERATION" shall mean that number of shares of May Common Stock determined pursuant to the calculation prescribed in Schedule 1.56 in accordance with Section 2.8 and including the Payless Spin-Off Equivalent Shares (as defined in Schedule 1.56) if required by Schedule 1.56. Section 1.57 "GAAP" shall mean United States generally accepted accounting principles applied on a year-end basis. Section 1.58 "GOVERNMENT" shall mean any agency, division, subdivision, audit group or procuring office of the government of the United States, any state or territory thereof, or any city, county or municipality thereof or any foreign government, including the employees or agents thereof. Section 1.59 "HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations thereunder. Section 1.60 "IMPROVEMENTS" shall mean the buildings, improvements and structures on the Department Store Land and/or demised under the Department Store Leases. Section 1.61 "INVENTORY DATE" shall mean the day immediately prior to the First Closing Date. Section 1.62 "LICENSES AND PERMITS" shall mean the permits, authorizations and licenses issued by any Government in connection with the business of the Department Store Division or the Department Store Premises. Section 1.63 "LIEN" shall mean any mortgage, pledge, security interest, encumbrance, lien (statutory or other), conditional sale agreement, option or right of refusal, first offer, termination, participation or purchase, other than Permitted Encumbrances. Section 1.64 "MATERIAL ADVERSE EFFECT" shall mean (a)(i) with respect to the Department Store Division, any change in or effect on the business of the Department Store Division that is materially adverse to the business, prospects, results of operations, properties, assets, liabilities or condition (financial or otherwise) of the Department Store Division taken as a whole or (ii) with respect to the Department Store Premises, any change in or effect on any one of them that is materially adverse to the value thereof or to its ability to be operated as presently operated by the Seller; 15 and (b) with respect to the Buyer, any change in or effect on the business of the Buyer and its Subsidiaries that is materially adverse to the business, prospects, results of operations, properties, assets, liabilities or condition (financial or otherwise) of the Buyer and its Subsidiaries taken as a whole. Section 1.65 "MAY COMMON STOCK" shall mean the common stock, par value $.50 per share, of the Buyer and any capital stock or other securities into which the May Common Stock is converted or which are issued in respect of the May Common Stock in either case in connection with any reclassification, recapitalization, stock split or dividend (other than any dividend to be distributed to effect the Payless Spin-Off, as defined in Schedule 1.56), merger, combination, exchange of shares or other similar transaction if the record date for such transaction is prior to the Effective Time, and, in all such cases, references to a share of May Common Stock shall be deemed a reference to all securities into which such share is convertible or has been converted or to such share of May Common Stock together with all such securities issued or issuable with respect to such share of May Common Stock. Section 1.66 "MULTIEMPLOYER PLAN" shall have the meaning set forth in Section 3(37) of ERISA. Section 1.67 "NYSE" shall mean the New York Stock Exchange, Inc. Section 1.68 "OTHER DEPARTMENT STORE CONTRACTS" shall mean the contracts, agreements and commitments of the Sellers in respect of the Department Store Assets or the Assumed Department Store Liabilities, but limited to (a) the Department Store Purchase Orders, (b) the contracts, agreements and commitments listed in Schedule 4.12, and (c) the agreements and commitments of the Sellers which are entered into between the date of this Agreement and the Effective Time with the Buyer's approval; excluding, however, all contracts, agreements and commitments which expire or are terminated in the ordinary course of business prior to the Effective Time. Section 1.69 "P&L ACCOUNTS" shall mean all Accounts Receivable which, as of or prior to the Effective Time: (i) have been placed with an attorney or collection agency for collection proceedings; (ii) relate to a person who is deceased or has filed for protection under the Bankruptcy Code or other creditor's rights laws; (iii) are subject to a claim of fraud; (iv) have not had an actual payment (cash or cleared check) in an amount equal to or greater than the required monthly, unadjusted, minimum payment for a period of 12 months; or (v) shall have been written off as uncollectible or doubtful accounts. 16 Section 1.70 "PBGC" shall mean the Pension Benefit Guaranty Corporation. Section 1.71 "PERMITTED ENCUMBRANCES" shall mean (a) those exceptions to title to the Department Store Premises set forth on Schedule 4.10(b); and (b) statutory liens for current real estate taxes or assessments not yet due without interest or penalty; Section 1.72 "PERSON" shall mean any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or Government. Section 1.73 "PRELIMINARY CLOSING DATE BALANCE SHEET" shall mean the balance sheet as of the First Closing Date for the Department Store Division prepared in accordance with Section 2.8. Section 1.74 "PRO FORMA DEPARTMENT STORE DIVISION FINANCIAL STATEMENTS" shall mean the pro forma consolidated financial statements of the Department Store Division referred to in Section 4.5(b). Section 1.75 "PROXY STATEMENT/PROSPECTUS" shall mean the proxy statement relating to the meeting of the Seller's shareholders to be held in connection the Reorganization. Section 1.76 "REORGANIZATION" shall mean the reorganization of the Seller under Section 368(a)(1)(C) of the Code contemplated by the terms of this Agreement which includes the transfer of substantially all of the assets of the Seller, including the Department Store Assets and the Disposition Proceeds, to the Buyer in exchange for the Stock Consideration and the Buyer's assumption of the Assumed Department Store Liabilities, followed by the distribution in liquidation by the Seller of the Stock Consideration received from the Buyer plus any other assets retained by the Seller to the holders of the Seller Common Stock and to the liquidating trust established pursuant to Section 6.13 of this Agreement. Section 1.77 "SEC" shall mean the Securities and Exchange Commission. Section 1.78 "SECOND CLOSING" shall mean the consummation of the transactions contemplated by Article III of this Agreement in accordance with the terms and conditions set forth in Article III. 17 Section 1.79 "SECOND CLOSING CASH AMOUNT" is generally contemplated to be generated out of Disposition Proceeds and shall mean specifically the amount of cash determined by the Seller and set forth in a notice delivered to the Buyer pursuant to this Agreement not less than 15 days prior to the Second Closing Date specified in such notice. Section 1.80 "SECOND CLOSING DATE" shall mean the date specified by the Seller in the notice establishing the Second Closing Cash Amount which will in no event be sooner than 30 days following the First Closing Date nor later than the Business Day preceding the first anniversary of the First Closing Date. Section 1.81 "SECOND CLOSING MAY STOCK PRICE" shall mean the dollar amount carried out to the fourth decimal point equal to the average of the daily per share closing prices for May Common Stock for the 20 consecutive Trading Days immediately preceding the Second Closing Date as such closing prices are reported on the principal consolidated transaction reporting system with respect to securities listed on the NYSE. Section 1.82 "SECOND CLOSING STOCK CONSIDERATION" shall mean the number of shares of May Common Stock determined by dividing the Second Closing Cash Amount by the Second Closing May Stock Price. Section 1.83 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. Section 1.84 "SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Section 1.85 "SELLER COMMON STOCK" shall mean the Seller Series A Common Stock and the Seller Series B Common Stock. Section 1.86 "SELLER FILINGS" shall mean the filings made by the Sellers with the SEC referred to in Section 4.5(c). Section 1.87 "SELLER FINANCIAL STATEMENTS" shall mean the consolidated balance sheets of the Sellers as of January 28, 1995 and January 29, 1994, and the related consolidated statements of operations and consolidated statements of cash flows for each of the three fiscal years ended January 28, 1995, and January 29, 1994 and January 30, 1993, incorporated by reference in the Annual 18 Report on Form 10-K of the Seller for the fiscal year ended January 28, 1995, as filed with the SEC and the unaudited condensed consolidated balance sheet of the Seller as of October 28, 1995, and the related unaudited condensed consolidated statements of operations for the nine months and trailing years ended October 28, 1995 and October 29, 1994 and statements of cash flows for the nine-month periods respectively then ended included in the Quarterly Report on Form 10-Q of the Seller for the quarterly period ended October 28, 1995, as filed with the SEC. Section 1.88 "SELLER SERIES A COMMON STOCK" shall mean the Series A Common Stock, par value $1.00 per share, of the Seller. Section 1.89 "SELLER SERIES B COMMON STOCK" shall mean the Series B Common Stock, par value $1.00 per share, of the Seller. Section 1.90 "SELLERS" shall mean the Seller and/or the Subsidiaries of the Seller. All acts, representations, warranties and covenants herein of the "Sellers" shall be deemed those of the Seller on its own behalf and on behalf of all applicable Subsidiaries of the Seller. All references to "Sellers" (including, without limitation, as relates to assets, rights, obligations or liabilities) shall be deemed references to the Seller and/or all applicable Subsidiaries of the Seller, unless the context clearly indicates otherwise. The Seller shall cause each of its applicable Subsidiaries to observe and perform all provisions of this Agreement applicable to such Subsidiaries. Section 1.91 "SIGNIFICANT SUBSIDIARY" shall mean any "significant subsidiary" within the meaning of Rule 1.02 of Regulation S-X of the SEC. Section 1.92 "STOCK CONSIDERATION" shall mean the First Closing Stock Consideration plus the Second Closing Stock Consideration. Section 1.93 "SUBSIDIARIES" when used in reference to any other Person shall mean any corporation of which outstanding securities having ordinary voting power to elect a majority of the board of directors of such corporation are owned directly or indirectly by such other Person. Section 1.94 "TAXES" shall mean all taxes, however denominated, including any interest, penalties or additions to tax that may become payable in respect thereof, imposed by any Government, which taxes shall include, without limitation, all income taxes, payroll and employee withholding taxes, unemployment, insurance, social security, sales and use taxes, excise taxes, franchise taxes, gross receipt taxes, 19 occupation taxes, real and personal property taxes, stamp taxes, transfer taxes, workmen's compensation taxes and other obligations of the same or a similar nature, whether arising before, on or after the Effective Time; and "Tax" shall mean any one of the foregoing. Section 1.95 "TAX RETURNS" shall mean all returns, reports, schedules and other information filed or required to be filed with any taxing authority with respect to Taxes. Section 1.96 "TICKETED RETAIL PRICE" shall mean the lower of (a) the lower of (i) the lowest ticketed retail price on the sales floor of the applicable merchandise marked down in accordance with GAAP to reflect customary markdowns for aged merchandise and (ii) the lowest sale price at which the applicable merchandise was offered for sale or sold, excluding "Temporary Markdowns", and (b) the lowest price at which the applicable merchandise is reflected in accordance with GAAP on the books and records of the Seller. The term "Temporary Markdowns" shall mean any non-permanent markdowns which meet all of the following criteria: (1) such markdowns are less than 41% off the original ticketed retail price on the sales floor, which original ticketed retail price shall be the same as originally reflected on the Seller's stock ledger, and (2) such markdowns (at whatever rate or rates less than 41%) have been taken for less than (x) 10 consecutive days, (y) 14 days in the 21-day period prior to the First Closing, and (z) two out of three days in a weekend (Friday, Saturday and Sunday) for less than the three weekends, during which the Department Stores are open for business, immediately prior to the First Closing. Section 1.97 "TRADING DAY" shall mean a day on which the NYSE is open for the transaction of business and the May Common Stock actually trades on such exchange. Section 1.98 "TRANSFERRING EMPLOYEES" shall have the meaning set forth in Section 7.1 of this Agreement. Section 1.99 "WARN" shall mean the Worker Adjustment and Retraining Notification Act. 20 ARTICLE II PURCHASE AND SALE; THE FIRST CLOSING Section 2.1 Purchase and Sale of the Department Store Assets. Subject to the satisfaction of all of the conditions to each party's obligations set forth in Article VIII (or, with respect to any condition not satisfied, the waiver thereof by the party or parties for whose benefit the condition exists), on the First Closing Date the Sellers will sell, convey, assign, transfer and deliver all of the Department Store Assets, and the Buyer will purchase, acquire, accept and pay for, as hereinafter provided, the Department Store Assets and will assume the Assumed Department Store Liabilities. Section 2.2 Consideration for the Department Store Assets. (a) The aggregate consideration for the Department Store Assets shall consist of (i) the First Closing Stock Consideration, and (ii) the assumption by the Buyer of the Assumed Department Store Liabilities. (b) Notwithstanding anything in this Agreement to the contrary, the Buyer will not assume or otherwise be liable or responsible for the Excluded Liabilities or any other liabilities or obligations of the Sellers except to the extent provided in Section 2.2(a) hereof with respect to the Assumed Department Store Liabilities. Section 2.3 Time and Place of First Closing. Subject to the terms and conditions of this Article II, the First Closing will take place at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022, at 9:30 a.m. (local time) on the First Closing Date or at such other place or time or both as the parties may agree. Section 2.4 Deliveries by the Seller. At the First Closing, the Sellers shall deliver the following to the Buyer: (a) The Closing Cash Transfer, if any, by wire transfer of immediately available funds to a bank account of the Buyer designated by the Buyer at least two Business Days prior to the First Closing Date. (b) A duly executed Bill of Sale together with such other appropriate instruments of transfer as the Buyer may reasonably request, transferring 21 to the Buyer all of the personal and intangible property as of the Effective Time which is included in the Department Store Assets. (c) Special warranty deeds, in recordable form, with respect to the Department Store Real Property. (d) Duly executed instruments of assignment of the Department Store Leases, in recordable form. (e) Duly executed instruments of assignment of the Department Store Space Leases, in recordable form. (f) Duly executed instruments of assignment of the Other Department Store Contracts. (g) Duly executed instruments of assignment of the Department Store Intellectual Property in form suitable for recording in the appropriate office or bureau, and the original certificates, if available, of the Department Store Intellectual Property together with any powers of attorney necessary to make the conveyance effective. (h) Duly executed instruments of assignment of the Accounts Receivable. (i) Duly executed instruments of assignment of $9,200,000 in award and proceeds for the condemnation of the distribution center at 4800 South Island Avenue, Philadelphia, Pennsylvania. (j) The estoppel certificates contemplated by Section 8.3(d). (k) The Department Store Files and Records. (l) Copies of all consents obtained as contemplated by Section 8.1(f). (m) An Undertaking and Indemnity Agreement substantially in the form of Exhibit C, together with any other instruments of assumption relating to the Excluded Liabilities which may be reasonably requested by the Buyer, duly executed by the Seller. 22 (n) The certificates contemplated by Section 8.3(c). (o) Such other and further instruments of conveyance, assignment and transfer as the Buyer may reasonably request for the effective conveyance and transfer of any of the Department Store Assets. (p) Possession of the Department Store Assets (including the Department Store Cash). Section 2.5 Deliveries by the Buyer. At the First Closing, the Buyer shall deliver the following to the Seller: (a) Stock certificates representing the First Closing Estimated Stock Delivery. (b) An executed Undertaking and Indemnity Agreement substantially in the form of Exhibit C, together with any other instruments of assumption relating to the Assumed Department Store Liabilities which may be reasonably requested by the Seller, duly executed by the Buyer. (c) The certificates contemplated by Section 8.2(c). Section 2.6 Escrow Deliveries. At the First Closing, the following shall be delivered in connection with the escrow created by the Escrow Agreement: (a) The Buyer shall deliver duly signed counterparts of the Escrow Agreement to the Seller and the Escrow Agent. (b) The Seller shall deliver duly signed counterparts of the Escrow Agreement to the Buyer and the Escrow Agent. (c) The Escrow Agent shall deliver duly signed counterparts of the Escrow Agreement to the Buyer and the Seller. (d) The Buyer shall deliver the Escrowed Stock Consideration to the Escrow Agent. Section 2.7 Escrow. At or prior to the First Closing, the Buyer and the Seller shall enter into the Escrow Agreement. At the First Closing, the Buyer shall deposit with the Escrow Agent, in trust, the Escrowed Stock Consideration. The 23 Escrow Agent shall hold the Escrowed Stock Consideration in accordance with the terms of the Escrow Agreement. Section 2.8 Purchase Price Adjustment. (a) Within 60 days following the First Closing Date, the Seller shall, at its expense, cause the Preliminary Closing Date Balance Sheet to be prepared and delivered to the Buyer. The Preliminary Closing Date Balance Sheet will present fairly the financial position of the Department Store Division as of the Effective Time, all in conformity with GAAP, and will be accompanied by schedules prepared in the form of Schedule 1.15 (Closing Balance Sheet Net Working Capital Amount) and Schedule 1.6 (Assumed Long-Term Liabilities Amount), setting forth the amounts specified therein and taken or derived from the Preliminary Closing Date Balance Sheet (such schedules being collectively called the "Preliminary Closing Schedules"). The Preliminary Closing Date Balance Sheet and the Preliminary Closing Schedules shall, in addition to the other provisions of this Agreement, be prepared in accordance with the following principles and requirements: (i) On the Inventory Date, the Sellers shall undertake and complete a physical count of all Department Store Inventory and the Department Store Cash while the Department Stores are closed to the public. The cost of taking such physical count shall be shared one-half by the Sellers and one-half by the Buyer. At its own cost, the Buyer shall have the right to observe such physical count. The procedures used to count the Department Store Inventory and the Department Store Cash shall be in accordance with the Hartz Data Scan Inventory System (or similar type), mutually agreed upon between the Buyer and the Sellers and in accordance with GAAP, with such other safeguards as may reasonably be requested by the Buyer or the Sellers. Upon completion of the physical count and preliminary calculation of the Closing Balance Sheet Inventory Amount and the Department Store Cash, Seller shall include with the Preliminary Closing Schedules a summary of such calculations together with copies of all work papers, backup calculations and information as Buyer may reasonably request in order to verify the Seller's calculations. (ii) The Preliminary Closing Schedules shall be accompanied by a summary of the calculation of the Closing Balance Sheet Accounts Receivable Amount and the Miscellaneous Current Assets (as defined in Schedule 1.15) together with copies of all work 24 papers, backup calculations and information as the Buyer may reasonably request in order to verify the Seller's calculations. (iii) The Preliminary Closing Schedules shall be accompanied by a summary of the calculation of the Closing Balance Sheet Payables Amount and the Other Current Liabilities (as defined in Schedule 1.15) together with copies of all work papers, backup calculations and information as the Buyer may reasonably request in order to verify the Seller's calculations. (iv) The Preliminary Closing Schedules shall be accompanied by a summary of the calculation of the Assumed Long- Term Liabilities Amount together with copies of all work papers, backup calculations and information as the Buyer may reasonably request in order to verify the Seller's calculations. (v) The Preliminary Closing Schedules shall be accompanied by a summary of the calculation of the following items together with copies of all work papers, backup calculations and information as the Buyer may reasonably request in order to verify the Seller's calculations: (1) Accrued vacation pay liability and related Taxes as provided in Section 7.4(a); (2) Employee Pension Benefit Plan deficiency as provided in Section 7.5(d) and in accordance with Schedule 7.5; (3) The "rule of 70" (as defined in Schedule 7.5) additional amount as provided in Section 7.5(d) and in accordance with Schedule 7.5; (4) The Rabbi Trust Funding Amount (as defined in Section 7.6); (5) The amounts added to other Current Liabilities in Schedule 1.15 or deducted from the amount of $320,000,000 set forth in Schedule 1.56, as provided in Section 7.7; and 25 (6) The amounts added to Other Current Liabilities in Schedule 1.15 and/or deducted from the amount of $320,000,000 (as adjusted, if at all, pursuant to Section 2.8(a)(v)(5)) set forth in Schedule 1.56, as provided in Section 7.8. The Preliminary Closing Date Balance Sheet shall be accompanied by an unqualified opinion of Ernst & Young LLP to the effect that the Preliminary Closing Date Balance Sheet presents fairly the financial position of the Department Store Division as of the First Closing Date and has been prepared in accordance with GAAP. The Buyer and the Seller shall fully cooperate in good faith in the preparation of the Preliminary Closing Date Balance Sheet and the Preliminary Closing Schedules, such cooperation to include, without limiting the generality of the foregoing, full access to the books and records of the Seller and the Department Store Files and Records for such purpose. (b) Upon receipt of the Preliminary Closing Date Balance Sheet and the Preliminary Closing Schedules, the Buyer and its accountants shall have the right during the succeeding 30 day period or until the 90th day following the Effective Time, whichever is longer, to examine, at the Buyer's expense, the Preliminary Closing Date Balance Sheet and the Preliminary Closing Schedules and all work papers, backup calculations, information and records used for or relevant to the preparation of the Preliminary Closing Date Balance Sheet and the Preliminary Closing Schedules. The Buyer shall notify the Seller in writing on or before the last day of such period, of any good faith objections to the Preliminary Closing Date Balance Sheet and the Preliminary Closing Schedules, setting forth a reasonably specific description of the Buyer's objections and the dollar amount of each objection, and shall deliver therewith a statement of all credits given as provided in Section 1.52 which shall be posted to the Preliminary Closing Schedules. If the Buyer does not deliver such notice or statement within such period, the Preliminary Closing Date Balance Sheet and the Preliminary Closing Schedules shall be deemed to have been accepted by the Buyer. (c) If the Buyer in good faith objects to the Preliminary Closing Date Balance Sheet or the Preliminary Closing Schedules, the Seller and the Buyer shall attempt to resolve any such objections within 15 days after the Seller's receipt of the Buyer's objections. If the Seller and the Buyer are unable to resolve the matter within such 15 day period, they shall jointly appoint a mutually acceptable firm of independent accountants of national reputation which is one of the so-called "big six" (or, if they cannot agree on a mutually acceptable firm, they shall cause their 26 respective accounting firms to select such firm) within three (3) days following the end of such 15 day period. The fees of such selected independent public accountants shall be divided equally between the Buyer and the Seller. The Buyer and the Seller shall provide such accounting firm full cooperation. Such firm shall be instructed to reach its conclusion regarding the disputes within 15 Business Days of such instruction. Such firm's resolution of the disputes shall be rendered in a written decision determining all disputes and shall be conclusive and binding upon the Buyer and the Seller. The Preliminary Closing Schedules after the acceptance thereof by the Buyer or the resolution of all disputes in connection therewith are together referred to herein as the "Closing Settlement Schedule." (d) Promptly after the Closing Settlement Schedule has come into existence, the Buyer and the Seller shall jointly prepare Schedule 1.56 (the First Closing Stock Consideration Schedule) and compare the amount of the First Closing Stock Consideration set forth in the First Closing Stock Consideration Schedule with the sum of the First Closing Estimated Stock Delivery plus the Escrowed Stock Consideration. If the First Closing Stock Consideration is greater than or equal to such sum, the Escrow Agent shall deliver all of the Escrowed Stock Consideration and the Escrowed Dividends (as defined in the Escrow Agreement) to the Seller and the Buyer shall issue and deliver the balance of the undelivered First Closing Stock Consideration to the Seller directly. If the First Closing Stock Consideration is equal to or exceeds the First Closing Estimated Stock Delivery by a number of shares that is less than the Escrowed Stock Consideration, then the Escrow Agent shall deliver that number of shares of the Escrowed Stock Consideration equal to such excess, if any, to the Seller and the balance to the Buyer, and shall distribute the Escrowed Dividends to the Seller and the Buyer in the same ratio it distributes the Escrowed Stock Consideration to the Seller and the Buyer. If the First Closing Stock Consideration is less than the First Closing Estimated Stock Delivery, then the Escrow Agent shall deliver all the shares of the Escrowed Stock Consideration and the Escrowed Dividends to the Buyer, and the Seller shall return to the Buyer a number of shares of May Common Stock equal to the difference between the First Closing Estimated Stock Delivery and the First Closing Stock Consideration. In the event that the Seller or the Buyer shall be required, pursuant to this Section 2.8(d), to deliver to the other party shares of May Common Stock outside of escrow, the shares delivered by the Seller shall be accompanied by a cash payment equal to the amount of all cash dividends paid on, or for which there is a record date for, such shares, from the Effective Time to the date of delivery of such shares, and the shares delivered by the Buyer shall be accompanied by a number of additional shares equal to the quotient of (i) the cash dividends that would have been paid on, or for which there would have been a record date for, such shares, from the Effective Time to the date of delivery 27 of such shares, had such shares been delivered at the First Closing, divided by (ii) the closing price per share of May Common Stock as reported on the NYSE Consolidated Tape on the day before the day on which this Agreement is executed and delivered. ARTICLE III THE SECOND CLOSING Section 3.1 Purchase and Sale of the Second Closing Cash Amount. Subject to the continued satisfaction of the conditions to each party's obligations set forth in Article VIII (or, with respect to any condition not satisfied, the waiver thereof by the party or parties for whose benefit the condition exists), on the Second Closing Date the Seller will sell, convey, assign, transfer and deliver the Second Closing Cash Amount, and the Buyer will purchase, acquire, accept and pay for, as hereinafter provided, the Second Closing Cash Amount. Section 3.2 Consideration for the Second Closing Cash Amount. The aggregate consideration for the Second Closing Cash Amount shall consist of the Second Closing Stock Consideration. Section 3.3 Time and Place of Second Closing. Subject to the terms and conditions of this Article III, the Second Closing will take place at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022, at 9:30 a.m. (local time) on the Second Closing Date or at such other place or time or both as the parties may agree; provided, that in no event will the Second Closing Date be earlier than 30 days following the First Closing date nor later than the Business Day preceding the first anniversary of the First Closing Date. Section 3.4 Deliveries by the Seller. At the Second Closing, the Seller shall deliver to the Buyer cash equal to the Second Closing Cash Amount by wire transfer of immediately available federal funds to a bank account of the Buyer designated by the Buyer at least two Business Days prior to the Second Closing Date. Section 3.5 Deliveries by the Buyer. At the Second Closing, the Buyer shall deliver to the Seller stock certificates representing the Second Closing Stock Consideration. 28 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLER The Seller represents and warrants to the Buyer as follows: Section 4.1 Corporate Organization. Each of the Seller and the Department Store Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has corporate power to own all of its properties and assets and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing in all jurisdictions where its ownership, operation or leasing of property or assets or the conduct of its business requires it to be so qualified, except in such jurisdictions, if any, where the failure to be so qualified or in good standing would not, individually or in the aggregate, have a Material Adverse Effect. Each of the Seller and the Department Store Subsidiaries has all necessary Government authorizations to own, lease and operate all of its properties and assets and to carry on its business as now being conducted, except any such authorizations the failure to obtain which would not have or would not be reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. True and complete copies of the Articles and Bylaws of the Seller and similar charter documents for each of the Department Store Subsidiaries as currently in effect have been provided to the Buyer. Schedule 4.1 sets forth a complete and correct list of all jurisdictions in which the Seller and each of its Subsidiaries are qualified or licensed to carry on the business of the Department Store Division. Section 4.2 Due Authorization. Other than the requisite approval of this Agreement by the holders of Seller Common Stock, the execution, delivery and performance of this Agreement and the Escrow Agreement have been duly authorized by all necessary corporate action on the part of the Sellers and this Agreement has been duly executed, and at the First Closing the Escrow Agreement will be executed, by a duly authorized officer of the Seller and this Agreement constitutes and, upon execution the Escrow Agreement will constitute, a valid and binding agreement of the Sellers, enforceable against them in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and subject to general principles of equity (regardless of whether enforcement is sought in equity or law). Section 4.3 Department Store Subsidiaries Stock. Schedule 4.3 sets forth (a) the name of all Department Store Subsidiaries, (b) the capitalization thereof 29 and the percentage of each class of capital stock owned by the Seller or any of its Subsidiaries, and (c) the jurisdiction of incorporation of such Department Store Subsidiaries. Except as set forth on Schedule 4.3, the Seller owns, directly or indirectly, all of the issued and outstanding capital stock of each of the Department Store Subsidiaries free and clear of any Lien. Section 4.4 Consents and Approvals; No Violation. Subject to (a) the requisite approval of this Agreement by the holders of the Seller Common Stock, (b) the expiration or earlier termination of all waiting periods under the HSR Act, and (c) compliance with all applicable requirements of the Securities Act and the Exchange Act, the execution and delivery of this Agreement and the Escrow Agreement do not, and the consummation of the transactions contemplated hereby and thereby will not, (i) violate or conflict with any provision of the Seller's Articles or Bylaws or other similar charter documents of any of its Subsidiaries, (ii) except as set forth in Schedule 4.4 hereto, violate or conflict with or result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of, any note, bond, mortgage, indenture, license, lease, agreement or other instrument or obligation to which the Sellers are a party or by which the Sellers or any of the Department Store Assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents either have been obtained by the Sellers or the obtaining of which has been waived by the Buyer, or (iii) violate any order, writ, injunction, decree, arbitration award, statute, rule or regulation applicable to the Sellers or any of the Department Store Assets (other than any applicable "bulk sales" laws), excluding from the foregoing clauses (ii) and (iii) such defaults and violations which, individually or in the aggregate, would not have a Material Adverse Effect. Section 4.5 Financial Statements; SEC Filings. (a) True and complete copies of the Seller Financial Statements have been made available by the Seller to the Buyer. The Seller Financial Statements have been prepared in accordance with GAAP applied on a consistent basis, except as noted in the Seller Financial Statements, and present fairly the consolidated financial position of the Sellers at the respective dates thereof and the consolidated results of operations and changes in financial position of the Sellers for the periods respectively then ended subject, in the case of unaudited interim statements, to normal year-end adjustments. The Seller Financial Statements referred to in this Agreement shall be deemed to include any notes and schedules to such financial statements. 30 (b) The Seller has previously furnished to the Buyer the unaudited pro forma consolidated statements of operations and changes in financial position of the Department Store Division for each of the three years ended January 29, 1994, January 28, 1995, and February 3, 1996, respectively, and the Department Store Division Balance Sheet. The pro forma financial statements described in this Section 4.5(b) are collectively referred to herein as the "Pro Forma Department Store Division Financial Statements." Except as set forth in the notes to the Pro Forma Department Store Division Financial Statements, (i) the Department Store Division Balance Sheet presents fairly the financial position of the Department Store Division as of the date thereof, and the statements of operations included in the Pro Forma Department Store Division Financial Statements present fairly the results of operations of the Department Store Division for the respective period therein set forth; and (ii) each of the fiscal year end Pro Forma Department Store Division Financial Statements was prepared on a basis consistent with the accounting principles, methods and practices employed in the preparation and presentation of the Seller's audited financial statements for the same periods and for prior periods. (c) Since January 1, 1993, the Sellers have filed with the SEC all forms, reports and documents required to be filed by them pursuant to the Securities Act and the Exchange Act, all of which, as of their respective filing dates, complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act. The Seller has heretofore made available to the Buyer a true and complete copy of each registration statement, final prospectus and definitive proxy statement filed by the Sellers with the SEC since January 1, 1993, and each report filed by the Sellers with the SEC since January 1, 1993; none of the Seller Filings as of the respective dates on which they were filed with the SEC contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Section 4.6 Absence of Changes. Except as disclosed in Schedule 4.6 hereto, since the date of the Department Store Division Balance Sheet, the business of the Department Store Division has been conducted in the ordinary course and there has not been: (a) any Material Adverse Effect or any event which is reasonably likely to result in a Material Adverse Effect; 31 (b) any change by the Seller in the accounting methods, principles or practices relating to the Department Store Division, other than changes required by generally accepted accounting principles; (c) any acquisition of, or commitment to acquire, any Department Store Assets, or any entry or commitment to enter into any Department Store Contracts, or any undertaking or commitment to incur or undertake any Assumed Department Store Liabilities, in any such case which is material to the Department Store Division. For purposes of this Section 4.6, a Material Adverse Effect shall not be deemed to include any effect upon the business, prospects, results of operations, properties, assets, liabilities or condition (financial or otherwise) of the Department Store Division taken as a whole arising out of or resulting from the execution of this Agreement and the Escrow Agreement or the consummation of the transactions contemplated hereby and thereby. Section 4.7 Absence of Undisclosed Liabilities. The Sellers have no liabilities or obligations of any kind whatsoever, whether or not accrued and whether or not contingent or absolute, determined or determinable, that are Assumed Department Store Liabilities, other than (a) liabilities and obligations which are disclosed or accrued in the Department Store Division Balance Sheet or the notes thereto or the Schedules to this Agreement, (b) liabilities and obligations incurred on behalf of the Department Store Division in connection with this Agreement and the Escrow Agreement and the transactions contemplated hereby and thereby, and (c) liabilities and obligations incurred in the ordinary course of business after the date of the Department Store Division Balance Sheet, none of which, either individually or in the aggregate, have a reasonable likelihood of resulting in a Material Adverse Effect. Section 4.8 Litigation. Except as disclosed in Schedule 4.8, in the Seller Filings, the Seller Financial Statements or the Pro Forma Department Store Division Financial Statements, there are no claims, actions, suits, proceedings or investigations pending or, to the best knowledge of the Seller, threatened against the Sellers, the Department Store Division or the Department Store Assets before any Government which, individually or in the aggregate, have a reasonable likelihood of resulting in a Material Adverse Effect. The Sellers are not subject to any outstanding order, writ, injunction or decree which has had or could be reasonably expected to have a Material Adverse Effect. 32 Section 4.9 Taxes. The Sellers have duly and timely filed or caused to be filed, or will duly and timely file or cause to be filed, all income Tax Returns and all other material Tax Returns required to be filed at or before the Effective Time, taking into account any extension for time to file granted to or obtained on behalf of the Sellers. All such Tax Returns (including amendments) are, or will be when filed, complete and accurate in all material respects. The Sellers have paid (or there has been paid on their behalf), or have established, or, with respect to Taxes which are or will be due but not yet payable as of the Effective Time, will establish, reserves which are adequate for the payment of, all Taxes for all taxable periods (or portions thereof) ending on or before the Effective Time. The Sellers are not delinquent in the payment of any Tax. Except as set forth in Schedule 4.9, no material deficiencies for any Tax have been proposed, asserted or assessed (tentatively or definitely), in each case by any taxing authority, against the Sellers. Except as set forth on Schedule 4.9, as of the date of this Agreement, there are no pending requests for waivers of the time to assess any such Tax. The federal income Tax Returns of the Seller and each of its Subsidiaries that has been a member of the affiliated group of corporations of which the Seller is the common parent for all periods during its existence have been audited by the Internal Revenue Service through the taxable year ended on the date set forth on Schedule 4.9 and the federal income Tax Returns of each of its Subsidiaries that has not been a member of the affiliated group of corporations of which the Seller is the common parent for all periods during its existence have been audited through the taxable year ended on the date set forth on Schedule 4.9. Except as set forth on Schedule 4.9, no employee benefit plan for which the Sellers file, or are required to file, an Internal Revenue Service Form 5500 is currently under employee plan examination by the Internal Revenue Service. Neither the Sellers nor any representative of such benefit plans has received verbal or written notification from the Internal Revenue Service of an impending employee plan examination. The Sellers have not filed an election under Section 341(f) of the Code to be treated as a consenting corporation. Section 4.10 Title and Related Matters. (a) Schedule 1.37 is a true and complete schedule of all of the Department Store Real Property owned in fee by the Sellers. The Sellers have good and marketable title to the Department Store Land described on Schedule 1.31 and the Improvements located thereon, all of which will be free and clear of any Lien, at the Effective Time. After the Effective Time, the Buyer will have, good and marketable title (such as any reputable title insurance company licensed to do business in the state in which such Department Store Real Property is located will approve and insure without exceptions other than Permitted Encumbrances) to all of the Department Store 33 Real Property free and clear of any Lien. Each of the agreements under which the Sellers own the Department Store Real Property is valid and binding and in full force and effect and no notice of default or termination thereunder has been given or received by the Sellers which describes a default which has not been cured, and to the best knowledge of the Sellers, no events have occurred which would, with the giving of notice or passage of time or both, give the Sellers the right to deliver a notice of default or give a third party the right to deliver a notice of default to the Sellers. (b) Except as set forth on Schedule 4.10(b) and subject to Permitted Encumbrances, the Sellers have, and after the Effective Time, the Buyer will have, good and marketable title to all of the Department Store Assets (other than the Department Store Real Property, as provided in Section 4.10(a), and the Department Store Leases, as provided in Section 4.11), subject to no Lien. (c) The Seller is entitled to receive from the City of Philadelphia on or before February 1, 1997, and has the right to assign to the Buyer as provided herein, an award and proceeds in the amount of $9.2 million from the condemnation by the City of Philadelphia of the Seller's distribution center at 4800 South Island Avenue, Philadelphia, Pennsylvania. Except as set forth in Schedule 4.10(c), there are no conditions to the assignment to the Buyer, or the receipt by the Buyer pursuant thereto, of such award and proceeds. Section 4.11 Department Store Leases. Schedule 1.32 and Schedule 1.39 set forth, respectively, a true and complete list of (a) all Department Store Leases (including amendments, modifications and supplements or other agreements), and (b) all Department Store Space Leases, including without limitation, subleases, licenses and other occupancy agreements (including amendments, modifications and supplements or other agreements). The legal descriptions for each of the Department Store Leases are set forth in Schedule 1.32. Each of the Department Store Leases and each of the Department Store Space Leases is valid, binding and in full force and effect, all rent and other sums and charges payable by or to the Sellers thereunder are current within applicable grace and notice periods, and no notice of default or termination under any Department Store Leases or Department Store Space Leases has been given or received by the Sellers which describes a default which has not been cured, and to the best knowledge of the Sellers, no events have occurred which would, with the giving of notice or the passage of time or both, constitute a default. None of the Sellers nor any Affiliates of the Sellers has an ownership, financial or other interest in the landlord under any Department Store Leases. After the Effective Time, the Buyer will have, good and marketable title (such as any reputable title insurance company licensed to do business in the state in which such Department Store Leases 34 are located will approve and insure without exceptions other than Permitted Encumbrances) to all of the Department Store Leases subject to no Lien. Section 4.12 Other Department Store Contracts. Schedule 4.12 sets forth a true and complete list of each of the Other Department Store Contracts which (a) is a reciprocal easement agreement or supplemental agreement, or (b) provides for aggregate future payment of more than $60,000, or (c) has a term exceeding one year and which may not be cancelled upon ninety or fewer days' notice without any liability, penalty or premium (other than a nominal cancellation fee or charge), or (d) is material to the business, operations or financial condition of the Department Store Division; provided, that Schedule 4.12 does not list any of the Other Department Store Contracts for the purchase or sale of goods or services entered into in the ordinary course of business which may be cancelled on ninety or fewer days' notice without any liability, penalty or premium (other than a nominal cancellation fee or charge). Except as set forth in Schedule 4.12, each of the Other Department Store Contracts is valid, binding and in full force and effect, and no notice of default or termination under any Other Department Store Contracts has been given or received by the Sellers which describes a default which has not been cured, and to the best knowledge of the Sellers, no events have occurred which would, with the giving of notice or the passage of time or both, constitute a default. Section 4.13 Department Store Inventory. All Department Store Inventory included in the Department Store Assets is, and will be as of the Effective Time, usable and saleable in the ordinary course of business of the Department Store Division, and will be subject to no Lien at the Effective Time. Section 4.14 Department Store Intellectual Property. Schedule 4.14 sets forth a true and complete list of all trademarks, service marks, trade names, brands, private labels, patents, copyrights, know-how or trade secrets and licenses and rights with respect to the foregoing that the Sellers own or possess the rights to use relating to the Department Store Division. Subject to the licenses and other restrictions listed in Schedule 4.14, the Sellers own or hold, and at the Effective Time, the Buyer will own or hold exclusive rights to the Department Store Intellectual Property, in each case free from Lien or restrictions. Except as set forth in Schedule 4.14, nothing has come to the attention of the Sellers to the effect that: (a) any product, patent, trademark, service mark, trade name, brand, private label, copyright, know-how, trade secret or license presently being sold or employed by the Department Store Division may infringe any rights owned or held by any other Person; (b) the Sellers do not have exclusive rights to the trade name, trademark and service mark "Strawbridge & Clothier" or (c) there is pending or, to the best knowledge of the Sellers, threatened any claim or litigation against the Sellers or the Department Store 35 Division contesting the rights of the Sellers or the Department Store Division with respect to any Department Store Intellectual Property. Section 4.15 Employee Benefit Plans. (a) Schedule 4.15 contains a written list of each Employee Benefit Plan and benefit practices, policies, programs and arrangements which cover the Seller's or any of its Subsidiaries' employees, former employees or retired employees, including each Employee Pension Benefit Plan which is qualified under Section 401(a) of the Code, and all collective bargaining agreements relating to employee benefits with respect to which the Sellers have incurred, or may incur, any future obligations to the Sellers' employees, including, without limitation, all plans, agreements or arrangements relating to deferred compensation, pensions, profit sharing, retirement income or other benefits, severance arrangements, health benefits and insurance benefits (other than plans, arrangements or agreements applying to employees of the Sellers generally which are funded by insurance) (collectively, the "Seller Plans"). The Seller has furnished or made available to the Buyer complete and correct copies of all Seller Plans and the most recent actuarial valuation reports and reports on Form 5500 for the most recent three years for each of the Seller Plans that is a defined benefit plan (within the meaning of Section 3(35) of ERISA). (b) Each of the Seller Plans has been administered and operated in compliance with its terms and applicable law in all material respects, including, without limitation, in accordance with the Code and ERISA, except where the failure to be so administered or operated would not have a Material Adverse Effect. The Seller has received a favorable determination letter from the IRS with respect to each of the Seller Plans which is intended to be a "qualified" plan under Section 401(a) of the Code and, to the best knowledge of the Sellers, the IRS has taken no action to revoke any such letter. Except as set forth on Schedule 4.15(b), no material liability under ERISA or the Code or otherwise has been incurred or, to the knowledge of the Sellers, is reasonably likely to be incurred by the Sellers, with respect to any Seller Plans. (c) The Sellers have not engaged in any transaction in connection with which the Sellers, directly or indirectly, would be subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code other than penalties or taxes which would not have or would not be reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. 36 (d) There are no actions, suits, claims or proceedings, pending or, to the best of knowledge of the Sellers, threatened (other than routine claims for benefits) with respect to: (i) any Seller Plans or any trust related thereto (other than the Pension Plans (as defined in Section 7.5(d)) which would be reasonably likely to result in any liability to the Sellers or to any Seller Plans which would have or would be reasonably likely to have a Material Adverse Effect; or (ii) the Pension Plans or any trust related thereto which would be reasonably likely to result in any liability to the Sellers or to a Pension Plan or any trust related thereto, which would adversely affect the funded status of a Pension Plan which is a defined benefit plan (within the meaning of Section 3(35) of ERISA). (e) Except as set forth on Schedule 4.15(b), no liability (other than liability for premium payments required by Section 4007 of ERISA, which premiums have been paid when due to the PBGC), exists or has been incurred with respect to any Seller Plans subject to Title IV of ERISA which would or would be reasonably likely to have a Material Adverse Effect. (f) The actuarial present value of all accrued benefits, determined in accordance with actuarial assumptions and methods set forth in the most recently completed actuarial valuation report, under each of the Seller Plans which is a defined benefit plan within the meaning of Section 3(35) of ERISA and which is subject to Subtitles C and D of Title IV of ERISA (each such plan being hereinafter referred to as a "Title IV Plan") and maintained or contributed to by the Sellers, as from time to time in effect, did not, as of the date of the most recently completed annual actuarial valuation for each such plan, exceed the fair market value of the assets of each of such Seller Plans as of such date. (g) There have not been any "reportable events," as that term is defined in Section 4043 of ERISA, with respect to any Title IV Plan required to be reported to the PBGC since January 31, 1993. (h) None of the Seller Plans subject to Part 3 of Subtitle B of Title I or to Title II of ERISA nor any trusts have incurred any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA or Section 412 of the Code (whether or not waived), since January 31, 1993, and full payment has been 37 made of all contributions required to be made under the terms of each of the Seller Plans. (i) With respect to the Strawbridge & Clothier Retiree Health Plan described in Note 5 to the Seller Financial Statements for the fiscal year ended January 28, 1995, which is a program within the Strawbridge & Clothier Medical Plan (such program, herein called the "Retiree Health Plan"), the Seller has furnished or made available to the Buyer complete and correct copies of all Seller Plans which relate to the Retiree Health Plan, copies of all communications or benefit summaries describing the Retiree Health Plan and the actuarial valuation reports and reports on Form 5500, if any, for the most recent three years for each of the Seller Plans that relate to the Retiree Health Plan. (j) With respect to the Seller's Deferred Compensation Plan for Key Executives, described in Note 5 to the Seller Financial Statements for the fiscal year ended January 28, 1995 ("Seller SERP"), the Seller has furnished or made available to the Buyer complete and correct copies of the Seller SERP documents, including trust agreements and insurance policies, if any, and actuarial or other valuation reports prepared for the Seller SERP for the most recent three years. The Sellers have not done and shall not do anything that increases the present value of benefits accrued under the Seller SERP over the present value of such benefits accrued as of January 1, 1996. Section 4.16 Employment and Severance Agreements. Except as set forth on Schedule 4.16, there are no employment, severance or termination agreements to which the Sellers or the Department Store Division is a party and which are Other Department Store Contracts. Section 4.17 Accounts Receivable. The Accounts Receivable are genuine and represent the valid and binding obligation of the obligor thereon, enforceable in accordance with their terms, subject to any bankruptcy, insolvency and similar laws affecting creditors' rights generally, and will be subject to no Lien at the Effective Time. Section 4.18 Assets Necessary to the Business. Except as set forth in Schedule 4.18, the Department Store Assets constitute all of the assets necessary to operate the Department Stores as traditional department stores. Section 4.19 Proxy Statement/Prospectus; Registration Statement. None of the information supplied or to be supplied by the Seller specifically for 38 inclusion or incorporation by reference in (a) the Buyer Registration Statement, (b) the Proxy Statement/Prospectus, and (c) any other document to be filed with the SEC or any Government by the Sellers or the Buyer in connection with the transactions contemplated by this Agreement ("Other Filings") will, at the respective times filed with the SEC or such Government and, in addition, (i) in the case of the Proxy Statement/ Prospectus, at the date it or any amendment or supplement is mailed to shareholders, at the time of the meeting of shareholders of the Seller to be held in connection with the Reorganization and at the Effective Time, and (ii) in the case of the Buyer Registration Statement, when it becomes effective under the Securities Act and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement/Prospectus will comply as to form in all material respects with the provisions of the Exchange Act, except that no representation is made by the Seller with respect to statements made therein based on information supplied by the Buyer specifically for inclusion or incorporation by reference in the Proxy Statement/Prospectus. Section 4.20 Brokers and Finders. Except for Peter J. Solomon Company Limited and Lehman Brothers, whose fees the Seller shall be solely responsible for, no financial adviser, broker, agent or finder has been retained by the Sellers in connection with this Agreement or any transaction contemplated hereby and, except for Peter J. Solomon Company Limited and Lehman Brothers, no such financial adviser, broker, agent or finder is entitled to any fee or other compensation from the Sellers on account of this Agreement or any transaction contemplated hereby. Section 4.21 Pennsylvania Business Corporation Law. The Pennsylvania Business Corporation Law anti-takeover provisions are inapplicable to this Agreement and the Escrow Agreement and the transactions contemplated hereby and thereby. Section 4.22 Voting Requirement. The affirmative vote of a majority of votes entitled to be cast by the holders of the Seller Series A Common Stock and the Seller Series B Common Stock, voting separately as a series and together, at a meeting of holders of outstanding shares of Seller Common Stock at which there is a quorum, in favor of this Agreement and the transactions contemplated hereby are the only votes of the holders of any class or series of the Seller's capital stock necessary to approve this Agreement, the Escrow Agreement and the transactions contemplated hereby and thereby under any applicable law, rule or regulation or pursuant to the requirements of the Seller's Articles and Bylaws. 39 Section 4.23 Labor Matters. There is no unfair labor practice complaint against the Sellers pending before the National Labor Relations Board or any other Government performing similar functions. There is no proceeding with respect to the Sellers actually pending before the National Labor Board. There is no labor strike, dispute, slowdown or stoppage actually pending or, to the best knowledge of the Sellers, threatened against or involving the Sellers. There is no pending representation question respecting the employees of the Sellers. No labor grievance has been filed with the Sellers which has had or may have a Material Adverse Effect on the Sellers, and no arbitration proceeding under any collective bargaining agreement, which has had or may have such an effect, is pending or, to the Sellers' knowledge, threatened. No collective 40 bargaining agreement is currently being negotiated by the Sellers. Schedule 7.2 sets forth a complete and accurate list of all collective bargaining agreements affecting any employees of the Department Store Division. Section 4.24 Insurance. Schedule 4.24 contains an accurate and complete description of all policies of liability, fire, workers' compensation and other forms of insurance owned or held by the Sellers and covering the Department Store Division or any of the Seller Plans. All such policies are valid and enforceable and in full force and effect, are underwritten by unaffiliated financially sound and reputable insurers, are sufficient for all applicable requirements of law and provide insurance, including, without limitation, fire, general liability and product liability insurance, in such amounts and against such risks as is customary for companies engaged in similar businesses to protect the Department Store Assets. Section 4.25 Environmental. Schedule 4.25 contains an accurate and complete description of all environmental reports known to the Sellers that affect any of the Department Store Assets, and the Sellers have delivered a complete copy of each such report to the Buyer. Except as set forth in Schedule 4.25 or in the reports listed therein, the Sellers have no knowledge of the presence or release of any toxic substance or hazardous material or of any other environmental condition or contamination in or from the Department Store Assets. Section 4.26 Disclosure. No representation or warranty by the Sellers in this Agreement and no statement contained in any document (including, without limitation, financial statements, disclosure schedules and the confidential selling memorandum), certificate or other writing furnished or to be furnished by the Sellers pursuant to the provisions hereof contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary to make the statements herein or therein not misleading, it being understood that as used in this Section "material" means material to the Department Store Division taken as a whole. 41 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BUYER The Buyer hereby represents and warrants to the Seller as follows: Section 5.1 Corporate Organization. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of New York, has corporate power to own all of its properties and assets and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing in all jurisdictions where its ownership, operation or leasing of property or assets or the conduct of its business requires it to be so qualified, except in such jurisdictions, if any, where the failure to be so qualified or in good standing would not, individually or in the aggregate, have a Material Adverse Effect. The Buyer has all necessary Government authorizations to own, lease and operate all of its properties and assets and to carry on its business as now being conducted, except any such authorizations the failure to obtain which would not have or would not be reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. True and complete copies of the Articles of Incorporation and Bylaws of the Buyer as currently in effect have been provided to the Seller. Section 5.2 Capitalization. The authorized capital stock of the Buyer consists of 51,323 shares of Preferred Stock, no par value, of which 11,974 were issued and outstanding as of February 3, 1996, 73,273 shares of $1.80 Preference Stock, no par value, of which 26,653 were issued and outstanding as of February 3, 1996, 9,878 shares of 3-3/4% Cumulative Preference Stock, par value $100.00 per share, of which no shares were issued and outstanding as of February 3, 1996, 25,000,000 shares of Preference Stock, including ESOP Preference Shares, par value $0.50 per share, of which 722,126 were issued and outstanding as of February 3, 1996, and 700,000,000 shares of May Common Stock, of which 248,871,118 were issued and outstanding and 64,765,878 were held in treasury by the Buyer as of February 3, 1996. There are no outstanding obligations, options or rights to acquire shares of May Common Stock or any outstanding securities or other instruments convertible into shares of May Common Stock, other than pursuant to this Agreement, as disclosed in the Buyer Filings or the Buyer Financial Statements or employee stock options. 42 Section 5.3 Subsidiaries Stock; Significant Subsidiaries. (a) Except as set forth in the Buyer Financial Statements or the Buyer Filings or in Schedule 5.3, the Buyer owns, directly or indirectly, all of the outstanding shares of capital stock of its Subsidiaries free and clear of any Lien and has made no material investment in, or material advance to, any company, partnership, joint venture or other business association or entity, other than Buyer's Subsidiaries. There are no outstanding options, warrants or other rights to acquire, nor any outstanding securities convertible into, capital stock of any class of any Subsidiaries of the Buyer. There are no voting trusts or other agreements or understandings to which the Buyer or any Buyer's Subsidiaries is a party or is bound with respect to the voting of the capital stock of the Buyer or any Buyer's Subsidiaries. All of the outstanding shares of capital stock of the Buyer's Subsidiaries owned directly or indirectly by the Buyer have been validly issued and are fully paid, non-assessable and free of preemptive rights. (b) Each Significant Subsidiary of the Buyer is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, has corporate power and all necessary Government authorizations to own, operate or lease all of its properties and assets and to carry on its business as it is now being conducted, except any such authorizations the failure to obtain which would not have or would not be reasonably likely to have, individually or in the aggregate, a Material Adverse Effect or prevent the consummation of the transactions contemplated hereby and by the Escrow Agreement, and is duly qualified to do business and is in good standing in each jurisdiction where its ownership, operation, or leasing of property or the conduct of its business requires such qualification, except in such jurisdictions, if any, where the failure to be so qualified or in good standing would not have or would not be reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. Section 5.4 Due Authorization. The execution, delivery and performance of this Agreement and the Escrow Agreement have been duly authorized by all necessary corporate action on the part of the Buyer and this Agreement has been duly executed, and at the First Closing the Escrow Agreement will be executed, by a duly authorized officer of the Buyer and this Agreement constitutes and, upon execution the Escrow Agreement will constitute, a valid and binding agreement of the Buyer, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and subject to general principles of equity (regardless of whether enforcement is sought in equity or law). 43 Section 5.5 Consents and Approvals; No Violation. Subject to (a) the expiration or earlier termination of all waiting periods under the HSR Act, (b) compliance with all applicable requirements of the Securities Act and the Exchange Act, and (c) the approval for listing, subject to official notice of issuance, of the Stock Consideration on the NYSE, the execution and delivery of this Agreement and the Escrow Agreement do not, and the consummation of the transactions contemplated hereby and thereby will not, (i) violate or conflict with any provision of the Buyer's Restated Articles of Incorporation or By-laws, (ii) except as set forth in Schedule 5.5, violate or conflict with or result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of, any note, bond, mortgage, indenture, license, lease, agreement or other instrument or obligation to which the Buyer or any of its Subsidiaries is a party or by which the Buyer or any of its Subsidiaries or any of their respective properties or assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents either have been obtained by the Buyer or the obtaining of which has been waived by the Seller, or (iii) violate any order, writ, injunction, decree, arbitration award, statute, rule or regulation applicable to the Buyer, any of its Subsidiaries or any of their respective properties or assets (other than any applicable "bulk sales" laws), excluding from the foregoing clauses (ii) and (iii) such defaults and violations which, individually or in the aggregate, would not have a Material Adverse Effect. Section 5.6 Financial Statements; SEC Filings. (a) True and complete copies of the Buyer Financial Statements have been made available by the Buyer to the Seller. The Buyer Financial Statements have been prepared in accordance with GAAP applied on a consistent basis, except as noted in the Buyer Financial Statements, and present fairly the consolidated financial position of the Buyer and its Subsidiaries at the respective dates thereof and the consolidated results of operations and changes in financial position of the Buyer and its Subsidiaries for the periods respectively then ended subject, in the case of unaudited interim statements, to normal year-end adjustments. The Buyer Financial Statements referred to in this Agreement shall be deemed to include any notes and schedules to such financial statements. (b) Since January 1, 1993, each of the Buyer and any of its Subsidiaries that is required to make filings under the Securities Act or the Exchange Act has filed with the SEC all forms, reports and documents required to be filed by it pursuant to the Securities Act and the Exchange Act, all of which, as of their respective filing dates, complied in all material respects with all applicable 44 requirements of the Securities Act and the Exchange Act. The Buyer has heretofore made available to the Seller a true and complete copy of each registration statement, final prospectus and definitive proxy statement filed by the Buyer or any of its Subsidiaries with the SEC since January 1, 1993, and each report filed by the Buyer or its Subsidiaries with the SEC since January 1, 1993; none of the Buyer Filings as of the respective dates on which they were filed with the SEC contained any untrue statement of a material fact or omitted to state a material fact necessary to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Section 5.7 Absence of Changes. Except as disclosed in Schedule 5.7, the Buyer Filings or the Buyer Financial Statements, and except as contemplated by this Agreement, since January 28, 1995, the Buyer and its Subsidiaries have conducted their respective businesses in the ordinary course and there has not been: (a) any Material Adverse Effect or any event which is reasonably likely to result in a Material Adverse Effect; (b) any change by the Buyer in the accounting methods, principles or practices, other than changes required by generally accepted accounting principles; (c) any material amendment or termination by the Buyer or its Subsidiaries of any contract, agreement or license which is material to the Buyer and its Subsidiaries taken as a whole; (d) any entering into by the Buyer or its Subsidiaries of any contract, agreement or license which is material to the Buyer and its Subsidiaries taken as a whole; (e) any indebtedness incurred by the Buyer or its Subsidiaries in respect of borrowed money or any commitment in respect of borrowed money entered into by the Buyer or its Subsidiaries other than in the ordinary course of business; or (f) any revaluation by the Buyer of any of its assets, including without limitation, writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business. 45 Section 5.8 Absence of Undisclosed Liabilities. There are no liabilities or obligations of the Buyer or its Subsidiaries of any kind whatsoever, whether or not accrued and whether or not contingent or absolute, determined or determinable, that are material to the Buyer and its Subsidiaries taken as a whole, other than (a) liabilities or obligations which are disclosed, accrued or reserved against in the Buyer Financial Statements, (b) liabilities and obligations disclosed in the Buyer Filings or on any of the Schedules to this Agreement, (c) liabilities incurred on behalf of the Buyer in connection with this Agreement, and (d) liabilities incurred in the ordinary course of business since October 28, 1995, none of which, either individually or in the aggregate, are reasonably likely to have a Material Adverse Effect. Section 5.9 Litigation. There are no claims, actions, suits, proceedings or investigations pending or, to the knowledge of the Buyer, threatened against the Buyer or its Subsidiaries before any domestic or foreign court or governmental or regulatory authority or body which, individually or in the aggregate, have a reasonable likelihood of resulting in a Material Adverse Effect. Neither the Buyer nor any of its Subsidiaries is subject to any outstanding order, writ, injunction or decree which has had or could be reasonably expected to have a Material Adverse Effect. Section 5.10 Taxes. The Buyer and its Subsidiaries have duly and timely filed or caused to be filed, or will duly and timely file or cause to be filed, all income Tax Returns and all other material Tax Returns required to be filed at or before the Effective Time, taking into account any extension for time to file granted to or obtained on behalf of the Buyer and its Subsidiaries. All such Tax Returns (including amendments) are, or will be when filed, complete and accurate in all material respects. The Buyer and its Subsidiaries have paid (or there has been paid on their behalf), or have established, or, with respect to Taxes which are or will be due but not yet payable as of the Effective Time, will establish, reserves which are adequate for the payment of, all Taxes for all taxable periods (or portions thereof) ending on or before the Effective Time. Neither the Buyer nor any of its Subsidiaries is delinquent in the payment of any Tax. No material deficiencies for any Tax have been proposed, asserted or assessed (tentatively or definitely), in each case by any taxing authority, against the Buyer or any of its Subsidiaries. Except as set forth on Schedule 5.10, as of the date of this Agreement, there are no pending requests for waivers of the time to assess any such federal Tax. The federal income Tax Returns of the Buyer and each of its Subsidiaries that has been a member of the affiliated group of corporations of which the Buyer is the common parent for all periods during its existence have been audited by the Internal Revenue Service through the taxable year ending February 2, 1991 and the federal income Tax Returns of each of its Subsidiaries that has not been a member of the affiliated group of corporations of 46 which the Buyer is the common parent for all periods during its existence have been audited through the taxable year ending February 2, 1991. Section 5.11 Employee Benefit Plans. (a) Schedule 5.11 contains a written list of every Employee Pension Benefit Plan which is "qualified" under Section 401(a) of the Code and which covers current employees of the Buyer. The Buyer has furnished or made available to the Seller complete and correct copies of all such plans and the most recent actuarial valuation report for each the such plan that is a defined benefit plan (within the meaning of Section 3(35) of ERISA). None of the such plans is a Multiemployer Plan. (b) Each of the plans referred to in clause (a) above has been administered and operated in compliance with its terms and applicable law in all material respects, including, without limitation, in accordance with the Code and ERISA, except where the failure to be so administered or operated would not have a Material Adverse Effect. The Buyer has received a favorable determination letter from the IRS with respect to each of such plans and, to the best knowledge of the Buyer, the IRS has taken no action to revoke any such letter. No material liability under ERISA or the Code or otherwise has been incurred or, to the best knowledge of the Buyer, is reasonably likely to be incurred by the Buyer, with respect to any of such plans. (c) Neither the Buyer nor, to the best knowledge of the Buyer, any of its Subsidiaries has engaged in any transaction in connection with which the Buyer or any of its Subsidiaries, directly or indirectly, would be subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code other than penalties or taxes which would not have or would not be reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. (d) There are no actions, suits, claims or proceedings, pending or, to the best knowledge of the Buyer, threatened (other than routine claims for benefits), which would be reasonably likely to result in any liability to the Buyer or to any of its Subsidiaries with respect to any of the plans referred to in clause (a) above or any trust related thereto which would have or would be reasonably likely to have a Material Adverse Effect. 47 (e) No liability (other than liability for premium payments required by Section 4007 of ERISA, which premiums have been paid when due to the PBGC), exists or has been incurred with respect to any of the plans referred to in clause (a) above subject to Title IV of ERISA which would or would be reasonably likely to have a Material Adverse Effect. (f) The actuarial present value of all accrued benefits, determined in accordance with actuarial assumptions and methods set forth in the most recently completed actuarial valuation report, under each of the plans referred to in clause (a) above which is a Title IV Plan and maintained or contributed to by the Buyer and any of its Subsidiaries, as from time to time in effect, did not, as of the date of the most recently completed annual actuarial valuation for each such plan, exceed the value of the assets of each such plan as of such date. (g) There have not been any "reportable events", as that term is defined in Section 4043 of ERISA, with respect to any Title IV Plan required to be reported to the PBGC since January 31, 1993. (h) None of the plans referred to in clause (a) above subject to Part 3 of Subtitle B of Title I or to Title II of ERISA nor any trusts have incurred any "accumulated funding deficiency", as such term is defined in Section 302 of ERISA or Section 412 of the Code (whether or not waived), since January 31, 1993, and full payment has been made of all contributions required to be made under the terms of each such plan. Section 5.12 Proxy Statement/Prospectus; Registration Statement. None of the information supplied by the Buyer specifically for inclusion or incorporation by reference in (a) the Buyer Registration Statement, (b) the Proxy Statement/Prospectus, and (c) the Other Filings will, at the respective times filed with the SEC or such Government and, in addition, (i) in the case of the Proxy Statement/Prospectus, at the date it or any amendment or supplement is mailed to shareholders, at the time of the meeting of shareholders of the Seller to be held in connection with the Reorganization and at the Effective Time, and (ii) in the case of the Buyer Registration Statement, when it becomes effective under the Securities Act and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Buyer Registration Statement will comply as to form in all material respects with the provisions of the Securities Act, except that no representation is made by the Buyer with respect to statements made therein based on information 48 supplied by the Seller specifically for inclusion or incorporation by reference in the Buyer Registration Statement. Section 5.13 Brokers and Finders. Except for Gleacher Natwest & Co., whose fees the Buyer shall be solely responsible for, no financial adviser, broker, agent or finder has been retained by the Buyer in connection with this Agreement or any transaction contemplated hereby and, except for Gleacher, Natwest & Co., no such financial adviser, broker, agent or finder is entitled to any fee or other compensation from the Buyer on account of this Agreement or any transaction contemplated hereby. Section 5.14 Ownership of Seller Common Stock. Immediately prior to entering into this Agreement, neither the Buyer nor any of its Subsidiaries owned any shares of Seller Common Stock. ARTICLE VI COVENANTS OF THE PARTIES Section 6.1 Conduct of Business of the Department Store Division. Except as expressly provided in this Agreement, during the period from the date of this Agreement to the Effective Time, the Seller will and will cause the Department Store Division to conduct its business and operations according to its ordinary and usual course of business. (a) Without limiting the generality of the foregoing, and, except as otherwise expressly provided in this Agreement, prior to the Effective Time, without the prior written consent of the Buyer, the Seller will not and will not permit any of its Subsidiaries or the Department Store Division to: (i) create, incur or assume any long-term debt (including obligations in respect of leases), or except in the ordinary course of business under existing lines of credit, create, incur, assume, maintain or permit to exist any short-term debt (other than intercompany loans and advances to or from any Department Store Subsidiaries in a net aggregate amount at any one time outstanding not exceeding $100,000), if, in either such case, such long-term or short-term debt would constitute Assumed Department Store Liabilities or a liability of any Department Store Subsidiaries; 49 (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other Person, if such assumption, guarantee, endorsement or other liability would constitute Assumed Department Store Liabilities or a liability of any Department Store Subsidiaries; provided, that the Seller, the Department Store Division and the Department Store Subsidiaries may endorse negotiable instruments in the ordinary course of business; (iii) make any loans, advances or capital contributions to, or investments in, any other Person, if the receivable with respect to such loan would constitute Department Store Assets; (iv) without the consent of the Buyer which shall not be unreasonably withheld, increase in any manner the compensation of any of the Department Store Division employees, except such increases and promotions as are granted pursuant to normal periodic performance reviews and related compensation and benefit increases (but not any general across-the-board increases) or normal promotions to fill positions being vacated (provided that the foregoing shall not apply to any non-Affected Employees so long as the same does not in any way affect the obligations or liabilities of the Buyer under this Agreement, particularly Article VII); or pay or agree to pay any pension, retirement allowance or other employee benefit not required or permitted by any existing plan, agreement or arrangement to any Affected Employees (as defined in Section 7.5(a)); or commit itself to any additional pension, profit-sharing, bonus, incentive, deferred compensation, stock purchase, stock option, stock appreciation right, group insurance, severance pay, retirement or other employee benefit plan, agreement or arrangement, or to any employment agreement or consulting agreement with or for the benefit of any Affected Employees, or to amend any of the Seller Plans (including without limitation the Employee Pension Benefit Plan, the Employee Welfare Benefit Plan, the Savings Plan (as defined in Section 7.5(b)), the Retiree Health Plan (as defined in Section 4.15(i)) and the Seller SERP (as defined in Section 4.15 (j))) in which any Affected Employees, participate or are parties; (v) permit any of its current insurance (or reinsurance) policies to be cancelled or terminated or any of the 50 coverage thereunder to lapse if such policy covers the Department Store Assets or any Department Store Division employees, former employee or retired employee, or insures risks, contingencies or liabilities which could result in Assumed Department Store Liabilities or a liability of any Department Store Subsidiaries, unless simultaneously with such termination, cancellation or lapse, replacement policies providing coverage equal to or greater than the coverage remaining under those cancelled, terminated or lapsed policies are in full force and effect; (vi) (x) sell, lease or transfer any Department Store Premises, (y) create any Lien on any Department Store Assets; or (z) except in the ordinary course of business sell, transfer or otherwise dispose of or agree to sell, transfer or otherwise dispose of, any other Department Store Assets; (vii) without the consent of the Buyer which shall not be unreasonably withheld, amend any charter document of any of the Department Store Subsidiaries, or sell transfer or divest any interest in any of the Department Store Subsidiaries; (viii) amend, modify, supplement or terminate any Department Store Leases or any Department Store Space Leases or any Other Department Store Contracts with respect to the Department Store Real Property or enter into any new agreement with respect to the Department Store Real Property or the Department Store Leased Real Property (except, with the consent of the Buyer which shall not be unreasonably withheld, the Sellers may execute subordination agreements, estoppel certificates and similar instruments required to be executed pursuant to the terms of the Department Store Leases in respect of the Department Store Leased Real Property; provided, the Seller shall deliver to the Buyer copies of such proposed subordination agreements, estoppel certificates and similar instruments no less than two Business Days before the execution thereof); (ix) waive or release any rights of any material value of or with respect to the business of the Department Store Division; 51 (x) without the consent of the Buyer which shall not be unreasonably withheld, change any accounting methods, principles or practices relating to the Department Store Division, other than changes required by generally accepted accounting principles; (xi) without the consent of the Buyer which shall not be unreasonably withheld, enter into any other agreement, commitments or contracts, except agreement, commitments or contracts made in the ordinary course of business and of the usual size and duration; (xii) without the consent of the Buyer which shall not be unreasonably withheld, permit any right with respect to Department Store Intellectual Property to lapse or be cancelled; (xiii) take any other action which would cause any of the representations and warranties of the Seller set forth in Article IV not to be true and correct as of the date of this Agreement and as of the First Closing Date as though made as of such date, except as expressly contemplated by this Agreement; (xiv) open, at any Clover store, new proprietary credit card accounts that would be Accounts Receivable; (xv) permit deferred billing for any purchases on Accounts Receivable; (xvi) without the consent of the Buyer which shall not be unreasonably withheld, modify any terms, policies, practices or procedures relating to the Accounts Receivable; or (xvii) enter into any agreement to do any of the foregoing. (b) Without limiting the generality of the preceding obligation of the Seller to cause the Department Store Division to conduct its business and operations according to its ordinary course of business, the Seller shall and shall cause each of its Subsidiaries and the Department Store Division to: 52 (i) perform their respective obligations under the Department Store Contracts and the Permitted Encumbrances in accordance with their terms, including the making of all payments when due; (ii) comply in all material respects with all statutes, laws, ordinances, rules and regulations applicable to the Department Store Assets and Assumed Department Store Liabilities; (iii) pay in full the cost of all work which is performed in the Department Store Premises promptly after it is completed and in any event prior to the Effective Time; (iv) immediately notify the Buyer if the Seller receives any notices from any lessor, Government, insurance company or other Person of any default or the need for any repairs, alterations or improvements to the Department Store Premises, or that any of the Department Store Premises are or may be in violation of any law, and promptly cure the default or cause compliance at the Seller's cost; (v) immediately notify the Buyer if the Seller receives any notices of or otherwise becomes aware of any condemnation proceeding affecting the Department Store Premises; (vi) obtain the Buyer's approval, which shall not be unreasonably withheld, before (x) renewing, or (y) electing not to renew any Department Store Leases or Department Store Space Leases; (vii) obtain the Buyer's approval, which shall not be unreasonably withheld, before (x) renewing, or (y) electing not to renew any material Department Store Contracts; (viii) maintain all insurance policies and name the Buyer as additional insured/loss payee on all policies that relate to the Department Store Assets; (ix) immediately notify the Buyer of any pending or threatened investigation by or proceeding before the IRS or Department of Labor relating to any Seller Plans which are defined benefit pension plans; 53 (x) cancel, as and when reasonably requested by the Buyer, Department Store Purchase Orders slated for delivery after the Effective Time; and (xi) maintain and comply in all material respects with the Seller Plans. Section 6.2 Disposition of the Excluded Assets. (a) During the period from the date of this Agreement until the Second Closing Date the Seller shall use best efforts to consummate the Disposition. (b) The parties intend that the Disposition will not create, give rise to or result in any liability or obligation to the Buyer. In this regard, the Seller will (i) on or prior to the First Closing Date with respect to any Disposition that occurs and is consummated on or prior to the First Closing Date, or on or prior to the Second Closing Date but after the First Closing Date with respect to any Disposition that occurs or is consummated after the First Closing Date but before the Second Closing Date, pay or cause to be paid or satisfy or cause to be satisfied any liabilities or obligations arising from or otherwise attributable to the Disposition that become due on or prior to the First Closing Date or the Second Closing Date, as the case may be and (ii) establish an adequate reserve for any known, actual or contingent liabilities or obligations of the Seller or any of its Subsidiaries arising from or attributable to the Disposition, which reserve shall become part of the Dissolution Escrow and Trust to be established under Section 6.13 of this Agreement. Section 6.3 Access and Investigation. (a) During the period from the date of this Agreement to the Effective Time the Buyer at its discretion may locate one or more of its representatives at the headquarters of the Department Store Division. During such period the Seller will cause its representatives and those of the Department Store Division to consult as requested by the Buyer on a regular basis with such representatives of the Buyer and to discuss the ongoing operations of the Department Store Division. The Seller will promptly notify the Buyer of any significant change in the normal course of business of the Department Store Division and of any complaints, investigations or hearings (or communications indicating that the same may be contemplated) by or of any Government, or the institution or threat of any significant litigation, in each case involving the Department Store Division, and will 54 keep the Buyer fully informed of such events and permit the Buyer's representatives access to all material prepared in connection therewith. (b) Between the date of this Agreement and the Effective Time, representatives of the Buyer, including, without limitation, directors, officers, accountants, attorneys and financial advisors, may make such investigation of the business and operations of the Department Store Division, the Department Store Assets and the Assumed Department Store Liabilities, including the confirmation of Department Store Cash, the Department Store Inventory and the Department Store Accounts Receivable, as it deems necessary or advisable, but such investigation shall not affect any representations and warranties of the Sellers hereunder. (c) Between the date of this Agreement and the Effective Time, the Seller agrees to permit the representatives of the Buyer to have access during normal business hours, upon reasonable notice, to all Department Store Files and Records and all other books and records of the Sellers, including tax returns and accountants' work papers, which in any way involve or relate to the Department Store Division, the Department Store Assets or the Assumed Department Store Liabilities. (d) Until the Effective Time, all information obtained by the Buyer and its representatives pursuant to this Section 6.3 shall be kept confidential in accordance with the terms and conditions of the Confidentiality Agreement, dated November 9, 1995, between the Buyer and Peter J. Solomon Company Limited, on behalf of the Seller. Section 6.4 Proxy Statement/Prospectus; Buyer Registration Statement. (a) Promptly after the execution of this Agreement, the Buyer and the Seller shall cooperate with each other and use all reasonable efforts to prepare and, as soon as is reasonably practicable, file with the SEC the Proxy Statement/Prospectus, together with appropriate forms of proxy, with respect to the shareholder meeting of the Seller referred to in Section 6.5, and the Buyer shall file the Buyer Registration Statement under the Securities Act for the purpose of registering the Stock Consideration issuable pursuant to Articles II and III hereof, which shall contain the Proxy Statement/Prospectus. The parties shall use all reasonable efforts to have the Buyer Registration Statement declared effective under the Securities Act, the Proxy Statement/Prospectus cleared by the SEC as promptly as practicable after filing and, as promptly as practicable after the Proxy Statement/Prospectus has been so cleared and the Buyer Registration Statement declared effective, shall mail the Proxy Statement/Prospectus that is a part of the 55 Buyer Registration Statement to the shareholders of the Seller as of the record date for the shareholder meeting referred to in Section 6.5. The Buyer and the Seller shall also take such actions as reasonably may be required to be taken under applicable "blue sky" laws in connection with the issuance of the Stock Consideration. The Buyer and the Seller each agree to correct any information provided by it for use in the Buyer Registration Statement or the Proxy Statement/Prospectus which shall have become false or misleading in any material respect and shall take all steps necessary to cause the Buyer Registration Statement and the Proxy Statement/Prospectus as so corrected to be filed with the SEC to be disseminated to the shareholders of the Seller Common Stock as and to the extent required by applicable law. (b) Each of the parties hereto shall notify the other party hereto promptly of the receipt by it of any comments of the SEC and of any request by the SEC for amendments or supplements to the Proxy Statement/Prospectus or the Buyer Registration Statement and will supply the other party hereto with copies of all correspondence between it and its representatives, on the one hand, and the SEC or the members of its staff or any other Government official, on the other hand, with respect to the Proxy Statement/Prospectus or the Buyer Registration Statement. The Buyer and the Seller each shall use all reasonable efforts to respond promptly to any comments made by the SEC or any other Government official with respect to the Proxy Statement/Prospectus or the Buyer Registration Statement. (c) Prior to the Effective Time, the Seller shall cause to be delivered to the Buyer a letter identifying all persons who may be deemed to have been at the time of the record date for the shareholder meeting referred to in Section 6.5, "affiliates" of the Seller for purposes of Rule 145 under the Securities Act. The Seller shall provide the Buyer with such information and documents as the Buyer shall reasonably request for purposes of reviewing such letter. The Seller will use its reasonable best efforts to obtain from each Person who is identified in such letter as an affiliate of the Seller after the date of this Agreement and prior to the Effective Time a written agreement, in a form reasonably satisfactory to the Buyer, that such affiliate will not sell, offer to sell or otherwise dispose of any of the May Common Stock received by such affiliate in the Reorganization otherwise than within the limits and in accordance with the provisions of Rule 145, as amended from time to time, or except in a transaction that, in the opinion of legal counsel reasonably satisfactory to the Buyer, is exempt from registration under the Securities Act; provided that in no event will such affiliate sell, offer to sell or otherwise dispose of any shares of May Common Stock prior to the publication of financial results covering at least 30 days of post-Effective Time of the Buyer's use of the Department Store Assets as required by SEC Accounting Series Release No. 135. The Buyer Registration Statement will 56 include such information as may be requested by the Seller to permit resales of the May Common Stock received by a Person who may be deemed to be an underwriter of May Common Stock pursuant to Rule 145, and the effectiveness of the Buyer Registration Statement under the Securities Act and applicable "blue sky" laws shall be maintained for as long as is possible after the Effective Time without being required to file a post-effective amendment containing updated financial statements. Each of the Buyer and such affiliates will provide customary indemnification to one another with respect to the foregoing. Section 6.5 Shareholder Meeting. The Seller shall take all action necessary in accordance with applicable law and its Articles and Bylaws to convene a meeting of its shareholders as promptly as possible for the purpose of obtaining shareholder approval of the Reorganization. The Proxy Statement/Prospectus shall contain the recommendation of the Board of Directors of the Seller that the shareholders of the Seller vote to approve the Reorganization, and the Seller shall use its reasonable best efforts to solicit from shareholders of the Seller proxies in favor of such approval. Section 6.6 Acquisition Proposals. Unless and until this Agreement shall have been terminated pursuant to the terms hereof, except as otherwise contemplated by this Agreement, the Seller will not (and will not permit any of its Subsidiaries to and will use its reasonable best efforts to cause its officers, directors and employees and any investment banker, attorney, accountant or other agent retained by it or any of its Subsidiaries not to) initiate or solicit, directly or indirectly, any proposal or offer to acquire all or any substantial part of the business and properties or capital stock of the Seller or any of its Subsidiaries, whether by merger, purchase of assets, tender offer or otherwise (an "Acquisition Proposal"), or initiate, directly or indirectly, any contact with any Person in an effort to or with a view towards soliciting any Acquisition Proposal except as expressly provided in Section 6.2 hereof in respect of the Disposition. In the event the Seller or any of its Subsidiaries shall receive an Acquisition Proposal, the Seller shall immediately inform the Buyer as to any such Acquisition Proposal and the details thereof and shall deliver to the Buyer a copy of any letter, proposal or other document in which an Acquisition Proposal is expressed. Section 6.7 Consents. The Buyer and the Seller shall use their respective reasonable best efforts to obtain all consents and approvals required in connection with, and waivers of any violations, breaches and defaults that may be caused by, the consummation of the transactions contemplated by this Agreement or the Escrow Agreement. 57 Section 6.8 Filings. The Buyer and the Seller shall, as promptly as practicable, make any required filings and any other required submissions under any law, statute, order, rule or regulation with respect to the transactions contemplated by this Agreement or the Escrow Agreement and shall cooperate with each other with respect to the foregoing. Section 6.9 Best Efforts; Further Assurances. (a) Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its reasonable best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations, including, without limitation, the Pennsylvania Business Corporation Law, or to remove any judgments, injunctions, orders, decrees or other impediments or delays, legal or otherwise, to consummate the transactions contemplated by this Agreement and the Escrow Agreement. (b) If at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement or the Escrow Agreement, the proper officers and directors of the parties hereto shall take, or cause to be taken, all such necessary action. (c) Neither the Seller nor the Buyer shall knowingly take any action that, or knowingly fail to take any action the failure of which, would reasonably likely jeopardize the Reorganization contemplated herein to qualify as a reorganization within the meaning of Section 368(a) of the Code. Section 6.10 Publicity. The initial press release(s) with respect to the execution of this Agreement shall be acceptable to the Buyer and the Seller. Thereafter, so long as this Agreement is in effect, neither the Buyer or the Seller nor any Subsidiaries of either shall issue or cause the publication of any press release or other announcement with respect to this Agreement, the Escrow Agreement or the transactions contemplated hereby or thereby without prior consultation with the other party, except as may be required by law or by any listing agreement with a national securities exchange. Section 6.11 Collective Bargaining Agreements. Nothing contained in this Agreement shall require the Buyer to assume, adopt or otherwise be bound by the terms of any collective bargaining agreement to which the Seller or any of its Subsidiaries has been, is now or shall become, a party, and the Buyer expressly 58 disclaims any intent or obligation to assume, adopt or otherwise be bound by the terms of any such collective bargaining agreement. Section 6.12 NYSE Listing. To the extent necessary under applicable rules and regulations of the NYSE, the Buyer shall use all reasonable efforts to prepare and submit to the NYSE a listing application covering the Stock Consideration and shall use all reasonable efforts to obtain, prior to the Effective Time, approval for the listing of such shares, upon official notice of issuance. Section 6.13 Dissolution; Dissolution Escrow and Trust. (a) Within 12 months after the First Closing Date, the Seller will effect the Dissolution pursuant to which the Seller will distribute in complete liquidation the shares of May Common Stock received as the Stock Consideration (other than those shares subject to the Dissolution Escrow and Trust described below) and all other assets that were retained by the Seller and not transferred to the Buyer pursuant to this Agreement (other than those assets subject to the Dissolution Escrow and Trust described below) to the holders of the Seller Common Stock. (b) The Seller will, prior to the Dissolution (i) cause to be paid or satisfied all of the Seller's and its Subsidiaries' liabilities that become due on or prior to the date of Dissolution, and (ii) establish an escrow and trust (the "Dissolution Escrow and Trust") the terms of which will qualify it as a liquidating trust for U.S. federal income tax purposes containing cash (or, to the extent, the Seller's available cash shall be insufficient, shares of May Common Stock received as Stock Consideration) and, to the extent determined by the Seller, other assets in an amount (the "Dissolution Escrow Amount") reasonably believed by the board of directors of the Seller to satisfy the requirements of the Pennsylvania Business Corporation Law and be sufficient to pay or adequately provide for all known, actual or contingent liabilities or obligations of the Seller or any of its Subsidiaries, or arising out of the transactions contemplated by this Agreement and the Escrow Agreement that may be asserted against the Seller or any of its Subsidiaries by the Buyer or any of its Subsidiaries, following the Effective Time or the Trustee under the Dissolution Escrow and Trust. In addition to the Dissolution Escrow Amount, the Seller shall transfer to the Dissolution Escrow and Trust any Excluded Assets that the Seller is unable to sell, dispose of or otherwise liquidate on or prior to the date the Seller commences its Dissolution; such transfer shall be for the primary purpose of liquidating the Excluded Assets. The Seller shall prepare, in good faith, a written preliminary estimate of the Dissolution Escrow Amount and shall deliver a copy thereof to the Buyer at least 45 days prior to the date of Dissolution for the Buyer's 59 information. Written notice of the determination of the Dissolution Escrow Amount by the Seller's board of directors and the terms thereof, including copies of the minutes of any meeting or any consents related thereto, shall be delivered to the Buyer for the Buyer's information at least 10 Business Days prior to the date of Dissolution. (c) The Dissolution Escrow and Trust shall be established with an independent third party escrow agent reasonably acceptable to the Buyer pursuant to an escrow and trust agreement in form prepared by the Sellers' counsel and delivered to the Buyer within 30 days from the date hereof for the Buyer's reasonable approval. Section 6.14 Sales and Transfer Taxes. All sales and transfer Taxes and fees, including without limitation, any real estate transfer (subject to the next sentence) or gains Taxes, patent and trademark transfer Taxes and recording fees, incurred in connection with the transactions contemplated by this Agreement will be borne by the Seller, and the Seller will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such sales, transfer and recording Taxes and fees, and, if required by law, the Buyer will join in the execution of any such Tax Returns or other documentation. The Buyer shall be responsible for the lesser of (a) one-half or (b) $1,700,000 of the total real estate transfer taxes arising in connection with the transfer of the Department Store Assets. The Sellers shall provide the Buyer with copies of any Tax returns or other documentation relating to such real estate transfer Taxes at least 20 business days prior to the due date thereof, accompanied by a statement setting forth the calculation of the Buyer's share of any Taxes shown due and owing on such Tax returns, which share shall be calculated in accordance with the immediately preceding sentence (the "Buyer's Transfer Taxes"). The Buyer shall have the right to review such Tax returns prior to their filing. If the Buyer disputes the amount of the Buyer's Transfer Taxes, the Buyer and the Sellers shall consult and resolve in good faith the amount due and owing by the Buyer. Upon agreement, the Buyer shall issue a check or checks payable directly to the relevant Taxing authorities in an amount or amounts equal in the aggregate to the Buyer's Transfer Taxes and shall deliver such check(s) to the Sellers not later than three business days before the due date of the relevant Tax returns. The Sellers shall include such check(s) in the filing of any such Tax return to which such check(s) relate(s). Section 6.15 Use of Name. The Buyer will use a trade name consisting of or containing the word "Strawbridge" to identify its traditional department store operations (including those currently operating under the trade name Hecht's) in the Philadelphia area continually following the Effective Time unless the 60 Buyer's traditional department store operations in the United States are operated under less than three trade names. Section 6.16 Temporary Use of Corporate Offices. For a period of 12 months after the Effective Time, the Buyer shall grant to the Seller a license to continue to use the ninth and tenth floors and portions of the eighth (for Accounts Payable), eleventh (for Human Resources) and lower level (for Mail Room) floors of the Main Store at 801 Market Street for, and limited to, corporate offices of the Seller for the sole purpose of winding up the Seller's business to effectuate the Dissolution. The Seller shall pay a pro rata share of real and personal property taxes and property and general liability insurance incurred by the Buyer for such Main Store. The Seller may cause an early termination of the license or portions thereof by giving 30 days' notice thereof to the Buyer. All costs directly relating to the use of the space by the Seller, including without limitation utilities, telecommunications, security, supplies and janitorial services during the term of the license shall be borne by the Seller. The Buyer reserves the right to relocate, at its cost, such space within or without the building. During the term of the license, the Buyer shall also permit the Seller to use, on a non-exclusive basis, all telecommunication equipment, furniture and furnishings located in such space that are Department Store Equipment, Machinery and Fixtures, without any additional cost or fee. The Seller agrees to use the space in a good and orderly fashion, to abide by rules, regulations and security measures reasonably established by the Buyer for access to and use of such space, and to return the same and the Department Store Equipment, Machinery and Fixtures contained therein, in the same condition as at the Effective Time, ordinary wear and tear and damage caused by casualty excepted. The Buyer shall have reasonable access to and through the space occupied by the Seller for maintenance and other operational purposes related to the Main Store. The Seller shall indemnify, defend and hold harmless the Buyer and its officers, directors, employees, agents and contractors from and against any and all claims, demands, causes of action, losses, damages, liabilities, cost and expenses (including, without limitation, attorneys' fees and disbursements), for uninsured physical damage to such space or death or bodily injury suffered or incurred by the Buyer or any other Person and arising out of or in connection with the use of such space, or caused by the Seller, its employees or agents during the term of the license. Section 6.17 Temporary Continuation of R.D.I. Contract. For the period between the Effective Time and January 15, 1997, the Seller shall maintain the Seller's contract, dated October 26, 1981, as supplemented June 5, 1995, with Retail Distributors, Inc. (the "RDI Contract") so that Retail Distributors, Inc. shall provide to the Buyer with respect to the Buyer's merchandise the same receiving, marking, 61 warehousing, packing, distribution and other services as it presently provides to the Seller under the RDI Contract. The Buyer may cause an early termination of this services agreement by giving 30 days' notice thereof to the Seller. The Buyer shall pay a pro rata share of real and personal property taxes and property and general liability insurance incurred by the Seller for such distribution center. In addition, all fees and expenses, not otherwise included above, payable by the Seller to Retail Distributors, Inc. under the RDI Contract for services provided to the Buyer at the distribution center, after deducting all rents payable to the Seller by Retail Distributors, Inc. under the RDI Contract, during the term of this services agreement between the Seller and the Buyer shall be borne by the Buyer; provided, however, that in no event shall the Buyer be responsible for or charged with any fees, expenses or other costs or liabilities for or associated with termination of the RDI Contract, reduction in the level or type of requested services, transfer of work, discontinuance of business, severance, ERISA, WARN, trade union claims, or other similar or dissimilar claims or obligations under the RDI Contract. Section 6.18 Island Avenue Condemnation. The Sellers shall take all actions necessary to (a) enable the Sellers to carry out the provisions of Section 6.17, and (b) satisfy the conditions set forth in Schedule 4.10(c), including all environmental remediation, so that the Buyer shall receive from the City of Philadelphia the sum set forth in Section 4.10(c) on or before the date set forth in Section 4.10(c). Section 6.19 Department Store Space Leases. The Sellers shall cause, prior to the First Closing Date, all of the Department Stores Space Leases noted as required to be terminated on Schedule 1.39 to be terminated so that the occupants thereunder shall have vacated the Department Store Premises prior to the Effective Time and removed all personal property owned by such parties without damaging the Department Store Premises. All liability which may arise in connection with the existence or termination of the such Department Store Space Leases shall be borne solely by the Sellers. 62 ARTICLE VII EMPLOYEES AND EMPLOYEE PLANS Section 7.1 Offer of Employment. (a) The Buyer shall offer to hire, effective as of the Effective Time, in a comparable position at locations reasonably determined by the Buyer, Seller's full-time regular and part-time regular sales and sales support associates and their supervisory personnel in the Department Stores and the Seller's associates in the Service Building and the Eighth & Filbert Parking Garage described on Schedule 1.24 (but excluding all corporate and regional employees of the Seller), provided that such employees are not on leave on the day immediately prior to the First Closing Date. The Buyer shall also offer to hire any employees who are on approved leave of absence who would otherwise be within the class of employees to whom offers have to be made, but for their leave status, whose reemployment rights are guaranteed by law. The Buyer may also offer to hire such other of the Seller's employees as the Buyer notifies Seller that it intends to make offers of employment to, but such offer will not necessarily be in a comparable position. The employees who are offered employment pursuant to this Section 7.1(a) are referred to as the "Employment Offerees." The employees who accept such offers of employment by the Effective Time pursuant to this Section 7.1(a) shall become employees of the Buyer as of the Effective Time or, if on leave, as of the date of resumption of employment, and are referred to as the "Transferring Employees." Except for the Employment Offerees offered employment pursuant to the first and second sentences of this Section 7.1(a), the Buyer shall have no obligations or liabilities to make offers to or otherwise hire any employees of the Seller. The Seller will have sole responsibility for any obligations or liabilities to all of the Sellers' employees at all locations under WARN, except only that the Buyer will have sole responsibility for any obligations and liabilities to the Transferring Employees under WARN to the extent that WARN thresholds are exceeded as a result of actions taken by the Buyer after the Effective Time. (b) Except as otherwise provided in this Article VII, the employment of the Transferring Employees shall be upon such terms and conditions as the Buyer, in its sole discretion, shall determine. From and after the Date of this Agreement, upon the Buyer's request, the Seller shall provide the Buyer reasonable access to and copies of all data (including computer data) regarding the dates of hire, hours, compensation and job description of the Employment Offerees and such other 63 employment records covering employees of the Department Store Division as the Buyer may reasonably request. (c) Transferring Employees shall receive credit for all periods of employment with the Seller from the most recent date of hire by the Seller prior to the Effective Time under each Buyer's Employee Benefit Plan for purposes of eligibility and vesting. Section 7.2 Collective Bargaining Agreements. All collective bargaining agreements that apply to any employees, former employees or retired employees in the Department Store Division are listed on Schedule 7.2. The Buyer shall not assume and shall have no responsibility in any way relating to any collective bargaining agreements, including, without limitation, those listed on Schedule 7.2. Section 7.3 Severance Plans. The Buyer shall not adopt and shall have no responsibility in any way relating to any severance, salary continuation or termination pay plans of the Seller for the benefit of any employees of the Seller; provided, however, the Buyer shall recognize, for severance purposes, all service with the Seller that the Buyer recognizes under each Buyer's Employee Benefit Plan for purposes of eligibility and vesting pursuant to Section 7.1(c). Section 7.4 Employee Benefit Plans. (a) With respect to each employee, former employee and retired employee (and their dependents), the Seller will retain responsibility for (i) except as otherwise provided in Section 7.7, any and all obligations, whenever incurred, under any Seller's Employee Welfare Benefit Plan, and (ii) any and all claims whenever incurred, whether or not reported, for all worker's compensation, unemployment compensation and other government mandated benefits (collectively referred to herein as "Welfare Type Plans"). Except as otherwise provided in Section 7.7, the Buyer does not assume any obligations under any Seller's Employee Welfare Benefit Plan or Welfare Type Plans, and neither the Buyer nor any Buyer's Employee Welfare Benefit Plan, programs, practices or arrangements will have any liability for any claim for benefits under any Seller's Employee Welfare Benefit Plan or Welfare Type Plans, including, without limitation, retiree benefit plans, whenever incurred, of any employee, former employee or retired employee of the Seller. The Seller shall take no actions on or after the date hereof that will increase benefits under the Seller's group health plans; provided, however, that such modifications of benefits and premium as have been communicated to employees prior to the date of this Agreement that are scheduled for July 1, 1996, shall not be considered an increase in benefits for 64 the purpose hereof. All liability for accrued but unpaid vacation of all employees, excluding Transferring Employees, shall be the responsibility of the Seller. The accrued but unpaid vacation with respect to Transferring Employees shall be credited to the Buyer at First Closing by including in Other Current Liabilities as identified on Schedule 1.15, an amount equal to the accrued vacation pay liability and related Taxes determined, as of the Effective Time, in accordance with GAAP and such accrued vacation pay shall be paid to Transferring Employees by the Buyer at or prior to termination of employment with the Buyer. (b) Effective at the Effective Time, Transferring Employees and their eligible dependents shall be eligible to enroll in such Employee Welfare Benefit Plan as the Buyer shall make available to new employees hired at the Department Stores by the Buyer after the Effective Time and shall otherwise be subject to the terms and conditions of such Plans; provided that Transferring Employees who participated in the Seller's Employee Welfare Benefit Plan which provides medical benefits at the Effective Time shall be eligible to enroll in the Buyer's Employee Welfare Benefit Plan which provides medical benefits without application of (i) any waiting periods, (ii) any evidence of insurability restriction or (iii) any preexisting physical or mental condition restrictions except to the extent and duration that any waiting periods, evidence of insurability restriction or preexisting mental or physical condition restrictions were not satisfied under the Seller's Employee Welfare Benefit Plan as of the Effective Time. (c) The Seller shall have sole responsibility for "continuation coverage" obligations under the Seller's group health plans to all of the Seller's employees, and "qualified beneficiaries" of such employees for whom a "qualifying event" occurs with respect to the Seller's group health plans. The Buyer shall have responsibility only for "continuation coverage" benefits payable under the Buyer's group health plans to all Transferring Employees and "qualified beneficiaries" of Transferring Employees for whom a "qualifying event" occurs with respect to the Buyer's group health plans after the Effective Time. The phrases "continuation coverage," "qualified beneficiaries" and "qualifying event" shall have the meaning ascribed to them in Section 4980B of the Code and Section 601-608 of ERISA. (d) Except as specifically provided herein with respect to any Seller's Employee Benefit Plan, the Seller shall be solely liable for making any and all payments as are required by and under such Seller's Employee Benefit Plan to Transferring Employees, other current and former employees of the Seller, and their respective covered dependents pursuant to their terms or pursuant to applicable law, and neither the Buyer nor any Buyer's Employee Benefit Plan, programs, practices or 65 arrangements will have any liability with respect to any Seller's Employee Benefit Plan. (e) Except as otherwise provided in Sections 7.5, 7.6 and 7.7, neither the Buyer nor any Buyer's Employee Benefit Plan, programs, practices or arrangements will have any liability for post-retirement or post-termination benefits to any of the Seller's employees, former employees or retired employees, including without limitation the Transferring Employees who are, or become, eligible for retirement at or after the Effective Time. Section 7.5 Retirement Savings Plan and Pension Benefit Plan. (a) The term "Affected Employees" with respect to a particular Employee Pension Benefit Plan shall mean all Transferring Employees, former employees and retired employees who, as of the Effective Time, were participants (within the meaning given to such term in section 3(7) of ERISA) in the Seller's Employee Pension Benefit Plan. (b) The Seller will maintain its current 401(k) retirement savings plan (the "Savings Plan") and Employee Pension Benefit Plan as they apply to all employees on the same terms and conditions from the date hereof until the First Closing. (c) Contributions by Affected Employees to the Seller's Savings Plan shall cease at the Effective Time. Contributions made by Affected Employees through the First Closing Date shall be matched by the Seller to the extent permitted by the terms of the Savings Plan and such matching Contribution shall be made as soon as practicable after the First Closing Date. The Seller shall take such action as is necessary, if any, with respect to the Savings Plan to vest each of the Affected Employees to a level of 100% of all of his/her Accounts (as defined in the Savings Plan), whether attributable to individual or Seller contributions, and as permitted under the terms of the Saving Plan to effect distribution to each of the Affected Employees who (i) is a Transferring Employee, (ii) immediately prior to the First Closing Date was a participant in the Savings Plan and (iii) in the case of a participant whose interest in the Savings Plan exceeds $3,500, consents to such distribution, of 100% of any and all of such Affected Employees' Accounts under the Savings Plan, determined as of the date such determination would have been made had such Affected Employees terminated employment on the First Closing Date. Such distribution shall be made as soon after the First Closing Date as practicable and as permitted under 66 applicable law (including ERISA and the Code) and in accordance with all other provisions of the Savings Plan. (d) As soon as practicable after the Effective Time, the Seller shall cause the trustees for the Seller's Employee Pension Benefit Plan to apportion the assets comprising the Employee Pension Benefit Plan in accordance with the requirements of Section 414(l) of the Code and regulations thereunder such that, effective as of the Effective Time, the amount of assets (consisting of cash or, to the extent agreed by the Buyer and the Seller, marketable securities) equal in value to the present value of the accrued benefits under the Employee Pension Benefit Plan (valued as determined by the Seller's enrolled actuary and verified by the Buyer's actuary, with service for eligibility and benefit accruals determined pursuant to the actuarial method and assumptions shown on Schedule 7.5 and subject to the limitations imposed by Section 414(l) of the Code and regulations thereunder) of the Affected Employees will be transferred, as soon as practicable following filing of the forms required by the IRS, to the trust forming a part of the Buyer's retirement plan (the "May Retirement Plan"). The Buyer will cause the May Retirement Plan to provide with respect to the Affected Employees (i) who are Transferring Employees full credit for all continuous employment and service with the Seller for purposes of eligibility and vesting thereunder as well as full (i.e., 100%) vesting of accrued benefits derived from the Employee Pension Benefit Plan through the Effective Time, (ii) who are retired employees, an accrued benefit equal to the retired employee's accrued benefit under the Employee Pension Benefit Plan, and (iii) who are former employees, an accrued benefit equal to such former employee's accrued benefit under the Employee Pension Benefit Plan. Upon the receipt by the May Retirement Plan of the assets so apportioned and transferred, neither the Seller nor the Employee Pension Benefit Plan shall have any further liability with respect to any Affected Employees. The Seller shall cause the Employee Pension Benefit Plan to be amended, and the Buyer shall cause the May Retirement Plan to be amended, in each case as necessary or appropriate to effect the transfers contemplated by this Section 7.5(d). If, and to the extent that, it is determined that the assets of the Employee Pension Benefit Plan are insufficient to permit the transfer in full of the present value of accrued benefits described in this Section 7.5(d), the Other Current Liabilities as identified in Schedule 1.15 shall be increased for the amount of such insufficiency. In addition, and whether or not there is such a deficiency, there shall be added to the Other Current Liabilities in Schedule 1.15 for the "rule of 70" (as defined in Schedule 7.5) associates the amount determined in accordance with paragraph 8 of Schedule 7.5. The Buyer shall not be responsible for any benefits payable under the Employee Pension Benefit Plan with respect to Employees who are not Affected Employees and no assets relating to such other employees will be transferred to the May Retirement Plan. Prior to the transfer 67 of assets described in Section 7.5(d), the Seller shall satisfy the Buyer that there are no operational or other defects in the Employee Pension Benefit Plan which would lead the IRS to threaten to or act to disqualify the Employee Pension Benefit Plan, or otherwise impose taxes or penalties on the Employee Pension Benefit Plan that would result in a liability to the Buyer or the May Retirement Plan. (e) The Buyer shall not assume any obligations with respect to any Multiemployer Plan. (f) Affected Employees who are not Transferring Employees shall have the benefits provided for such Affected Employees in Section 7.5(d). Affected Employees who are Transferring Employees shall become members of the May Retirement Plan as of the Effective Time and shall be entitled to enroll in The May Department Stores Company Profit Sharing Plan (the "May Profit Sharing Plan") on the first day of the calendar quarter coincident with or next following the Effective Time. Transferring Employees who at the Effective Time are not participants in the Employee Pension Benefit Plan shall be eligible for membership in the May Retirement Plan and the May Profit Sharing Plan pursuant to the terms and conditions of such latter plans. Section 7.6 Supplemental Executive Retirement Plan. The Sellers shall administer and be liable for the payment of benefits under the Seller SERP accrued prior to the Effective Time that are due before the Effective Time. No benefits shall accrue under the Seller SERP after the Effective Time. The Buyer shall assume the administration and the liability for the payment of benefits accrued under the Seller SERP prior to the Effective Time that are due after the Effective Time. Other Current Liabilities in Schedule 1.15 shall be increased by $13,300,000 less the fair market value of the assets held in the trust for the Seller SERP (the "Rabbi Trust") at the Effective Time and which are transferred to the Buyer with the Rabbi Trust at the Effective Time (the "Rabbi Trust Funding Amount"). The Seller shall notify the Buyer at least 20 Business Days prior to the First Closing if the Seller elects to have the Buyer place in the Rabbi Trust the Rabbi Trust Funding Amount, in which event the Buyer will do so at the Effective Time provided that all steps, if any, necessary to make the Buyer the sponsor of the Rabbi Trust have been taken, and Other Current Liabilities in Schedule 1.15 shall be further increased by $2,500,000. At no time shall the Buyer (i) modify the Seller SERP to reduce the benefits of, or the present value of any benefit of, any participant in the Seller SERP, (ii) merge or consolidate the Seller SERP or the Rabbi Trust with any other benefit plan or arrangement, (iii) terminate the Seller SERP or the Rabbi Trust before the full discharge of the Buyer's liabilities, (iv) add additional 68 participants to the Seller SERP or so modify the Rabbi Trust as to increase the class of claimants thereunder, or (v) take any other action the effect of which would be to divert the assets of the Rabbi Trust to any purpose other than the required payment of benefits to or on behalf of the persons who are participants in the Seller SERP at the Effective Time, subject however, to the continuing conventional exposure of such trust to the creditors of the sponsor thereof. Section 7.7 Retiree Health Plan. The Sellers shall administer and be liable for the payment of claims for benefits "incurred" under the Retiree Health Plan before the Effective Time. If, at its election, the Seller requests the Buyer to do so by notice given to the Buyer at least 20 business days before the First Closing, the Buyer shall assume the administration and the liability for the payment of claims for benefits "incurred" under the Retiree Health Plan after the Effective Time. If the Seller's election is (a) to not so request the Buyer, the amount of $320,000,000 set forth on Schedule 1.56 shall be reduced by $13,800,000 to $306,200,000, or (b) to so request the Buyer, the Other Current Liabilities in Schedule 1.15 shall be increased by $34,500,000. Claims for benefits will be deemed "incurred" on the date that the services giving rise to the expenses were rendered; provided, however, that, with respect to hospitalization, claims incurred for services or treatments related to the hospitalization (for example, physician visits, radiology and pathology fees and expenses during hospitalization) shall be deemed to be incurred on the date of admission to the hospital. Section 7.8 Consulting Contracts. The Sellers have employment contracts with those executives who are listed on a schedule dated April 3, 1996, which the Seller has previously furnished to the Buyer. The Buyer is not assuming such contracts nor any obligations pursuant thereto; provided, however, that if, as of the Effective Time, by notice given to the Buyer at least 20 business days before the First Closing, the Sellers and one or more of such executives terminate such contracts and such executives elect to execute consulting contracts with and to the satisfaction of the Buyer in the form of Schedule 7.8 for the term and the monetary compensation set forth for such executives on that schedule, the Other Current Liabilities in Schedule 1.15 shall be increased by the amounts shown as total compensation on such schedule for such electing executives. To the extent any one or more of such executives do not execute a consulting contract with the Buyer as in this Section 7.8 provided, the amount of $320,000,000 (as adjusted, if at all, pursuant to Section 7.7) set forth on Schedule 1.56 shall be reduced by 40% of the amounts shown as total compensation on such schedule for such executives who do not execute such consulting contract. 69 ARTICLE VIII CONDITIONS Section 8.1 Conditions to the Obligations of Each Party to Effect the Acquisition. The respective obligations of each party to effect the transactions contemplated by Articles II and III shall be subject to the fulfillment at or prior to the First Closing Date of each of the following conditions: (a) The Reorganization shall have been approved by the shareholders of the Seller by the vote required by the Pennsylvania Business Corporation Law and the Seller's Articles and Bylaws. (b) All waiting periods (and any extension thereof) applicable to the consummation of the transactions contemplated by Article II and Article III under the HSR Act shall have expired or been terminated. (c) No preliminary or permanent injunction or other order, decree or ruling issued by a Government nor any statute, rule, regulation or executive order promulgated or enacted by a Government shall be in effect which would prevent the consummation of the transactions contemplated by this Agreement or the Escrow Agreement. (d) The Registration Statement shall be effective under the Securities Act and no "stop order" shall have been issued with respect to the Registration Statement and no proceeding for such purpose shall have been commenced. (e) The May Common Stock constituting the Stock Consideration shall have been approved for listing by the NYSE, subject to official notice of issuance. (f) All licenses, permits, consents, approvals, waivers, authorizations, qualifications and orders of any Government and parties to any contracts and leases with the Sellers as are necessary in connection with the consummation of the transactions contemplated by this Agreement or the Escrow Agreement shall have been obtained. (g) The Seller shall have received the written opinion of Morgan, Lewis & Bockius LLP, substantially in the form of such opinion described 70 in the Proxy Statement/Prospectus, to the effect that the transactions contemplated hereby qualify as a tax-free reorganization under Section 368(a)(1)(C) of the Code. Section 8.2 Additional Conditions to the Obligations of the Seller. The obligation of the Seller to effect the transactions contemplated by Articles II and III is also subject to each of the following conditions: (a) The Buyer shall in all material respects have performed each obligation to be performed by it hereunder on or prior to the First Closing Date. (b) The representations and warranties of the Buyer set forth in this Agreement shall be true and correct in all material respects at and as of the First Closing Date as if made at and as of such time, except to the extent that any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. (c) The Buyer shall have delivered such certificates as are reasonably requested by the Seller certifying the satisfaction of the foregoing conditions. Section 8.3 Additional Conditions to the Obligations of the Buyer. The obligation of the Buyer to effect the transactions contemplated by Articles II and III is also subject to each of the following conditions: (a) The Sellers shall in all material respects have performed each obligation to be performed by them hereunder on or prior to the First Closing Date. (b) The representations and warranties of the Seller set forth in this Agreement shall be true and correct in all material respects at and as of the First Closing Date as if made at and as of such time, except to the extent that any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. (c) The Seller shall have delivered such certificates as are reasonably requested by the Buyer certifying the satisfaction of the foregoing conditions. (d) The Seller shall have delivered to the Buyer estoppel certificates from all parties to the material Department Stores Contracts that are not 71 inconsistent with the Sellers' representations and warranties set forth in this Agreement and that do not disclose any defaults by the Sellers thereunder. (e) A title company reasonably acceptable to the Buyer and the Sellers shall have issued to the Buyer commitments for the Department Store Premises reasonably acceptable to the Buyer and consistent with the provisions of this Agreement. (f) Prior to the First Closing Date, the Seller shall have taken all steps necessary to consummate the Reorganization other than the filing of the Articles of Dissolution of the Seller with the Department of State of the Commonwealth of Pennsylvania each in a form and by a method acceptable to the Buyer. ARTICLE IX TERMINATION AND ABANDONMENT Section 9.1 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned, at any time prior to the Effective Time: (a) by mutual consent of the Seller and the Buyer; or (b) by the Buyer, if there has been a material violation or breach by the Sellers of any agreement, representation or warranty contained in this Agreement which has rendered the satisfaction of any condition to the obligations of the Buyer impossible and such violation or breach has not been waived by the Buyer; or (c) by the Seller, if there has been a material violation or breach by the Buyer of any agreement, representation or warranty contained in this Agreement which has rendered the satisfaction of any condition to the obligation of the Seller impossible and such violation or breach has not been waived by the Seller; or (d) by either the Seller or the Buyer, if a Government shall have issued an order, decree or ruling or promulgated or enacted any statute, rule, regulation or executive order, in each case, permanently restraining, enjoining or 72 otherwise prohibiting the transactions contemplated by this Agreement; provided, that any such order, decree or ruling shall have become final and nonappealable; or (e) by either the Seller or the Buyer, if at the shareholders meeting of the Seller contemplated by Section 6.5 the Reorganization and any other transactions contemplated hereby that are required to be approved by the shareholders of the Seller shall fail to be approved by such shareholders by the vote required by the Pennsylvania Business Corporation Law and the Seller's Articles; or (f) by the Buyer, if the Seller shall have (i) withdrawn, modified or amended in any respect its approval or recommendation of the Reorganization or the other transactions contemplated hereby that are required to be approved by the shareholders of the Seller, (ii) failed to include in the Proxy Statement/Prospectus such recommendation (including the recommendation that the shareholders of the Seller vote in favor of the Reorganization and such other transactions), (iii) taken any public position inconsistent with such recommendation or (iv) if the board of directors of the Seller shall have resolved to do any of the foregoing; or (g) by either the Seller or the Buyer, if through no fault of the party electing to terminate, the Effective Time has not occurred on or before September 30, 1996. Section 9.2 Procedure and Effect of Termination. In the event of termination of this Agreement and abandonment of the transactions contemplated hereby by the parties pursuant to Section 9.1 (d), (e) or (g), written notice thereof shall forthwith be given to the other party, and this Agreement shall terminate and the transactions contemplated hereby shall be abandoned, without further action by any of the parties hereto. If this Agreement is terminated pursuant to Section 9.1 (a), (d), (e) or (g), no party hereto shall have any liability or further obligation to the other party to this Agreement pursuant to this Agreement. Nothing contained herein shall affect the Option Agreement. 73 ARTICLE X MISCELLANEOUS Section 10.1 Survival of Representations and Warranties. None of the representations and warranties made in this Agreement shall survive the Effective Time for a period of more than 12 months. Section 10.2 Costs and Expenses. Except as otherwise specifically provided herein, all legal and other costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. Section 10.3 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, postage prepaid, or by facsimile transmission to the parties at the following addresses or at such other addresses as shall be specified by the parties by like notice; provided, that a notice of change of address shall be effective only upon receipt thereof: If to the Buyer to: The May Department Stores Company 611 Olive Street St. Louis, Missouri 63101 Attention: Louis J. Garr, Jr., Esq. General Counsel Facsimile Number: 314-342-6384 With a copy to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Attention: J. Michael Schell, Esq. Facsimile Number: 212-735-2000 74 If to the Seller to: Strawbridge & Clothier 801 Market Street Philadelphia, Pennsylvania 19107 Attention: Francis R. Strawbridge III, Chairman Facsimile Number: 215-629-6833 With a copy to: Morgan, Lewis & Bockius LLP 2000 One Logan Square Philadelphia, PA 19103-6993 Attention: Donald A. Scott Facsimile Number: 215-963-5299 Section 10.4 Amendment. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. Section 10.5 Entire Agreement. This Agreement, the Escrow Agreement, the Confidentiality Agreement, the Option Agreement and the documents contemplated hereby and thereby constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof. Section 10.6 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. Section 10.7 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania (without regard to the principles of conflicts of law thereof). Section 10.8 Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 75 Section 10.9 Assignment. This Agreement and all the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither this Agreement nor any of their rights hereunder shall be assigned by any of the parties hereto without the prior written consent of the other parties. Section 10.10 Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. Section 10.11 Specific Performance. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the Commonwealth of Pennsylvania or State of New York, this being in addition to any other remedy to which such party is entitled at law or in equity. In addition, each of the parties hereto (i) consents to submit itself to the personal jurisdiction of any Federal court located in the Commonwealth of Pennsylvania or State of New York in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (iii) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a Federal court sitting in the Commonwealth of Pennsylvania or State of New York. Section 10.12 No Third Party Beneficiary. Except for the Seller, the Buyer and their respective Affiliates and Employee Benefit Plan, no Person is intended to nor shall be a beneficiary of this Agreement or any provision hereof. 76 IN WITNESS WHEREOF, this Agreement has been signed by the duly authorized officers of each of the parties hereto as of the day and year first written above. THE MAY DEPARTMENT STORES COMPANY By: __________________________________ Name: Title: STRAWBRIDGE & CLOTHIER By: __________________________________ Name: Title: 77 Exhibit A Option Agreement Exhibit B Escrow Agreement Exhibit C Undertaking and Indemnity Agreement Schedules 1.3 Extended Age Departments 1.6 Assumed Long-Term Liabilities Amount 1.7 Bill of Sale 1.15 Closing Balance Sheet Net Working Capital Amount 1.24 Department Store Distribution Centers 1.26 Department Store Division Balance Sheet 1.31 Department Store Land 1.32 Department Store Leases 1.37 Department Store Real Property 1.38 Department Stores 1.39 Department Store Space Leases 1.50 Additional Excluded Assets 1.56 First Closing Stock Consideration 4.1 Jurisdictions Qualifications 4.3 Department Store Subsidiaries 4.4 Seller Violations 4.6 Seller Absence of Change 4.8 Litigation 4.9 Tax Matters 4.10(b) Permitted Encumbrances 4.10(c) Island Avenue Condemnation 4.12 Other Department Store Contracts 4.14 Department Store Intellectual Property 4.15 Seller Employee Benefit Plans 4.15(b) Seller Plans Liabilities 4.16 Employment and Severance Agreements 4.18 Assets Necessary to the Business 4.24 Insurance 4.25 Environmental Disclosures 5.3 Buyer Subsidiaries Ownership 5.5 Buyer Violations 5.7 Buyer Absence of Change 5.10 Buyer Tax Matters 5.11 Buyer Employee Pension Benefit Plans 7.2 Collective Bargaining Agreements 7.5 Actuarial Method and Assumptions 7.8 Consulting Contract Form EX-2.2 3 EXHIBIT 2-2 Exhibit 2.2 ASSET OPTION AGREEMENT ASSET OPTION AGREEMENT (the "Option Agreement"), dated as of April __ 1996, between The May Department Stores Company, a New York corporation (the "Buyer"), Strawbridge & Clothier, a Pennsylvania corporation (the "Seller"), S&C, Cherry Hill, Inc., a Pennsylvania corporation ("CHI") and S&C, Concord, Inc., a Pennsylvania corporation ("CI"); the Seller, CHI and CI herein collectively, the "Sellers." W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Buyer and the Seller propose to enter into an Asset Purchase Agreement, as of the date hereof (the "Asset Purchase Agreement"), which provides, among other things, that upon the terms and subject to the conditions set forth in the Asset Purchase Agreement, the Sellers and other Subsidiaries of the Seller will sell to the Buyer the Department Store Assets and some or all of the Disposition Proceeds in exchange for the assumption by the Buyer of the Assumed Department Store Liabilities and the issuance and delivery by the Buyer of the Stock Consideration; and WHEREAS, as a condition to the willingness of the Buyer to enter into the Asset Purchase Agreement, the Buyer has required that the Sellers agree, and the Sellers have agreed, to grant the Buyer the Option (as hereinafter defined), on the terms and subject to the conditions set forth herein; NOW, THEREFORE, to induce the Buyer to enter into and in consideration of the entering into the Asset Purchase Agreement and of the mutual covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Grant of Option. The Sellers hereby grant to the Buyer an irrevocable option (the "Option") to purchase "Option Store A," "Option Store B," "Option Store C" and "Option Store D," as such department stores are described on Annex I (each an "Option Store," and collectively, the "Option Stores"). The aggregate consideration for the Option Stores shall be $56,240,000 ($18,960,000 for Option Store A; $20,640,000 for Option Store B; $12,480,000 for Option Store C (less an amount computed for such Option Store pursuant to Section 1.6(b) of the Asset Purchase Agreement) and $4,160,000 for Option Store D (less an amount computed for such Option Store pursuant to Section 1.6(b) of the Asset Purchase Agreement)) and the assumption of the Option Store Liabilities as defined in Annex I. The cash amount payable for the Option Stores is referred to herein in the aggregate and as to each of the Option Stores separately, as the "Purchase Price." 2. Exercise of Option. (a) Subject to the provisions set forth below, the Buyer may exercise the Option as to any or all of the Option Stores (at any one time prior to the termination of the Option pursuant to Section 21) upon the occurrence of one or more of the following events: (i) the acquisition of the beneficial ownership by any person, entity or group (as such terms are used in the Securities Exchange Act) other than the Buyer or any of its Affiliates of 25% or more of the voting power of the outstanding shares of the Seller Common Stock on a fully diluted basis; or (ii) the execution by the Seller of an agreement relating to, or the consummation of, a merger, consolidation or other similar business combination of the Seller; or (iii) the Asset Purchase Agreement has been terminated pursuant to Section 9.1(b), 9.1(e) or 9.1(f) thereof. (b) If the Buyer wishes to exercise the Option, the Buyer shall give a written notice to the Seller of its exercise of the Option, which notice shall specify the Option Stores with respect to which the Buyer is exercising the Option (such Option Stores are sometimes referred to hereinafter as the "acquired Option Stores"). The closing of the purchase of an Option Store pursuant to the Option (each such transaction, a "Closing") shall be subject to the expiration or early termination of the waiting period under the HSR Act, if applicable, and the obtaining of any other required regulatory approvals and shall take place at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022, on a date and at a time designated by the Buyer at the time that it gives notice of its exercise of the Option with respect to such Option Store. 3. Escrow. As promptly as practicable, but in no event later than 10:30 a.m. New York City time on April 19, 1996, (i) the Buyer and the Sellers shall execute an escrow agreement (the "Option Escrow Agreement") in a form acceptable to both the Buyer and the Seller with a mutually acceptable party (the "Option Escrow Agent") and (ii) the Sellers shall deliver to the Option Escrow Agent all those transfer documents required pursuant to Section 5 of this Option Agreement which, as of such date, have been executed by the appropriate parties. 2 4. Sale of the Option Stores. (a) Subject to the terms and conditions of this Option Agreement, if the Option has been exercised, on the date of the Closing, the Buyer shall deliver to the Seller by wire transfer of immediately available funds to a bank account designated at least two Business Days before the Closing by the Seller an amount equal to the Purchase Price of the acquired Option Stores. If the Buyer exercises the Option with respect to Option Store A, the Seller shall sell, transfer, convey, assign and deliver to Buyer, and the Buyer shall purchase, acquire and accept from the Seller, the "Option Store A Assets (as defined in Annex I), and the Buyer shall assume the "Option Store A Liabilities" (as defined in Annex I); if the Buyer exercises the Option with respect to Option Store B, CHI shall sell, transfer, convey, assign and deliver to Buyer, and the Buyer shall purchase, acquire and accept from CHI, the "Option Store B Assets" (as defined in Annex I), and the Buyer shall assume the "Option Store B Liabilities" (as defined in Annex I); if the Buyer exercises the Option with respect to Option Store C, CI shall sell, transfer, convey, assign and deliver to the Buyer the "Option Store C Assets" (as defined in Annex I), and the Buyer shall assume the "Option Store C Liabilities" (as defined in Annex I); and if the Buyer exercises the Option with respect to Option Store D, the Seller shall sell, transfer, convey, assign and deliver to the Buyer the "Option Store D Assets" (as defined in Annex I), and the Buyer shall assume the "Option Store D Liabilities" (as defined in Annex I) provided, however, that, subject to the Buyer's approval as to manner and form, the Seller shall make such adjustments as to the rights, contracts, properties, assets and goodwill to be purchased and the liabilities and obligations to be assumed as shall be necessary to settle the obligations, rights and accounts existing between the acquired Option Stores, on the one hand, the Seller, its Affiliates and other divisions, on the other hand, at the time of the Closing so that such obligations, rights and accounts are settled and cancelled as of the Closing and are not transferred to or assumed by the Buyer. The Option Store A Assets, the Option Store B Assets, the Option Store C Assets and the Option Store D Assets are referred to herein collectively as the "Option Store Assets;" and the Option Store A Liabilities, the Option Store B Liabilities, the Option Store C Liabilities and the Option Store D Liabilities are referred to herein collectively as the "Option Store Liabilities." (b) At Closing (with respect to the Option Stores acquired at such Closing), the Sellers shall deliver possession of the Option Stores "broom clean" and free of all occupancies except for Department Store Space Leases, if any. 3 5. Transfer Documents. The sale of the Option Store Assets to the Buyer shall be effected by the delivery by the Seller to the Buyer of (i) such bills of sale, special warranty deeds, endorsements, assignments and other instruments of conveyance and transfer as are necessary or appropriate to vest in the Buyer good and marketable title (such as any reputable title insurance company licensed to do business in the state in which such Option Store is located will approve and insure without exceptions other than Permitted Encumbrances) to the Option Store Assets free and clear of any Lien, and (ii) all contracts, commitments, books, records and other data in the possession of the Seller or any of its Affiliates relating to the Option Store Assets. Assumption of the Option Store Liabilities by the Buyer shall be effected by the delivery by the Buyer to the Sellers of such instruments as are necessary or appropriate to effect the assumption by the Buyer of the Option Store Liabilities. As soon as possible after the execution and delivery of this Option Agreement, representatives of the Buyer and the Seller shall commence and complete preparation of all conveyance and assumption documents necessary or appropriate to vest in the Buyer ownership of the Option Store Assets and to effect the assumption by the Buyer of the Option Store Liabilities, as contemplated by this Option Agreement. If requested by either party, such documents shall be executed by the appropriate parties and placed in escrow with the Option Escrow Agent. All such documents shall be delivered by the Option Escrow Agent to the appropriate party at the Closing in conformity with this Option Agreement upon tender of payment to the Seller of the applicable Purchase Price in accordance with Section 4. 6. HSR Act Filings; Approvals. The Sellers and the Buyer shall each use its best efforts promptly to prepare and to make such filings and provide such information as may be required under the HSR Act, and any other filings which may be required with respect to the purchase of the Option Stores pursuant to the Option. 7. Covenants of the Sellers. Until the Closing (with respect to the Option Stores acquired at such Closing) or the termination of this Option Agreement, each of the Sellers covenants and agrees that, unless the Buyer shall otherwise consent in writing, it shall, and shall cause each of its Affiliates to: (a) operate and maintain the Option Stores only in the usual, regular and ordinary course; (b) not pledge, sell, lease, transfer, dispose of or otherwise encumber ("Transfer"), or enter into any agreement for the Transfer of, (i) all or any part of the 4 Option Store Assets consisting of real estate or interests in real estate or (ii) all or any part of the Option Store Assets consisting of other fixed assets to the extent that such Transfer would be inconsistent with the continued operation of the Option Stores in a manner consistent with past practice; (c) keep all the Option Store Assets insured (to an extent substantially consistent with the Seller's practice with respect to its other assets) against any loss, either by fire, other casualty, or theft and shall give notice to the Buyer of any loss involving any of the Option Store Assets if such loss is at least $200,000 or more and discuss with the Buyer whether the proceeds of any claim made in connection with the loss should be used to replace any property damage or loss. The Seller shall cause the Buyer to be named as loss payee, as its interest may appear, on all fire and casualty policies that provide coverage for the Option Stores. Any proceeds not used to replace lost or damaged property shall be for the account of the Buyer if the Closing is consummated; (d) maintain all the books, accounts and records relating to the Option Stores in the usual, regular and ordinary manner; (e) promptly advise the Buyer in writing of any material adverse change in the condition of any of the Option Stores; (f) use its reasonable best efforts to comply in all material respects with the provisions of all laws, regulations, ordinances and judicial decrees applicable to the conduct of the Option Stores; (g) promptly notify the Buyer of the institution of any legal proceeding which is reasonably likely, individually or in the aggregate, to have a material 5 adverse effect on the operations of any of the Option Stores; and (h) not take or omit to take any other action nor enter into any agreement which would have the effect of (i) frustrating the purpose of this Option Agreement or (ii) preventing or disabling the Seller from selling or delivering the Option Stores to the Buyer upon exercise of the Option or otherwise performing its obligations under this Option Agreement. Anything in this Option Agreement to the contrary notwithstanding, nothing in this Option Agreement shall prohibit the Seller from consummating a transaction described in clause (ii) of Section 2(a) hereof, or entering into any agreement relating to such transaction so long as such transaction or agreement is, to the extent that it involves the Option Store Assets, subject to the Option and the Buyer's rights hereunder. 8. Representations and Warranties of the Seller. Each of the Sellers hereby represents and warrants to the Buyer as follows: (a) Due Authorization. This Option Agreement has been duly authorized by all necessary corporate action on its part, has been duly executed by its duly authorized officer, and constitutes its valid and binding agreement enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors rights generally and subject to general principles of equity (regardless of whether enforcement is sought in equity or law). (b) Due Organization. It is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and has the requisite corporate power to enter into and perform this Option Agreement. (c) Conflicting Instruments. Neither its execution or delivery nor its performance of this Option Agreement nor the consummation by it of the transactions contemplated hereby will violate in any material respect (with or without the giving of notice or the lapse of time, or both), or require any material 6 consent, approval, filing or notice under, any provision of law applicable to it or any of its Affiliates (other than the HSR Act), or will require any consent, approval or notice under or will conflict with, or result in the breach or termination of any provisions of, or constitute a default under or allow the acceleration of the performance of, any of its obligations or any of its Affiliates under, or result in the creation of a Lien upon any of the Option Store Assets, pursuant to, any term of its Articles of Incorporation or By-laws or those of its Affiliates or any term of any note, bond, mortgage, indenture, lease, license agreement, or other instrument or any writ, injunction, order, judgment, arbitration award, decree, rule or regulation of any Government to which it is a party or by which it, any of its Affiliates or any of the Option Store Assets is subject or bound, other than violations, conflicts, breaches, terminations or defaults which, individually or in the aggregate, would not have a material adverse effect on the operations, assets, liabilities or condition of any Option Store. (d) Title. It owns and holds the Option Store Assets free and clear of all Lien, except for liens for real property taxes not yet due and payable without interest or penalty and except for Permitted Encumbrances. (e) Environmental. Schedule 4.25 to the Asset Purchase Agreement contains an accurate and complete description of all environmental reports known to the Sellers that affect any of the Option Store Assets, and the Sellers have delivered a complete copy of each such report to the Buyer. Except as set forth in Schedule 4.25 to the Asset Purchase Agreement or in the reports listed therein, the Sellers have no knowledge of the presence or release of any toxic substance or hazardous material or of any other environmental condition or contamination in or from the Option Store Assets. 9. Representations and Warranties of the Buyer. The Buyer hereby represents and warrants to the Sellers as follows: (a) Due Authorization. This Option Agreement has been duly authorized by all necessary corporate action on the part of the Buyer, has been duly executed by a duly authorized officer of the Buyer and constitutes a valid and binding agreement of the Buyer enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors rights generally and subject to general principles of equity (regardless of whether enforcement is sought in equity or law). 7 (b) Due Organization. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of New York and has the requisite corporate power to enter into and perform this Option Agreement. 10. Indemnification. From and after the Closing, each of the Sellers, on the one hand, and the Buyer, on the other hand, shall indemnify and hold the other harmless against any loss, liability, damage or expense (including, without limitation, reasonable attorneys' fees) sustained by it resulting from any inaccuracy in any of its representations, warranties or breach of any covenants contained in this Option Agreement as to which a claim has been made within 18 months after the Closing. This Section 10 is not intended to be exclusive of any other rights or remedies under this Option Agreement arising as a matter of law or otherwise. 11. Tax Indemnification. The Seller shall pay or otherwise be responsible for (and shall indemnify and hold harmless the Buyer, any Affiliates thereof and the Option Stores against) any liability for Taxes (i) arising from or attributable to any income taxes imposed on the gain, if any, realized on the transfer of the Option Stores, (ii) for any sales, use, real property, transfer or gains or other similar taxes arising from the transfer of the Option Stores and (iii) with respect to the acquired Option Stores for any taxable period ending (or deemed pursuant to this paragraph to end) on or before the date of the Closing. Any Taxes for a taxable period beginning before the date of the Closing and ending after such date shall be deemed for the purposes of the preceding sentence to be apportioned between a taxable period ending on and including the same date as the Closing and a taxable period commencing the date following the Closing on the same basis as the Tax is imposed, based, where relevant, on the actual operations of the acquired Option Stores in such periods. 12. Consents. Each of the Sellers shall, and shall cause each of its Affiliates to, give all required notices and use its best efforts to obtain prior to the Closing all material licenses, permits, consents, approvals, authorization, qualifications and orders of all Person relating to the acquired Option Stores as may be required in order to enable the Sellers to perform their obligations hereunder, including, without limitation all consents and approvals required to permit them to make the sale to the Buyer contemplated herein and to enable the Buyer to enjoy after the Closing all rights and benefits presently enjoyed by the Sellers in respect of the acquired Option Stores; provided, however, that no contract shall be amended to increase the amount payable thereunder in order to obtain any such consent, 8 approval or authorization or otherwise without obtaining the prior written consent of the Buyer. 13. Survival. All the covenants, representations and warranties contained herein shall survive the Closing and shall be deemed to have been made as of the date hereof and as of the date of the Closing. 14. Specific Performance. The Sellers acknowledge that money damages are an inadequate remedy for breach of this Option Agreement. Therefore, the Sellers agree that the Buyer shall be entitled to an injunction or injunctions to prevent breaches of this Option Agreement and to enforce specifically the terms and provisions of this Option Agreement in any court of the United States located in the Commonwealth of Pennsylvania or State of New York, this being in addition to any other remedy to which such party is entitled at law or in equity. In addition, each of the Sellers (i) consents to submit itself to the personal jurisdiction of any Federal court located in the Commonwealth of Pennsylvania or State of New York in the event any dispute arises out of this Option Agreement or any of the transactions contemplated by this Option Agreement, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (iii) agrees that it will not bring any action relating to this Option Agreement or any of the transactions contemplated by this Option Agreement in any court other than a Federal sitting in the Commonwealth of Pennsylvania or State of New York. 15. Further Assurances. In the event the Buyer exercises the Option, each of the Sellers and the Buyer each will execute and deliver all such further documents and instruments and take all such further action as may be necessary in order to consummate the transactions contemplated hereby. 16. Cost and Expenses. Except as otherwise specifically provided herein, all legal and other costs and expenses incurred in connection with this Option Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. 17. Transfer Taxes. In the event the Buyer exercises the Option, the Sellers and the Buyer shall each pay one-half of all sales, use, transfer and like Taxes, if any, required to be paid in connection with the transfer of the acquired Option Stores. 9 18. Parties in Interest; Assignments. This Option Agreement is binding upon and is solely for the benefit of the parties hereto, their respective Affiliates and their respective successors and assigns. The Buyer may cause one or more direct or indirect wholly owned Subsidiaries designated by it to carry out all or part of the transactions contemplated by this Option Agreement. 19. Amendments. This Option Agreement may not be amended except by an instrument in writing signed by the parties hereto. 20. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, postage prepaid, or by facsimile transmission to the parties at the following addresses or at such other addresses as shall be specified by the parties by like notice; provided, that a notice of change of address shall be effective only upon receipt thereof: If to the Buyer to: The May Department Stores Company 611 Olive Street St. Louis, Missouri 63101 Attention: Louis J. Garr, Jr., Esq. General Counsel Facsimile Number: 314-342-6384 With a copy to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Attention: J. Michael Schell, Esq. Facsimile Number: 212-735-2000 10 If to the Sellers to: Strawbridge & Clothier 801 Market Street Philadelphia, Pennsylvania 19107 Attention: Francis R. Strawbridge III, Chairman Facsimile Number: 215-629-6833 With a copy to: Morgan, Lewis & Bockius LLP 2000 One Logan Square Philadelphia, PA 19103-6993 Attention: Donald A. Scott Facsimile Number: 215-963-5299 21. Termination. The Option shall expire on the earlier of (i) the Effective Time, or (ii) the date the Asset Purchase Agreement has been terminated pursuant to Section 9.1(a) or 9.1(c) thereof, or (iii) the later of (A) the date 270 days after the Asset Purchase Agreement has been terminated pursuant to Section 9.1(b), 9.1(d), 9.1(e) or 9.1(f) thereof, (B) if an "Extension Event" (as defined below) has occurred, 730 days after the Asset Purchase Agreement has been terminated pursuant to Section 9.1(e) thereof, or (C) 10 days following consummation or termination of any agreement entered into by the Seller during the term of this Option Agreement providing for an Extension Event (but with respect to the foregoing clauses (ii) or (iii) only if the notice of exercise of the Option shall not have been given prior to that date); provided that if the Option cannot be exercised as of the termination date by reason of any injunction, order or similar restraint issued by a court of competent jurisdiction, the term of the Option shall extend until the tenth business day after such injunction, order or similar restraint shall have been dissolved or when such injunction, order or restraint shall have become permanent and no longer subject to appeal, as the case may be. "Extension Event" means the occurrence of one or more of the following events: (i) the acquisition of the beneficial ownership by any person, entity or group (as such terms are used in the Securities Exchange Act) other than the Buyer or any of its Affiliates of 25% or more of the voting power of the outstanding shares of the Seller Common Stock on a fully diluted basis; or (ii) the 11 execution by the Seller of an agreement relating to, or the consummation of, a merger, consolidation or other similar business combination of the Seller. 22. Applicable Law. This Option Agreement shall be governed by and construed in accordance with the laws of the State of New York (without regard to the principles of conflict of law thereof). 23. Counterparts. This Option Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. 24. Descriptive Headings; Defined Terms. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Option Agreement. All terms used herein with initial capital letters and not otherwise defined herein shall have the meaning ascribed to them in the Asset Purchase Agreement. 25. No Excuse for Breach of Agreement. Neither this Option Agreement nor anything contained in it shall relieve any party to the Asset Purchase Agreement from its breach of the Asset Purchase Agreement nor limit any claim or remedy for such breach by an aggrieved party to the Asset Purchase Agreement. 12 IN WITNESS WHEREOF, this Option Agreement has been signed by the duly authorized officers of each of the parties hereto as of the day and year first written above. THE MAY DEPARTMENT STORES COMPANY By: _________________________________ Name: Title: STRAWBRIDGE & CLOTHIER By: _________________________________ Name: Title: S&C, CHERRY HILL, INC. S&C, CONCORD, INC. By: ______________________________ By: _________________________________ Name: Name: Title: Title: 13 Annex I to Exhibit A 1. Description of the Option Stores: A. "Option Store A" means the Department Store Real Property for the Willow Grove Park "Strawbridge & Clothier" store. B. "Option Store B" means the Department Store Real Property for the Cherry Hill Mall "Strawbridge & Clothier" store. C. "Option Store C" means the Department Store Leased Real Property for the Concord Mall "Strawbridge & Clothier" department store. D. "Option Store D" means the Department Store Leased Real Property for the Concord Mall "Strawbridge & Clothier" home furnishings store. 2. Description of Option Store Assets: A. "Option Store A Assets" shall mean the Department Store Real Property, the Department Store Equipment, Machinery and Fixtures, and that portion of the Other Department Store Contracts described in Section 1.68(b) of the Asset Purchase Agreement, as each of the foregoing relates to Option Store A. B. "Option Store B Assets" shall mean the Department Store Real Property, the Department Store Equipment, Machinery and Fixtures, and that portion of the Other Department Store Contracts described in Section 1.68(b) of the Asset Purchase Agreement, as each of the foregoing relates to Option Store B. C. "Option Store C Assets" shall mean the Department Store Leased Real Property, the Department Store Equipment, Machinery and Fixtures, and that portion of the Other Department Store Contracts described in Section 1.68(b) of the Asset Purchase Agreement, as each of the foregoing relates to Option Store C. D. "Option Store D Assets" shall mean the Department Store Leased Real Property, the Department Store Equipment, Machinery and Fixtures, and that portion of the Other Department Store Contracts described in Section 1.68(b) of the Asset Purchase Agreement, as each of the foregoing relates to Option Store D. 3. Description of Option Store Liabilities: A. "Option Store A Liabilities" shall mean the liabilities, obligations and duties of the Seller accruing and arising after the Closing under the Department Store Contracts that relate to Option Store A, except that with respect to Other Department Store Contracts such liabilities, obligations and duties shall be limited to the agreements and commitments referenced in Section 1.68(b) of the Asset Purchase Agreement. B. "Option Store B Liabilities" shall mean the liabilities, obligations and duties of CHI accruing and arising after the Closing under the Department Store Contracts that relate to Option Store B, except that with respect to Other Department Store Contracts such liabilities, obligations and duties shall be limited to the agreements and commitments referenced in Section 1.68(b) of the Asset Purchase Agreement. C. "Option Store C Liabilities" shall mean the liabilities, obligations and duties of the Seller accruing and arising after the Closing under the Department Store Contracts that relate to Option Store C, except that with respect to Other Department Store Contracts such liabilities, obligations and duties shall be limited to the agreements and commitments referenced in Section 1.68(b) of the Asset Purchase Agreement. D. "Option Store D Liabilities" shall mean the liabilities, obligations and duties of CI accruing and arising after the Closing under the Department Store Contracts that relate to Option Store D, except that with respect to Other Department Store Contracts such liabilities, obligations and duties shall be limited to the agreements and commitments referenced in Section 1.68(b) of the Asset Purchase Agreement. 2 EX-3 4 EXHIBIT 3 Exhibit 3(i) RESTATED ARTICLES OF INCORPORATION OF STRAWBRIDGE & CLOTHIER 1ST. The name of the Corporation is STRAWBRIDGE & CLOTHIER. 2ND. Said Corporation is formed for the purpose of buying, selling and dealing in merchandise for personal and household use and ornament, and generally such articles of merchandise ordinarily dealt in by department stores, and so far as necessary to carry on said business, the right to manufacture such goods, wares and merchandise. 3RD. The location and post office address of the registered office of the Corporation in this Commonwealth is 801 Market Street Philadelphia, Pennsylvania 19107-3199 4TH. Said Corporation is to exist perpetually. 5TH. The authorized capital stock of the Corporation shall consist of 42,000,000 shares, divided into 2,000,000 shares of Series Preferred Stock without par value, and 40,000,000 shares of Common Stock of a par value of $1 per share. A. SERIES PREFERRED STOCK. The Board of Directors shall have authority by resolution or resolutions to determine which series of the Series Preferred Stock shall have full, limited, multiple or fractional, or no voting rights and such designations, preferences, qualifications, privileges, limitations, options, conversion rights and other special rights as shall be stated in the resolution or resolutions. B. COMMON STOCK. 1. SERIES. The Common Stock shall be divided into 20,000,000 shares of Series A Common Stock and 20,000,000 shares of Series B Common Stock. Upon the filing of this amendment to the Articles with the Department of State of the Commonwealth of Pennsylvania, each issued share of Common Stock of the Corporation shall, without any action on the part of the ____________ * This statement relates to the amendment filed and effective on July 23, 1986. holders thereof, be reclassified and changed into one share of Series A Common Stock unless a shareholder shall elect to have all or part of the shares held by the shareholder reclassified and changed into shares of Series B Common Stock in which case each such share shall be reclassified and changed into one share of Series B Common Stock. In order to make the election, such shareholder shall indicate the election on an appropriate form to be furnished by the Corporation for such purpose and shall return the form and surrender to the Corporation the certificate or certificates representing the shares of Common Stock with respect to which the election is made prior to the commencement of the meeting of shareholders of the Corporation held for the purpose of voting upon this amendment. 2. DIVIDENDS AND OTHER DISTRIBUTIONS. (a) Cash Dividends. At any time shares of Series B Common Stock are outstanding, as and when cash dividends may be declared by the Board of Directors, the cash dividend payable on shares of Series A Common Stock shall in all cases be at least 10% higher on a per share basis than the cash dividend payable on shares of Series B Common Stock. For purposes of calculating the cash dividend to be paid on shares of Series A Common Stock and Series B Common Stock, the amount of the cash dividend declared and payable on shares of Series A Common Stock, determined in accordance with this provision, may be rounded up to the next highest cent or fraction thereof. (b) Other Dividends and Distributions. Each share of Series A Common Stock and each share of Series B Common Stock shall be equal in respect of rights to dividends (other than cash) and distributions, when and as declared, in the form of stock or other property of the Corporation, except that in the case of dividends or other distributions payable in stock of the Corporation other than preferred stock, including distributions pursuant to stock splits or stock dividends, only shares of the Series A Common Stock shall be distributed with respect to Series A Common Stock and only shares of Series B Common Stock shall be distributed with respect to Series B Common Stock. 3. VOTING. With respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares of Series A Common Stock and the holders of the outstanding shares of Series B Common Stock shall vote together without regard to series, and every holder of the outstanding shares of Series A Common Stock shall be entitled to cast thereon one vote in person or by proxy for each share of Series A Common Stock standing in the holder's name and every holder of the outstanding 2 shares of Series B Common Stock shall be entitled to cast thereon ten votes in person or by proxy for each share of Series B Common Stock standing in the holder's name. With respect to (a) any merger or consolidation of the Corporation with or into any other corporation, any sale, lease, exchange or other disposition of all or substantially all of the Corporation's assets to or with any other person, or any dissolution of the Corporation, other than a merger or other transaction with a majority-owned subsidiary of the Corporation or (b) any proposed amendment to the Articles which would increase or decrease the number of authorized shares of either Series A Common Stock or Series B Common Stock, authorize the issuance of Series B Common Stock other than as provided in Section 4 hereof, or alter or change the powers, preferences, relative voting power or special rights of the shares of Series A Common Stock or Series B Common Stock, the approval of a majority of the votes entitled to be cast by the holders of each series, voting separately as a series, shall be obtained in addition to the approval of the holders of Series A Common Stock and Series B Common Stock voting together without regard to series as required by the Articles or applicable law. 4. ISSUANCE OF SERIES B COMMON STOCK. Following initial issuance pursuant to Section 1 hereof, the Board of Directors may only issue shares of Series B Common Stock (a) in the form of a distribution pursuant to a stock dividend on or split of the shares of Series B Common Stock and only to the then holders of the outstanding shares of Series B Common Stock in conjunction with and in the same ratio as a stock dividend on or split of the shares of Series A Common Stock and (b) upon exercise of stock options outstanding on the effective date of this amendment. 5. CONVERSION OF SERIES B COMMON STOCK. Each share of Series B Common Stock may at any time be converted at the election of the holder thereof into one fully paid and nonassessable share of Series A Common Stock. Any holder of shares of Series B Common Stock may elect to convert any or all of such shares at one time or at various times in such holder's discretion. Such right shall be exercised by the surrender of the certificate representing each share of Series B Common Stock to be converted to the agent for the registration of transfer of shares of Series B Common Stock at its office, or to the Corporation at its principal executive offices, accompanied by a written notice of the election by the holder thereof to convert and (if so required by the transfer agent or by the ____________ * This statement relates to the amendment filed and effective on July 23, 1986. 3 Corporation) by instruments of transfer, in form satisfactory to the transfer agent and to the Corporation, duly executed by such holder or the holder's duly authorized attorney. The issuance of a certificate for shares of Series A Common Stock upon conversion of shares of Series B Common Stock shall be made without charge for any stamp or other similar tax in respect of such issuance. However, if any such certificate is to be issued in a name other than that of the holder of the share or shares of Series B Common Stock converted, the person or persons requesting the issuance thereof shall pay to the transfer agent or to the Corporation the amount of any tax which may be payable in respect of any such transfer, or shall establish to the satisfaction of the transfer agent or of the Corporation that such tax has been paid. As promptly as practicable after the surrender for conversion of a certificate representing shares of Series B Common Stock and the payment of any tax as hereinbefore provided, the Corporation will deliver or cause to be delivered at the office of the transfer agent to, or upon the written order of, the holder of such certificate, a certificate or certificates representing the number of shares of Series A Common Stock issuable upon such conversion, issued in such name or names as such holder may direct. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of the surrender of the certificate representing shares of Series B Common Stock (if on such date the transfer books of the Corporation shall be closed, then immediately prior to the close of business on the first date thereafter that said books shall be open), and all rights of such holder arising from ownership of shares of Series B Common Stock shall cease at such time, and the person or persons in whose name or names the certificate representing shares of Series A Common Stock are to be issued shall be treated for all purposes as having become the record holder or holders of such shares of Series A Common Stock at such time and shall have and may exercise all the rights and powers appertaining thereto. No adjustments in respect of past cash dividends shall be made upon the conversion of any share of Series B Common Stock; provided, however, that if any shares of Series B Common Stock shall be converted subsequent to the record date for the payment of a cash or stock dividend or other distribution on shares of Series B Common Stock but prior to such payment, the registered holder of such shares at the close of business on such record date shall be entitled to receive the cash or stock dividend or other distribution payable to holders of Series A Common Stock. The Corporation shall at all times reserve and keep available, solely for the purpose of issue upon conversion of outstanding shares of Series B Common Stock, such number of shares of Series A Common Stock as may be issuable upon the conversion of all such outstanding shares of the Series B Common Stock, provided that the Corporation may deliver shares of Series A Common Stock held in the treasury of the Corporation. If any shares of Series A Common Stock require registration with 4 or approval of any governmental authority under any federal or state law before such shares of Series A Common Stock may be issued upon conversion, the Corporation will cause such shares to be duly registered or approved, as the case may be. 6. TRANSFER OF SERIES B COMMON STOCK. (a) No person holding shares of Series B Common Stock of record (a "Series B Holder") may transfer, and the Corporation shall not register the transfer of, such shares of Series B Common Stock, as Series B Common Stock, whether by sale, assignment, gift, bequest, appointment or otherwise, except to a Permitted Transferee and upon any attempted transfer of shares not permitted hereunder such shares shall be converted into Series A Common Stock as provided by subsection (d) of this Section 6. A "Permitted Transferee" shall mean, with respect to each person from time to time shown as the record holder of shares of Series B Common Stock: (i) In the case of a Series B Holder who is a natural person: (A) The spouse of such Series B Holder, any lineal descendant of a great grandparent of such Series B Holder, and any spouse of such lineal descendant (which lineal descendants, their spouses, the Series B Holder, and his or her spouse are herein collectively referred to as "Series B Holder's Family Members"); (B) The trustee of a trust (including a voting trust) principally for the benefit of such Series B Holder's Family Members provided that such trust may also grant a general or special power of appointment to one or more of such Series B Holder's Family Members and may permit trust assets to be used to pay taxes, legacies and other obligations of the trust or of the estates of one or more of such Series B Holder's Family Members payable by reason of the death of any of such Family Members; and (C) The estate of such Series B Holder. 5 (ii) In the case of a Series B Holder holding the shares of Series B Common Stock in question as trustee pursuant to a trust, "Permitted Transferee" means (A) any person transferring Series B Common Stock (or Common Stock which was reclassified into Series B Common Stock as a result of this amendment) to such trust and (B) any Permitted Transferee of any such transferor determined pursuant to clause (i) above. (iii) In the case of a Series B Holder holding the shares of Series B Common Stock in question as trustee pursuant to a trust which was irrevocable on the effective date of this amendment, "Permitted Transferee" means (A) any person to whom or for whose benefit principal may be distributed either during or at the end of the term of such trust whether by power of appointment or otherwise and (B) any Permitted Transferee of any such person determined pursuant to clause (i) above. (iv) In the case of a Series B Holder which is a corporation or partnership acquiring record and beneficial ownership of the shares of Series B Common Stock upon initial issuance pursuant to Section 1 hereof, "Permitted Transferee" means (A) any stockholder of such corporation or partner of such partnership on the effective date of this amendment and (B) any Permitted Transferee of such stockholder or partner determined under clause (i) above. (v) In the case of a Series B Holder which is the estate of a deceased Series B Holder, or which is the estate of a bankrupt or insolvent Series B Holder, which holds record and beneficial ownership of the shares of Series B Common Stock in question, "Permitted Transferee" means a Permitted Transferee of such deceased, bankrupt or insolvent Series B Holder as determined pursuant to clause (i), (ii), (iii), or (iv) above, as the case may be. ____________ * This statement relates to the amendment filed and effective on July 23, 1986. 6 (vi) In the case of a Series B Holder who shares with another person beneficial ownership of the shares of Series B Common Stock at the time of initial issuance pursuant to Section 1 hereof, "Permitted Transferee" means such other beneficial owner and any Permitted Transferee of such other beneficial owner determined under clause (i) above. (b) Notwithstanding anything to the contrary set forth herein, any Series B Holder may pledge such holder's shares of Series B Common Stock to a pledgee pursuant to a bona fide pledge of such shares as collateral security for indebtedness due to the pledgee, provided that such shares shall not be transferred to or registered in the name of the pledgee and shall remain subject to the provisions of this Section 6. In the event of foreclosure or other similar action by the pledgee, such pledged shares of Series B Common Stock may only be transferred to a Permitted Transferee of the pledgor or converted into shares of Series A Common Stock, as the pledgee may elect. (c) For purposes of this Section 6: (i) The relationship of any person that is derived by or through legal adoption shall be considered a natural one. (ii) Each joint owner of shares of Series B Common Stock shall be considered a "Series B Holder" of such shares. (iii) A minor for whom shares of Series B Common Stock are held pursuant to a Uniform Gifts to Minors Act or similar law shall be considered a Series B Holder of such shares. (iv) Unless otherwise specified, the term "person" means both natural persons and legal entities. (d) Any transfer of shares of Series B Common Stock not permitted hereunder shall result in the conversion of the transferee's shares of Series B Common Stock into shares of Series A Common Stock, effective the date on which certificates representing such shares are presented for transfer on the books of the Corporation. The Corporation may, in connection with preparing a list of stockholders entitled to vote at any meeting of stockholders, or as a condition to the transfer or the registration of shares of Series B Common Stock on the Corporation's books, require the furnishing of such affidavits or 7 other proof as it deems necessary to establish that any person is the beneficial owner of shares of Series B Common Stock or is a Permitted Transferee. (e) Shares of Series B Common Stock shall be registered in the names of the beneficial owners thereof and not in "street" or "nominee" name. For this purpose, a "beneficial owner" of any shares of Series B Common Stock shall mean a person who, or an entity which, possesses the power, either singly or jointly, to direct the disposition of such shares. The Corporation shall note on the certificates for shares of Series B Common Stock the restrictions on transfer and registration of transfer imposed by this Section 6. 7. AUTOMATIC CONVERSION OF SERIES B COMMON STOCK. At any time when the number of outstanding shares of Series B Common Stock as reflected on the stock transfer books of the Corporation falls below 5% of the aggregate number of the issued and outstanding shares of Series A Common Stock and Series B Common Stock of the Corporation, or the Board of Directors and the holders of a majority of the outstanding shares of Series B Common Stock approve the conversion of all of the Series B Common Stock into Series A Common Stock, then, immediately upon the occurrence of either such event, the outstanding shares of Series B Common Stock shall be converted into shares of Series A Common Stock. In the event of such a conversion, certificates formerly representing outstanding shares of Series B Common Stock shall thereupon and thereafter be deemed to represent the like number of shares of Series A Common Stock. 8. OTHER RIGHTS. Except as otherwise required by the Pennsylvania Business Corporation Law or as otherwise provided in the Articles, each share of Series A Common Stock and each share of Series B Common Stock shall have identical preferences, qualifications, privileges, limitations and other rights, including rights in liquidation. 6TH. The shareholders of the Corporation shall not be entitled to cumulate their votes for the election of directors. 7TH. A special meeting of shareholders may only be called by the Chairman, the President, the Board of Directors, or shareholders entitled to cast a majority of the votes which all shareholders are entitled to cast at the particular meeting or by such other officers or persons as may be provided in the By-laws. 8 8TH.** Whenever any corporate action is to be taken by vote of the shareholders adopting, amending or repealing the By-laws, or pursuant to Section 311 (Sale of Assets), Section 405A (Removal of Directors), Section 409.1C (Transactions with Interested Shareholders), Section 703 (Distributions in Partial Liquidation) or Articles VIII (Amendment of Articles), IX (Merger, Consolidation and Certain Other Fundamental Transactions) or XI (Dissolution) of the Pennsylvania Business Corporation Law or any successor provisions thereto, in addition to any other vote required by the Pennsylvania Business Corporation Law or the Articles, the proposed corporate action shall be authorized only (i) upon receiving at least two-thirds of the votes which all voting shareholders are entitled to cast thereon or (ii) in the event that the corporate action has been proposed by a majority of the Board of Directors, upon receiving at least a majority of the votes which all voting shareholders are entitled to cast thereon. 9TH. Effective after the 1984 annual meeting of shareholders, nominations for election of directors may be made by any shareholder entitled to vote for the election of directors only if written notice (the "Notice") of such shareholder's intent to nominate a director at the meeting is given by the shareholder and received by the Secretary of the Corporation in the manner and within the time specified herein. The Notice shall be delivered to the Secretary of the Corporation not less than 45 days prior to the date fixed by the By-laws for the annual meeting of shareholders; provided, however, that if directors are to be elected by the shareholders at any other time, the Notice shall be delivered to the Secretary of the Corporation not later than the seventh day following the day on which notice of the meeting was first mailed to shareholders. In lieu of delivery to the Secretary of the Corporation, the Notice may be mailed to the Secretary of the Corporation by certified mail, return receipt requested, but shall be deemed to have been given only upon actual receipt by the Secretary of the Corporation. The Notice shall be in writing and shall contain or be accompanied by; (a) the name and residence of such shareholder; (b) a representation that the shareholder is a holder of the Corporation's voting stock and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the Notice; ____________ ** Paragraph 8th was approved by shareholders on April 10, 1984. 9 (c) such information regarding each nominee as would have been required to be included in a proxy statement filed pursuant to Regulation 14A of the rules and regulations established by the Securities and Exchange Commission under the Securities Exchange Act of 1934 (or pursuant to any successor act or regulation) had proxies been solicited with respect to such nominee by the management or Board of Directors of the Corporation; (d) a description of all arrangements or understandings among the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which such nomination or nominations are to be made by the shareholder; and (e) the consent of each nominee to serve as director of the Corporation if so elected. The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that any nomination made at the meeting was not made in accordance with the foregoing procedures and, in such event, the nomination shall be disregarded. 10TH.*** Section 1. Directors and Officers as Fiduciaries. A director or officer of the Corporation shall stand in a fiduciary relation to the Corporation and shall perform his or her duties as a director or officer, including his or her duties as a member of any committee of the Board upon which he or she may serve, in good faith, in a manner he or she reasonably believes to be in the best interests of the Corporation, and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. In performing his or her duties, a director or officer shall be entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by one or more officers or employees of the Corporation whom the director or officer reasonably believes to be reliable and competent with respect to the matters presented, counsel, public accountants or other persons as to matters that the director or officer reasonably believes to be within the professional or expert competence of such person, or a committee of the Board of Directors upon which the director or officer does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the director or officer reasonably believes to merit confidence. A director or 10 officer shall not be considered to be acting in good faith if he or she has knowledge concerning the matter in question that would cause his or her reliance to be unwarranted. Absent breach of fiduciary duty, lack of good faith or self-dealing, actions taken as a director or officer of the Corporation or any failure to take any action shall be presumed to be in the best interests of the Corporation. Section 2. Personal Liability of Directors. A director of the Corporation shall not be personally liable for monetary damages as such (including, without limitation, any judgment, amount paid in settlement, penalty, punitive damages or expense of any nature (including, without limitation, attorneys' fees and disbursements)) for any action taken, or any failure to take any action, unless the director has breached or failed to perform the duties of his or her office under these Articles, the By-laws of the Corporation or applicable provisions of law and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. Section 3. Personal Liability of Officers. An officer of the Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages as such (including, without limitation, any judgment, amount paid in settlement, penalty, punitive damages or expense of any nature (including, without limitation, attorneys' fees and disbursements)) for any action taken, or any failure to take any action, unless the officer has breached or failed to perform the duties of his or her office under these Articles, the By-laws of the Corporation or applicable provisions of law and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. Section 4. Interpretation of Paragraph. The provisions of Sections 2 and 3 of this Paragraph 10th shall not apply to the responsibility or liability of a director or officer, as such, pursuant to any criminal statute or for the payment of taxes pursuant to local, state or federal law. The provisions of this Paragraph 10th have been adopted pursuant to the authority of sections 204A(10) and 801 of the Pennsylvania Business Corporation Law, shall be deemed to be a contract with each director or officer of the Corporation who serves as such at any time while this Paragraph 10th is in effect, and such provisions are cumulative of and shall be in addition to and independent of any and all other limitations on the liabilities of directors or officers of the Corporation, as such, or rights of indemnification by the Corporation to which a director or officer of the Corporation may be entitled, whether such limitations or rights arise under or are created by any statute, rule of law, By-law, agreement, vote of shareholders or disinterested directors or otherwise. Each person who serves as 11 a director or officer of the Corporation while this Paragraph 10th is in effect shall be deemed to be doing so in reliance on the provisions of this Paragraph 10th. No amendment to or repeal of this Paragraph 10th, nor the adoption of any provision of these Articles inconsistent with this Paragraph 10th, shall apply to or have any effect on the liability or alleged liability of any director or officer of the Corporation for or with respect to any acts or omissions of such director or officer occurring prior to such amendment, repeal or adoption of an inconsistent provision. In any action, suit or proceeding involving the application of the provisions of this Paragraph 10th, the party or parties challenging the right of a director or officer to the benefits of this Paragraph 10th shall have the burden of proof. 11TH.**** Article X of the By-laws of the Corporation providing that Section 910 of the Pennsylvania Business Corporation Law shall not be applicable to the Corporation, is hereby rescinded. ____________ **** Paragraph 11th was approved by shareholders on May 24, 1989. 12 EX-10.4.2 5 EXHIBIT 10-4-2 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 FEBRUARY 3, 1996 Three-Year Term Executive Officer Salary Commencing - ----------------- -------- ---------------- Peter S. Strawbridge $340,000 February 2, 1996 Francis R. Strawbridge, III 340,000 February 2, 1996 Warren W. White 300,000 February 2, 1996 Robert G. Muskas 192,500 February 2, 1996 Louis F. Busico 192,000 February 2, 1996 EX-10.4.3 6 EXHIBIT 10-4-3 Exhibit 10.4.3 SUPPLEMENTAL AGREEMENT ---------------------- THIS SUPPLEMENTAL AGREEMENT made and entered into at Philadelphia, Pennsylvania, by and between STRAWBRIDGE & CLOTHIER, a corporation organized and existing under the laws of the Commonwealth of Pennsylvania with its principal office at Eighth and Market Streets, Philadelphia, Pennsylvania, (the "Company") and ___________________________________________ (the "Executive"); W I T N E S S E T H: ------------------- WHEREAS, the parties hereto have previously entered into an Employment Agreement for Key Executive Employees dated _____________________ (the "Employment Agreement"); and WHEREAS, the parties hereto wish to amend the Employment Agreement in the manner hereinafter provided, NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, mutually agree each with the other as follows: 1. Effective on and after February 1, ____, paragraph 6(a) of the Employment Agreement shall be amended to read as follows: "(a) Salary. For all of the services rendered by the Executive hereunder, including, without limitation, services as an executive, officer, director or member of any committee of the Company or of any subsidiary, affiliate, or division thereof, the Company shall pay the Executive as compensation a salary payable in equal monthly installments during the term of employment hereunder at an annual rate equal to $_______________. During such term of employment, the Company shall review the Executive's salary in accordance with the same policies and criteria for salary administration and review which are applied to other key executive employees of the Company; provided, however, that the Company shall at no time diminish the Executive's salary." 2. Except as amended by paragraph 1 of this Supplemental Agreement, the Employment Agreement shall continue in full force and effect in accordance with the terms. IN WITNESS WHEREOF, the parties hereto have set their hands and seals this ________ day of ___________________, 19___. STRAWBRIDGE & CLOTHIER By _______________________________ _______________________________ Executive EX-10.4.4 7 EXHIBIT 10-4-4 Exhibit 10.4.4 SUPPLEMENTAL AGREEMENT TO EMPLOYMENT AGREEMENT THIS SUPPLEMENTAL AGREEMENT is entered into this ____________ day of _________________________, 199__ by and between STRAWBRIDGE & CLOTHIER, a Pennsylvania corporation with its principal office at Eighth and Market Streets, Philadelphia, Pennsylvania (the "Company") and __________________, a key executive of the Company (the "Executive"). RECITALS WHEREAS, on _____________________________, 199__ the Company and the Executive entered into an Employment Agreement (the "Agreement"); and WHEREAS, Section 15 of the Agreement provides that the Agreement cannot be changed or modified except by a written amendment; and WHEREAS, the parties to the Agreement now desire to modify and amend the Agreement in certain particulars, as more completely set forth below, NOW, THEREFORE, the parties hereto hereby agree as follows: AGREEMENT 1. Section 2 of the Agreement, dealing with Term of Employment, is hereby modified by deleting therefrom the sentence reading "If such notice is delivered between any February 1 and July 31, inclusive, the Agreement shall then terminate at the end of the three-year period that commenced with the anniversary date immediately preceding the date of such notice." 2. Section 2 of the Agreement is hereby further modified by substituting therein, in lieu of the sentence deleted as aforesaid, the following sentence: "If such notice is delivered between any February 1 and July 31, inclusive, the Agreement shall then terminate at a date which is the third anniversary of the date on which such notice is actually delivered to the Executive." 3. Section 9(e) of the Agreement is hereby modified by adding thereto an additional paragraph, to read as follows: "Should the employment of the Executive end prior to the date otherwise contemplated under Section 2 of this Agreement due to the adoption by the Company of a plan of liquidation or implementation of any such plan, that termination of employment will be deemed a termination of employment described in this Subsection (e) rather than a retirement described in Subsection (b) of this Section, regardless of the age then attained by the Executive, the number of years of Service then completed by the Executive, or the existence of other retirement or deferred compensation benefits to which the Executive may be entitled. In addition, as of the date of liquidation of the Company, the Executive shall be entitled to receive, in lieu of all future salary payments to which he is entitled pursuant to the first paragraph of this Subsection, a single-sum amount equal to the sum of the future payments to which he would otherwise be entitled under this Subsection (assuming his survival for the entire period for which such payments would be scheduled), all calculated without reference to any offset for salary that might thereafter be paid to the Executive by any other employer, with each such future payment, however, discounted to present value as of the date of payment at the prime commercial lending rate reported in the Wall Street Journal for the first business day of the calendar month in which such single-sum payment is made." 4. The changes made hereby shall be effective as of the date on which this instrument is executed by both parties. In all other respects, the Agreement (as the same may have otherwise previously been modified by one or more supplemental agreements) is ratified and confirmed. IN WITNESS WHEREOF, the parties hereto have executed this instrument this ____ day of ______________________________, 199__. STRAWBRIDGE & CLOTHIER Attest: ______________________________________ By: ___________________________________ Secretary Title: _______________________________________ Executive 2 EX-10.5 8 EXHIBIT 10-5 Exhibit 10.5 STRAWBRIDGE & CLOTHIER SEPARATION PAY PLAN As of February 28, 1996 TABLE OF CONTENTS ----------------- Page ARTICLE 1 BACKGROUND, PURPOSE AND TERM OF PLAN . . . . . . . . . . . . . 1 Sec. 1.01 Background. . . . . . . . . . . . . . . . . . . . . 1 Sec. 1.02 Purpose of the Plan . . . . . . . . . . . . . . . . 1 Sec. 1.03 Nature and Term of the Plan . . . . . . . . . . . . 2 ARTICLE 2 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 2 Sec. 2.01 "Administrative Committee". . . . . . . . . . . . . 2 Sec. 2.02 "Benefit" . . . . . . . . . . . . . . . . . . . . . 3 Sec. 2.03 "Board of Directors". . . . . . . . . . . . . . . . 3 Sec. 2.04 "Code". . . . . . . . . . . . . . . . . . . . . . . 3 Sec. 2.05 "Company" . . . . . . . . . . . . . . . . . . . . . 3 Sec. 2.06 "Employee". . . . . . . . . . . . . . . . . . . . . 3 Sec. 2.07 "Employment Termination Date" . . . . . . . . . . . 3 Sec. 2.08 "ERISA" . . . . . . . . . . . . . . . . . . . . . . 3 Sec. 2.09 "Just Cause". . . . . . . . . . . . . . . . . . . . 3 Sec. 2.10 "Named Fiduciary" . . . . . . . . . . . . . . . . . 4 Sec. 2.11 "Participant" . . . . . . . . . . . . . . . . . . . 4 Sec. 2.12 "Plan". . . . . . . . . . . . . . . . . . . . . . . 4 Sec. 2.13 "Plan Administrator". . . . . . . . . . . . . . . . 4 Sec. 2.14 "Plan Sponsor". . . . . . . . . . . . . . . . . . . 4 Sec. 2.15 "Plan Year" . . . . . . . . . . . . . . . . . . . . 4 Sec. 2.16 "Sale of the Company" . . . . . . . . . . . . . . . 5 Sec. 2.17 "Terminated Employee" . . . . . . . . . . . . . . . 5 ARTICLE 3 PARTICIPATION AND ELIGIBILITY FOR BENEFITS . . . . . . . . . . 5 Sec. 3.01 General Benefits Award Requirement. . . . . . . . . 5 Sec. 3.02 Plan Sponsor's Discretion . . . . . . . . . . . . . 6 Sec. 3.03 Exercise of Discretionary Authority . . . . . . . . 7 ARTICLE 4 CALCULATION OF BENEFITS. . . . . . . . . . . . . . . . . . . . 7 Sec. 4.01 Amount of Benefit. . . . . . . . . . . . . . . . . 7 Sec. 4.02 Reductions. . . . . . . . . . . . . . . . . . . . . 11 Sec. 4.03 Additional Services Payment . . . . . . . . . . . . 11 Sec. 4.04 Effect on Other Benefits. . . . . . . . . . . . . . 12 ARTICLE 5 METHOD AND DURATION OF BENEFIT PAYMENTS. . . . . . . . . . . . 12 Sec. 5.01 Method of Payment . . . . . . . . . . . . . . . . . 12 Sec. 5.02 Cessation of Benefit Payments . . . . . . . . . . . 13 ARTICLE 6 THE PLAN ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . 13 Sec. 6.01 Appointment . . . . . . . . . . . . . . . . . . . . 13 Sec. 6.02 Authority and Duties. . . . . . . . . . . . . . . . 13 Sec. 6.03 Compensation of the Plan Administrator. . . . . . . 14 Sec. 6.04 Records, Reporting and Disclosure . . . . . . . . . 14 Sec. 6.05 Bonding . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE 7 AMENDMENT AND TERMINATION. . . . . . . . . . . . . . . . . . . 15 Sec. 7.01 Amendment, Suspension and Termination . . . . . . . 15 ARTICLE 8 DUTIES OF THE PLAN SPONSOR . . . . . . . . . . . . . . . . . . 16 Sec. 8.01 Records . . . . . . . . . . . . . . . . . . . . . . 16 Sec. 8.02 Payment . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE 9 CLAIM PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . 16 Sec. 9.01 Claims for Benefits . . . . . . . . . . . . . . . . 16 ARTI- MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 18 CLE 10 Sec. 10.01 Nonalienation of Benefits. . . . . . . . . . . . . 18 Sec. 10.02 No Contract of Employment. . . . . . . . . . . . . 18 Sec. 10.03 Severability of Provisions . . . . . . . . . . . . 19 Sec. 10.04 Heirs, Assigns, and Personal Representatives . . . . . . . . . . . . . . . . 19 Sec. 10.05 Headings and Captions. . . . . . . . . . . . . . . 19 Sec. 10.06 Gender and Number. . . . . . . . . . . . . . . . . 19 Sec. 10.07 Unfunded Plan. . . . . . . . . . . . . . . . . . . 20 Sec. 10.08 Payments to Incompetent Persons, Etc . . . . . . . 20 Sec. 10.09 Appendices . . . . . . . . . . . . . . . . . . . . 20 Sec. 10.10 Lost Payees. . . . . . . . . . . . . . . . . . . . 21 Sec. 10.11 Controlling Law. . . . . . . . . . . . . . . . . . 21 ARTICLE 1 BACKGROUND, PURPOSE AND TERM OF PLAN ------------------------------------ Sec. 1.01 BACKGROUND. Strawbridge & Clothier (the "Plan Sponsor") hereby establishes the Strawbridge & Clothier Separation Pay Plan to provide severance pay awards to certain employees who are involuntarily terminated as a result of a sale of the Company. This instrument sets forth the terms of the discretionary Separation Pay Plan of the Plan Sponsor as of February 28, 1996. Sec. 1.02 PURPOSE OF THE PLAN. The Strawbridge & Clothier Separation Pay Plan (the "Plan"), as set forth herein, is intended to reduce financial hardships which may be experienced by certain of those eligible Employees of the Plan Sponsor whose employment is terminated involuntarily, without fault of the Employee as a result of a sale of the Company. Benefits under the Plan for those eligible Employees are intended to be supplemental unemployment benefits. The amount of the Benefit to be provided may be modified by the Plan Sponsor exercising its rights as a settlor, as set forth in Article 7 of this document. The Plan is not intended to be an "employee pension benefit plan" or "pension plan" as those terms are defined at section 3(2) of ERISA. Rather, the Plan is intended to constitute a "severance pay plan" within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations, section 2510.3-2(b). The Benefits paid by the - 1 - Plan are not intended as deferred compensation, and no Employee shall have a vested right to such Benefits. Sec. 1.03 NATURE AND TERM OF THE PLAN. The Plan sets forth the severance pay policy of the Plan Sponsor. Nothing herein is intended to, and nothing herein shall be construed to, change the discretionary nature of the policy and the awarding of Benefits pursuant thereto. The Plan Sponsor hereby reserves the right, whether in an individual case or more generally, to alter, reduce or eliminate any practice, policy or benefit, in whole or in part, without notice, in accordance with the further provisions hereof. The Plan will continue until such time as the Plan Sponsor acting in its sole and absolute discretion, elects to modify, supersede or terminate the Plan, in accordance with the further provisions hereof. ARTICLE 2 DEFINITIONS ----------- Sec. 2.01 "ADMINISTRATIVE COMMITTEE" means the committee that the Board of Directors has charged with responsibility for administration of employee benefits, or any individual or individuals to whom the Administrative Committee has delegated some or all of its responsibilities hereunder. The Administrative Committee shall consist of David Strawbridge, G. Leonard Shea, and George Scudder of the Plan Sponsor. - 2 - Sec. 2.02 "BENEFIT" means the severance pay award that a Participant is entitled to receive pursuant to Section 4.01 of the Plan. Sec. 2.03 "BOARD OF DIRECTORS" means the board of directors or other governing body of the Plan Sponsor. Sec. 2.04 "CODE" means the Internal Revenue Code of 1986, as amended, and any successor statute of similar nature and purpose. Sec. 2.05 "COMPANY" means Strawbridge & Clothier. Sec. 2.06 "EMPLOYEE" means a person rendering service as a full-time or part-time employee of the Plan Sponsor and who is a common law employee of the Plan Sponsor. The term does not include self-employed persons, independent contractors, persons considered "leased employees" under the Code, contingent employees, seasonal employees or employees who are represented by a labor organization for the purpose of collective bargaining. Sec. 2.07 "EMPLOYMENT TERMINATION DATE" means the date on which the employment relationship between the Employee and the Plan Sponsor is terminated as a result of a Sale of the Company. Sec. 2.08 "ERISA" means the Employee Retirement Income Security Act of 1974 (P.L. 93-406), as amended, and any successor statute of similar purpose. Sec. 2.09 "JUST CAUSE" is any reason for dismissing an individual from employment with the Plan Sponsor which the Plan Sponsor determines, in its sole discretion, would constitute grounds for denying payment of Benefits under the Plan upon the - 3 - individual's dismissal. Just Cause shall include, but shall not be limited to, dismissal due to breach of trust, clearly unacceptable behavior, excessive absenteeism or tardiness, unsatisfactory performance caused by willful misconduct, insubordination. Sec. 2.10 "NAMED FIDUCIARY" means the Plan Administrator and such other persons delegated fiduciary responsibilities by the Plan Administrator. Each Named Fiduciary shall have only those particular powers, duties, responsibilities and obligations as are specifically given such Named Fiduciary under the Plan. Any Named Fiduciary, if so appointed, may perform in more than one fiduciary capacity. Sec. 2.11 "PARTICIPANT" means any Terminated Employee who is entitled to a Benefit under the Plan pursuant to Article 3. Sec. 2.12 "PLAN" means the Strawbridge & Clothier Separation Pay Plan, as set forth herein, and as the same may from time to time be amended. Sec. 2.13 "PLAN ADMINISTRATOR" means the Administrative Committee. Sec. 2.14 "PLAN SPONSOR" means Strawbridge & Clothier. The term "Plan Sponsor" shall also include any successor to the Plan Sponsor if such successor adopts the Plan. Sec. 2.15 "PLAN YEAR" means the period commencing each January 1 and ending on the following December 31. - 4 - Sec. 2.16 "SALE OF THE COMPANY" means (i) the direct or indirect acquisition by any person or related group of persons of beneficial ownership of securities possessing more than 50% of the combined voting power of the Company's outstanding securities, whether pursuant to a sale of securities, merger or other corporate transaction, (ii) the sale, transfer or other disposition of more than 75% of the Company's assets in a single or related series of transactions, or (iii) the sale, transfer or other disposition of any operating division, unit or other group of the Company through the sale of its assets or otherwise, as determined by the Plan Sponsor in its sole and absolute discretion. Sec. 2.17 "TERMINATED EMPLOYEE" means an Employee who has experienced an Employment Termination Date. ARTICLE 3 PARTICIPATION AND ELIGIBILITY FOR BENEFITS ------------------------------------------ Sec. 3.01 GENERAL BENEFITS AWARD REQUIREMENT. (a) Subject to Paragraphs (b), (c), and (d) in order to be eligible to receive a Benefit hereunder, a Terminated Employee must have been involuntarily terminated as a result of a Sale of the Company. (b) Notwithstanding anything in the Plan to the contrary, in no event shall an Employee be considered to have involuntarily terminated his or her employment for purposes of Paragraph (a) if his or her employment with the Plan Sponsor is - 5 - discontinued due to (1) Just Cause, (2) voluntary cessation of employment (with or without notice), (3) unsatisfactory performance, (4) retirement, (5) death, or (6) the Sale of the Company where the Employee has been offered employment with the new employer, under terms and conditions generally comparable to the terms and conditions of the Employee's employment with the Plan Sponsor, and the Employee continues in such employment for a period of time at least equal to the amount of time the Employee is entitled to the benefits specified in Section 4.01(f), assuming that the Employee was otherwise eligible for benefits under Section 4.01(f). (c) Notwithstanding anything in the Plan to the contrary, a Terminated Employee shall not be eligible to receive a benefit unless he or she executes a release of any claims he or she may have against Strawbridge & Clothier and its affiliates. (d) Notwithstanding anything in the Plan to the contrary, a Terminated Employee shall not be eligible to receive a benefit if he or she is a party to an Employment Agreement for Key Executive Employees at the time of the Sale of the Company. Sec. 3.02 PLAN SPONSOR'S DISCRETION. Any Terminated Employee who satisfies the requirements of Section 3.01, as determined by the Plan Sponsor, in its discretion, shall be entitled to receive a severance pay award under the Plan. The amount of any such severance pay award shall be determined in accordance with the provisions of Section 4.01. - 6 - Sec. 3.03 EXERCISE OF DISCRETIONARY AUTHORITY. The discretionary authority reserved to the Plan Sponsor under Section 3.02 shall be exercised by David Strawbridge and/or his designee. In exercising discretionary authority pursuant to Section 3.02, none of the individuals described in the preceding sentence shall be acting in a fiduciary capacity, and they shall be free to act solely on the basis of their business judgment. ARTICLE 4 CALCULATION OF BENEFITS ----------------------- Sec. 4.01 AMOUNT OF BENEFIT. A Terminated Employee who has satisfied the requirements of Section 3.01 and has been selected to receive a severance pay award pursuant to Section 3.02, shall be entitled to receive an amount specified as follows: (a) Persons classified by the Plan Sponsor as "Divisional Managers" shall be entitled to receive an amount equal to one year of salary, not including bonuses, regardless of their length of service. (b) Persons classified by the Plan Sponsor as "Major Executives" and "Executive Professionals" shall be entitled to the greater of six months of salary, not including bonuses, or an amount equal to the product of (1) and (2) below: (1) The Participant's length of continuous service with the Plan Sponsor expressed in terms of number of whole years rounded up to the next - 7 - whole number if less than a whole year, as determined by the Plan Sponsor; and (2) The Participant's annual salary rate in effect on the Participant's last day of work, as determined by the Plan Sponsor, divided by 52. For purposes of this calculation, the Participant's annual salary rate shall not include any bonuses; (c) Persons classified by the Plan Sponsor as "Executives" and "Professionals" shall be entitled to the greater of three months of salary, not including bonuses, or an amount equal to the product of (1) and (2) below: (1) The Participant's length of continuous service with the Plan Sponsor expressed in terms of number of whole years employed rounded up to the next whole number if less than a full year, as determined by the Plan Sponsor; and (2) The Participant's annual salary rate in effect on the Participant's last day of work, as determined by the Plan Sponsor, divided by 52. For purposes of this calculation, the Participant's annual salary rate shall not include any bonuses; (d) Persons classified by the Plan Sponsor as "Regular Hourly" and "Part-Time Regular Hourly" Employees shall be entitled an amount equal to the product of (1) and (2) below: - 8 - (1) The Participant's length of continuous service as a Regular Hourly or Part-Time Regular Hourly Employees with the Plan Sponsor expressed in terms of number of whole years employed rounded up to the next whole number if less than a whole year, as determined by the Plan Sponsor divided by two; and (2) The Participant's current hourly rate multiplied by the regularly scheduled hours per week in effect on the Participant's last day of work, as determined by the Plan Sponsor. For commission eligible associates the hourly rate will be adjusted to reflect the commissions earned in the prior calendar year. (e) Notwithstanding anything in this Section 4.01 to the contrary, in the event of the Sale of the Company where the Employee has been offered employment with the new employer, under terms and conditions generally comparable to the terms and conditions of the Employee's employment with the Plan Sponsor, and the Employee accepts such employment, no benefit payments shall be due or made for the period of employment with the buyer. Benefit payments shall commence as of the end of the period of employment with the buyer and shall continue for the balance of the period of time described in this Section 4.01. Benefits which would otherwise be payable but for the Employee's employment with the buyer shall be forfeited. - 9 - (f) In addition to the benefits set forth above, a Participant shall be entitled to continue as a participant in all health plans, life insurance plans and employee discount programs sponsored by Strawbridge & Clothier that the Participant was a participant in prior to his or her Employment Termination Date. All coverage levels, benefits, co-pays, employee contributions and other benefit terms and conditions shall be the same as a similarly situated active employee. In the event that there are no similarly situated active employees, coverage levels, benefits, co-pays, employee contributions and other benefit terms and conditions shall be the same as were in effect immediately prior to the Terminated Employee's termination. For purposes of Section 4.01(f), an Eligible Terminated Employee shall continue to be covered under the previously identified plans for the number of weeks specified below: Persons Classified by the Plan Sponsor as Number of Weeks - ---------------------- --------------- "Divisional Manager" 52 weeks "Major Executives" and The greater of 26 weeks or 1 "Executive Professionals" week multiplied by the number of whole years of service, rounded up to the next whole number if less than a whole year "Executives" and The greater of 13 weeks or 1 "Professionals" week multiplied by the number of whole years of service, rounded up to the next whole number if less than a whole year "Regular Hourly" And "Part- The number of weeks equal to the Time Regular Hourly" number of whole years of Employees service, rounded up to the next whole year if less than a whole year, divided by 2. - 10 - A Terminated Employee shall be entitled to purchase Continued Health Care Coverage in accordance with ERISA, using the date that coverage ceases to be provided under this Section 4.01(f) as the date of the first "Qualifying Event," as that phrase is defined by ERISA. (g) In the event that a Terminated Employee was demoted or his or her salary/hourly rate (as applicable) was reduced within six months prior to his or her Employment Termination Date (for reasons other than unsatisfactory performance), such Terminated Employee's employment classification and/or salary/hourly rate prior to such demotion and/or reduction shall be used for purposes of determining such Terminated Employee's benefits under this Section 4.01. Sec. 4.02 REDUCTIONS. The Benefits payable hereunder shall be reduced by any and all payments required to be made by the Plan Sponsor under federal, state and local law, including, but not limited to the Worker Adjustment and Retraining Notification Act, 29 U.S.C. section 2101 et seq. or any otherwise applicable workers' compensation. Sec. 4.03 ADDITIONAL SEVERANCE PAYMENTS. In addition to the benefit payable under Section 4.01, the Plan Sponsor, in its sole discretion, may select and pay certain Participants an additional severance bonus. The Plan Sponsor shall provide to an eligible Participant a written notice of such Participant's selection. Such notice shall specify the terms and conditions for receipt of this additional benefit. - 11 - Sec. 4.04 EFFECT ON OTHER BENEFITS. There shall not be drawn from the continued provision by the Plan Sponsor of any Benefit hereunder any implication of continued employment or of any continued right to accrual of retirement plan benefits, nor shall the Terminated Employee accrue vacation days, paid holidays, or other similar benefits normally associated with employment for any part of the period during or in respect of which a Benefit is payable under the Plan, except as provided in Section 4.01(f). ARTICLE 5 METHOD AND DURATION OF BENEFIT PAYMENTS --------------------------------------- Sec. 5.01 METHOD OF PAYMENT. A Participant's Benefit shall be paid in accordance with normal payroll practices, with the first payment commencing as soon as practicable after the Participant's Employment Termination Date. In no event will interest be credited on the unpaid balance to which a Participant may become entitled. Payment shall be made by mail to the last address provided by the Participant to the Plan Sponsor. If at any time before or after the commencement of payment, the Plan Sponsor or the Administrative Committee determine that any conduct of the Participant is adverse to the interests of the Plan Sponsor, all payments under this Section shall cease. This paragraph shall become null and void following a Change of Control as defined in Section 7.01. - 12 - Sec. 5.02 CESSATION OF BENEFIT PAYMENTS. A Participant shall cease to participate in the Plan, and all Benefit payments shall cease upon the occurrence of the earliest of: (a) Completion of payment to the Participant of the Benefit to which he or she is entitled under Section 4.01; (b) Termination by the Plan Administrator of the Terminated Employee's right to be a Participant upon discovery of the occurrence of Just Cause, whether or not such discovery occurs before the Employment Termination Date, provided that the Plan Administrator terminates such benefits prior to a Change of Control as defined in Section 7.01; (c) The modification or termination of the Plan; or (d) The death of the Terminated Employee. ARTICLE 6 THE PLAN ADMINISTRATOR ---------------------- Sec. 6.01 APPOINTMENT. The Plan Administrator shall be a committee comprised of David Strawbridge, G. Leonard Shea, and George Scudder. Sec. 6.02 AUTHORITY AND DUTIES. The Plan Administrator shall have the full discretionary power and authority to construe, interpret and administer the Plan, to correct deficiencies in the Plan, to make factual determinations and to supply omissions. All decisions, actions and - 13 - interpretations of the Plan Administrator shall be final, binding and conclusive upon the parties. Sec. 6.03 COMPENSATION OF THE PLAN ADMINISTRATOR. The Plan Administrator shall serve without compensation for its services as such. However, all reasonable expenses of the Plan Administrator shall be paid or reimbursed by the Plan Sponsor upon proper documentation. The Plan Administrator shall be indemnified by the Plan Sponsor against personal liability for actions taken in good faith in the discharge of duties as the Plan Administrator. Sec. 6.04 RECORDS, REPORTING AND DISCLOSURE. The Plan Administrator shall keep all individual and group records relating to Participants and former Participants and all other records necessary for the proper operation of the Plan. Such records shall be made available to the Plan Sponsor and to each Participant for examination during business hours except that a Participant shall examine only such records as pertain exclusively to the examining Participant and to the Plan. The Plan Administrator shall prepare and shall file as required by law or regulation all reports, forms, documents and other items required by ERISA, the Code, and every other relevant statute, each as amended, and all regulations thereunder (except that the Plan Sponsor, as payor of the Benefits, shall prepare and distribute to the proper recipients all forms relating to withholding of income or wage taxes, Social Security taxes, and other amounts which may be similarly reportable). - 14 - Sec. 6.05 BONDING. The Plan Administrator shall arrange for such bonding as may be required by law, if any, but not in an amount in excess of the amount required by law. ARTICLE 7 AMENDMENT AND TERMINATION ------------------------- Sec. 7.01 AMENDMENT, SUSPENSION AND TERMINATION. The Plan Sponsor, by action of the Board of Directors, shall have the right, at any time and from time to time, to amend, suspend or terminate the Plan in whole or in part, for any reason, and without either the consent of or the prior notification to any Participant. No such amendment or termination shall give the Plan Sponsor the right to recover any amount paid to a Participant prior to the date of such amendment or termination. However, any such amendment or termination may cause the cessation and discontinuance of payments of Benefits to any person or persons under the Plan. The Plan Sponsor, by action of the Board of Directors, shall have the right to delegate its authority and power hereunder, or any portion thereof, to any committee of the Plan Sponsor, and the right to rescind any such delegation in whole or in part. Notwithstanding anything in the Plan to the contrary, the Plan may not be amended, suspended or terminated in whole or in part for three years following a Change of Control. For purposes of this Plan, Change of Control shall mean a change in the identity of a majority of the Board of Directors within any - 15 - period of either two calendar years or twenty-four consecutive months, treating, however, as unchanged for this purpose, the identity of any member of the Board of Directors who retires or dies and who, subsequent to such retirement or death, is replaced by a new member of the Board of Directors appointed by the remaining Board of Directors. ARTICLE 8 DUTIES OF THE PLAN SPONSOR -------------------------- Sec. 8.01 RECORDS. The Plan Sponsor shall supply to the Plan Administrator all records and information necessary to the performance of the Plan Administrator's duties. Sec. 8.02 PAYMENT. The Plan Sponsor shall make payments from its general assets to Participants who are former Employees of the Plan Sponsor in accordance with the terms of the Plan. ARTICLE 9 CLAIM PROCEDURES ---------------- Sec. 9.01 CLAIMS FOR BENEFITS. The Plan Sponsor will advise each Terminated Employee of any benefits to which he or she is entitled under the Plan. If any person believes that the Plan Sponsor has failed to advise him or her of any benefit to which he or she is entitled, he or she may file a written claim with the Plan Administrator. The Plan Administrator shall review such claim and respond thereto within a reasonable time after - 16 - receiving the claim. The Plan Administrator shall provide to every claimant who is denied a claim for benefits written notice setting forth in a manner calculated to be understood by the claimant: (1) the specific reason or reasons for the denial; (2) specific reference to pertinent Plan provisions on which the denial is based; (3) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; (4) an explanation of the claims review procedure set forth in the following paragraph. Within 60 days of receipt by a claimant of a notice denying a claim under the preceding paragraph, the claimant or his or her duly authorized representative may request in writing a full and fair review of the claim by the Administrative Committee. The Administrative Committee may extend the 60-day period where the nature of the benefit involved or other attendant circumstances make such extension appropriate. In connection with such review, the claimant or his duly authorized representative may review pertinent documents and may submit issues and comments in writing. The Administrative Committee shall make a decision promptly, and not later than 60 days after the Plan's receipt of a request for review, unless special circumstances (such as the need to hold a hearing) require an extension of time for - 17 - processing, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of a request for review. The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and specific references to the pertinent Plan provisions on which the decision is based. The Administrative Committee shall have the full discretionary power and authority to construe, interpret and to administer the Plan, to correct deficiencies in the Plan, to make factual determinations and to supply omissions. ARTICLE 10 MISCELLANEOUS ------------- Sec. 10.01 NONALIENATION OF BENEFITS. None of the payments, Benefits or rights of any Participant shall be subject to any claim of any creditor, and, in particular, to the fullest extent permitted by law, all such payments, Benefits and rights shall be free from attachment, garnishment, trustee's process, or any other legal or equitable process available to any creditor of such Participant. No Participant shall have the right to alienate, anticipate, commute, pledge, encumber or assign any of the Benefits or payments which he or she may expect to receive, contingently or otherwise, under the Plan. Sec. 10.02 NO CONTRACT OF EMPLOYMENT. Neither the establishment of the Plan, nor any modification thereof, nor the - 18 - creation of any fund, trust or account, nor the payment of any Benefits shall be construed as giving any Participant or Employee, or any person whosoever, the right to be retained in the service of the Plan Sponsor, and all Participants and other Employees shall remain subject to discharge to the same extent as if the Plan had never been adopted. Sec. 10.03 SEVERABILITY OF PROVISIONS. If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included. Sec. 10.04 HEIRS, ASSIGNS, AND PERSONAL REPRESENTATIVES. The Plan shall be binding upon the heirs, executors, administrators, successors and assigns of the parties, including each Participant, present and future (except that no successor to the Plan Sponsor shall be considered the Plan Sponsor unless that successor adopts the Plan). Sec. 10.05 HEADINGS AND CAPTIONS. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan. Sec. 10.06 GENDER AND NUMBER. Except where clearly indicated by context, the masculine and the neuter shall include the feminine and the neuter, the singular shall include the plural, and vice-versa. - 19 - Sec. 10.07 UNFUNDED PLAN. The Plan shall not be funded. No Participant shall have any right to, or interest in, any assets of the Plan Sponsor which may be applied by the Plan Sponsor to the payment of Benefits. Sec. 10.08 PAYMENTS TO INCOMPETENT PERSONS, ETC. Any Benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipting therefor shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Plan Sponsor, the Plan Administrator and all other parties with respect thereto. Sec. 10.09 APPENDICES. From time to time, the Plan Sponsor may elect, by written resolution, to append provisions of limited duration to the Plan to govern what the Plan Sponsor determines to be special circumstances governing a substantial number of its Employees. Each such Appendix, during the period stipulated therein, shall be deemed a part of the Plan. Except as otherwise stated in any such Appendix applicable to any Employee or Terminated Employee, the rights of such Employee or Terminated Employee as stated in such Appendix shall supersede the rights provided under the Plan, the Benefits provided under such Appendix shall be in lieu of comparable or stipulated Benefits provided under the Plan, and there shall be no duplication of Benefits. - 20 - Sec. 10.10 LOST PAYEES. A Benefit shall be deemed forfeited if the Plan Administrator is unable to locate a Participant to whom a Benefit is due. Such Benefit shall be reinstated if application is made by the Participant for the forfeited Benefit while the Plan is in operation. Sec. 10.11 CONTROLLING LAW. The Plan shall be construed and enforced according to Pennsylvania law except to the extent superseded by federal law. IN WITNESS WHEREOF, and as evidence of the adoption of the Plan, the Plan Sponsor has caused the same to be executed by its duly authorized officers and its corporate seal to be affixed hereto this ______ day of February, 1996. STRAWBRIDGE & CLOTHIER Attest: By:___________________________________ Title:________________________________ ______________________________ Secretary - 21 - FORM OF RESOLUTION TO BE ADOPTED AT A MEETING OF THE BOARD OF DIRECTORS RESOLVED, that this corporation revokes, rescinds and terminates the Strawbridge & Clothier Severance Pay Plan, as originally adopted effective November 1, 1995, at a meeting of the Board of Directors held on November 22, 1995; RESOLVED, that this corporation adopts the Strawbridge & Clothier Separation Pay Plan (the "Plan"), in the form attached hereto and made a part hereof, the same to be effective as of February 28, 1996, as a supplemental unemployment benefit plan for the benefit of those employees of this corporation who may qualify under the terms of the Plan; FURTHER RESOLVED, that the proper officers of this corporation be, and they hereby are, authorized and directed to execute such instruments and to perform such acts as they, in their sole discretion, deem necessary or desirable to effectuate the intent of the foregoing resolution and to implement the Plan and carry out its intended purpose. - 22 - EX-10.6 9 EXHIBIT 10-6 Exhibit 10.6 ============================================================================== AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT Dated as of November 20, 1995 Among S&C, FUNDING, INC. as Seller --------- STRAWBRIDGE & CLOTHIER as Servicer ----------- and MARKET STREET CAPITAL CORP. as Purchaser ------------ and PNC BANK, NATIONAL ASSOCIATION as Administrator ---------------- ============================================================================== TABLE OF CONTENTS Page 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 . . . . . . . . . . 3 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. . . . . . . . . . . . . . . . . . . . . . . . . 6 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 SECTION 4.03. Funding Losses . . . . . . . . . . . . . . . . . . . 14 ARTICLE V CONDITIONS PRECEDENT. . . . . . . . . . . . . 14 SECTION 5.01. Conditions Precedent to Effectiveness. . . . . . . . 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 SECTION 6.02. Representations and Warranties of Strawbridge. . . . . . . . . . . . . . . . . . . . . 20 ARTICLE VII GENERAL COVENANTS OF SELLER AND STRAWBRIDGE. . . . . . . 23 SECTION 7.01. Affirmative Covenants of Seller and Strawbridge. . . . . . . . . . . . . . . . . . . . . 23 SECTION 7.02. Reporting Requirements of Seller . . . . . . . . . . 25 SECTION 7.03. Reporting Requirements of Strawbridge. . . . . . . . 26 SECTION 7.04. Negative Covenants of Seller . . . . . . . . . . . . 27 SECTION 7.05. Negative Covenants of Strawbridge. . . . . . . . . . 28 SECTION 7.06 Separate Corporate Existence . . . . . . . . . . . . 29 ARTICLE VIII ADMINISTRATION AND COLLECTION . . . . . . . . . . 32 SECTION 8.01. Designation of Servicer. . . . . . . . . . . . . . . 32 SECTION 8.02. Duties of Servicer . . . . . . . . . . . . . . . . . 33 SECTION 8.03. Rights of the Administrator. . . . . . . . . . . . . 35 SECTION 8.04. Responsibilities of Servicer . . . . . . . . . . . . 36 SECTION 8.05. Further Action Evidencing Purchases and Reinvestments. . . . . . . . . . . . . . . . . . . . 36 SECTION 8.06. Application of Collections . . . . . . . . . . . . . 37 ARTICLE IX SECURITY INTEREST . . . . . . . . . . . . . 38 SECTION 9.01. Grant of Security Interest . . . . . . . . . . . . . 38 SECTION 9.02. Further Assurances . . . . . . . . . . . . . . . . . 38 SECTION 9.03. Remedies . . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE X LIQUIDATION EVENTS . . . . . . . . . . . . . 38 SECTION 10.01. Liquidation Events . . . . . . . . . . . . . . . . . 38 SECTION 10.02. Remedies . . . . . . . . . . . . . . . . . . . . . . 41 ARTICLE XI THE ADMINISTRATOR . . . . . . . . . . . . . 41 SECTION 11.01. Authorization and Action . . . . . . . . . . . . . . 41 SECTION 11.02. Administrator's Reliance, Etc. . . . . . . . . . . . 42 SECTION 11.03. PNC Bank and Affiliates. . . . . . . . . . . . . . . 42 ii ARTICLE XII ASSIGNMENT OF PURCHASER'S INTEREST . . . . . . . . . 42 SECTION 12.01. Restrictions on Assignments. . . . . . . . . . . . . 42 SECTION 12.02. Rights of Assignee . . . . . . . . . . . . . . . . . 44 SECTION 12.03. Evidence of Assignment . . . . . . . . . . . . . . . 44 ARTICLE XIII INDEMNIFICATION. . . . . . . . . . . . . . 44 SECTION 13.01. Indemnities by Seller. . . . . . . . . . . . . . . . 44 ARTICLE XIV MISCELLANEOUS . . . . . . . . . . . . . . 47 SECTION 14.01. Amendments, Etc. . . . . . . . . . . . . . . . . . . 47 SECTION 14.02. Notices, Etc.. . . . . . . . . . . . . . . . . . . . 47 SECTION 14.03. No Waiver; Remedies. . . . . . . . . . . . . . . . . 47 SECTION 14.04. Binding Effect; Survival . . . . . . . . . . . . . . 48 SECTION 14.05. Costs, Expenses and Taxes. . . . . . . . . . . . . . 48 SECTION 14.06. No Proceedings . . . . . . . . . . . . . . . . . . . 49 SECTION 14.07. Confidentiality of Program Information . . . . . . . 49 SECTION 14.08. Confidentiality of Seller Information. . . . . . . . 51 SECTION 14.09. Captions and Cross References. . . . . . . . . . . . 52 SECTION 14.10. Integration. . . . . . . . . . . . . . . . . . . . . 52 SECTION 14.11. Governing Law. . . . . . . . . . . . . . . . . . . . 53 SECTION 14.12. Waiver Of Jury Trial . . . . . . . . . . . . . . . . 53 SECTION 14.13. Consent To Jurisdiction; Waiver Of Immunities . . . . . . . . . . . . . . . . . . . . . 53 SECTION 14.14. Execution in Counterparts. . . . . . . . . . . . . . 53 SECTION 14.15. No Recourse Against Other Parties. . . . . . . . . . 53 SECTION 14.16. Substitution of Originator . . . . . . . . . . . . . 54 iii APPENDICES APPENDIX A Definitions SCHEDULES 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 6.02(h) Description of Material Adverse Changes SCHEDULE 6.02(i) Description of Litigation EXHIBIT 6.02(k) List of Offices of Strawbridge where Records are Kept 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)-1 Form of Corporate Opinion of Counsel for Seller and Strawbridge EXHIBIT 5.01(h)-2 Form of True Sale/Substantive Opinion iv AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT Dated as of November 20, 1995 THIS IS AN AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT, among S&C, FUNDING, INC., a Delaware corporation ("Seller"), STRAWBRIDGE & CLOTHIER, a Pennsylvania corporation ("Strawbridge"), as initial servicer, MARKET STREET CAPITAL CORP., a Delaware corporation ("Purchaser"), and PNC BANK, NATIONAL ASSOCIATION, a national banking association, as administrator for Purchaser (in such capacity, together with any successors thereto in such capacity, the "Administrator" and in its individual capacity, "PNC Bank"). Unless otherwise indicated, capitalized terms used in this Agreement are defined in Appendix A. Background ---------- 1. Strawbridge is engaged in the business of retail sales, and in connection therewith issues private label credit cards. 2. Strawbridge, Clipper Receivables Corporation ("Clipper"), State Street Boston Capital Corporation ("State Street"), as administrator for Clipper, and PNC Bank, as relationship bank, entered into the Receivables Purchase Agreement, dated as of January 26, 1995 (the "Original Purchase Agreement"). 3. Strawbridge has formed Seller as a limited purpose subsidiary for the purpose of purchasing Receivables and certain related assets from Strawbridge. 4. Clipper has assigned to Purchaser all of its rights, claims and obligations under the Original Purchase Agreement and the other Transaction Documents pursuant to the Assignment and Assumption Agreement, dated as of the date hereof (the "Assignment Agreement"), among Clipper, Purchaser, State Street and PNC Bank. 5. The parties hereto desire to amend and restate the Original Purchase Agreement in its entirety, among other things, to reflect the assignment to Purchaser and the establishment of Seller. 6. 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. 7. 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. 8. PNC Bank has been requested, and is willing, to act as the Administrator. 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: 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 $150,000,000 (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. (Pittsburgh 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 2 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 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 or the Administrator and the Servicer's Fee (in each case, accrued through such day) and not so previously set aside; provided that unless the Administrator 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 3 (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 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; and NPB = the then Net Pool Balance; 4 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 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 5 (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. 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 (each, a "Reporting Date"), Servicer shall deliver to 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 6 shall distribute from Collections set aside pursuant to Section 1.03(a)(ii) and (iii) and (b) 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, 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 Strawbridge, 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 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, plus any previously accrued Earned Discount not paid on a 7 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 Strawbridge, 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 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) 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. (f) 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, subject to the priorities set forth in paragraphs (c) and (d) above, and no Reinvestment shall be 8 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 or any Affiliate 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 (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, or (iii) without duplication, Seller receives a Deemed Collection (as defined in the Purchase Agreement), 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; (II) in the case of clause (ii) above, in the amount of the Unpaid Balance of such Pool Receivable; and 9 (III) in the case of clause (iii) above, in the amount so received as a Deemed Collection. (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. 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. (Pittsburgh 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 Administrator at PNC Bank, ABA #043000096, for credit to Account #1002420425; Reference: Strawbridge Receivables and (ii) in the case of all fees, expenses and other amounts (other than amounts payable under Section 4.02), to the Administrator at PNC Bank, ABA 10 #043000096, for credit to Account #1-188375, Attention: Charlene Wilson, 7001. (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 or the Administrator 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 Administrator, or lock boxes or accounts directly or indirectly owned or controlled by the Administrator, Servicer shall forthwith cause such deemed Collections to be paid to the Administrator 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 or the Administrator it shall hold such Collections in trust and shall clearly mark its records to reflect such trust; provided that unless the Administrator shall request it to do so in writing, Seller shall not be required to hold such Collections in a separate deposit account containing only such Collections. ARTICLE IV FEES AND YIELD PROTECTION SECTION 4.01. Fees. Seller shall pay to the Administrator, for the account of Purchaser, certain fees, payable on such dates and in such amounts as are set forth in the letter dated the date hereof from the Administrator to Seller and Strawbridge (as amended from time to time, the "Fee Letter"). 11 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 (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 any Program Support Agreement, 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 any Program Support 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 12 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 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. 13 (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 the absence of manifest error, be conclusive and binding upon the Seller and Servicer. ARTICLE V CONDITIONS PRECEDENT SECTION 5.01. Conditions Precedent to Effectiveness. The effectiveness of this Amended and Restated Receivables Purchase Agreement is subject to the condition precedent that the Administrator shall have received, on or before the date of such effectiveness, 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 each of Strawbridge and 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 Strawbridge issued by the Secretary of State of Pennsylvania; good standing 14 certificates for Seller issued by the Secretaries of State of Pennsylvania and Delaware; (c) A certificate of the Secretary or Assistant Secretary of each of Strawbridge and Seller certifying the names and true signatures of the officers authorized on its behalf to sign this Agreement 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 Strawbridge or Seller, as the case may be, 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 Delaware, as of a recent date acceptable to the Administrator, together with a copy of the by-laws of Seller, duly certified by the Secretary or an Assistant Secretary of Seller; the Articles of Incorporation of Strawbridge, duly certified by the Secretary of State of Pennsylvania, as of a recent date acceptable to the Administrator, together with a copy of the by-laws of Strawbridge, duly certified by the Secretary or an Assistant Secretary of Strawbridge; (e) Acknowledgment copies of (i) proper financing statements (Form UCC-1), filed on or prior to the date hereof, naming Seller as the debtor and seller of Receivables or an undivided interest therein and Purchaser as the secured party and purchaser, (ii) terminations of the financing statements filed naming Strawbridge as the debtor and Clipper as the secured party pursuant to the Original Purchase Agreement, and (iii) proper financing statements (Form UCC-1), filed on or prior to the date hereof, naming Strawbridge as the debtor and seller of Receivables, Seller as the secured party and purchaser and Purchaser as assignee or, in each case, 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 that name Strawbridge or 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, other than those in favor of Clipper); (g) Duly executed copies of amended Lock-Box Agreements with each of the Lock-Box Banks; 15 (h) Favorable opinions of Morgan, Lewis & Bockius LLP, counsel to Seller and Strawbridge, in substantially the forms of Exhibit 5.01(h)-1 and 5.01(h)-2; (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) An Information Package, with a Cut-Off Date of October 28, 1995; (k) The Purchase Agreement, duly executed by Strawbridge and Seller, together with a copy of all documents required to be delivered thereunder; (l) The Liquidity Agreement, duly executed by Purchaser, the Liquidity Agent and each Liquidity Bank; (m) The Assignment Agreement, duly executed by the parties thereto; and (n) The Fee Letter, duly executed by Seller and Servicer. SECTION 5.02. Conditions Precedent to All Purchases and Reinvestments. Each 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 Article VI are correct in all material respects on and as 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 16 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 State of Delaware, 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 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 17 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 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) As of the date hereof (after giving effect to the transactions contemplated by the 18 Transaction Documents), Seller is solvent and (y) since the date of Seller's incorporation, there has been no material adverse change in Seller's financial condition, business or results of operations. (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. (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, (ii) in favor of Seller pursuant to the Purchase Agreement, or (iii) in favor of the Liquidity 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 or Purchaser 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 and Purchaser at such time) as of the date so furnished, or contained or will contain any material 19 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 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 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) 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. SECTION 6.02. Representations and Warranties of Strawbridge. Strawbridge, as Servicer, represents and warrants as follows: (a) Organization and Good Standing. Strawbridge 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. (b) Due Qualification. Strawbridge 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. Strawbridge (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, and (B) carry out the terms 20 of the Transaction Documents to which it is a party, and (ii) has duly authorized by all necessary corporate action the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party. (d) Binding Obligations. This Agreement constitutes, and each other Transaction Document to be executed by Strawbridge when duly executed and delivered will constitute, a legal, valid and binding obligation of Strawbridge 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 Strawbridge, or (B) in any material respect, any indenture, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument to which Strawbridge 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 Strawbridge'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 the Purchase Agreement or (iii) violate any law or any order, rule, or regulation applicable to Strawbridge of any court or of any federal or state regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over Strawbridge or any of its properties. (f) No Proceedings. There are no proceedings or investigations pending, or, to Strawbridge'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 Strawbridge is a party, (ii) seeking to prevent the sale and assignment of any Asset Interest or the consummation of any of the other transactions contemplated by this Agreement or any other Transaction Document to which Strawbridge is a party, or (iii) seeking any determination or ruling that might have a Material Adverse Effect. 21 (g) 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 Strawbridge of this Agreement or any other Transaction Document to which it is a party. (h) Financial Condition. (x) The consolidated balance sheets of Strawbridge and its consolidated subsidiaries as at January 28, 1995, and the related statements of income and shareholders' equity of Strawbridge and its consolidated subsidiaries for the fiscal year then ended, certified by Ernst & Young, independent certified public accountants, and the consolidated balance sheets of Strawbridge and its consolidated subsidiaries as at July 29, 1995 and the related statements of income and shareholders' equity of Strawbridge and its consolidated subsidiaries for the six 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 Strawbridge and its consolidated subsidiaries as at such dates and the consolidated results of the operations of Strawbridge and its consolidated subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles consistently applied, and (y) since July 29, 1995 there has been no material adverse change in any such condition, business or results of operations except as described in Schedule 6.02(h). (i) 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, Strawbridge from conducting a material part of its business operations, except as described in Schedule 6.02(i). (j) Accurate Reports. No Information Package (if prepared by Strawbridge or its Affiliate, or to the extent information therein was supplied by Strawbridge or its Affiliate) or other information, exhibit, financial statement, document, book, record or report furnished or to be furnished by or on behalf of Strawbridge or its Affiliates to the Administrator or Purchaser 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 and Purchaser 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. 22 (k) Offices. The chief place of business and chief executive office of Strawbridge are located at the address of Strawbridge referred to in Section 14.02, and the offices where Strawbridge 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 6.02(k) (or at such other locations, notified to the Administrator in accordance with Section 7.01(f)). (l) Lock-Box Accounts. The names and addresses of all the Lock-Box Banks, together with the account numbers of the lock-box accounts at such Lock-Box Banks, are specified in Schedule 6.01(o) (or have been notified to the Administrator in accordance with Section 7.03(d)). (m) 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. (n) No Disclosure Required. Under applicable laws and regulations in effect on the date hereof, Strawbridge 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 AND STRAWBRIDGE SECTION 7.01. Affirmative Covenants of Seller and Strawbridge. From the date hereof until the Final Payout Date, each of Seller and Strawbridge covenants, as to itself, that it 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. (c) Audits. (i) At any time and from time to time during regular business hours, permit the Administrator or any of its 23 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 or Strawbridge, as the case may be, 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 or Strawbridge, as the case may be, 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 or Strawbridge's, as the case may be, performance hereunder with any of its officers or employees having knowledge of such matters; and (ii) without limiting the provisions of clause (i) next above, from time to time on request of Administrator, permit internal auditors or other employees of the Administrator to conduct, at Seller's or Strawbridge's, as the case may be, reasonable expense, a review of Seller's or Strawbridge's, as the case may be, 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) referred to in Section 6.01(n) or 6.02(k), as the case may be, or, upon 30 days' prior written notice to 24 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 Strawbridge's stores or otherwise received by Seller or Strawbridge 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 shall otherwise consent in writing, furnish to the Administrator: (a) 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 prepared in conformity with generally accepted accounting principles and duly certified by independent certified public accountants of recognized standing selected by Seller; (b) 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 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; (c) 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; (d) 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 to which Seller is a party or which could have a Material Adverse Effect and (ii) any material adverse development in previously disclosed litigation; and 25 (e) 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 may from time to time reasonably request in order to protect the interests of the Administrator or Purchaser under this Agreement. SECTION 7.03. Reporting Requirements of Strawbridge. From the date hereof until the Final Payout Date, Strawbridge shall, unless the Administrator shall otherwise consent in writing, furnish to the Administrator: (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 Strawbridge, copies of the financial statements of Strawbridge and its Subsidiaries prepared on a consolidated basis in conformity with generally accepted accounting principles, duly certified by the chief financial officer of Strawbridge; (b) Annual Financial Statements. As soon as available and in any event within 90 days after the end of each fiscal year of Strawbridge, copies of the financial statements of Strawbridge 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 Strawbridge; (c) Reports to Holders and Exchanges. In addition to the reports required by subsections (a) and (b) next above, promptly upon the Administrator's request, copies of any reports which Strawbridge sends to any of its securityholders, and any reports or registration statements that Strawbridge 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 Strawbridge files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which Strawbridge 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 Strawbridge setting forth details of such 26 event and the action that Strawbridge proposes to take with respect thereto; (f) Litigation. As soon as possible and in any event within three Business Days of Strawbridge'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 Strawbridge'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 Strawbridge as the Administrator may from time to time reasonably request in order to protect the interests of the Administrator or Purchaser under this Agreement. SECTION 7.04. Negative Covenants of Seller. From the date hereof until the Final Payout Date, Seller will not, without the prior written consent of the Administrator: (a) Sales, Liens, Etc. Except as otherwise provided herein or in the Purchase Agreement, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Lien upon or with respect to, any 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. (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 collectability 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 27 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 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 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). (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. (g) Amend Purchase Agreement or Certificate of Incorporation. Amend, modify or waive any provisions of the Purchase Agreement or its certificate of incorporation. (h) Restricted Payments. Make any payment, dividend, loan or other distribution of any kind to Strawbridge or any of its affiliates, purchase or redeem any shares of capital stock of Seller, or set aside any funds for any such purpose, or make any payment in cash with respect to the company Note (as defined in the Purchase Agreement) or the purchase of Receivables under the Purchase Agreement, unless after giving effect thereto, Seller's tangible net worth is at least $15,000,000. (i) Incurrence of Indebtedness. Incur or permit to exist any indebtedness or liability for borrowed money or for the different purchase price of any property or services, except (i) indebtedness not exceeding $4,995 at any one time outstanding and (ii) Seller's obligations hereunder and under the other Transaction Documents. SECTION 7.05. Negative Covenants of Strawbridge. From the date hereof until the Final Payout Date, Strawbridge will not, without the prior written consent of the Administrator: (a) 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. 28 (b) 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 collectability of any Pool Receivable or otherwise adversely affect the interests or remedies of Purchaser under this Agreement or any other Transaction Document. (c) 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 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. (d) 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 (other than Seller) into Strawbridge or into, with or to any other wholly-owned Subsidiary. (e) 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. SECTION 7.06 Separate Corporate Existence. Each of Strawbridge and Seller hereby acknowledges that Purchaser, the Liquidity Banks and the Administrator, are entering into the transactions contemplated by this Agreement and the other Transaction Documents in reliance upon Seller's identity as a legal entity separate from Strawbridge. Therefore, from and after the date hereof, Seller shall take all steps specifically required by this Agreement or by Purchaser or the Administrator to continue Seller's identity as a separate legal entity and to make it apparent to third Persons that Seller is an entity with assets and liabilities distinct from those of Servicer, Strawbridge and any other Person, and is not a division of Servicer, Strawbridge or any other Person. Without limiting the generality of the foregoing and in addition to and consistent with the other covenants set forth herein, Seller and Strawbridge shall take such actions as shall be required in order that: 29 (a) Seller will be a limited purpose corporation whose primary activities are restricted in its certificate of incorporation to acquiring receivables from affiliates of the corporation, selling, pledging or otherwise transferring undivided fractional ownership interests in such receivables, entering into agreements relating to the acquisition and servicing of such receivables, selling, pledging or transferring such ownership interests, organizing and creating one or more trusts to engage in all of the foregoing activities, investing in and selling beneficial interests in such trusts and engaging in any activity and exercising any powers permitted to corporations under the laws of the State of Delaware which are incidental to and necessary or convenient to accomplishing the foregoing; (b) Not less than one member of Seller's Board of Directors (the "Independent Director") shall be an individual who (i) is in fact independent, (ii) does not have any direct financial interest or any material indirect financial interest in the corporation or in any Affiliate of the corporation, (iii) is not connected with the corporation or any Affiliate of the corporation as an officer, employee, promoter, underwriter, trustee, partner or person performing similar functions and (iv) is not, and has not been for a period of at least five (5) years, a director of any Affiliate of the corporation. The certificate of incorporation of Seller shall provide that (i) Seller's Board of Directors shall not approve, or take any other action to cause the filing of, a voluntary bankruptcy petition with respect to Seller unless the Independent Director shall approve the taking of such action in writing prior to the taking of such action and (ii) such provision cannot be amended without the prior written consent of the Independent Director; (c) The Independent Director shall not at any time serve as a trustee in bankruptcy for Seller, Strawbridge or any Affiliate thereof; (d) Any employee, consultant or agent of Seller will be compensated from Seller's funds for services provided to Seller. Seller will engage no agents other than its attorneys, auditors and other professionals, and a servicer for the Receivables Pool, which servicer will be fully compensated for its services to Seller by payment of the Servicer's Fee; (e) Seller will contract with Servicer to perform for Seller all operations required on a daily basis to service the Receivables Pool. Seller will pay Servicer the Servicer's Fee pursuant hereto. Seller will not incur any material indirect or overhead expenses for items shared between Seller and Strawbridge (or any other Affiliate thereof) which are not reflected in the Servicer's Fee. To the extent, if any, that 30 Seller and Strawbridge (or any other Affiliate thereof) share items of expenses not reflected in the Servicer's Fee, such as legal, auditing and other professional services, such expenses will be allocated to the extent practical on the basis of actual use or the value of services rendered, and otherwise on a basis reasonably related to the actual use or the value of services rendered, it being understood that Strawbridge shall pay all expenses relating to the preparation, negotiation, execution and delivery of the Transaction Documents, including, without limitation, legal, agency and other fees; (f) Seller's operating expenses, including, without limitation, salaries of its employees and fair and reasonable allocations of overhead, if any, for shared office space, will not be paid by Strawbridge or any other Affiliate thereof; (g) Seller shall have stationery and other business forms and a mailing address and a telephone number separate from that of Strawbridge or any other Affiliate; (h) Seller's books and records will be maintained separately from those of Strawbridge and any other Affiliate thereof; (i) All financial statements of Strawbridge or any Affiliate thereof that are consolidated to include Seller will contain detailed notes clearly stating that (A) all of Seller's assets are owned by Seller, and (B) Seller is a separate corporate entity with creditors who have received security interests in Seller's assets; (j) Seller's assets will be maintained in a manner that facilitates their identification and segregation from those of Strawbridge or any Affiliate thereof; (k) Seller will strictly observe corporate formalities in its dealings with Strawbridge or any Affiliate thereof, and funds or other assets of Seller will not be commingled with those of Strawbridge or any Affiliate thereof. Seller shall not maintain joint bank accounts or other depository accounts to which Strawbridge or any Affiliate thereof (other than Strawbridge in its capacity as Servicer) has independent access; (l) Any business transactions between Seller and Strawbridge (or any Affiliate thereof) shall be entered into upon terms and conditions that are substantially similar to those that would be available on an arm's-length basis with third parties other than Strawbridge (or any Affiliate thereof). Any Person that renders or otherwise furnishes services to Seller will be compensated by Seller at market 31 rates for such services it renders or otherwise furnishes to Seller. Except as contemplated in the Transaction Documents neither Seller nor Strawbridge will be or will hold itself out to be responsible for the debts of the other or the decisions or actions respecting the daily business and affairs of the other; (m) Any dividends declared by Seller on any shares of its capital stock shall be declared only in accordance with all applicable laws and the provisions of this Agreement; (n) Seller and Strawbridge shall comply with all provisions of their respective certificates of incorporation and by-laws; (o) Seller shall not make any loans or advances to any third party (other than those permitted pursuant to Section 7.04(h)); (p) Except as set forth in this Agreement, Seller shall not pledge its assets for the benefit of any Person, and Strawbridge shall not pledge any of its assets for the benefit of Seller; (q) Seller shall conduct its business in its own name and shall be, and at all times shall hold itself out to the public as, a legal entity separate and distinct from all other Persons; and (r) Seller shall file its own tax returns or, if it is a member of a consolidated group, will join in the consolidated return of such group as a separate member thereof. 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 gives to Strawbridge a Successor Notice (as defined in Section 8.01(b)), Strawbridge is hereby designated as, and hereby agrees to perform the duties and obligations of, Servicer pursuant to the terms hereof. (b) Successor Notice. Upon Strawbridge's receipt of a notice from the Administrator of the Administrator's designation of a new 32 Servicer (a "Successor Notice"), Strawbridge 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 Strawbridge's obligations to service and administer such Receivables, on the terms and subject to the conditions herein set forth, and Strawbridge shall use its best efforts to assist the Administrator (or its designee) in assuming such obligations. The Administrator agrees not to give Strawbridge 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 discretion. If Strawbridge disputes the occurrence of a Liquidation Event, Strawbridge may take appropriate action to resolve such dispute; provided that Strawbridge must terminate its activities hereunder as Servicer and allow the newly designated Servicer to perform such activities on the date provided by the Administrator 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 Strawbridge and no other Liquidation Event has occurred and is continuing, at Strawbridge's written request, Strawbridge 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 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 33 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) 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, Servicer shall segregate and deposit with a bank designated by 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, Strawbridge, 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 Strawbridge 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 Strawbridge, shall, as soon as practicable upon demand, deliver 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. 34 (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 Strawbridge 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 Administrator. (ii) Strawbridge shall, at the Administrator's request and at Strawbridge'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 Administrator. (iii) Strawbridge shall, at the Administrator'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 35 Administrator at a place selected by the Administrator, 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 Administrator. (iv) Each of Strawbridge, 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 or Strawbridge name and on behalf of Strawbridge, 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 or Strawbridge'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 Servicer. Anything herein to the contrary notwithstanding: (a) Contracts. Servicer 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 Servicer from such obligations. (b) Limitation of Liability. The Administrator 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 or Servicer thereunder. 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 36 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, confirming and updating the opinion delivered pursuant to Section 5.01(h)-1 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 or Strawbridge 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, 37 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 arising in connection with this Agreement and each other Transaction Document to which it 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, 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 LIQUIDATION EVENTS SECTION 10.01. Liquidation Events. The following events shall be "Liquidation Events" hereunder: (a) (i) Servicer (if Strawbridge or its Affiliate is Servicer) shall fail to deliver to Administrator an Information Package for any Settlement Period on or before 12:00, noon (Pittsburgh time) of the related Settlement Date or (ii) Servicer (if Strawbridge 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 38 given by the Administrator to Strawbridge or (2) Strawbridge has actual knowledge thereof or (iii) Servicer (if Strawbridge or its Affiliate is Servicer) or Seller 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 Strawbridge (or any of their respective 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 or Strawbridge 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 Strawbridge, as the case may be, or (ii) Seller or Strawbridge, as the case may be, 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, Strawbridge 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 default required to permit acceleration shall have been given; or any default under any agreement or instrument relating to the purchase of receivables of Strawbridge, 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 Strawbridge to reinvest in receivables the principal amount paid by any party to such agreement or instrument for interest in receivables; or 39 (e) An Event of Bankruptcy shall have occurred and remain continuing with respect to Seller, Strawbridge 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 or Strawbridge to the Administrator and Purchaser prior to the date of execution and delivery of this Agreement is pending against Seller, Strawbridge 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) 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 (h) There shall exist any event or occurrence (other than general economic conditions) that is likely to cause a Material Adverse Effect; or (i) There shall have occurred any event which materially adversely impairs the ability of Strawbridge to originate Receivables of a credit quality which are at least of the credit quality of the Receivables included in the initial Purchase; or (j) The warranty in Section 6.01(i)(y) shall not be true at any time; or (k) Seller or Servicer (if Servicer is Strawbridge or its Affiliate) is subject to a Change-in-Control; or (l) 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 or Strawbridge 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 Strawbridge or any of its Affiliates; or (m) The average of the Default Ratios for any three successive Cut-Off Dates exceeds 2%; or 40 (n) The average of the Delinquency Ratios for any three successive Cut-Off Dates exceeds 16%; or (o) The average of the Dilution Ratios for any three successive Cut-Off Dates exceeds 5%; or (p) The average of the Payment Rates for any three successive Cut-Off Dates is less than 10%; or (q) The average of the Net Yield for any three consecutive Settlement Periods is less then -2.0%; or (r) The average of the Charge-Off Ratios for any three successive Cut-Off Dates exceeds (i) 8.75% for the period ending on November 25, 1995, (ii) 8.50% for any such period ending on or before March 30, 1996 and (iii) 6.5% for any period thereafter. 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 and Purchaser 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. ARTICLE XI THE ADMINISTRATOR SECTION 11.01. Authorization and Action. Purchaser has appointed and authorized the Administrator (or its designees) to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrator by the terms hereof, together with such powers as are reasonably incidental thereto. 41 SECTION 11.02. Administrator's Reliance, Etc. The Administrator, and its 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, the Administrator: (a) may consult with legal counsel (including counsel for Seller or Strawbridge), 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 Strawbridge or to inspect the property (including the books and records) of Seller or Strawbridge; (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. PNC Bank and Affiliates. PNC Bank and any of its Affiliates may generally engage in any kind of business with Strawbridge, Seller or any Obligor, any of their respective Affiliates and any Person who may do business with or own securities of Strawbridge, Seller or any Obligor or any of their respective Affiliates, all as if PNC Bank were not the Administrator, 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 nor Strawbridge 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 42 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 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 PNC Bank; 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 Liquidity Agent, to secure Purchaser's obligations under or in connection with the Commercial Paper Notes, the Liquidity Agreement and any other Program Support Agreement, 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 Liquidity Agent) shall not be considered an "assignment" for purposes of this Section 12.01 or, prior to the enforcement of such security interest, for purposes of any other provision of this Agreement. The parties hereto anticipate that Market Street Capital Corp. will assign all of its rights and obligations under this Agreement and the other Transaction Documents to Market Street Funding Corporation, a Delaware corporation ("Funding"). Seller and Strawbridge hereby consent to such assignment, and agree that upon receipt by Strawbridge of notice of such assignment by PNC Bank, (i) all references herein and in the other Transaction Documents to "Purchaser" shall be deemed to refer to Funding and (ii) all references herein and in the other Transaction Documents to the "Administrator" shall refer to PNC Bank, as administrator for Funding. Seller and Strawbridge hereby agree to execute and deliver such documents and instruments, including UCC financing statements, as the Administrator may reasonably request to evidence such assignment. (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, 43 Purchaser may immediately assign such Asset Interest (or portion thereof) to PNC Bank or any Affiliate of 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. 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, each other Program Support Provider, 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; 44 (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 act of Purchaser or the Administrator, 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 products liability claim arising out of or in connection with merchandise or services that are the subject of any Pool Receivable; or (viii) 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 45 Interest, or any other interest in the Pool Receivables or in any goods which secure any such Pool Receivables. (b) Indemnity by Strawbridge. Without limiting any other rights which any such person may have hereunder under applicable law, Strawbridge hereby agrees to indemnify each Indemnified Party, forthwith on demand, from and against any and all Indemnified Amounts awarded against or incurred by any of them arising out of or relating to: (i) any representation or warranty made by Strawbridge under or in connection with any Transaction Document in its capacity as Servicer, any Information Package or any other information or report delivered by or on behalf of Strawbridge in its capacity as Servicer pursuant hereto, which shall have been false, incorrect or misleading in any material respect when made or deemed made; (ii) the failure by Strawbridge, in its capacity as Servicer, to comply with any applicable law, rule or regulation (including truth in lending, fair credit billing, usury, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) with respect to any Pool Receivable or other related contract; or (iii) any failure of Strawbridge to perform its duties, covenants and obligations in accordance with the applicable provisions of this Agreement. (c) 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)(viii), 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 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. (d) 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 or Strawbridge, as the case may be, shall contribute to the amount paid or payable by such Indemnified Party 46 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 or Strawbridge, as the case may be, 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, Strawbridge (so long as it is Servicer) and Purchaser (with respect to an amendment), or (b) the Administrator and Purchaser (with respect to a waiver or consent by them) or Seller or Strawbridge, as the case may be, (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 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 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, 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 47 remedies provided by law. Without limiting the foregoing, each of PNC Bank, individually and as Administrator, 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 PNC Bank 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, Strawbridge, 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 or Strawbridge 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. 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 Liquidity 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 or Strawbridge'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, 48 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 and PNC Bank (individually and as Administrator) 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 PNC Bank regards the structure of the transactions contemplated by this Agreement to be proprietary, and each such party severally agrees that: (i) it will not disclose without the prior written consent of PNC Bank (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 for Purchaser, or (C) any information which is furnished by PNC Bank to such party and which is designated by PNC Bank 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; 49 (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 PNC Bank, all documents or other written material received from PNC Bank 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 PNC Bank or were known to such party on a nonconfidential basis prior to its disclosure by PNC Bank. (c) Legal Compulsion to Disclose. In the event that any party or anyone to whom such party or its representatives 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 PNC Bank with prompt written notice so that PNC Bank may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Section 14.07; and (ii) unless PNC Bank 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 PNC Bank 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. 50 SECTION 14.08. Confidentiality of Seller Information. (a) Confidential Information. Each party hereto acknowledges that Seller and Strawbridge regard 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 or Strawbridge, (B) any pricing information of Seller or Strawbridge, or (C) any information which is furnished by Seller or Strawbridge to such party and which is designated by Seller or Strawbridge 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, 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 Liquidity Banks, the other Program Support Providers, any assignee or participant or potential assignee or participant of any Liquidity Bank or any other Program Support Provider, 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 or Strawbridge, 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 51 such party on a nonconfidential basis from a source other than Seller or Strawbridge or were known to such party on a nonconfidential basis prior to its disclosure by Seller or Strawbridge. (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 or Strawbridge 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 or Strawbridge 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. In the event that such protective order or other remedy is not obtained, or Seller or Strawbridge 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 and the other Transaction Documents contain 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 52 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. EACH OF SERVICER AND 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. EACH OF SERVICER AND SELLER HEREBY ACKNOWLEDGES AND AGREES THAT: (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 53 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. SECTION 14.16. Substitution of Originator. Strawbridge and Seller contemplate that at a future time, the Receivables will be originated by a national bank that is an Affiliate of Strawbridge. At such time, Purchaser and the Administrator agree that, at Strawbridge's written request, and at Strawbridge's expense, they will cooperate with Strawbridge and Seller in order to substitute such bank as the originator and seller under the Purchase Agreement, provided that (A) such bank provides to Purchaser and the Administrator the following documents, all of which shall be satisfactory in form and substance to the Administrator and Purchaser: (i) the articles of association and by-laws of such bank, certified by its Secretary or Assistant Secretary; (ii) a copy of the resolutions of the Board of Directors of such bank approving of the Transaction Documents to be executed by such bank and the transactions contemplated thereby; (iii) a certificate of the Secretary or Assistant Secretary of such bank certifying the names and true signatures of the officers authorized on its behalf to sign the Transaction Documents to be delivered by it; (iv) a good standing certificate from the Office of the Comptroller of the Currency; (v) acknowledgement copies of proper financing statements naming such bank as the debtor/assignor, Seller as the secured party/assignee and Purchaser as the assignee as filed in all appropriate jurisdictions; (vi) an opinion of counsel to such bank; (vii) appropriate amendments to the Purchase Agreement and this Agreement to reflect such substitution; (viii) such powers of attorney as the Administrator may reasonably request to enable the Administrator to collect all amounts due under any and all Pool Receivables; and (ix) such other documents, instruments or opinions as the Administrator may reasonably request; (B) no Liquidation Event or Unmatured Liquidation Event shall have occurred and be continuing, or shall result from such substitution; and (C) the rating agencies then rating the Commercial Paper Notes shall have confirmed the rating of such Commercial Paper Notes after giving effect to such substitution. 54 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 initial Servicer By ____________________________________ Title: Vice President 801 Market Street Philadelphia, Pennsylvania 19107 Facsimile No.: (215) 629-6833 Attention: Treasurer S&C, FUNDING, INC., as Seller By ____________________________________ Title: President 801 Market Street Philadelphia, Pennsylvania 19107 Facsimile No.: (215) 629-6833 Attention: President AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT S-1 MARKET STREET CAPITAL CORP., as Purchaser By ____________________________________ Title_______________________________ c/o AMACAR Group, L.L.C. 6707-D Fairview Road Charlotte, North Carolina 28210 Facsimile No.: (704) 365-1362 Attention: Douglas K. Johnson AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT S-2 PNC BANK, NATIONAL ASSOCIATION, as Administrator By ____________________________________ Vice President 100 South Broad Street 7th Floor Philadelphia, Pennsylvania 19101 Facsimile No.: (215) 585-5972 Attention: H. Todd Dissinger AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT S-3 APPENDIX A DEFINITIONS This is Appendix A to the Receivables Purchase Agreement dated as of _______________, 1996 among ________ Funding, Inc., State Street Boston Capital Corporation, _________________, as Administrator and Norwest Bank Minnesota, N.A., 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 Parent 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 and any sub-agent of the Administrator, Norwest, any successor to Norwest as Relationship Bank, 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 (a) the rate of interest most recently announced by the Liquidity Agent in Minneapolis, Minnesota 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. "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) the Bank Rate Margin, 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, the Credit Bank or any Liquidity 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 thereof) will be funded by Liquidity Loans and not by the issuance of Commercial Paper Notes, - 2 - an interest rate per annum equal to the Alternate Base Rate in effect from time to time during such Settlement Period. "Bank Rate Margin" means the percentage set forth in the Fee Letter as the Bank Rate Margin. "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 Parent or has caused to be elected a majority of the Board of Directors of Parent, or (ii) all or substantially all of the assets of Parent are sold or liquidated, or (iii) Parent fails to own 100% of the outstanding capital stock of Seller, free and clear of all liens. As used herein, "Permitted Shareholders" means __________________. "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 deemed to have been received by Seller or any other Person as a Collection pursuant to Section 3.02. - 3 - "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 Parent 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 7.04(c) or 7.05(b). "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 - 4 - 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 _______________ 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 __________ 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 Servicer, 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. - 5 - "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%. - 6 - "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 Parent in the ordinary course of its business and sold to Seller pursuant to the Purchase Agreement; (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; - 7 - (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 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; (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; and (m) the Obligor of which has not exceeded ___% of his or her credit 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 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 - 8 - 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 Minneapolis. "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. - 9 - "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 Chicago; 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. "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. "Funding" has the meaning set forth in Section 12.01. "Indemnified Amounts" has the meaning set forth in Section 13.01. "Indemnified Party" has the meaning set forth in Section 13.01. - 10 - "Information Package" has the meaning set forth in Section 3.01. "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 the Relationship Bank, Seller and Servicer 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 ___________, 199_ among Purchaser, as borrower, Norwest, 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 - 11 - 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 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, Norwest 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), among Seller, Parent 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) __%, (B) __ times the average Charge Off Ratio for the 3 most recent Cut-Off Dates and (C) _____________. "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 Servicer, and its consolidated Subsidiaries, taken as a whole, or of Seller; (ii) the ability of Servicer or Seller to perform its obligations under this Agreement or any other Transaction Document; - 12 - (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 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. "Norwest" has the meaning set forth in the preamble. "Obligor" means a Person obligated to make payments with respect to a Receivable, including any guarantor thereof. "Parent" means ________________________, a ______________ corporation. "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 - 13 - 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 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. "Pool Assets" has the meaning set forth in Section 1.04(a). "Pool Receivable" means a Receivable in the Receivables Pool. - 14 - "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 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 Agreement" means the Purchase, Sale and Contribution Agreement, dated as of ___________, 1996, between Parent and Seller, as it may be amended, supplemented or otherwise modified from time to time. "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. - 15 - "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 (i) A-1 by S&P and (ii) P-1 by Moody's. "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 - 16 - (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 and Parent's right, title and interest in and to all Contracts that relate to such Pool Receivable; (b) all of Seller's and Parent'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; (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; and (f) all of Seller's right, title and interest in and to, and all of Seller's claims under, the Purchase Agreement. 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. "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. - 17 - "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's Fee" accrued for any day means an amount equal to (x) the Servicer's Fee Rate, times (y) the amount of the Purchaser's Total Investment at the close of business on such day, times (z) 1/360. "Servicer's Fee Rate" (i) means ___% per annum, so long as Parent 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 Capital" has the meaning set forth in the preamble. "Subsidiary" means a corporation of which Parent 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. - 18 - "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; (b) the Purchase Termination Date; (c) ___________, 1997; 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, the Purchase Agreement 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. - 19 - "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 shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. 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". - 20 - EX-10.7 10 EXHIBIT 10-7 Exhibit 10.7 ============================================================================== CREDIT AGREEMENT among STRAWBRIDGE & CLOTHIER, THE BANKS PARTY HERETO and PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent CORESTATES BANK, N.A. and FIRST FIDELITY BANK, N.A., as Co-Agents Dated as of November 21, 1995 $100,000,000 CREDIT FACILITY ============================================================================== TABLE OF CONTENTS Page ---- SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . 22 SECTION 2. THE CREDIT FACILITIES. . . . . . . . . . . . . . . . . . . . 23 2.1 Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.2 Committed Borrowing Procedure. . . . . . . . . . . . . . . . . 23 2.3 Competitive Bid Procedure. . . . . . . . . . . . . . . . . . . 24 2.4 Committed Loans and Competitive Loans. . . . . . . . . . . . . 27 2.5 Refinancings . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.6 L/C Commitment . . . . . . . . . . . . . . . . . . . . . . . . 29 2.7 Procedure for Issuance of Letters of Credit. . . . . . . . . . 30 2.8 L/C Fees, Commissions and Other Charges. . . . . . . . . . . . 30 2.9 L/C Participations . . . . . . . . . . . . . . . . . . . . . . 31 2.10 Reimbursement Obligation of the Company. . . . . . . . . . . . 32 2.11 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . 33 2.12 Letter of Credit Payments. . . . . . . . . . . . . . . . . . . 33 2.13 Application. . . . . . . . . . . . . . . . . . . . . . . . . . 34 2.14 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 2.15 Notes; Repayment of Loans. . . . . . . . . . . . . . . . . . . 34 2.16 Interest on Loans and Payment Dates. . . . . . . . . . . . . . 35 2.17 Additional Interest; Alternate Rate of Interest. . . . . . . . 36 2.18 Termination, Reduction and Extension of Commitments. . . . . . . . . . . . . . . . . . . . . . . . . 37 2.19 Optional Prepayment of Loans . . . . . . . . . . . . . . . . . 38 2.20 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . 39 2.21 Requirements of Law. . . . . . . . . . . . . . . . . . . . . . 39 2.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 2.23 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . 42 2.24 Pro Rata Treatment, etc. . . . . . . . . . . . . . . . . . . . 43 2.25 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 2.26 Conversion and Continuation Options. . . . . . . . . . . . . . 44 2.27 Minimum Amounts of Tranches. . . . . . . . . . . . . . . . . . 45 2.28 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 46 3.1 Corporate Status. . . . . . . . . . . . . . . . . . . . . . . . 46 3.2 Corporate Power and Authority . . . . . . . . . . . . . . . . . 46 3.3 No Violation. . . . . . . . . . . . . . . . . . . . . . . . . . 46 3.4 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3.5 Financial Condition . . . . . . . . . . . . . . . . . . . . . . 47 3.6 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3.7 Projections . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3.8 Material Adverse Change . . . . . . . . . . . . . . . . . . . . 48 3.9 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . 48 3.10 Governmental Approvals . . . . . . . . . . . . . . . . . . . . 48 3.11 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . 48 3.12 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 3.13 Investment Company Act; Public Utility Holding Company Act. . . . . . . . . . . . . . . . . . . . . 49 3.14 Compliance With Law. . . . . . . . . . . . . . . . . . . . . . 49 - i - Page ---- 3.15 Representations and Warranties in Receivables Program. . . . . . . . . . . . . . . . . . . . . 50 3.16 True and Complete Disclosure . . . . . . . . . . . . . . . . . 50 3.17 Corporate Structure; Capitalization. . . . . . . . . . . . . . 50 3.18 Environmental Matters. . . . . . . . . . . . . . . . . . . . . 50 3.19 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 51 3.20 Patents, Trademarks, etc.. . . . . . . . . . . . . . . . . . . 51 3.21 Ownership of Property. . . . . . . . . . . . . . . . . . . . . 52 3.22 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . 52 3.23 Licenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . 52 3.24 No Burdensome Restrictions . . . . . . . . . . . . . . . . . . 52 3.25 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . 53 4.1 Conditions to Initial Extensions of Credit. . . . . . . . . . . 53 4.2 Conditions to Extension of Credit . . . . . . . . . . . . . . . 55 SECTION 5. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . 56 5.1 Information Covenants . . . . . . . . . . . . . . . . . . . . . 57 5.2 Books, Records and Inspections. . . . . . . . . . . . . . . . . 61 5.3 Maintenance of Insurance. . . . . . . . . . . . . . . . . . . . 61 5.4 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 5.5 Corporate Franchises. . . . . . . . . . . . . . . . . . . . . . 62 5.6 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . 62 5.7 Performance of Obligations. . . . . . . . . . . . . . . . . . . 62 5.8 Maintenance of Properties . . . . . . . . . . . . . . . . . . . 62 5.9 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . 63 5.10 Conduct of Business and Maintenance of Existence . . . . . . . 63 5.11 Subsequent Credit Terms. . . . . . . . . . . . . . . . . . . . 63 SECTION 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 64 6.1 Financial Covenants.. . . . . . . . . . . . . . . . . . . . . . 64 6.2 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . 65 6.3 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 6.4 Restriction on Fundamental Changes. . . . . . . . . . . . . . . 67 6.5 Sale of Assets. . . . . . . . . . . . . . . . . . . . . . . . . 68 6.6 Contingent Obligations. . . . . . . . . . . . . . . . . . . . . 68 6.7 Advances, Investments and Loans . . . . . . . . . . . . . . . . 68 6.8 Transactions with Affiliates. . . . . . . . . . . . . . . . . . 69 6.9 Limitation on Voluntary Payments and Modifications of Certain Documents. . . . . . . . . . . . . . 69 6.10 Changes in Business. . . . . . . . . . . . . . . . . . . . . . 70 6.11 Certain Restrictions . . . . . . . . . . . . . . . . . . . . . 70 6.12 Sales and Leasebacks . . . . . . . . . . . . . . . . . . . . . 70 6.13 Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 6.14 Limitation on Dispositions of Subsidiary Stock . . . . . . . . 71 6.15 Fiscal Year; Fiscal Quarter. . . . . . . . . . . . . . . . . . 71 SECTION 7. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . 71 SECTION 8. THE AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . 75 8.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . 75 - ii - Page ---- 8.2 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . . 76 8.3 Exculpatory Provisions. . . . . . . . . . . . . . . . . . . . . 76 8.4 Reliance by Administrative Agent. . . . . . . . . . . . . . . . 76 8.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . 77 8.6 Non-Reliance on Administrative Agent and Other Banks . . . . . . . . . . . . . . . . . . . . . . . . . 77 8.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 78 8.8 Administrative Agent in Its Individual Capacity . . . . . . . . 78 8.9 Successor Administrative Agent. . . . . . . . . . . . . . . . . 79 8.10 Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . 79 8.11 Co-Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . 79 SECTION 9. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 79 9.1 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . 79 9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 9.3 No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . . 81 9.4 Survival of Representations and Warranties. . . . . . . . . . . 81 9.5 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . . 81 9.6 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . 82 9.7 Confidentiality; Disclosure of Information. . . . . . . . . . . 87 9.8 Adjustments; Set-off. . . . . . . . . . . . . . . . . . . . . . 87 9.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 88 9.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 88 9.11 Integration. . . . . . . . . . . . . . . . . . . . . . . . . . 88 9.12 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . 88 9.13 Submission To Jurisdiction; Waivers. . . . . . . . . . . . . . 89 9.14 Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . 89 9.15 Limitation of Liability. . . . . . . . . . . . . . . . . . . . 90 9.16 WAIVERS OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . 1 - iii - SCHEDULES SCHEDULE I Bank and Commitment Information SCHEDULE II Receivable Program Documents SCHEDULE III Refinanced Debt SCHEDULE IV List of Issuing Banks SCHEDULE 3.8 Events Causing Material Adverse Effect SCHEDULE 3.12 ERISA Plans SCHEDULE 3.17 Subsidiaries; Capital Stock SCHEDULE 3.18 Environmental Matters SCHEDULE 3.19 Insurance SCHEDULE 3.21 Real Property SCHEDULE 3.25 Labor Matters SCHEDULE 4.1(h) Locations for Searches SCHEDULE 6.2 Existing Indebtedness SCHEDULE 6.3 Existing Liens SCHEDULE 6.6 Existing Contingent Obligations EXHIBITS EXHIBIT A-1 Form of Competitive Bid Request EXHIBIT A-2 Form of Competitive Bid EXHIBIT A-3 Form of Competitive Bid Accept/Reject Letter EXHIBIT A-4 Form of Committed Borrowing Request EXHIBIT B-1 Form of Competitive Note EXHIBIT B-2 Form of Committed Note EXHIBIT C Form of Opinion of Counsel to the Company EXHIBIT D Form of Assignment and Acceptance - iv - CREDIT AGREEMENT AGREEMENT, dated as of November 21, 1995, among STRAWBRIDGE & CLOTHIER, a Pennsylvania corporation (the "Company"), the several banks and other financial institutions from time to time parties to this Agreement (the "Banks"), PNC BANK, NATIONAL ASSOCIATION, a national banking association, as Administrative Agent for the Banks hereunder (in such capacity, the "Administrative Agent"), and CORESTATES BANK, N.A. and FIRST FIDELITY BANK, N.A., as Co-Agents for the Banks (in such capacities the "Co-Agents"). W I T N E S S E T H: - - - - - - - - - - In consideration of the premises and the agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "Administrative Fees": as defined in Section 2.14(b). "Affiliate": with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by, or under direct or indirect common control with, such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to (i) vote 5% or more of the securities having ordinary voting power for the election of directors of such corporation or (ii) direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "Agents": the collective reference to the Administrative Agent and the Co-Agents. "Applicable Margin": on any date, for a Base Rate Loan or Eurodollar Committed Loan, the percentage per annum set forth below in the column entitled Applicable Margin-Base Rate Loans or Applicable Margin-Eurodollar Committed Loans, as appropriate, opposite the applicable rating for the Company's senior long-term non-credit enhanced unsecured debt by Moody's and S&P as of the last day of the immediately preceding fiscal quarter: Applicable Applicable Margin-Base Margin-Eurodollar Debt Rating Rate Loans Committed Loans ----------- ----------- ----------------- Level I 0 .20% Level II 0 .275% Level III 0 .325% Level IV 0 .50% Level V 0 .65%; provided, however, if as of the last day of any fiscal quarter, the applicable rating of the Company's senior long-term non-credit enhanced unsecured debt by Moody's and S&P shall place the Company in more than one Level, then for purposes of calculating the Applicable Margin for the next fiscal quarter (a) so long as neither of the Levels that the Company is in are Levels IV or V, the Applicable Margin shall be that applicable to the lower of the Levels that the Company is in (i.e., the lower interest rate) and (b) if one or both of the Levels that the Company is in are Levels IV or V, the Applicable Margin shall be equal to the sum of the Applicable Margin for both Levels that the Company is in divided by two. "Application": in respect of each Letter of Credit issued by an Issuing Bank, an application, in such form as such Issuing Bank may specify from time to time, requesting issuance of such Letter of Credit. "Asset Sale": the sale, transfer or other disposition (whether voluntary or involuntary) by the Company or any of its Subsidiaries (including, without limitation, by way of the damage, destruction or condemnation thereof) to any Person other than the Company or any Subsidiary thereof of (a) any capital stock of any Subsidiary of the Company; (b) substantially all the assets of any geographic or other division or line of business of the Company and any of its Subsidiaries; or (c) any other asset or assets (excluding any assets purchased for sale to others in the ordinary course of business and sales of accounts pursuant to the Receivables Program) of the Company or any of its Subsidiaries. "Assignment and Acceptance": an assignment and acceptance entered into by a Bank and an assignee, and accepted by the Administrative Agent, in the form of Exhibit D or such other form as shall be approved by the Administrative Agent. 2 "Available Commitments": at any particular time, an amount equal to the excess, if any, of (a) the Commitments at such time over (b) the sum of (i) the aggregate principal amount of Loans then outstanding and (ii) the aggregate L/C Obligations then outstanding. "Base Rate": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16th of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Base Rate shall be determined without regard to clause (b) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, as the case may be. "Base Rate Borrowing": a Borrowing comprised of Base Rate Loans. "Base Rate Loans": Loans bearing interest at a rate determined by reference to the Base Rate. "Borrowing": a group of loans of a single Type made by the Banks (or, in the case of a Competitive Borrowing, by the Bank or Banks whose Competitive Bids have been accepted pursuant to Section 2.3) on a single date and as to which a single Interest Period is in effect. "Borrowing Date": any Business Day on which a Loan is to be made at the request of the Company under this Agreement. "Business Day": a day other than a Saturday, Sunday or other day on which commercial banks in Philadelphia, Pennsylvania or New York, New York are authorized or required by law to close; provided, however, that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London Interbank Market. 3 "Capital Expenditures": for any period expenditures by the Company and its Subsidiaries during such period that, in conformity with GAAP, are included in "capital expenditures", "additions to property, plant or equipment" or comparable items in the consolidated financial statements of the Company and its Subsidiaries, exclusive of any expenditures for net non-current assets of businesses acquired by the Company and its Subsidiaries during that period, including purchase price adjustments, but only to the extent such acquisitions are permitted under subsection 6.4(b)(i)(y). "Capital Lease": at any time, a lease with respect to which the lessee is required to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "Capital Lease Obligations": all obligations of the Company and its Subsidiaries under or in respect of Capital Leases. "Cash Equivalents": (a) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than 90 days from the date of acquisition, (b) time deposits and certificates of deposit of any Bank or any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 with maturities of not more than 90 days from the date of acquisition, (c) fully secured repurchase obligations with a term of not more than 7 days for underlying securities of the types described in clause (a) entered into with any bank meeting the qualifications specified in clause (b) above, and (d) commercial paper issued by the parent corporation of any Bank or any domestic commercial bank of record standing having capital and surplus in excess of $500,000,000 and commercial paper rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's and in each case maturing within 90 days after the date of acquisition. "Change of Control": (a) any Person or group of Persons (within the meaning of Sections 13(d) and 14(d) of the Exchange Act) (other than any combination of G. Stockton Strawbridge, the Company's existing executive officers, the Company's Continuing Directors and trusts for the benefit of themselves and their family members) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under 4 the Exchange Act) of 20% or more of the outstanding shares of any class of outstanding common stock of the Company or (b) Continuing Directors shall cease to constitute a majority of the board of directors of the Company. "Continuing Director" shall mean at any date a member of the Company's board of directors who was either a member of such board on the Closing Date or was nominated for election to such board by at least two-thirds of the Continuing Directors then in office. "Cleanup": all actions required to: (a) cleanup, remove, treat or remediate Materials of Environmental Concern in the indoor or outdoor environment, (b) prevent the Release of Materials of Environmental Concern so that they do not migrate, endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) perform pre-remedial studies and investigations and post-remedial monitoring and care, or (d) respond to any government requests for information or documents in any way relating to cleanup, removal, treatment or remediation or potential cleanup, removal, treatment or remediation of Materials of Environmental Concern in the indoor or outdoor environment. "Closing Date": the date on which the Banks make their initial Loans. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Commercial Letter of Credit": as defined in Section 2.6(b)(i)(B). "Commitment": as to any Bank, the obligation of such Bank to make Committed Loans to and/or issue or participate in Letters of Credit issued on behalf of the Company hereunder in an aggregate principal amount and/or face amount at any one time outstanding not to exceed the amount set forth opposite such Bank's name on Schedule I, or on the Register maintained by the Administrative Agent pursuant to Section 9.6 as the same may be permanently terminated, reduced and extended from time to time pursuant to the provisions of Section 2.18. "Commitment Percentage": as to any Bank at any time, the percentage of the aggregate Commitments then constituted by such Bank's Commitment (or, at any time after the Commitments shall have expired or been terminated, the percentage which the amount of such Bank's Exposure constitutes of the aggregate amount of the Exposure of all the Banks at such time). 5 "Commitment Period": the period from and including the date hereof to but not including the Termination Date or such earlier date on which the Commitments shall terminate as provided herein. "Committed Borrowing": a borrowing consisting of simultaneous Committed Loans from the Banks pursuant to Section 2.2. "Committed Borrowing Request": a request made pursuant to Section 2.2 in the form of Exhibit A-4 or such other form as shall be acceptable to the Administrative Agent. "Committed Loans": as defined in Section 2.1. Each Committed Loan shall be a Eurodollar Committed Loan or a Base Rate Loan. "Committed Note": a promissory note of the Company in the form of Exhibit B-2 executed and delivered as provided in Section 2.15, as the same may be amended, supplemented or otherwise modified from time to time. "Competitive Bid": an offer by a Bank to make a Competitive Loan pursuant to Section 2.3. "Competitive Bid Accept/Reject Letter": a notification made by the Company pursuant to Section 2.3(d) in the form of Exhibit A-3. "Competitive Bid Rate": as to any Competitive Bid made by a Bank pursuant to Section 2.3(b), (a) in the case of a Eurodollar Competitive Loan, the Margin, and (b) in the case of a Fixed Rate Loan, the fixed rate of interest offered by the Bank making such Competitive Bid. "Competitive Bid Request": a request made pursuant to Section 2.3 in the form of Exhibit A-1. "Competitive Borrowing": a borrowing consisting of a Competitive Loan or concurrent Competitive Loans from the Bank or Banks whose Competitive Bids for such Borrowing have been accepted by the Company under the bidding procedure described in Section 2.3. "Competitive Loan": a Loan from a Bank to the Company pursuant to the bidding procedure described in Section 2.3. Each Competitive Loan shall be a Eurodollar Competitive Loan or a Fixed Rate Loan. "Competitive Note": a promissory note of the Company in the form of Exhibit B-1 executed and delivered as 6 provided in Section 2.15, as the same may be amended, supplemented or otherwise modified from time to time. "Compliance Certificate": as defined in Section 5.1(e). "Consolidated Assets": at any time, the total consolidated assets of the Company and its Subsidiaries at such time, as determined in accordance with GAAP. "Consolidated Capitalization": at any time, the sum of Consolidated Total Debt at such time plus Shareholders' Equity at such time. "Consolidated EBITDA": for any period, the sum, without duplication, of (a) Consolidated Net Income for such period plus (b) Consolidated Interest Expense for such period plus (c) federal and state income taxes deducted in calculating Consolidated Net Income for such period, plus (d) to the extent deducted in the calculation of Consolidated Net Income for such period, depreciation and amortization expense, all determined on a consolidated basis for the Company and its Subsidiaries in accordance with GAAP. "Consolidated Fixed Charges": without duplication, for any period, (a) all Consolidated Interest Expense for such period, plus (b) Consolidated Rental Expense, all as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense": for any fiscal period of the Company, the total interest expense (including, without limitation, interest expense attributable to Capital Leases in accordance with GAAP) of the Company and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income": for any period, the net income (or loss) of the Company and its Subsidiaries on a consolidated basis for such period (taken as a single accounting period) determined in accordance with GAAP provided that there shall be excluded therefrom (a) the income (or loss) of any Person in which any other Person (other than the Company or any of its Wholly-Owned Subsidiaries or any directors holding qualifying shares) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Wholly-Owned Subsidiaries by such Person during such period, (b) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Company or any of 7 its Subsidiaries or that Person's assets are acquired by the Company or any of its Subsidiaries, (c) the income of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary, (d) any after tax gains or losses attributable to Asset Sales and (e) (to the extent not included in clauses (a) through (d) above) any net extraordinary gains, as determined in accordance with GAAP, or net non-cash extraordinary losses, as determined in accordance with GAAP. "Consolidated Net Worth": at any time, the sum of the amount by which the total consolidated assets of the Company and its Subsidiaries exceeds the total consolidated liabilities of the Company and its Subsidiaries at such time, as determined in accordance with GAAP. "Consolidated Rental Expense": for any period, the difference between (a) all rents accrued during such period under operating leases under which the Company or any of its Subsidiaries is the lessee and (b) all rents accrued during such period under operating leases under which the Company or any of its Subsidiaries is the lessor, in each case as determined on a consolidated basis in accordance with GAAP. "Consolidated Total Debt": at any time, all Indebtedness of the Company and its Subsidiaries, as determined on a consolidated basis in accordance with GAAP. "Consolidated Tangible Net Worth": at any time, Consolidated Net Worth at such time after deducting therefrom all items classified as "intangibles" in accordance with GAAP, including, without limitation, all items such as goodwill, trademarks, tradenames, brand names, service marks, patents and licenses. "Contingent Obligation": as to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations ("Primary Obligations") of any other Person (the "Primary Obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such Primary Obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such Primary Obligation or (ii) to maintain working capital or equity capital of the Primary Obligor or otherwise to maintain the 8 net worth or solvency of the Primary Obligor, (c) to purchase property, securities or services primarily for the purposes of assuring the owner of any such Primary Obligation of the ability of the Primary Obligor to make payment of such Primary Obligation or (d) otherwise to assure or hold harmless the owner of such Primary Obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the Primary Obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "Contractual Obligation": as to any Person, any provision of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Default": any of the events specified in Section 7, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition precedent therein set forth, has been satisfied. "Dividend": in respect of any corporation (a) dividends or other distributions on the capital stock of such corporation (except distributions in common stock of such corporation); (b) the redemption or acquisition of such stock or of warrants, rights or other options to purchase such stock (except when solely in exchange for common stock of such corporation); and (c) any payment on account of, or the setting apart of any assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of any share of any class of capital stock of such corporation or any warrants or options to purchase any such stock. "Dollars" and "$": dollars in lawful currency of the United States of America. "Environmental Affiliate": with respect to any Person, any other Person whose liability for any Environmental Claim such Person has or may have retained, assumed or otherwise become liable for (contingently or otherwise), either contractually or by operation of law. 9 "Environmental Approval": any permit, license, approval, ruling, variance, exemption or other authorization required under applicable Environmental Laws. "Environmental Claim": with respect to any Person, any notice, claim, demand or similar communication (written or oral) by any other Person alleging potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, fines or penalties arising out of, based on or resulting from (a) the presence, or release into the environment, of any Material of Environmental Concern at any location, whether or not owned by such Person or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. "Environmental Laws": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees or binding requirements of any Governmental Authority, or binding Requirement of Law regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA Controlled Group": a group consisting of any ERISA Person and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control with such Person that, together with such Person, are treated as a single employer under regulations of the PBGC. "ERISA Person": a "Person" as defined in Section 3(9) of ERISA. "ERISA Plan": (a) any Plan that (i) is not a Multiemployer Plan and (ii) has Unfunded Benefit Liabilities 10 in excess of $1,000,000 and (b) any Plan that is a Multiemployer Plan. "Eurocurrency Reserve Requirements": for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such System. "Eurodollar Base Rate": with respect to any Eurodollar Loan for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the rate determined by the Administrative Agent in accordance with its usual procedures at which deposits in U.S. Dollars approximately equal in principal amount to (a) in the case of a Committed Borrowing, the Administrative Agent's portion of such Eurodollar Borrowing and (b) in the case of a Competitive Borrowing, a principal amount equal to the amount that would have been the Agent's portion of such Competitive Borrowing had such Competitive Borrowing been a Committed Borrowing, and in each case for a maturity equal to the applicable Interest Period, are offered by banks in the London Interbank Market to prime banks in immediately available funds in the London Interbank Market at approximately 11:00 a.m., London Time, two Business Days prior to the commencement of such Interest Period. "Eurodollar Borrowing": a Borrowing comprised of Eurodollar Loans. "Eurodollar Committed Loan": any Committed Loan bearing interest at a rate determined by reference to the Eurodollar Rate. "Eurodollar Competitive Loan": any Competitive Loan bearing interest at a rate determined by reference to the Eurodollar Rate. "Eurodollar Loan": any Eurodollar Competitive Loan or Eurodollar Committed Loan. "Eurodollar Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the 11 following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Event of Default": any of the events specified in Section 7, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, if any, has been satisfied. "Exchange Act": the Securities Exchange Act of 1934, as amended. "Exposure": as to any Bank at any date, an amount equal to the sum of (a) the aggregate principal amount of the Loans made by such Bank then outstanding and (b) such Bank's share of the L/C Obligations then outstanding. "Extensions of Credit": the collective reference to the Loans made and Letters of Credit issued under this Agreement. "Facility Fee": as defined in Section 2.14(a) hereof. "Facility Fee Percentage": on each day during each fiscal quarter of the Company, the percentage per annum set forth below opposite the applicable rating for the Company's senior long-term non-credit enhanced unsecured debt by Moody's and S&P as of the last day of the immediately preceding fiscal quarter: Debt Rating Facility Fee Percentage ----------- ----------------------- Level I .10% Level II .125% Level III .175% Level IV .25% Level V .275% provided, however, if as of the last day of any fiscal quarter, the applicable rating of the Company's senior long-term non-credit enhanced unsecured debt by Moody's and S&P shall place the Company in more than one Level, then for purposes of calculating the Facility Fee Percentage for the next fiscal quarter (a) so long as neither of the Levels that the Company is in are Levels IV or V, the Facility Fee Percentage shall be that applicable to the lower of the Levels that the Company is in (i.e., the lower Facility Fee Percentage) and (b) if one or both of the Levels that the 12 Company is in are Levels IV or V, the Facility Fee Percentage shall be equal to the sum of the Facility Fee Percentage for both Levels that the Company is in divided by two. "Federal Funds Effective Rate": for any day, 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 on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter": the letter, dated October 24, 1995, between the Company and the Administrative Agent relating to the payment of certain fees and expenses in connection with the transactions contemplated hereby. "Fees": the Facility Fee and the Administrative Fees. "Fixed Rate Borrowing": a Borrowing comprised of Fixed Rate Loans. "Fixed Rate Loan": any Competitive Loan bearing interest at a fixed percentage rate per annum (expressed in the form of a decimal to no more than four decimal places) specified by the Bank making such Loan in its Competitive Bid. "GAAP": at any time with respect to the determination of the character or amount of any asset or liability or item of income or expense, or any consolidation or other accounting computation, generally accepted accounting principles as in effect on the date of, or at the end of the period covered by, the financial statements from which such asset, liability, item of income, or item of expense, is derived, or, in the case of any such computation, as in effect on the date when such computation is required to be determined. "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Indebtedness": of any Person, without duplication, (a) all indebtedness of such Person for borrowed money or 13 for the deferred purchase price of property or services (other than trade payables or other expenses on terms of 90 days or less incurred in the ordinary course of business of such Person), (b) all indebtedness of such Person evidenced by a note, bond, debenture or similar instrument, (c) the principal component of all Capital Lease Obligations of such Person, (d) the face amount of all letters of credit issued for the account of such Person and, without duplication, all unreimbursed amounts drawn thereunder, (e) all indebtedness of any other Person secured by any Lien on any property owned by such Person, whether or not such indebtedness has been assumed, (f) all Contingent Obligations of such Person, (g) all payment obligations of such Person under any interest rate protection agreement (including, without limitation, any interest rate swaps, caps, floors, collars and similar agreements) and currency swaps and similar agreements and (h) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender thereunder upon a default are limited to repossession or sale of such property). "Interest Payment Date": (a) as to any Base Rate Loan, the last day of each March, June, September and December to occur while such Loan is outstanding, (b) as to any Eurodollar Loan or Fixed Rate Loan having an Interest Period of three months or less, the last day of such Interest Period, and (c) as to any Eurodollar Loan or Fixed Rate Loan having an Interest Period longer than three months, each day which is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period. "Interest Period": (a) with respect to any Eurodollar Committed Loan: (i) initially the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Company in its notice of borrowing or notice of conversion, given with respect thereto; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Company by irrevocable notice to the Administrative Agent not less than three Business Days prior to the 14 last day of the then current Interest Period with respect thereto; (b) with respect to any Fixed Rate Loan or Eurodollar Competitive Loan, the period commencing on the date of such Loan and ending on the date specified in the Competitive Bid in which the offer to make such Loan was extended, which shall not be earlier than seven (7) days after the date of the making of such Loan nor later than one-hundred eighty (180) days after the making of such Loan; provided that, the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, with respect to Eurodollar Loans only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day; (ii) with respect to Eurodollar Loans, any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; (iii) an Interest Period that otherwise would extend beyond the Termination Date shall end on the Termination Date; and (iv) the Company shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan. "Investment Grade Rating Event": the outstanding, unsecured, long-term, non-credit enhanced debt securities of the Company are rated BBB- or higher by S&P or Baa3 or higher by Moody's for a period of not less than thirty consecutive days. "Investments": as defined in Section 6.7. "Island Avenue Distribution Facility": The Company's distribution facility located at 4800 Island Avenue, Philadelphia, Pennsylvania, as such facility is subject to condemnation proceedings evidenced by the Declaration of Taking filed by the City of Philadelphia on August 4, 1995 15 in the Philadelphia Court of Common Pleas, July Term 1995 (#4508). "Issuing Bank": each Bank listed as an Issuing Bank in Schedule IV, or such other Banks designated by the Company to be Issuing Banks and approved by the Required Banks. "L/C Commitment": $10,000,000. "L/C Fee Payment Date": the last day of each March, June, September and December. "L/C Obligations": at any time, an amount equal to the sum of (a) 100% of the maximum amount available to be drawn under all Letters of Credit outstanding at such time (determined without regard to whether any conditions to drawing could be met at such time) and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to Section 2.10(a). "L/C Participant": in respect of each Letter of Credit, each Bank (other than the Issuing Bank in respect of such letter of credit) in its capacity as the holder of a participating interest in such Letter of Credit. "Letter of Credit": as defined in Section 2.6(a). "Level I": the debt rating of the Company shall be in Level I when the Company's senior long-term non-credit enhanced unsecured debt shall be rated either (a) A- or higher by S&P or (b) A3 or higher by Moody's. "Level II": the debt rating of the Company shall be in Level II when the Company's senior long-term non-credit enhanced unsecured debt shall be rated either (a) BBB or higher by S&P (but below A-) or (b) Baa2 or higher by Moody's (but below A3). "Level III": the debt rating of the Company shall be in Level III when the Company's senior long-term non-credit enhanced unsecured debt shall be rated either (a) BBB- by S&P or (b) Baa3 by Moody's. "Level IV": the debt rating of the Company shall be in Level IV when the Company's senior long-term non-credit enhanced unsecured debt shall be rated either (a) BB+ by S&P or (b) Ba1 by Moody's. "Level V": the debt of the Company shall be in Level V when the Company's senior long-term non-credit enhanced unsecured debt shall be rated either (a) BB or below 16 (including not being rated) by S&P or (b) Ba2 or below (including not being rated) by Moody's. "Leverage Ratio": as of any date, the ratio on such date of (a) Consolidated Total Debt on such date to (b) Consolidated Capitalization on such date. "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any Capital Lease having substantially the same economic effect as any of the foregoing). "Loan": a Competitive Loan or a Committed Loan. "Loan Documents": this Agreement, the Notes and the Applications. "Margin": as to any Eurodollar Competitive Loan, the margin (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) to be added to the Eurodollar Rate in order to determine the interest rate applicable to such Loan, as specified in the Competitive Bid relating to such Loan. "Margin Stock": as defined in Regulation U and Regulation G of the Federal Reserve Board. "Material Adverse Effect": a material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of the Company, (b) the ability of the Company to perform its obligations under this Agreement, the Notes or any other Loan Documents or (c) the validity or enforceability of this Agreement, the Notes or any other Loan Documents or the rights and remedies of the Administrative Agent or the Banks hereunder or thereunder. "Materials of Environmental Concern": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphynels, and ureaformaldehyde insulation. "Maximum Amount": as defined in Section 6.1(d). 17 "Moody's": Moody's Investors Services, Inc. "Multiemployer Plan": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Notes": the collective reference to the Competitive Note and the Committed Notes. "Participant": as defined in Section 9.6(f). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "Person": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": any employee benefit plan covered by Title IV of ERISA, the funding requirements of which: (a) were the responsibility of the Company or a member of its ERISA Controlled Group at any time within the five years immediately preceding the Closing Date, (b) are currently the responsibility of the Company or a member of its ERISA Controlled Group, or (c) hereafter become the responsibility of the Company or a member of its ERISA Controlled Group, including any such plans as may have been, or may hereafter be, terminated for whatever reason. "PNC": PNC Bank, National Association. "Prime Rate": the rate of interest per annum publicly announced from time to time by PNC as its prime rate in effect at its principal office in Pittsburgh, Pennsylvania; each change in the Prime Rate shall be effective on the date such change is publicly announced as effective. "Principal Financial Officer": the Company's President, Treasurer or Assistant Treasurer. "Purchasing Bank": as defined in Section 9.6(b). "Receivables Program": the credit card receivables securitization program conducted by the Company and the Receivables Subsidiary pursuant to the Receivables Program Documents. 18 "Receivables Program Documents": the documents listed on Schedule II hereto, and all other documentation, agreements and instruments entered into in connection therewith, as the same may hereafter be amended, modified or supplemented from time to time in accordance with the provisions hereof and thereof. "Receivables Subsidiary": S&C, Funding, Inc., a Delaware corporation. "Refinanced Debt": the Indebtedness of the Company identified on Schedule III hereto to be repaid in full on the Closing Date with the proceeds of the initial Loans and the initial proceeds of the Receivables Program. "Register": as defined in Section 9.6(d). "Regulation D": Regulation D of the Federal Reserve Board as from time to time in effect and any successor to all or any portion thereof. "Regulation U": Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation X": Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Reimbursement Obligation": in respect of each Letter of Credit, the obligation of the Company to reimburse the Issuing Bank of such Letter of Credit for all drawings made thereunder in accordance with Section 2.10(a) and the Application related to such Letter of Credit for amounts drawn under such Letter of Credit. "Release": any release, spill, emission, discharge, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment (including, without limitation, ambient air, surface water, groundwater, and surface or subsurface strata) or into or out of any property, including the movement of Materials of Environmental Concern through or in the air, soil, surface water, groundwater or property. "Reorganization": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. 19 "Reportable Event": as defined in Section 4043(b) of ERISA (other than a Reportable Event as to which the provision of 30 days' notice to the PBGC is waived under applicable regulations), or is the existence of any condition or the occurrence of any of the events described in Section 4068(f) or 4063(a) of ERISA. "Required Banks": at any time, Banks the Commitment Percentages of which aggregate at least 61%. "Requirement of Law": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": the chairman or the president of the Company or, with respect to financial matters, a Principal Financial Officer. "S&P": Standard & Poor's Rating Group, a division of McGraw Hill Corporation. "Security": "security" as defined in Section 2(1) of the Securities Act of 1933, as amended. "Shareholder's Equity": at any time, shareholders' equity as would be shown on a consolidated balance sheet of the Company and its Subsidiaries at such time prepared in accordance with GAAP. "Solvent": as to any Person, that (a) the sum of the assets of such Person, both at a fair valuation and at present fair salable value, will exceed its liabilities, including contingent liabilities, (b) such Person will have sufficient capital with which to conduct its business as presently conducted and as proposed to be conducted and (c) such Person has not incurred debts, and does not intend to incur debts, beyond its ability to pay such debts as they mature. For purposes of this definition, "debt" means any liability on a claim, and "claim" means (i) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, or (ii) a right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. With 20 respect to any contingent liabilities, such liabilities shall be computed at the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability. "Special Charge": the one-time provision for uncollectible accounts receivable taken in the fourth quarter of fiscal year 1994 in the amount of $1,700,000. "Standby Letter of Credit": as defined in Section 2.6(b)(i)(A). "Subsidiary": as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only be reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. "Taxes": as defined in Section 2.22(a). "Termination Date": November 20, 1998 or any anniversary of such date to which the Termination Date shall have been extended pursuant to Section 2.18(d) hereof. "Termination Event": (a) a Reportable Event, or (b) the initiation of any action by the Company, any member of the Company's ERISA Controlled Group or any ERISA Plan fiduciary to terminate an ERISA Plan or the treatment of an amendment to an ERISA Plan as a termination under ERISA, or (c) the institution of proceedings by the PBGC under Section 4042 of ERISA to terminate an ERISA Plan or to appoint a trustee to administer any ERISA Plan. "Total Commitment": at any time the aggregate amount of the Banks' Commitments, as in effect at such time. "Tranche": the collective reference to Eurodollar Committed Loans and Competitive Loans, in each case whose Interest Periods begin on the same date and end on the same later date (whether or not such Loans originally were made on the same day). 21 "Transaction Documents": the Loan Documents and the Receivables Program Documents. "Transactions": each of the transactions contemplated by the Transaction Documents. "Type": when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, "Rate" shall include the Eurodollar Rate, the Base Rate and the Fixed Rate. "Unfunded Benefit Liabilities": with respect to any Plan at any time, the amount (if any) by which (a) the present value of all nonforfeitable accrued benefits under such Plan to the extent such benefits are insured and guaranteed under Title IV of ERISA exceeds (b) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation dates for such Plan (on the basis of assumptions prescribed by the PBGC for the purpose of Section 4044 of ERISA or, to the extent applicable, the interest rate prescribed under the Uruguay Round Agreements Act). "Uniform Customs": the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended, supplemented or otherwise modified from time to time. "Wholly-Owned Subsidiary": at any time, any Subsidiary one hundred percent (100%) of all of the equity Securities (except directors' qualifying shares) and voting Securities of which are owned by any one or more of the Company and the Company's other Wholly-Owned Subsidiaries at such time. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in the Notes, and any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Company and its Subsidiaries not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular 22 provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. THE CREDIT FACILITIES 2.1 Commitments. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Bank, severally and not jointly, agrees to make revolving credit loans in Dollars (the "Committed Loans") to the Company from time to time during the Commitment Period, in an aggregate principal amount at any time outstanding which, when added to such Bank's Commitment Percentage of the then outstanding L/C Obligations, does not exceed the amount of such Bank's Commitment; provided, however, that no Committed Loan shall be made if, after giving effect to the making of such Committed Loan and the simultaneous application of the proceeds thereof, the sum of (i) the aggregate principal amount of all Loans then outstanding and (ii) the L/C Obligations then outstanding would exceed the Total Commitment in effect at such time. The Commitments may be terminated or reduced from time to time pursuant to Section 2.18. Within the foregoing limits, the Company may borrow, repay and reborrow hereunder on or after the date hereof and prior to the Termination Date, subject to the terms, provisions and limitations set forth herein. 2.2 Committed Borrowing Procedure. In order to request a Committed Borrowing, the Company shall hand deliver or telecopy (or notify by telephone and promptly confirm by hand delivery or telecopy) to the Administrative Agent the information requested by the form of Committed Borrowing Request attached as Exhibit A-4 hereto (a) in the case of a Eurodollar Committed Borrowing, not later than 11:00 a.m., Philadelphia time, three Business Days before a proposed Borrowing and (b) in the case of a Base Rate Borrowing, not later than 11:00 a.m., Philadelphia time, on the day of a proposed Borrowing. No Fixed Rate Loan shall be requested or made pursuant to a Committed Borrowing Request. Such notice shall be irrevocable and shall in each case specify (i) the principal amount of the Committed Borrowing being requested, (ii) whether the Committed Borrowing then being requested is to be a Eurodollar Committed Borrowing or a Base Rate Borrowing; (iii) the date of such Committed Borrowing (which shall be a Business Day) and the amount thereof; and (iv) if such Borrowing is to be a Eurodollar Committed Borrowing, the Interest Period with respect thereto. If no election as to the Type of Committed Borrowing is specified in any such notice, then the 23 requested Committed Borrowing shall be a Base Rate Borrowing. If no Interest Period with respect to any Eurodollar Committed Borrowing is specified in any such notice, then the Company shall be deemed to have selected an Interest Period of one month's duration. The Administrative Agent shall promptly advise the Banks of any notice given pursuant to this Section 2.2 and of each Bank's portion of the requested Borrowing. 2.3 Competitive Bid Procedure. (a) The Company may request the Banks to make Competitive Bids; provided that, no Competitive Loan(s) shall be made (i) if, after giving effect to the making of such Loan(s) and the simultaneous application of the proceeds thereof, the sum of the aggregate principal amount of all Loans then outstanding and the L/C Obligations then outstanding would exceed the Total Commitment in effect at such time or (ii) unless an Investment Grade Rating Event shall exist at such time. In order to request Competitive Bids, the Company shall hand deliver or telecopy to the Administrative Agent a duly completed Competitive Bid Request in the form of Exhibit A-1 hereto, to be received by the Administrative Agent (i) in the case of a Eurodollar Competitive Borrowing, not later than 11:00 a.m., Philadelphia time, four Business Days before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 11:00 a.m., Philadelphia time, one Business Day before a proposed Competitive Borrowing. No Base Rate Loan shall be requested in or made pursuant to a Competitive Bid Request. A Competitive Bid Request that does not conform substantially to the format of Exhibit A-1 may be rejected in the Administrative Agent's sole discretion, and the Administrative Agent shall promptly notify the Company of such rejection by telecopier. Each request for Competitive Bids shall refer to this Agreement and specify (x) whether the Competitive Borrowing then being requested is to be a Eurodollar Borrowing or a Fixed Rate Borrowing, (y) the date of such Borrowing (which shall be a Business Day) and the aggregate principal amount thereof which shall be in a minimum principal amount of $5,000,000 or a whole multiple of $500,000 in excess thereof, and (z) the Interest Period with respect thereto (which may not end after the Termination Date). The Company may request offers to make Competitive Loans for more than one but no more than three Interest Periods in a single Competitive Bid Request. Promptly after its receipt of a Competitive Bid Request that is not rejected as aforesaid, the Administrative Agent shall invite by telecopier the Banks to bid, on the terms and conditions of this Agreement, to make Competitive Loans pursuant to the Competitive Bid Request. (b) Each Competitive Bid by a Bank must be received by the Administrative Agent via telecopier, in the form of Exhibit A-2 hereto, (i) in the case of a Eurodollar Competitive Borrowing, not later than 10:00 a.m., Philadelphia 24 time, three Business Days before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., Philadelphia time, on the day of a proposed Competitive Borrowing. Multiple bids by a Bank will be accepted by the Administrative Agent, provided that, no Bank shall make more than five separate Competitive Bids with respect to each Interest Period specified in the related Competitive Bid Request. Competitive Bids that do not conform substantially to the format of Exhibit A-2 may be rejected by the Administrative Agent and the Administrative Agent shall notify the Bank making such nonconforming bid of such rejection as soon as practicable. Each Competitive Bid shall refer to this Agreement and specify (x) the principal amount (which shall be in a minimum principal amount of $5,000,000 or a whole multiple of $500,000 in excess thereof and which may equal the entire principal amount of the Competitive Borrowing requested by the Company) of the Competitive Loan or Loans that the Bank is willing to make to the Company, (y) the Competitive Bid Rate or Rates at which the Bank is prepared to make the Competitive Loan or Loans and (z) the Interest Period and the last day thereof. If any Bank shall elect not to make a Competitive Bid, such Bank shall so notify the Administrative Agent via telecopier (I) in the case of Eurodollar Competitive Loans, not later than 10:00 a.m., Philadelphia time, three Business Days before a proposed Competitive Borrowing, and (II) in the case of Fixed Rate Loans, not later than 10:00 a.m., Philadelphia time, on the day of a proposed Competitive Borrowing; provided, however, that failure by any Bank to give such notice shall not cause such Bank to be obligated to make any Competitive Loan as part of such Competitive Borrowing. A Competitive Bid submitted by a Bank pursuant to this paragraph (b) shall be irrevocable. (c) The Administrative Agent shall promptly (but not later than 10:30 a.m., Philadelphia time, on the date of a proposed Competitive Borrowing) notify the Company by telecopier of each Competitive Bid made, and the relevant Competitive Bid Rate, Interest Period and principal amount of each such Competitive Bid and the identity of the Bank that made such bid. The Administrative Agent shall send a copy of all Competitive Bids to the Company for its records as soon as practicable after completion of the bidding process set forth in this Section 2.3. (d) The Company may in its sole and absolute discretion, subject only to the provisions of this paragraph (d), accept or reject any Competitive Bid or portion thereof referred to in paragraph (c) above. The Company shall notify the Administrative Agent by telephone, confirmed by telecopier in the form of a Competitive Bid Accept/Reject Letter, whether and to what extent it has decided to accept or reject any or all of the bids referred to in paragraph (c) above, (x) in the case of a Eurodollar Competitive Borrowing, not later than 11:00 a.m., 25 Philadelphia time, three Business Days before a proposed Competitive Borrowing, and (y) in the case of a Fixed Rate Borrowing, not later than 11:00 a.m., Philadelphia time, on the day of a proposed Competitive Borrowing; provided, however, that (i) the failure by the Company to give such notice prior to the relevant time shall be deemed to be a rejection of all the bids referred to in paragraph (c) above, (ii) the Company shall not accept a bid or portion thereof made at a particular Competitive Bid Rate if the Company has decided to reject a bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the Company shall not exceed the principal amount specified in the Competitive Bid Request, (iv) if the Company wants to accept a bid or bids made at a particular Competitive Bid Rate but the amount of such bid or bids would cause the total amount of bids to be accepted by the Company to exceed the amount specified in the Competitive Bid Request, then the Company shall accept a portion of such bid or bids in an amount equal to the amount specified in the Competitive Bid Request less the amount of all other Competitive Bids accepted with respect to such Competitive Bid Request, which acceptance, in the case of multiple bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such bid at such Competitive Bid Rate, and (v) except pursuant to clause (iv) above, no bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of $5,000,000 or a whole multiple of $500,000 in excess thereof; provided further, however, that if a Competitive Loan must be in an amount less than $5,000,000 because of the provisions of clause (iv) above, such Competitive Loan must be for a minimum of $500,000 or any integral multiple thereof, and in calculating the pro rata allocation of acceptances of portions of multiple bids at a particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to integral multiples of $500,000 in a manner which shall be in the discretion of the Company. A notice given by the Company pursuant to this paragraph (d) shall be irrevocable. (e) The Administrative Agent shall promptly notify each bidding Bank whether or not its Competitive Bid has been accepted (and if so, in what amount and at what Competitive Bid Rate) by telecopy sent by the Administrative Agent, and each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Loan in respect of which its bid has been accepted. (f) A Competitive Bid Request shall not be made within five Business Days after the date of any previous Competitive Bid Request. (g) If the Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Bank, it shall 26 submit such bid directly to the Company one half of an hour earlier than the latest time at which the other Banks are required to submit their bids to the Administrative Agent pursuant to paragraph (b) above. (h) All Notices required by this Section 2.3 shall be given in accordance with Section 9.2. (i) Simultaneously with sending to the Administrative Agent a Competitive Bid Request, the Company shall pay to the Administrative Agent a fee in the amount set forth in the Fee Letter. 2.4 Committed Loans and Competitive Loans. (a) Each Committed Loan shall be made as part of a Borrowing consisting of Loans made by the Banks ratably in accordance with their Commitment Percentages; provided, however, that the failure of any Bank to make any Committed Loan shall not in itself relieve any other Bank of its obligation to lend hereunder (it being understood, however, that no Bank shall be responsible for the failure of any other Bank to make any Loan required to be made by such other Bank). Each Borrowing of Eurodollar Committed Loans shall be in a minimum aggregate principal amount equal to $5,000,000 or a whole multiple of $500,000 in excess thereof (or if the aggregate Available Commitments at such time are less than $5,000,000, such lesser amount). Each Borrowing of Base Rate Loans shall be in a minimum aggregate principal amount equal to $2,500,000 or a whole multiple of $100,000 in excess thereof (or if the aggregate Available Commitments at such time are less than $2,500,000, such lesser amount). Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.3. Each Borrowing of Competitive Loans shall be in the minimum principal amounts set forth in subsection 2.3(d). (b) The Committed Loans may from time to time be (i) Eurodollar Loans, (ii) Base Rate Loans or (iii) a combination thereof, as determined by the Company and notified to the Administrative Agent in accordance with Sections 2.2, 2.5 and 2.26; provided that, no Committed Loan shall be made as a Eurodollar Loan after the date that is one month prior to the Termination Date. Each Competitive Borrowing shall be comprised entirely of Eurodollar Competitive Loans or Fixed Rate Loans. Borrowings of more than one Type may be outstanding at the same time. The Company may not, however, at any time have more than (i) seven Tranches of Eurodollar Committed Loans and Competitive Loans outstanding if no Base Rate Loans are outstanding, or (ii) six Tranches of Eurodollar Committed Loans and Competitive Loans outstanding if Base Rate Loans are outstanding. (c) Subject to Section 2.5, each Bank shall make each Committed Loan or Competitive Loan to be made by it 27 hereunder on the proposed date thereof by wire transfer of immediately available funds to the Administrative Agent in Philadelphia, Pennsylvania, not later than 12:00 noon, Philadelphia time, and the Administrative Agent shall by 3:00 p.m., Philadelphia time, credit the amounts so received to the general deposit account of the Company with the Administrative Agent. Competitive Loans shall be made by the Bank or Banks whose Competitive Bids therefor are accepted pursuant to Section 2.3 in the amounts so accepted and Committed Loans shall be made by the Banks pro rata in accordance with Section 2.24. Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Administrative Agent such Bank's portion of such Borrowing, the Administrative Agent may assume that such Bank has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with this paragraph (c) and the Administrative Agent may, in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent that such Bank shall not have made such portion available to the Administrative Agent, such Bank and the Company (without prejudice to the Company's rights against such Bank) severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Company until the date such amount is repaid to the Administrative Agent at (i) in the case of the Company, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Bank, the Federal Funds Effective Rate; provided that, if such Bank shall not pay such amount within three Business Days of the date of such Borrowing, the interest rate on such overdue amount shall, at the expiration of such three-Business Day period, be the rate per annum then applicable to Base Rate Loans. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Bank's Loan as part of such Borrowing for purposes of this Agreement. (d) Notwithstanding any other provision of this Agreement, the Company shall not be entitled to request any Borrowing if the Interest Period requested with respect thereto would end after the Termination Date. 2.5 Refinancings. The Company may refinance all or any part of a Committed Borrowing with a Competitive Borrowing or a Competitive Borrowing with a Committed Borrowing, subject to the conditions and limitations set forth herein and elsewhere in this Agreement. Any Borrowing or part thereof so refinanced shall be deemed to be repaid in accordance with Section 2.15 with the proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing, to the extent they do not exceed the principal 28 amount of the Borrowing being refinanced, shall not be paid by the Banks to the Administrative Agent or by the Administrative Agent to the Company pursuant to Section 2.4(c); provided, however, that (i) if the principal amount extended by a Bank in a refinancing is greater than the principal amount extended by such Bank in the Borrowing being refinanced, then such Bank shall pay such difference to the Administrative Agent for distribution to the Banks described in (ii) below, (ii) if the principal amount extended by a Bank in the Borrowing being refinanced is greater than the principal amount agreed to be extended by such Bank in the refinancing, the Administrative Agent shall return the difference to such Bank out of amounts received pursuant to (i) above, and (iii) to the extent any Bank fails to pay the Administrative Agent amounts due from it pursuant to (i) above, any Loan or portion thereof being refinanced with such amounts shall not be deemed repaid in accordance with Section 2.15 and shall be payable by the Company without prejudice to the Company's rights against any such Bank. 2.6 L/C Commitment. (a) Subject to the terms and conditions hereof, each Issuing Bank, in reliance on the agreements of the other Banks set forth in subsection 2.9(a), agrees to issue letters of credit ("Letters of Credit") for the account of the Company on any Business Day during the Commitment Period in such form as may be approved from time to time by such Issuing Bank; provided, that no Letter of Credit shall be issued if, after giving effect thereto (i) the sum of (x) the aggregate amount of the Loans then outstanding and (y) the L/C Obligations then outstanding would exceed the Total Commitment in effect at such time, or (ii) the aggregate amount of the L/C Obligations at such time would exceed the L/C Commitment. (b) Each Letter of Credit shall; (i) be denominated in Dollars and shall be (A) a standby letter of credit (a "Standby Letter of Credit"), or (B) a commercial letter of credit issued in respect of the purchase of goods or services (a "Commercial Letter of Credit") by the Company in the ordinary course of business; and (ii) expire no later than the earlier of (A) 360 days after its date of issuance and (B) 5 Business Days prior to the Termination Date. (c) Each Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the Commonwealth of Pennsylvania. (d) Each Issuing Bank shall not at any time be obligated to issue any Letter of Credit hereunder if such 29 issuance would conflict with, or cause such Issuing Bank or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law. 2.7 Procedure for Issuance of Letters of Credit. The Company may from time to time request that an Issuing Bank issue a Letter of Credit by delivering to such Issuing Bank at its office for notices specified herein an Application therefor, completed to the satisfaction of such Issuing Bank, and such other certificates, documents and other papers and information as such Issuing Bank may reasonably request. Upon receipt by an Issuing Bank of any Application, such Issuing Bank will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall, after determining from the Administrative Agent that issuance of the Letter of Credit requested thereby will be within the limits imposed by subsection 2.6(a), promptly issue such Letter of Credit (but in no event shall an Issuing Bank be required to issue any Letter of Credit earlier than four (4) Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by such Issuing Bank and the Company. Each Issuing Bank shall advise the Administrative Agent of the terms of a Letter of Credit on the date of issuance thereof and shall promptly after issuing a Standby Letter of Credit furnish copies thereof to the Company and the Administrative Agent for distribution to the Banks. In addition, each Issuing Bank shall within ten days after the end of each month, send to the Administrative Agent, for distribution to the Company and each Bank, a schedule of outstanding Letters of Credit issued by such Issuing Bank as of the end of the prior month detailing for each such outstanding Letter of Credit (i) the face amount outstanding, (ii) its issuance date, (iii) its maturity date, (iv) the name of the beneficiary and (v) the identifying Letter of Credit number. 2.8 L/C Fees, Commissions and Other Charges. (a) The Company shall pay to the Administrative Agent, for the account of the Banks (including the Issuing Banks) pro rata according to their respective Commitment Percentages, a letter of credit commission with respect to each Letter of Credit, computed at a rate equal to the then Applicable Margin for Eurodollar Committed Loans on the daily average undrawn face amount of such Letter of Credit (computed on the basis of the actual number of days such Letter of Credit is outstanding in a year of 360 days). Such commissions shall be payable in arrears on the last Business Day of each March, June, September and December to occur after the date of issuance of each Letter of Credit, and on the Termination Date or such earlier date as the Commitments are terminated, and 30 shall be nonrefundable. The Company shall also pay to each Issuing Bank, in respect of each Letter of Credit issued by such Issuing Bank, a fronting fee for the period from and including the date of issuance of such Letter of Credit to and including the date of termination of such Letter of Credit computed at the rate of 1/8% per annum on the daily average undrawn face amount of such Letter of Credit (computed on the basis of the actual number of days such Letter of Credit is outstanding in a year of 360 days). The fees described in the preceding sentence shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December of each year and on the Termination Date or such earlier date as the Commitments are terminated, and shall be nonrefundable. (b) In addition to the foregoing fees and commissions, the Company shall pay or reimburse each Issuing Bank for such normal and customary costs and expenses as are incurred or charged by such Issuing Bank in issuing, effecting payment under, amending or otherwise administering any Letter of Credit. (c) The Administrative Agent shall, promptly following its receipt thereof, distribute to the Issuing Banks and the Banks all fees and commissions received by the Administrative Agent for their respective accounts pursuant to this Section. 2.9 L/C Participations. (a) Each Issuing Bank irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Bank to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from such Issuing Bank, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk, an undivided interest equal to such L/C Participant's Commitment Percentage in such Issuing Bank's obligations and rights under each Letter of Credit issued by such Issuing Bank hereunder and the amount of each draft paid by such Issuing Bank thereunder. Each L/C Participant unconditionally and irrevocably agrees with each Issuing Bank that, if a draft is paid under any Letter of Credit issued by such Issuing Bank for which such Issuing Bank is not reimbursed in full by the Company in accordance with the terms of this Agreement, such L/C Participant shall pay to such Issuing Bank upon demand at such Issuing Bank's address for notices specified herein an amount equal to such L/C Participant's Commitment Percentage of the amount of such draft or any part thereof, which is not so reimbursed. Any action taken or omitted by an Issuing Bank under or in connection with a Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall neither create for such Issuing Bank any resulting liability to any L/C Participant nor constitute a defense to an L/C Participant's obligation to make the payments 31 to such Issuing Bank required by the immediately preceding sentence. (b) If any amount required to be paid by any L/C Participant to an Issuing Bank pursuant to subsection 2.9(a) in respect of any unreimbursed portion of any payment made by such Issuing Bank under any Letter of Credit is not paid to such Issuing Bank on the date such payment is due from such L/C Participant, such L/C Participant shall pay to such Issuing Bank on demand an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate, as quoted by such Issuing Bank, during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Bank, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. A certificate of an Issuing Bank submitted to any L/C Participant with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. (c) Whenever, at any time after an Issuing Bank has made payment under any Letter of Credit and has received from any L/C Participant its pro rata share of such payment in accordance with subsection 2.9(a), such Issuing Bank receives any payment related to such Letter of Credit (whether directly from the Company or otherwise, including by way of set-off or proceeds of collateral applied thereto by such Issuing Bank), or any payment of interest on account thereof, such Issuing Bank will distribute to such L/C Participant its pro rata share thereof; provided, however, that in the event that any such payment received by such Issuing Bank shall be required to be returned by such Issuing Bank, such L/C Participant shall return to such Issuing Bank the portion thereof previously distributed by such Issuing Bank to it. 2.10 Reimbursement Obligation of the Company. (a) The Company agrees to reimburse each Issuing Bank in respect of a Letter of Credit on each date on which such Issuing Bank notifies the Company of the date and amount of a draft presented under such Letter of Credit and paid by such Issuing Bank for the amount of (i) such draft so paid and (ii) any taxes, fees, charges or other direct costs or expenses incurred by such Issuing Bank in connection with such payment. Each such payment shall be made to the applicable Issuing Bank at its office listed in Section 9.2 in Dollars and in immediately available funds. (b) Interest shall be payable on any and all amounts remaining unpaid by the Company under this Section from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the per 32 annum rate of the Base Rate plus 2.0% and shall be payable on demand by an Issuing Bank. 2.11 Obligations Absolute. (a) The obligations of the Company under Sections 2.8, 2.10 and 2.11 shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Company may have or have had against an Issuing Bank or any beneficiary of a Letter of Credit or any other Person. (b) The Company agrees with each Issuing Bank that no Issuing Bank shall be responsible for, and the Company's Reimbursement Obligations under Section 2.10(a) shall not be affected by, among other things, (i) the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, provided, that reliance upon such documents by such Issuing Bank shall not have constituted gross negligence or willful misconduct by such Issuing Bank or (ii) any dispute between or among the Company and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or (iii) any claims whatsoever of the Company against any beneficiary of such Letter of Credit or any such transferee. (c) Each Issuing Bank shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by such Issuing Bank's gross negligence or willful misconduct. (d) The Company agrees that any action taken or omitted by an Issuing Bank under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct, shall be binding on the Company and shall neither result in any liability of such Issuing Bank to the Company nor constitute a defense to the Company's obligation to reimburse such Issuing Bank. 2.12 Letter of Credit Payments. If any draft shall be presented for payment to an Issuing Bank under any Letter of Credit, such Issuing Bank shall promptly notify the Company of the date and amount thereof. The responsibility of an Issuing Bank to the Company in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit. 33 2.13 Application. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Agreement, the provisions of this Agreement shall apply. 2.14 Fees. (a) The Company agrees to pay to the Administrative Agent for the account of each Bank on each March 31, June 30, September 30 and December 31 and on the date on which Commitments shall be terminated or reduced as provided in Section 2.18 hereof, a facility fee (the "Facility Fee") at a rate per annum equal to the Facility Fee Percentage from time to time in effect on the aggregate amount of the Commitments during the preceding quarter (or shorter period commencing with the date hereof or ending with the Termination Date or any date on which the Commitments shall be terminated or reduced). All Facility Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Facility Fee due to each Bank shall commence to accrue on the date hereof, and shall cease to accrue on the earlier of the Termination Date and the termination of the Commitment of such Bank as provided herein. The Administrative Agent shall distribute the Facility Fees among the Banks pro rata in accordance with their respective Commitment Percentages. (b) The Company agrees to pay the Administrative Agent, for its own account, administrative and other fees at the times and in the amounts set forth in the Fee Letter, including the fees referred to in subsection 2.3(i) (collectively, the "Administrative Fees"). (c) All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Banks. Once paid, none of the Fees shall be refundable under any circumstances. 2.15 Notes; Repayment of Loans. The Competitive Loans made by a Bank shall be evidenced by a single Competitive Note duly executed on behalf of the Company, dated the Closing Date, in substantially the form attached hereto as Exhibit B-1 with the blanks appropriately filled, payable to the order of such Bank in a principal face amount equal to the Total Commitment. The Committed Loans made by each Bank shall be evidenced by a single Committed Note duly executed on behalf of the Company, dated the Closing Date, in substantially the form attached hereto as Exhibit B-2 with the blanks appropriately filled, payable to such Bank in a principal face amount equal to the Commitment of such Bank. Each Note shall bear interest from the date thereof on the outstanding principal balance thereof as set forth in Section 2.16. Each Bank shall, and is hereby authorized by the Company to, endorse on the schedule attached to the relevant Note held by such Bank (or on a continuation of such schedule attached to such 34 Note and made a part thereof), or otherwise to record in such Bank's internal records, an appropriate notation evidencing the date and amount of each Competitive Loan or Committed Loan, as applicable, of such Bank, each payment or prepayment of principal of any Competitive Loan or Committed Loan, as applicable, and the other information provided for on such schedule, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided, however, that the failure of any Bank to make such a notation or any error therein shall not in any manner affect the obligation of the Company to repay the Competitive Loans and Committed Loans made by such Bank in accordance with the terms of the Notes of such Bank. The Company shall repay to the Administrative Agent for the account of each Bank which has made a Competitive Loan on the maturity date of such Competitive Loan (such maturity date being the last day of the Interest Period specified by the Company in the related Competitive Bid Request) the then unpaid principal amount of such Competitive Loan. The Company shall not have the right to prepay any principal amount of any Competitive Loan without the prior written consent of the applicable Bank that made such Competitive Loan. The Company shall repay to the Administrative Agent for the account of each Bank on the Termination Date the then unpaid principal amount of the Committed Loans. The Company may prepay the principal amount of the Committed Loans outstanding at any time pursuant to, and to the extent permitted by, Section 2.19. 2.16 Interest on Loans and Payment Dates. (a) Subject to the provisions of Section 2.17, each Base Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) at a rate per annum equal to the Base Rate plus the Applicable Margin. (b) Subject to the provisions of Section 2.17, each Eurodollar Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to (i) in the case of each Eurodollar Committed Loan, the Eurodollar Rate for the Interest Period in effect for such Loan plus the Applicable Margin, and (ii) in the case of each Eurodollar Competitive Loan, the Eurodollar Rate for the Interest Period in effect for such Loan plus the Margin offered by the Bank making such Loan and accepted by the Company pursuant to Section 2.3. (c) Subject to the provisions of Section 2.17, each Fixed Rate Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the fixed rate of interest offered by the Bank making such Loan and accepted by the Company pursuant to Section 2.3. 35 (d) The Eurodollar Rate or the Base Rate for each Interest Period or day within an Interest Period shall be determined by the Administrative Agent, and such determination shall be conclusive absent error in calculation. (e) Interest on each Loan shall be payable in arrears on each Interest Payment Date applicable to such Loan; provided that, interest accruing on overdue amounts pursuant to Section 2.17 shall be payable on demand as provided in such Section. (f) As soon as practicable the Administrative Agent shall notify the Company and the Banks in writing of (i) each determination of a Eurodollar Rate and (ii) the effective date and the amount of each change in the interest rate on a Eurodollar Loan or Base Rate Loan. Each determination of an interest rate by the Administrative Agent, pursuant to any provision of this Agreement (including Sections 2.16 and 2.17) shall be conclusive and binding on the Company and the Banks in the absence of manifest error. At the request of the Company, the Administrative Agent shall deliver to the Company a statement showing the quotations used by it in determining any interest rate pursuant to Sections 2.16(a) through 2.16(d). 2.17 Additional Interest; Alternate Rate of Interest. (a) If the Company shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder, the Company shall on demand from time to time pay interest on any overdue payment of principal (in lieu of the interest otherwise payable on such principal under Section 2.16) and, to the extent permitted by law, on overdue payments of interest and other amounts due hereunder up to the date of actual payment (after as well as before judgment): (i) in the case of principal of or interest on Base Rate Loans, Eurodollar Loans or Fixed Rate Loans, at a rate determined by the Administrative Agent (such determination to be conclusive and binding on the Company) to be 2% per annum above the rate which would otherwise be payable on such Loans in accordance with the provisions herein; and (ii) in the case of any other amount payable hereunder (other than principal of or interest on any Loan referred to in clause (i) above), at a rate equal to 2% per annum above the Base Rate. (b) In the event, and on each occasion, that prior to the first day of the commencement of any Interest Period for a Eurodollar Loan, the Administrative Agent shall have determined (which determination shall be conclusive and binding 36 upon the Company) that (i) dollar deposits in the principal amount of such Eurodollar Loan are not generally available in the London Interbank Market, (ii) the rate at which such dollar deposits are being offered will not adequately and fairly reflect the cost to the Banks of making or maintaining the principal amount of such Eurodollar Loan during such Interest Period, or (iii) reasonable means do not exist for ascertaining the Eurodollar Rate, the Administrative Agent shall, as soon as practicable thereafter, give written, telegraphic or telephonic notice of such determination to the Company and the Banks. Thereafter, and until the circumstances giving rise to such notice no longer exist, the Company's right to request Eurodollar Committed Loans or bids for Eurodollar Competitive Loans shall be suspended and any notice request by the Company for a Eurodollar Loan or for conversion to or maintenance of a Eurodollar Committed Loan pursuant to the terms of this Agreement shall be deemed cancelled and rescinded by the Company. Each determination by the Administrative Agent hereunder shall be conclusive absent manifest error in calculation. 2.18 Termination, Reduction and Extension of Commitments. (a) The Commitments shall be automatically terminated on the Termination Date. (b) Upon at least three (3) Business Days' prior irrevocable written or telecopy notice to the Administrative Agent, the Company may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Total Commitment; provided, however, that (i) each partial reduction of the Total Commitment shall be in a minimum principal amount of $1,000,000 or in whole multiples of $1,000,000 in excess thereof and (ii) no such termination or reduction shall be made which would, after giving effect thereto and to any prepayments of the Loans, reduce the Total Commitment to an amount less than the sum of (x) the aggregate outstanding principal amount of the Loans then outstanding and (y) the L/C Obligations then outstanding. (c) Each reduction in the Total Commitment hereunder shall be made ratably among the Banks in accordance with their respective Commitment Percentages. The Company shall pay to the Administrative Agent for the account of the Banks, on the date of each termination or reduction, the Facility Fees on the amount of the Commitments so terminated or reduced accrued to the date of such termination or reduction. (d) During the period beginning sixty days prior to the first and any subsequent anniversary of the Closing Date and ending on such anniversary, the Company may deliver to the Administrative Agent (which shall promptly transmit to each Bank) a notice requesting that the Commitments be extended to the first 37 anniversary of the Termination Date then in effect. Within 45 days after its receipt of any such notice, each Bank shall notify the Administrative Agent of its willingness or unwillingness so to extend its Commitment. Any Bank that shall fail so to notify the Administrative Agent within such period shall be deemed to have declined to extend its Commitment. If all of the Banks agree to extend their Commitments, the Administrative Agent shall so notify the Company and each Bank, whereupon (i) the respective Commitments of the Banks shall without further act be extended to the first anniversary of the Termination Date then in effect and (ii) the term "Termination Date" shall thereafter mean such first anniversary. Any such extension shall be evidenced by a written agreement among the Administrative Agent, the Banks and the Company, such agreement to be in form and substance acceptable to the Administrative Agent and the Banks. 2.19 Optional Prepayment of Loans. (a) The Company shall have the right at any time and from time to time to prepay any Committed Loan, in whole or in part, without premium or penalty (but in any event subject to Section 2.23), upon prior written, telecopy or telephonic notice to the Administrative Agent given, in the case of Base Rate Loans, no later than 11:00 a.m., Philadelphia time, on the Business Day of any proposed prepayment and, in the case of Eurodollar Committed Loans, no later than 11:00 a.m., Philadelphia time, three Business Days before any such proposed prepayment. On the date of any termination or reduction of the Commitments pursuant to Section 2.18, the Company shall pay or prepay so much of the Committed Borrowings as shall be necessary in order that the sum of the aggregate principal amount of the Loans then outstanding and the L/C Obligations then outstanding will not exceed the Total Commitment after giving effect to such termination or reduction. In each case the notice shall specify the date and amount of each such prepayment, whether the prepayment is of Eurodollar Committed Loans, Base Rate Loans or a combination thereof, and, if a combination thereof, the amount allocable to each; provided, however, that each such partial prepayment of (i) Eurodollar Committed Loans shall be in the principal amount of at least $5,000,000 or in whole multiples of $500,000 in excess thereof and (ii) Base Rate Loans shall be in the principal amount of at least $2,500,000 or in whole multiples of $100,000 in excess thereof. The Company shall not have the right to prepay any Competitive Borrowing. (b) Each notice of prepayment shall be irrevocable and shall commit the Company to prepay such Loans by the amount stated therein. All prepayments of Eurodollar Loans under this Section shall be accompanied by accrued interest on the principal amount being prepaid to the date of prepayment. 38 (c) Upon receipt of any notice of prepayment, the Administrative Agent shall promptly notify each Bank thereof. (d) All prepayments of Committed Loans under this Section 2.19 shall, unless otherwise instructed by the Company, be applied first to any Base Rate Loans then outstanding and the balance, if any, to Eurodollar Committed Loans then outstanding, with payments applied to Eurodollar Committed Loans being applied in order of next maturing Interest Period. 2.20 Illegality. Notwithstanding any other provision herein, if any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Bank to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Bank hereunder to make Eurodollar Loans, continue Eurodollar Committed Loans as such, convert Base Rate Loans into Eurodollar Committed Loans and refinance Base Rate Loans or Fixed Rate Loans to Eurodollar Committed Loans shall forthwith be cancelled and (b) such Bank's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Company shall pay to such Bank such amounts, if any, as may be required pursuant to Section 2.23. 2.21 Requirements of Law. (a) Notwithstanding any other provision herein, in the event that any change in any Requirement of Law or in the interpretation, or application thereof or compliance by any Bank with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Bank to any tax of any kind whatsoever with respect to this Agreement, any Note, any Letter of Credit, any Application or any Eurodollar Loan or Fixed Rate Loan made by it, or change the basis of taxation of payments to such Bank in respect thereof (except for taxes covered by Section 2.22 and changes in the rate of tax on the net income of such Bank); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Bank which is not otherwise included in the determination of the interest rate on such Eurodollar Loan or Fixed Rate Loan hereunder; or 39 (iii) shall impose on such Bank any other condition; and the result of any of the foregoing is to increase the cost to such Bank, by an amount which such Bank deems to be material, of making, converting or refinancing into, continuing or maintaining Eurodollar Loans or Fixed Rate Loans or issuing or participating in Letters of Credit or to reduce any amount receivable hereunder in respect thereof then, in any such case, the Company shall as promptly as practicable pay such Bank, upon its written demand, any additional amounts necessary to compensate such Bank for such increased cost or reduced amount receivable. If any Bank becomes entitled to claim any additional amounts pursuant to this subsection, it shall as promptly as practicable notify the Company in writing, through the Administrative Agent, of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection (detailing the basis for calculation of such additional amounts) submitted by such Bank (with a copy to the Administrative Agent) to the Company shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (b) In the event that any Bank shall have reasonably determined that any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Bank or any corporation controlling such Bank with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on such Bank's or such corporation's capital as a consequence of its obligations hereunder or under any Letter of Credit to a level below that which such Bank or such corporation could have achieved but for such change or compliance (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, after submission as promptly as practicable by such Bank to the Company (with a copy to the Administrative Agent) of a written request therefor, the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction. If any Bank becomes entitled to claim any additional amounts pursuant to this subsection, it shall as promptly as practicable notify the Company in writing, through the Administrative Agent, of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection (detailing the basis for calculation of such additional amounts) submitted by such Bank (with a copy to the Administrative Agent) to the Company shall be conclusive in the 40 absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (c) Each Bank agrees that it will use reasonable efforts in order to avoid or to minimize, as the case may be, the payment by the Company of any additional amount under subsections 2.21(a) or (b); provided, however, that no Bank shall be obligated to incur any expense, cost or other amount in connection with utilizing such reasonable efforts. 2.22 Taxes. (a) All payments made by the Company under this Agreement and the Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding, in the case of the Administrative Agent and each Bank, net income taxes and franchise or gross receipts taxes imposed on the Administrative Agent or such Bank, as the case may be, as a result of a present or former connection between the jurisdiction of the government or taxing authority imposing such tax and the Administrative Agent or such Bank (excluding a connection arising solely from the Administrative Agent or such Bank having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or the Notes) or any political subdivision or taxing authority thereof or therein (all such non-excluded taxes, levies, imposts, duties, charges, fees, deductions and withholdings being hereinafter called "Taxes"). If any Taxes are required to be withheld from any amounts payable to the Administrative Agent or any Bank hereunder or under the Notes, the amounts so payable to the Administrative Agent or such Bank shall be increased to the extent necessary to yield to the Administrative Agent or such Bank (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes. Whenever any Taxes are payable by the Company, as promptly as possible thereafter the Company shall send to the Administrative Agent for its own account or for the account of such Bank, as the case may be, a certified copy of an original official receipt received by the Company showing payment thereof. If the Company fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Company shall indemnify the Administrative Agent and the Banks for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Bank as a result of any such failure. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. 41 (b) Each Bank that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to the Company and the Administrative Agent (i) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form. Each such Bank also agrees to deliver to the Company and the Administrative Agent two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Company, and such extensions or renewals thereof as may reasonably be requested by the Company or the Administrative Agent, unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and such Bank so advises the Company and the Administrative Agent. Each such Bank shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. (c) Notwithstanding the foregoing subsections 2.22(a) or 2.22(b), the Company shall not be required to pay any additional amounts to the Administrative Agent or any Bank in respect of United States withholding tax pursuant to such subsections if (i) the obligation to pay such additional amounts would not have arisen but for a failure by the Administrative Agent or such Bank to comply with the requirements of subsection 2.22(b) or (ii) the Administrative Agent or such Bank shall not have furnished the Company with such forms listed in subsection 2.22(b) and shall not have taken such other steps as reasonably may be available to it under applicable tax laws and any applicable tax treaty or convention to obtain an exemption from, or reduction (to the lowest applicable rate) of, such United States withholding tax. 2.23 Indemnity. (a) The Company agrees to indemnify each Bank and to hold each Bank harmless from any loss or expense which such Bank may sustain or incur as a consequence of (i) default by the Company in payment when due of the principal amount of or interest on any Eurodollar Loan or Fixed Rate Loan, (ii) default by the Company in making a borrowing of, refinancing of, conversion into or continuation of Eurodollar Loans or Fixed Rate Loans, as the case may be, after the Company has given a 42 notice requesting the same in accordance with the provisions of this Agreement, (iii) default by the Company in making any prepayment after the Company has given a notice thereof in accordance with the provisions of this Agreement or (iv) the making of a prepayment (whether voluntarily, as a result of acceleration or otherwise) of Eurodollar Loans or Fixed Rate Loans on a day which is not the last day of an Interest Period with respect thereto, including, without limitation, in each case, any such loss or expense arising from the reemployment of funds obtained by it or from fees payable to terminate the deposits from which such funds were obtained. A certificate as to any amounts that a Bank is entitled to receive under this Section 2.23 (detailing the basis for calculation of such additional amounts) submitted by such Bank, through the Administrative Agent, to the Company shall be conclusive in the absence of manifest error and all such amounts shall be paid by the Company promptly upon demand by such Bank. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (b) For the purpose of calculation of all amounts payable to a Bank under this subsection, each Bank shall be deemed to have actually funded its relevant Eurodollar Loan or Fixed Rate Loan through the purchase of a deposit bearing interest at the Eurodollar Rate or the applicable rate for such Fixed Rate Loan, as the case may be, in an amount equal to the amount of that Eurodollar Loan or Fixed Rate Loan, as the case may be, and having a maturity comparable to the relevant Interest Period; provided, however, that each Bank may fund each of its Eurodollar Loans or Fixed Rate Loans in any manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this subsection. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. 2.24 Pro Rata Treatment, etc. Except as required under Section 2.20, each Committed Borrowing, each payment or prepayment of principal of any Committed Borrowing, each payment of interest on the Committed Loans, each payment of the Facility Fees, each reduction of the Commitments, each conversion of Committed Loans and each refinancing of any Borrowing with a Committed Borrowing of any Type, shall be made pro rata among the Banks in accordance with their respective Commitment Percentages. Each payment of principal of any Competitive Borrowing shall be allocated pro rata among the Banks participating in such Borrowing in accordance with the respective principal amounts of their outstanding Competitive Loans comprising such Borrowing. Each payment of interest on any Competitive Borrowing shall be allocated pro rata among the Banks participating in such Borrowing in accordance with the respective amounts of accrued and unpaid interest on their outstanding Competitive Loans 43 comprising such Borrowing. Each Bank agrees that in computing such Bank's portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Bank's percentage of such Borrowing to the next higher or lower whole dollar amount. 2.25 Payments. (a) The Company shall make each payment (including principal of or interest on any Borrowing or any Fees or other amounts) hereunder not later than 12:00 (noon), Philadelphia time, on the date when due in Dollars to the Administrative Agent at its offices at Broad and Chestnut Streets, Philadelphia, Pennsylvania, in immediately available funds. To the extent any amounts received by the Administrative Agent are to be distributed to the Banks, the Administrative Agent shall so distribute such amount to the Banks promptly upon receipt in like funds as received. (b) Whenever any payment (including principal of or interest on any Borrowing or any Fees or other amounts) (but excluding payments on Eurodollar Loans) hereunder shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Fees, if applicable. (c) All payments by the Company to the Administrative Agent or the Banks hereunder or under the Notes shall be made without setoff or counterclaim of any kind. 2.26 Conversion and Continuation Options. The Company shall have the right at any time upon prior irrevocable notice to the Administrative Agent (i) not later than 11:00 a.m., Philadelphia time, on the Business Day of conversion, to convert any Eurodollar Committed Loan to a Base Rate Loan, (ii) not later than 11:00 a.m., Philadelphia time, three Business Days prior to conversion or continuation, to convert any Base Rate Loan into a Eurodollar Committed Loan or to continue any Eurodollar Committed Loan as a Eurodollar Committed Loan for any additional Interest Period and (iii) not later than 11:00 a.m., Philadelphia time, three Business Days prior to conversion, to convert the Interest Period with respect to any Eurodollar Committed Loan to another permissible Interest Period, subject in each case to the following: (a) a Eurodollar Committed Loan may not be converted at a time other than the last day of the Interest Period applicable thereto; (b) any portion of a Loan maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Committed Loan; 44 (c) no Eurodollar Committed Loan may be continued as such and no Base Rate Loan may be converted to a Eurodollar Committed Loan when any Default has occurred and is continuing; (d) any portion of a Eurodollar Committed Loan that cannot be converted into or continued as a Eurodollar Committed Loan by reason of paragraph 2.26(b) or 2.26(c) automatically shall be converted at the end of the Interest Period in effect for such Loan to a Base Rate Loan; (e) on the last day of any Interest Period for Eurodollar Committed Loans, if the Company has failed to give notice of conversion or continuation as described in this subsection or if such conversion or continuation is not permitted pursuant to this subsection 2.26, such Loans shall be converted to Base Rate Loans on the last day of such then expiring Interest Period; and (f) Each request by the Company to convert or continue a Loan shall constitute a representation and warranty that each of the representations and warranties made by the Company herein is true and correct in all material respects on and as of such date as if made on and as of such date. Accrued interest on a Loan (or portion thereof) being converted shall be paid by the Company at the time of conversion. 2.27 Minimum Amounts of Tranches. All borrowings, conversions and continuation of Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections that, after giving effect thereto, the aggregate principal amount of the Loans comprising each Tranche of Eurodollar Committed Loans and each Tranche of Competitive Loan shall be equal to $5,000,000 or a whole multiple of $500,000 in excess thereof. 2.28 Use of Proceeds. The proceeds of the Loans made on the Closing Date shall be used by the Company (a) to refinance the Refinanced Debt and (b) for working capital and general corporate purposes in the ordinary course of business. The proceeds of any Committed Loans or Competitive Loans made after the Closing Date shall be used by the Company (i) for working capital purposes and general corporate purposes in the ordinary course of business or (ii) to finance in whole or in part acquisitions, but only to the extent such acquisitions are permitted under this Agreement, including under Section 6.4. 45 SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Agents and the Banks to enter into this Agreement, to make the Loans and to issue and/or participate in Letters of Credit, the Company hereby represents and warrants to each Agent and each Bank that: 3.1 Corporate Status. Each of the Company and its Subsidiaries (a) is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, (b) has the corporate power and authority, and the legal right, to own its property and assets, to lease the property it operates as lessee and to transact the business in which it is engaged or presently proposes to engage, (c) has duly qualified and is authorized to do business and is in good standing as a foreign corporation in every jurisdiction in which it owns or leases real property or in which the nature of its business requires it to be so qualified, except where the failure to so qualify, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, and (d) is in compliance with all Requirements of Laws except to the extent that the failure to comply therewith, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 3.2 Corporate Power and Authority. Each of the Company and its Subsidiaries has the corporate power and authority to execute, deliver and carry out the terms and provisions of each of the Transaction Documents to which it is a party (including borrowing hereunder) and has taken all necessary corporate action to authorize the execution, delivery and performance by it of such Transaction Documents. Each of the Company and its Subsidiaries has duly executed and delivered each such Transaction Document, and each such Transaction Document constitutes its legal, valid and binding obligation, enforceable in accordance with its terms. 3.3 No Violation. Neither the execution, delivery or performance by the Company of the Transaction Documents to which it is a party, nor compliance by it with the terms and provisions thereof nor the consummation of the Transactions, (a) will violate any Requirement of Law or (b) will result in any breach of any of the terms, covenants, conditions or provisions of, or require a consent under (except to the extent already obtained) or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Company or any of its Subsidiaries pursuant to the terms of any Requirement of Law or Contractual Obligation or (c) will violate any provision of the Articles or Certificate of Incorporation or By-Laws of the Company or any of its Subsidiaries. 46 3.4 Litigation. There are no actions, suits, investigations or proceedings pending, or to the Company's best knowledge, threatened (a) with respect to any of the Transactions or Transaction Documents or (b) that could, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. 3.5 Financial Condition. The consolidated balance sheet of the Company and its consolidated Subsidiaries as at January 28, 1995 and the related consolidated statements of income, cash flows and retained earnings for the fiscal year ended on such date, copies of which have heretofore been furnished to each Bank, present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the fiscal year then ended. The unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as at July 29, 1995 and the related unaudited consolidated statements of income, cash flows and retained earnings for the six-month period ended on such date, certified by a Principal Financial Officer, copies of which have heretofore been furnished to each Bank, present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the six-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved. Neither the Company nor any of its consolidated Subsidiaries had, at the date of the most recent balance sheet referred to above, any material Contingent Obligation, liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, which is required by GAAP to be but is not reflected in the foregoing statements or in the notes thereto. 3.6 Solvency. On the Closing Date and after giving effect to the Transactions, each of the Company and the Company and its Subsidiaries taken as a whole will be Solvent. 3.7 Projections. The projections dated October 24, 1995 previously delivered to the Banks have been prepared on the basis of the assumptions accompanying them, and such projections and assumptions, as of the date of preparation thereof and as of the Closing Date, are reasonable and represent the Company's good faith estimate of its future financial performance, it being understood that nothing contained in this Section shall constitute a representation or warranty that such future 47 financial performance or results of operations will in fact be achieved. 3.8 Material Adverse Change. Except as set forth in Schedule 3.8, since the later of January 28, 1995 and the date of the most recent financial statements delivered to the Banks pursuant to Section 5.1(b) there has been no development or event which has had a Material Adverse Effect. 3.9 Use of Proceeds; Margin Regulations. All proceeds of each Loan will be used by the Company only in accordance with the provisions of Section 2.28. No part of the proceeds of any Loan will be used by the Company to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. If requested by any Bank or the Administrative Agent, the Company will furnish to the Administrative Agent and each Bank a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in Regulation U. Neither the making of any Loan nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulations G, T, U or X of the Federal Reserve Board. 3.10 Governmental Approvals. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any Governmental Authority, or any subdivision thereof, or any other Person (including stockholders and creditors of the Company) is required to authorize, or is required in connection with (a) the execution, delivery and performance of any Transaction Document or the consummation of any of the Transactions or (b) the legality, validity, binding effect or enforceability of any Transaction Document. 3.11 Tax Returns and Payments. The Company and each of its Subsidiaries has filed all tax returns required to be filed by it and has paid (a) all taxes and assessments payable by it which have become due and (b) all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority, other than those not yet delinquent or those that are reserved against in accordance with GAAP which are being diligently contested in good faith by appropriate proceedings. Except as disclosed in Schedule 6.3 hereto, no tax Lien has been filed against the Company or any of its Subsidiaries. 3.12 ERISA. As of the Closing Date, the Company has no Plans other than those listed on Schedule 3.12. No accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA) or Reportable Event has occurred with respect to any Plan. There are no Unfunded Benefit Liabilities under any Plan. The Company and each member of its 48 ERISA Controlled Group have complied with the requirements of Section 515 of ERISA with respect to each Multiemployer Plan and is not in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan. The aggregate potential total withdrawal liability, and the aggregate potential annual withdrawal liability payments of the Company and the members of its ERISA Controlled Group as determined in accordance with Title IV of ERISA as if the Company and the members of its ERISA Controlled Group had completely withdrawn from all Multiemployer Plans is not greater than $1,000,000 and $500,000, respectively. To the best knowledge of the Company and each member of its ERISA Controlled Group, no Multiemployer Plan is or is likely to be in reorganization (as defined in Section 4241 of ERISA or Section 418 of the Code) or is insolvent (as defined in Section 4245 of ERISA). No material liability to the PBGC (other than required premium payments), the Internal Revenue Service, any Plan or any trust established under Title IV of ERISA has been, or is expected by the Company or any member of its ERISA Controlled Group to be, incurred by the Company or any member of its ERISA Controlled Group, other than the liability to fund benefits in the normal course. Except as otherwise disclosed on Schedule 3.12 hereto, neither the Company nor any member of its ERISA Controlled Group has any material contingent liability with respect to any post-retirement benefit under any "welfare benefit plan" (as defined in Section 3(1) of ERISA), other than liability for continuation coverage under Part 6 of Title I of ERISA. No Lien under Section 412(n) of the Code or 302(f) of ERISA or requirement to provide security under Section 401(a)(29) of the Code or Section 307 of ERISA has been or is reasonably expected by the Company or any member of its ERISA Controlled Group to be imposed on the assets of the Company or any member of its ERISA Controlled Group. 3.13 Investment Company Act; Public Utility Holding Company Act. Neither the Company nor any of its Subsidiaries is (a) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended, (b) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (c) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money. 3.14 Compliance With Law. The Company and each of its Subsidiaries is in compliance with all laws, rules, regulations, orders, judgments, writs and decrees except where such non-compliance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 49 3.15 Representations and Warranties in Receivables Program. All representations and warranties made by the Company or any of its Subsidiaries in the Receivables Program Documents, and, to the best of the Company's knowledge, all representations made by each other Person in such Documents, are true and correct in all material respects. None of such representations and warranties are inconsistent in any material respect with the representations and warranties of the Company or any of its Subsidiaries made herein or in any other Loan Document. 3.16 True and Complete Disclosure. All factual information (taken as a whole) furnished by or on behalf of the Company or any of its Subsidiaries in writing to the Administrative Agent or any Bank on or prior to the Closing Date, for purposes of or in connection with this Agreement or any of the other Loan Documents is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of the Company or any of its Subsidiaries in writing to the Administrative Agent or any Bank will be, true and accurate in all material respects on the date as of which such information is dated or furnished and not incomplete by omitting to state any material fact necessary to make such information (taken as a whole) not misleading at such time. Except as set forth in Schedule 3.8, as of the Closing Date, there are no facts, events or conditions known to the Company which, individually or in the aggregate, have or could reasonably be expected to have a Material Adverse Effect. 3.17 Corporate Structure; Capitalization. Schedule 3.17 hereto sets forth the number of authorized and issued shares of capital stock of the Company and each of its Subsidiaries, the par value thereof and, in the case of Subsidiaries, the registered owner(s) thereof, in each case as of the Closing Date. All of such stock has been duly and validly issued and is fully paid and non-assessable. Except as set forth in such Schedule, as of the Closing Date, neither the Company nor any such Subsidiary has outstanding any securities convertible into or exchangeable for its capital stock nor does the Company or any such Subsidiary have outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock. 3.18 Environmental Matters. (a) Except as set forth in Schedule 3.18, (i) each of the Company and its Subsidiaries are in compliance with all applicable Environmental Laws, (ii) each of the Company and its Subsidiaries have all Environmental Approvals required to operate their businesses as presently conducted or as reasonably anticipated to be conducted, all such Environmental Approvals are in effect, no appeal or other action 50 is pending to revoke any such Environmental Approval, and the Company and each of its Subsidiaries are in full compliance with all terms and conditions of such Environmental Approvals, (iii) none of the Company, its Subsidiaries nor any of their Environmental Affiliates has received any communication (written or oral), whether from a Governmental Authority, citizens group, employee or otherwise, that alleges that the Company or such Subsidiary or Environmental Affiliate is not in full compliance with all Environmental Laws, and (iv) to the Company's best knowledge, there are no circumstances that may prevent or interfere with such full compliance in the future. (b) Except as set forth in Schedule 3.18, there is no Environmental Claim pending or, to the Company's best knowledge, threatened against the Company, any of its Subsidiaries or any Environmental Affiliate. (c) There are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge or disposal of any Material of Environmental Concern, that could form the basis of any Environmental Claims against the Company, any of its Subsidiaries or any of their Environmental Affiliates, which Environmental Claims, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (d) No Release or Cleanup has occurred at any property currently owned or leased by the Company or its Subsidiaries that could result in the assertion or creation of a Lien on said property by any Governmental Authority with respect thereto, nor has any such assertion of a Lien been made by any Governmental Authority with respect thereto. (e) Without in any way limiting the generality of the foregoing, except as disclosed in Schedule 3.18, (i) there are no underground storage tanks located on property owned or leased by the Company or any of its Subsidiaries and (ii) no polychlorinated biphenyls (PCB's) are used or stored at any property owned or leased by the Company or any of its Subsidiaries. 3.19 Insurance. Schedule 3.19 sets forth a complete and accurate description of all policies of insurance maintained by the Company and its Subsidiaries as of the Closing Date. The Company has paid all premiums due on or prior to the Closing Date in respect of such policies and all such policies are in full force and effect. 3.20 Patents, Trademarks, etc. Each of the Company and its Subsidiaries has obtained and holds in full force and effect all patents, trademarks, servicemarks, trade names, 51 copyrights and other such rights, free from burdensome restrictions, which are necessary for the operation of its business as presently conducted. To the Company's best knowledge, no material product, process, method, substance, part or other material presently sold by or employed by the Company or any of its Subsidiaries in connection with such business infringes any patent, trademark, service mark, trade name, copyright, license or other right owned by any other Person. There is not pending or overtly threatened any claim or litigation against or affecting the Company or any of its Subsidiaries contesting its right to sell or use any such product, process, method, substance, part or other material. 3.21 Ownership of Property. Schedule 3.21 sets forth, as of the Closing Date, all the real property owned or leased by the Company or any of its Subsidiaries and identifies the street address, the current owner (and current record owner, if different) and whether such property is leased or owned. The Company and its Subsidiaries have good and marketable fee simple title to or valid leasehold interests in all real property owned or leased by the Company or its Subsidiaries, and good title to all of their personal property subject to no Lien of any kind except Liens permitted hereby. The Company and its Subsidiaries enjoy peaceful and undisturbed possession under all of their respective leases. 3.22 No Default. Neither the Company nor any of its Subsidiaries is in default under or with respect to (a) any Transaction Document or (b) any other Contractual Obligation to which it is a party or by which it or any of its property is bound in any respect which could reasonably be expected to result in a Material Adverse Effect. No Default or Event of Default exists. 3.23 Licenses, etc. The Company and its Subsidiaries have obtained and hold in full force and effect, all franchises, licenses, permits, certificates, authorizations, qualifications, easements, rights of way and other rights, consents and approvals which are necessary for the operation of their respective businesses as presently conducted. 3.24 No Burdensome Restrictions. Neither the Company nor any of its Subsidiaries is a party to any agreement or instrument or subject to any other Contractual Obligation or any charter or corporate restriction or any provision of any applicable law, rule or regulation which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 3.25 Labor Matters. Except as set forth on Schedule 3.25, as of the Closing Date, there are no collective bargaining 52 agreements or Multiemployer Plans covering the employees of the Company or any of its Subsidiaries, and none of such Persons has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years and to the best knowledge of such Persons, there are none now threatened. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions to Initial Extensions of Credit. The agreement of each Bank to make its initial Extensions of Credit are subject to the satisfaction, immediately prior to or concurrently with the making of such Extensions of Credit on the Closing Date, of the following conditions precedent: (a) Loan Documents. The Administrative Agent shall have received (i) this Agreement, executed and delivered by a duly authorized officer of the Company, with a counterpart for each Bank and (ii) for the account of each Bank, a Committed Note and a Competitive Note conforming to the requirements hereof and executed by a duly authorized officer of the Company. (b) Legal Opinions. The Agent shall have received a legal opinion, dated the Closing Date, from Morgan, Lewis & Bockius LLP, counsel to the Company, addressed to the Agents and the Banks, substantially in the form of Exhibit C hereto. Such opinion shall also cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require. (c) Corporate Documents. The Administrative Agent shall have received the Articles of Incorporation of the Company, as amended, modified or supplemented to the Closing Date, certified to be true, correct and complete by the Secretary of State of the Commonwealth of Pennsylvania as of a date not more than ten (10) days prior to the Closing Date, together with a good standing certificate from such Secretary of State and a good standing certificate from the Secretaries of State (or the equivalent thereof) of each other State in which the Company is required to be qualified to transact business, each to be dated a date not more than ten (10) days prior to the Closing Date. (d) Certified Resolutions, etc. The Administrative Agent shall have received a certificate of the Secretary or Assistant Secretary of the Company dated the Closing Date certifying (i) the names and true signatures of the incumbent officers of the Company authorized to sign the Loan Documents, (ii) the By-Laws of the Company as in effect on the Closing Date, (iii) the resolutions of the Company's Board of Directors approving and authorizing the execution, delivery and performance of all Transaction Documents and that the resolutions 53 have not been amended, modified, revoked or rescinded, and (iv) that there have been no changes in the Articles of Incorporation of the Company since the date of the most recent certification thereof by the Secretary of State of the Commonwealth of Pennsylvania. (e) Officer's Certificate. The Administrative Agent shall have received a certificate of a Responsible Officer of the Company, dated the Closing Date, certifying that to the best of his or her knowledge, (i) the representations and warranties contained in Section 3 are true and correct as of the Closing Date as if made on such date, (ii) the Company is in compliance with the covenants and agreements contained in this Agreement, (iii) there is no Event of Default or Default as of the Closing Date after giving effect to the Transactions, (iv) the Receivables Program Documents are in full force and effect and no material term or condition thereof has been amended from the form thereof delivered to the Administrative Agent, or waived, except as disclosed to the Administrative Agent or its counsel prior to the execution of this Agreement and (v) subject to the foregoing, neither the Company nor, to the best of his or her knowledge, any such other party is in default in the performance or compliance with any of the terms or provisions thereof, except to the extent that performance thereof or compliance therewith or default has been waived with the prior written consent of the Banks. (f) Receivables Program. The Administrative Agent shall have received satisfactory evidence of the execution, delivery and effectiveness of the Receivables Program Documents and of receipt by the Company of not less than $125,000,000 in net cash proceeds from the initial funding thereunder. The Administrative Agent shall have received copies of the Receivables Program Documents and any amendments or supplements thereto, certified as of the Closing Date by a Responsible Officer of the Company to be true, correct and complete copies of such documents. (g) Refinancing. The Administrative Agent shall have received evidence satisfactory to it that the Refinanced Debt, together with all interest, fees, penalties and other amounts payable in respect hereof, shall have been repaid in full and that all agreements relating thereto shall have been terminated. (h) Lien Search Reports. The Administrative Agent shall have received satisfactory reports of UCC, tax lien and judgment searches conducted by a search firm acceptable to the Administrative Agent with respect to the Company in each of the locations set forth in Schedule 4.1(h) hereto, together with 54 satisfactory searches of the United States Patent and Trademark Office. (i) Environmental Matters. The Banks shall be satisfied that neither the Company nor any of its Subsidiaries is subject to any present or contingent environmental liability which could have a Material Adverse Effect. (j) Fees and Expenses. The Administrative Agent shall have received (a) the fees required to be paid on the Closing Date pursuant to the Fee Letter and (b) all other fees and expenses due and payable hereunder on or before the Closing Date (if then invoiced), including, without limitation, the reasonable fees and expenses accrued through the Closing Date of Ballard Spahr Andrews & Ingersoll, counsel to the Administrative Agent in connection with the transactions contemplated by the Loan Documents. (k) Consents, Licenses, Approvals, etc. The Administrative Agent shall have received copies of all consents, licenses and approvals, if any, required in connection with the execution, delivery and performance by the Company or its Subsidiaries, and the validity and enforceability, of the Transaction Documents, or in connection with any of the Transactions, and such consents, licenses and approvals shall be in full force and effect. (l) Litigation. There shall be no actions, suits, investigations or proceedings pending, or to the Company's best knowledge, threatened (i) with respect to any of the Transactions or (ii) that could, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (m) Additional Matters. The Administrative Agent shall have received such other certificates, opinions, documents and instruments relating to the Transactions as may have been reasonably requested by the Administrative Agent and all corporate and other proceedings and all other documents (including, without limitation, all documents referred to herein and not appearing as exhibits hereto) and all legal matters in connection with the Loan Documents shall be satisfactory in form and substance to the Administrative Agent and its counsel. 4.2 Conditions to Extensions of Credit. The agreement of each Bank to make any Extension of Credit requested to be made by it on any date (including, without limitation, its initial Extension of Credit) is subject to the satisfaction of the following conditions precedent: 55 (a) Representations and Warranties. Each of the representations and warranties made by the Company herein or which are contained in any certificate, document or financial or other statement furnished at any time under or in connection herewith or therewith, shall be true and correct in all material respects on and as of such date as if made on and as of such date. (b) No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Extension of Credit requested to be made on such date. (c) No Injunction. No law or regulation shall have been adopted, no order, judgment or decree of any Governmental Authority shall have been issued, and no litigation, proceeding or investigation shall be pending or threatened, which in the judgment of the Required Banks, would enjoin, prohibit or restrain, or impose or result in the imposition of any material adverse condition upon, the making or repayment of the Extension of Credit. (d) No Material Adverse Effect. No event, act or condition shall have occurred after January 28, 1995, which, in the judgment of the Required Banks, has had or could reasonably be expected to have a Material Adverse Effect. (e) Additional Matters. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received such other documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as its shall reasonably request. Each Borrowing by and Letter of Credit issued on behalf of the Company hereunder shall constitute a representation and warranty by the Company to each Bank and the Agents that all of the conditions required to be satisfied under this Section 4 in connection with making of such Extension of Credit have been satisfied. SECTION 5. AFFIRMATIVE COVENANTS The Company hereby agrees that, so long as the Commitments remain in effect, any Note remains outstanding and unpaid, any Letter of Credit remains outstanding or any other amount is owing to any Bank or any Agent hereunder: 56 5.1 Information Covenants. The Company shall furnish to each Bank and to the Administrative Agent: (a) Quarterly Financial Statements. As soon as available, but in any event not later than 45 days after the close of each quarterly accounting period in each fiscal year of the Company (other than the fourth quarterly accounting period), unaudited condensed consolidated financial statements of the Company and its consolidated Subsidiaries, including the consolidated condensed balance sheet of the Company and its Subsidiaries as at the end of such quarterly period and the related consolidated condensed statements of income and condensed cash flow for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, and in each case (except for the consolidated condensed balance sheet) setting forth comparative figures for the related periods in the prior fiscal year. All such financial statements shall be prepared in reasonable detail and in accordance with GAAP applied on a basis consistently maintained throughout the period involved and with prior periods. (b) Annual Financial Statements. As soon as available, but in any event not later than 90 days after the close of each fiscal year of the Company, a copy of the annual audit report for such year for the Company and its consolidated Subsidiaries, including therein the consolidated balance sheet of the Company and its Subsidiaries as at the end of such fiscal year and the related consolidated statements of income, cash flow and retained earnings for such fiscal year, setting forth comparative figures for the preceding fiscal year, all in reasonable detail, and, with respect to such consolidated financial statements, certified without qualification by Ernst & Young, LLP or other independent certified public accountants of recognized national standing reasonably acceptable to the Required Banks, in each case together with a report of such accounting firm stating that in the course of its regular audit of the consolidated financial statements of the Company, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge of the Company's failure to comply with the provisions of Sections 6.1, 6.2, 6.5 and 6.7, in each case insofar as they relate to accounting matters. (c) Management Letters. Promptly after the Company's receipt thereof, a copy of any "management letter" or other material report received by the Company from its certified public accountants. (d) Budgets. At the time of the delivery of the financial statements under clause (b) above, and, in addition, within forty-five (45) days after a written request therefor from 57 the Administrative Agent (such request to occur no more frequently than annually unless a Default shall exist and be continuing), a budget and/or financial forecast of results of operations and sources and uses of cash (in form reasonably acceptable to the Administrative Agent) prepared by the Company for the fiscal year for which such request is made, accompanied by a written statement of the assumptions used in connection therewith. If requested by the Administrative Agent, the financial statements required to be delivered pursuant to clauses (a) and (b) above shall be accompanied by a comparison of the actual financial results set forth in such financial statements to those contained in the forecasts delivered pursuant to this clause (d) together with an explanation of any material variations from the results anticipated in such forecasts. (e) Officer's Certificates. At the time of the delivery of the financial statements under clauses (a) and (b) above, a compliance certificate of a Principal Financial Officer in a form reasonably acceptable to the Administrative Agent (a "Compliance Certificate") which certifies (x) that such financial statements fairly present the financial condition and the results of operations of the Company and its Subsidiaries on the dates and for the periods indicated, subject, in the case of interim financial statements, to normally recurring year-end adjustments and (y) that such officer has reviewed the terms of the Loan Documents and has made, or caused to be made under his or her supervision, a review in reasonable detail of the business and condition of the Company and its Subsidiaries during the accounting period covered by such financial statements, and that as a result of such review such officer has concluded that no Default or Event of Default has occurred during the period commencing at the beginning of the accounting period covered by the financial statements accompanied by such certificate and ending on the date of such certificate or, if any Default or Event of Default has occurred, specifying the nature and extent thereof and, if continuing, the action the Company has taken and/or proposes to take in respect thereof. The Compliance Certificate shall also set forth the calculations required to establish whether the Company was in compliance with the provisions of Section 6.1 during and as at the end of the accounting period covered by the financial statements accompanied by such certificate. (f) Notice of Default or Litigation. Promptly and in any event within one Business Day after the Company or any Subsidiary obtains knowledge thereof, notice of (i) the occurrence of any Default or Event of Default, (ii) any litigation or proceeding involving a Governmental Authority pending or threatened against the Company or any Subsidiary which could reasonably be expected to result in a Material Adverse Effect, (iii) any default or event of default under any 58 Contractual Obligation of the Company or any of its Subsidiaries which, if not cured, could reasonably be expected to have a Material Adverse Effect, (iv) any litigation or proceeding affecting the Company or any of its Subsidiaries in which the amount involved is $5,000,000 or more and not covered by insurance, as reasonably determined by the Company's corporate counsel, or in which injunctive or similar relief is sought, and (v) any other event, act or condition which could reasonably be expected to result in a Material Adverse Effect. (g) ERISA. (i) As soon as possible and in any event within 10 days after the Company or any member of its ERISA Controlled Group knows, or has reason to know, that: (A) any Termination Event with respect to a Plan has occurred or will occur, or (B) any condition exists with respect to a Plan which presents a material risk of termination of the Plan or imposition of an excise tax or other liability in excess of $100,000 on the Company or any member of its ERISA Controlled Group, or (C) the Company or any member of its ERISA Controlled Group has applied for a waiver of the minimum funding standard under Section 412 of the Code or Section 302 of ERISA, or (D) the Company or any member of its ERISA Controlled Group has engaged in a "prohibited transaction," as defined in Section 4975 of the Code or as described in Section 406 of ERISA, that is not exempt under Section 4975 of the Code and Section 408 of ERISA, or (E) the aggregate present value of the Unfunded Benefit Liabilities under all Plans has in any year increased by $500,000 or to an amount in excess of $750,000, or (F) any condition exists with respect to a Multiemployer Plan which presents a material risk of a partial or complete withdrawal (as described in Section 4203 or 4205 of ERISA) by the Company or any member of its ERISA Controlled Group from a Multiemployer Plan and a resultant withdrawal liability greater than $750,000, or 59 (G) the Company or any member of its ERISA Controlled Group is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan which default (I) has not been and will not be cured within the time permitted for such defaults to be cured or (II) is in an amount in excess $50,000, or (H) a Multiemployer Plan is in "reorganization" (as defined in Section 418 of the Code or Section 4241 of ERISA) or is "insolvent" (as defined in Section 4245 of ERISA), or (I) the potential withdrawal liability (as determined in accordance with Title IV of ERISA) of the Company and the members of its ERISA Controlled Group with respect to all Multiemployer Plans has in any year increased by $500,000 or to an amount in excess of $1,000,000, or (J) there is an action brought against the Company or any member of its ERISA Controlled Group under Section 502 of ERISA with respect to its failure to comply with Section 515 of ERISA, a certificate of a Responsible Officer of the Company setting forth the details of each of the events described in clauses (A) through (J) above as applicable and the action which the Company or the applicable member of its ERISA Controlled Group has taken and/or proposes to take with respect thereto, together with a copy of any notice or filing from the PBGC or which may be required by the PBGC or other agency of the United States government with respect to each of the events described in clauses (A) through (J) above, as applicable. (ii) As soon as possible and in any event within two Business Days after the receipt by the Company or any member of its ERISA Controlled Group of a demand letter from the PBGC notifying the Company or such member of its ERISA Controlled Group of its final decision finding liability, a copy of such letter, together with a certificate of a Responsible Officer of the Company setting forth the action which the Company or such member of its ERISA Controlled Group has taken and/or proposes to take with respect thereto. (h) SEC Filings. Promptly upon transmission thereof, copies of all regular and periodic financial information, proxy materials and other information and reports, if any, which the Company or any of its Subsidiaries shall file with the Securities and Exchange Commission or any Governmental 60 Authority substituted therefore or which the Company or any of its Subsidiaries shall send to its stockholders. (i) Environmental. Promptly and in any event within two Business Days after the existence of any of the following conditions, a certificate of a Responsible Officer of the Company specifying in detail the nature of such condition and the Company's or its Subsidiary's, as the case may be, proposed response thereto: (i) the receipt by the Company or any of its Subsidiaries of any communication (written or oral), whether from a Governmental Authority, citizens group, employee or otherwise, that alleges that it or any Environmental Affiliate is not in compliance with applicable Environmental Laws, or (ii) the Company or any of its Subsidiaries shall obtain actual knowledge that there exists any Environmental Claim pending or threatened against it or any Environmental Affiliate. (j) Other Information. From time to time, such other information or documents (financial or otherwise) as the Administrative Agent may reasonably request. 5.2 Books, Records and Inspections. The Company shall, and shall cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities. The Company shall, and shall cause each of its Subsidiaries to, permit officers and designated representatives of any Bank to visit and inspect any of the properties of the Company or any of its Subsidiaries, and to examine the books of record and account of the Company or any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Company or any of its Subsidiaries with, and to be advised as to the same by, its and their officers and independent accountants, all upon reasonable notice and at such reasonable times as such Bank may desire. 5.3 Maintenance of Insurance. The Company shall, and shall cause each of its Subsidiaries to, (a) maintain with financially sound and reputable insurance companies insurance on itself and its properties in at least such amounts and against at least such risks as are customarily insured against in the same general area by companies engaged in the same or a similar business, which insurance shall in any event not provide for materially less coverage than the insurance in effect on the Closing Date as set forth on Schedule 3.19, and (b) furnish to the Administrative Agent from time to time, upon written request, copies of the policies under which such insurance is issued, certificates of insurance and such other information relating to such insurance as the Administrative Agent may reasonably request. 61 5.4 Taxes. The Company shall pay or cause to be paid, and shall cause each of its Subsidiaries to pay or cause to be paid, when due, all taxes, charges and assessments and all other lawful claims required to be paid by the Company or such Subsidiary, except as contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves have been established with respect thereto in accordance with GAAP. 5.5 Corporate Franchises. The Company shall, and shall cause each of its Subsidiaries to, do or cause to be done, all things necessary to preserve and keep in full force and effect its existence and its patents, trademarks, servicemarks, tradenames, copyrights, franchises, licenses, permits, certificates, authorizations, qualifications, accreditation, easements, rights of way and other rights, consents and approvals except where the failure to so preserve any of the foregoing (other than existence) could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. 5.6 Compliance with Law. The Company shall, and shall cause each of its Subsidiaries to, comply with all applicable laws, rules, statutes, regulations, decrees and orders of, and all applicable restrictions imposed by, any Governmental Authority, in respect of the conduct of their business and the ownership of their property, including, without limitation, all Environmental Laws, except such non-compliance as could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Without limiting the generality of the foregoing, upon discovery of any violation of any Environmental Law by the Company or any of its Subsidiaries, the Company shall take all necessary steps to initiate and expeditiously complete all investigative, remedial and corrective and other action to cure such violation and eliminate such Material Adverse Effect. 5.7 Performance of Obligations. The Company shall, and shall cause each of its Subsidiaries to, perform all of its obligations of any nature, including under terms of each mortgage, indenture, security agreement, debt instrument, lease, undertaking and contract by which it or any of its properties is bound or to which it is a party, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or its Subsidiaries, as the case may be. 5.8 Maintenance of Properties. The Company shall, and shall cause each of its Subsidiaries to, ensure that its properties used or useful in its business are kept in good 62 repair, working order and condition, normal wear and tear excepted. 5.9 Further Assurances. The Company shall, and shall cause each of its Subsidiaries to, execute any and all further documents that may be required under applicable law or which the Required Banks or the Administrative Agent may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents. 5.10 Conduct of Business and Maintenance of Existence. Subject to Section 6.4 hereof, the Company shall, and shall cause each of its Subsidiaries to (a) continue to engage in business of the same general type as now conducted by it and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business and (b) comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.11 Subsequent Credit Terms. The Company shall notify the Administrative Agent in writing prior to entering into any new credit agreement or any amendment or modification of any existing credit arrangement pursuant to which the Company agrees to any financial and other affirmative or negative covenant (other than any of the foregoing pursuant to which the Company provides or agrees to provide collateral for its obligations) which is less favorable in any material respect to the Company than the comparable provision contained in this Agreement. Promptly after entering into such an agreement, the Company shall provide a copy thereof to the Administrative Agent. Effective upon the Company's entry into any such agreement, amendment or modification, the corresponding covenants, terms and conditions of this Agreement shall be, unless otherwise provided by the Required Banks, automatically and immediately amended to conform with and to include the applicable covenant(s), term(s) and/or condition(s) of such other agreement (until such agreement is terminated and all amounts owing thereunder are repaid whereupon such covenants, terms and conditions shall revert to the provisions contained in this Agreement); provided, however, that the foregoing shall not be applicable to or be deemed to affect any provision of this Agreement that, in the sole judgment of the Required Banks, is more favorable to the Company. The Company hereby agrees promptly to execute and deliver any and all such documents and instruments and to take all such further actions as the Administrative Agent may, in its sole discretion, deem necessary or appropriate to effectuate the provisions of this Section 5.11. 63 SECTION 6. NEGATIVE COVENANTS The Company hereby agrees that, so long as the Commitments remain in effect, any Note remains outstanding and unpaid, any Letter of Credit remains outstanding or any other amount is owing to any Bank or any Agent hereunder: 6.1 Financial Covenants. (a) Leverage Ratio. The Company shall not permit the Leverage Ratio as of the last day of any fiscal quarter of the Company, commencing with the fiscal quarter ending on October 28, 1995, to exceed .50:1.0; provided that, in calculating the Leverage Ratio for the fiscal quarter ending October 28, 1995, there shall be excluded from Consolidated Total Debt such Indebtedness as would have been excluded therefrom had the Receivables Program been in effect on and as of the end of such fiscal quarter, up to a maximum exclusion of $140,000,000. (b) Fixed Charge Coverage Ratio. The Company shall not permit the ratio of (i) the sum of (x) Consolidated EBITDA and (y) Consolidated Rental Expense to (ii) Consolidated Fixed Charges for any period of four consecutive fiscal quarters ending during any period set forth below to be less than the ratio set forth opposite such period below: Period Ratio ------ ----- 3rd Fiscal Quarter 1995 1.85:1.0 4th Fiscal Quarter 1995 through 3rd Quarter 1996 2.25:1.0 4th Fiscal Quarter 1996 through 3rd Quarter 1997 2.90:1.0 4th Fiscal Quarter 1997 and each Quarter thereafter 3.10:1.0 provided that, in calculating such ratio as of the end of the third fiscal quarter of 1995, there shall be added to Consolidated EBITDA the amount deducted therefrom (up to $1,700,000) in respect of the Special Charge. (c) Minimum Consolidated Tangible Net Worth. The Company shall not permit Consolidated Tangible Net Worth on the last day of any fiscal quarter to be less than the sum of $215,000,000 plus twenty-five percent (25%) of Consolidated Net Income for each full fiscal year of the Company commencing with the fiscal year ending February 1, 1997, and effective for the fiscal quarter ending on such date, exclusive of any such fiscal year in which Consolidated Net Income is a negative. (d) Capital Expenditures. The Company shall not make or incur (or commit to make or incur) and shall not permit any of its Subsidiaries to make or incur (or commit to make or incur) any Capital Expenditures, except Capital Expenditures of 64 the Company and its Subsidiaries in any fiscal year of the Company set forth below not in excess, in the aggregate for the Company and all of its Subsidiaries, of the amount (the "Maximum Amount") set forth below opposite such fiscal year: Fiscal Year Ending Maximum Amount ------------------ -------------- February 3, 1996 $44,500,000 February 1, 1997 $17,500,000 January 31, 1998 $23,000,000 January 31, 1999 $28,750,000; provided that, (i) commencing with the fiscal year beginning February 4, 1996, any amount not expended in the fiscal year for which it is permitted above may be carried over for expenditure in the next following fiscal year (but not in any succeeding years), (ii) for the fiscal year ending February 3, 1996, there shall be excluded from Capital Expenditures for such fiscal year all Capital Expenditures associated with the construction of the Company's Concord Home Furnishings Store in an amount not to exceed $6,500,000 in the aggregate, and (iii) there shall be excluded from the calculation of Capital Expenditures any acquisitions, to the extent permitted under Section 6.4(b)(i)(y). 6.2 Indebtedness. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume, suffer to exist or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, other than: (a) Indebtedness hereunder and under the other Loan Documents; (b) Indebtedness outstanding on the Closing Date and set forth on Schedule 6.2; (c) Indebtedness with respect to Capital Leases and other purchase money Indebtedness, in each case incurred to finance Capital Expenditures permitted under Section 6.1(d), not in excess of $10,000,000 in the aggregate at any one time outstanding; provided that, any such Indebtedness shall not exceed the lesser of the purchase price or the fair market value of the asset so financed; (d) Indebtedness owed by Subsidiaries of the Company to the Company; (e) Unsecured letters of credit (other than Letters of Credit issued hereunder) in an aggregate outstanding face amount not to exceed $10,000,000; 65 (f) Other unsecured Indebtedness of any Subsidiary of the Company created, incurred or assessed after the date hereof not enumerated in clauses (a) through (e) above, provided that the aggregate outstanding principal amount of such Indebtedness shall not exceed $10,000,000 at any one time outstanding, exclusive of any such Indebtedness owed by one or more Subsidiaries to the Company; and (g) Other unsecured Indebtedness of the Company created, incurred or assessed after the date hereof not enumerated in clauses (a) through (e) above. 6.3 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist, directly or indirectly, any Lien on any of its property now owned or hereafter acquired, other than: (a) Liens existing on the Closing Date and set forth on Schedule 6.3 hereto; (b) inchoate Liens for taxes, assessments or governmental charges not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves are being maintained in accordance with GAAP; (c) Statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by Law (other than any Lien imposed by ERISA or pursuant to any Environmental Law) created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate bonds have been posted; (d) Liens (other than any Lien imposed by ERISA or pursuant to any Environmental Law) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security legislation, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (e) Easements, rights-of-way, construction, operating and reciprocal easement agreements, zoning and similar restrictions and other similar charges, covenants or encumbrances not interfering with the ordinary conduct of the business of the Company or any of its Subsidiaries and which do not detract materially from the value of the property to which they attach or 66 impair materially the use thereof by the Company or any of its Subsidiaries; (f) Judgment Liens so long as the claims secured thereby do not exceed $1,000,000 in the aggregate and are being contested in good faith pursuant to appropriate proceedings; and (g) Liens created pursuant to Capital Leases and to secure other purchase-money Indebtedness permitted pursuant to Section 6.2(c), provided that such Liens are (i) only in respect of the property or assets subject to, and secure only, the respective Capital Lease or other purchase-money Indebtedness, (ii) the Liens are not modified to secure other Indebtedness and the amount of Indebtedness secured thereby is not increased and (iii) the principal amount of Indebtedness secured by any such Lien shall not at any time exceed 100% of the original purchase price of such property. 6.4 Restriction on Fundamental Changes. (a) The Company shall not, and shall not permit any of its Subsidiaries to, enter into any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), discontinue its business or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, all or any substantial part of its business or property, whether now or hereafter acquired, except (i) as otherwise permitted under Section 6.5, and (ii) any Wholly-Owned Subsidiary of the Company may merge into or convey, sell, lease or transfer all or substantially all of its assets to, the Company or any other Wholly-Owned Subsidiary of the Company. (b) The Company shall not, and shall not permit any of its Subsidiaries to, (i) acquire by purchase or otherwise any property or assets of, or stock or other evidence of beneficial ownership of, any Person, except for (w) purchases of receivables pursuant to and in accordance with the Receivables Program Documents, (x) purchases of inventory, equipment, materials and supplies in the ordinary course of the Company's or such Subsidiary's business, or (y) acquisitions of assets for use primarily in retail sales or the stock of a Person whose primary business is retail sales, but only if (I) after giving effect to such an acquisition, there is no Default or Event of Default, including compliance with the covenants set forth in Section 6.1 and (II) the total cost of all such acquisitions in any fiscal year (including without limitation the assumption of any liabilities in connection with such acquisitions) shall not exceed $7,500,000, or (ii) enter into any partnership or joint venture. (c) The Company shall not, and shall not permit any of its Subsidiaries to, amend its certificate or articles of 67 incorporation or by-laws to the extent such amendment is adverse to the Banks in any material respect. 6.5 Sale of Assets. The Company shall not, and shall not permit any of its Subsidiaries to, convey, lease, sell, transfer or otherwise dispose of (or agree to do so at any future time) all or any part of its property or assets, except (a) sales of inventory in the ordinary course of business; (b) sales of equipment which is uneconomic, obsolete or no longer useful in its business provided that the aggregate net book value of all equipment so sold does not exceed $1,000,000 in any fiscal year; (c) sales of receivables pursuant to and in accordance with the provisions of the Receivables Program Documents in an aggregate principal or invested amount not to exceed $150,000,000 at any one time outstanding; (d) the transfer of the Island Avenue Distribution Facility pursuant to the condemnation of such facility by the City of Philadelphia; and (e) sales of other assets of the Company and its Subsidiaries for fair market value, provided that the aggregate amount of such sales, determined in accordance with GAAP, in any fiscal year does not exceed five percent (5%) of the Company's Consolidated Assets as at the end of the immediately preceding fiscal year. 6.6 Contingent Obligations. The Company shall not, and shall not permit any of its Subsidiaries to, create or become or be liable with respect to any Contingent Obligation, except Contingent Obligations which are in existence on the Closing Date and which are set forth on Schedule 6.6. 6.7 Advances, Investments and Loans. The Company shall not, and shall not permit any of its Subsidiaries to, lend money or credit or make advances to any Person, or directly or indirectly purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to any Person (each an "Investment"), except that the following shall be permitted: (a) accounts receivable owned by the Company and its Subsidiaries, if created in the ordinary course of the business of the Company and its Subsidiaries and payable or dischargeable in accordance with customary trade terms; (b) loans and advances to the Company by any of its Subsidiaries which have been subordinated to the obligations of the Company to the Banks hereunder and under the Notes on terms and conditions satisfactory to the Administrative Agent; (c) loans and advances by the Company and its Subsidiaries to their employees in the ordinary course of its business not exceeding $100,000 in the aggregate at any one time outstanding; 68 (d) investments by the Company in the Receivables Subsidiary to the extent contemplated in the Receivables Program Documents as in effect on the Closing Date; (e) evidences of Indebtedness issued by the purchaser of assets and received by the Company or any of its Subsidiaries in connection with asset sales permitted by Section 6.5(d); (f) extensions of credit to the customers of the Company or its Subsidiaries in the ordinary course of the business of the Company or such Subsidiary pursuant to the Company's credit card programs to enable such customers to purchase inventory from the Company or such Subsidiary; (g) the Company and its Subsidiaries may acquire and hold Cash Equivalents; (h) Investments permitted under Section 6.4; (i) Investments by Anfly, Inc. in a money market account maintained at Wilmington Trust Company or such other financial institution acceptable to the Administrative Agent in an aggregate amount not to exceed $2,500,000 at any one time; provided that the amount in such account may be in an amount up to $13,000,000 for up to one week on up to four separate occasions in each fiscal year; and (j) other Investments by the Company not to exceed $2,500,000 in any fiscal year of the Company. 6.8 Transactions with Affiliates. The Company shall not, and shall not permit any of its Subsidiaries to, enter into any transaction or series of related transactions, whether or not in the ordinary course of business, with any Affiliate, other than on terms and conditions substantially as favorable to the Company or such Subsidiary as would be obtainable at the time in a comparable arm's-length transaction with a Person other than an Affiliate. 6.9 Limitation on Voluntary Payments and Modifications of Certain Documents. The Company shall not, and shall not permit any of its Subsidiaries to, (a) make any voluntary or optional payment or prepayment on or redemption or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto money or securities before due for the purpose of paying when due) or exchange of any Indebtedness other than the Indebtedness hereunder and under the other Loan Documents, (b) amend, modify or supplement, or permit the amendment, modification or supplementation of, any provision of the Receivables Program Documents, the effect of which is to 69 permit the amount outstanding thereunder to exceed $150,000,000 or (c) resign as servicer under the Receivables Program Documents unless such resignation occurs in connection with the assignment of the servicing duties to an Affiliate of the Company. 6.10 Changes in Business. The Company shall not, and shall not permit any of its Subsidiaries to, enter into any business which is substantially different from that conducted by the Company or such Subsidiary, as the case may be, on the Closing Date. 6.11 Certain Restrictions. The Company shall not, and shall not permit any of its Subsidiaries or any Person controlling the Company to, enter into any agreement (other than the Transaction Documents and agreements evidencing Indebtedness outstanding on the Closing Date, in each case as in effect on the Closing Date) which restricts the ability of the Company or any of its Subsidiaries to (a) enter into amendments, modifications or waivers of the Loan Documents, (b) sell, transfer or otherwise dispose of its assets, (c) create, incur, assume or suffer to exist any Lien upon any of its property, (d) create, incur, assume, suffer to exist or otherwise become liable with respect to any Indebtedness, or (e) pay any Dividend, provided that Capital Leases or agreements governing purchase money Indebtedness which contain restrictions of the types referred to in clauses (b) or (c) with respect to the property covered thereby shall be permitted. 6.12 Sales and Leasebacks. The Company shall not, and shall not permit any of its Subsidiaries to, become liable, directly or indirectly, with respect to any lease, whether an operating lease or a Capital Lease, of any property (whether real or personal or mixed) whether now owned or hereafter acquired, (a) which the Company or such Subsidiary has sold or transferred or is to sell or transfer to any other Person, or (b) which the Company or such Subsidiary intends to use for substantially the same purposes as any other property which has been or is to be sold or transferred by the Company or such Subsidiary to any other Person in connection with such Lease; provided that the restrictions of this Section 6.12 shall not apply to any sale and leaseback transaction that the Company may enter into with the City of Philadelphia with respect to the Island Avenue Distribution Facility. 6.13 Plans. The Company shall not, nor shall it permit any member of its ERISA Controlled Group to, take any action which would increase the aggregate present value of the Unfunded Benefit Liabilities under all Plans to an amount in excess of $5,000,000. 70 6.14 Limitation on Dispositions of Subsidiary Stock. The Company shall not, nor shall it permit any of its Subsidiaries to, directly or indirectly sell, assign, pledge or otherwise encumber or dispose of, or in the case of the Company, issue or permit any of its Subsidiaries to issue to any other Person, any shares of capital stock or other equity securities of (or warrants, rights or options to acquire shares or other equity securities of) any of their Subsidiaries except (i) to qualify directors if and to the extent required by applicable law, (ii) to the Company or any other wholly-owned Subsidiary and (iii) sales of equity securities pursuant to the Receivables Program as in effect on the date hereof. 6.15 Fiscal Year; Fiscal Quarter. The Company shall not, and shall not permit any of its Subsidiaries to, change its fiscal year or any of its fiscal quarters. SECTION 7. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) Failure to Make Payments. The Company shall fail to pay any principal of any Note or any Reimbursement Obligation when due in accordance with the terms thereof or hereof; or the Company shall fail to pay any interest on any Note, or any other amount payable hereunder or thereunder (including without limitation any fees), within five (5) days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; or (b) Breach of Representation and Warranty. Any representation or warranty made or deemed made by the Company herein or which is contained in any certificate or financial statement furnished at any time under or in connection with this Agreement shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) Breach of Covenants. (i) The Company shall default in the observance or performance of any agreement contained in Section 5.1(g), 5.5, or Section 6 of this Agreement; or (ii) The Company shall default in the observance or performance of any other agreement contained in this Agreement (other than as provided in paragraphs (a), (b) and (c)(i) of this Section 7), and such default shall continue unremedied for a period of 30 days; or 71 (iii) The Company shall fail to perform or observe any agreement, covenant or obligation arising under any provision of the Loan Documents other than this Agreement, which failure shall continue after the end of the applicable grace period, if any, provided therein; or (d) Default Under Other Agreements. The Company or any Subsidiary thereof shall (i) default in the payment of any principal of or interest on or any other amount payable on any Indebtedness (other than under the Loan Documents) or in the payment of any Contingent Obligation (other than under the Loan Documents), beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness or Contingent Obligation was created and the aggregate amount of such Indebtedness and/or Contingent Obligations in respect of which such default or defaults shall have occurred is at least $5,000,000; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or Contingent Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Contingent Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due and payable prior to its stated maturity or such Contingent Obligation to become payable; or (e) Receivables Program. The occurrence of any Liquidation Event under the Receivables Program Documents that causes the Purchase Termination Date to occur (as such terms are defined in the Receivables Program Documents); or (f) Change of Control. A Change of Control shall have occurred; or (g) Judgments. One or more judgments or decrees in an aggregate amount of $5,000,000 or more shall be entered by a court or courts of competent jurisdiction against the Company and/or its Subsidiaries (other than any judgment as to which, and only to the extent, a reputable insurance company has acknowledged coverage of such claim in writing) and (i) any such judgments or decrees shall not be stayed, discharged, paid, bonded or vacated within 30 days or (ii) enforcement proceedings shall be commenced by any creditor on any such judgments or decrees; or (h) Environmental Matters. (i) Any Environmental Claim shall have been asserted against the Company or any of its 72 Subsidiaries or any Environmental Affiliate thereof which, if determined adversely, could be reasonably expected to have a Material Adverse Effect, or (ii) the Company or any of its Subsidiaries or Environmental Affiliates shall have failed to obtain any Environmental Approval necessary for the management, use, control, ownership, or operation of its business, property or assets or any such Environmental Approval shall be revoked, terminated, or otherwise cease to be in full force and effect, in each case, if the existence of such condition could be reasonably expected to have a Material Adverse Effect; or (i) Bankruptcy, etc. (i) The Company or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Company or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, satisfied, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Company or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they generally become due; or (j) ERISA. (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a 73 trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or institution of proceedings is, in the reasonable opinion of the Required Banks, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, or (v) any other event or condition shall occur or exist in regard to a Plan; and in each case in clauses (i) through (v) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (k) Revolver Clean-Up. Between December 15 of each year and the following May 15 there shall not be a period of at least thirty (30) consecutive days where there shall be no Loans outstanding; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (i) above with respect to the Company, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) and the Notes shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Banks, the Administrative Agent may, or upon the request of the Required Banks, the Administrative Agent shall, by written notice to the Company declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with such consent of the Required Banks, the Administrative Agent may, or upon the request of the Required Banks, the Administrative Agent shall, by written notice of default to the Company, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, the Company shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. The Company hereby grants to the Administrative Agent, for the benefit of each Issuing Bank, the L/C Participants and 74 the Banks, a security interest in such cash collateral to secure all obligations of the Company under this Agreement and the other Loan Documents. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Company hereunder and under the Notes. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Company hereunder and under the Notes shall have been paid in full, the balance, if any, in such cash collateral accounts shall be returned to the Company. The Company shall execute and deliver to the Administrative Agent, for the account of each Issuing Bank and the L/C Participants, such further documents and instruments as the Administrative Agent may request to evidence the creation and perfection of the within security interest in such cash collateral account. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. Upon an Event of Default, each of the Company and its Subsidiaries shall permit any designated representative or representatives of the Administrative Agent, including, but not limited to, environmental consultants or other professionals, upon reasonable notice to Company or its Subsidiaries, to enter any property owned or operated by the Company or its Subsidiaries for the purpose of conducting an environmental investigation of said property. Said investigations may include, but not be limited to, testing the integrity of underground storage tanks; taking soil and groundwater borings and samples; testing for the presence of radon; and collecting samples to test for the presence of asbestos. The Company shall reimburse Administrative Agent for all reasonable costs and expenses incurred in connection with any investigation conducted hereunder. SECTION 8. THE AGENTS 8.1 Appointment. Each Bank hereby irrevocably designates and appoints PNC as the Administrative Agent of such Bank under this Agreement, and each such Bank irrevocably authorizes PNC, as the Administrative Agent for such Bank, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the 75 contrary elsewhere in this Agreement and the other Loan Documents, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein or therein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or the other Loan Documents or otherwise exist against the Administrative Agent. PNC agrees to act as the Administrative Agent on behalf of the Banks to the extent provided in this Agreement and the other Loan Documents. 8.2 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to engage and pay for the advice and services of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible to the Banks for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 8.3 Exculpatory Provisions. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement and the other Loan Documents (except for its or such Person's own gross negligence or willful misconduct) or (b) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by the Company or any officer thereof contained in this Agreement, the other Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or the other Loan Documents or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, the Notes or the other Loan Documents or for any failure of the Company to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or the other Loan Documents, or to inspect the properties, books or records of the Company. 8.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel 76 (including, without limitation, counsel to the Company), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement and the other Loan Documents unless it shall first receive such advice or concurrence of the Required Banks as it deems appropriate or it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement, the Notes and the other Loan Documents in accordance with a request of the Required Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Banks and all future holders of the Notes. 8.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Bank or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Banks. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Banks; provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. 8.6 Non-Reliance on Administrative Agent and Other Banks. Each Bank expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Company, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Bank. Each Bank represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Company 77 and made its own decision to make its Loans hereunder, issue or participate in Letters of Credit hereunder and enter into this Agreement and the other Loan Documents. Each Bank also represents that it will, independently and without reliance upon the Administrative Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Company which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 8.7 Indemnification. The Banks agree to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Company and without limiting the obligation, if any, of the Company to do so), ratably according to their respective Commitment Percentages, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement, the other Loan Documents, or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Bank shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Administrative Agent's gross negligence or willful misconduct. The agreements in this Section 8.7 shall survive the payment of the Notes and all other amounts payable hereunder. 8.8 Administrative Agent in Its Individual Capacity. The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Company as though the Administrative Agent were not the Administrative Agent hereunder. With respect to its Loans made or renewed by it and any Note issued to it and with respect to any Letter of Credit issued or participated in by it, the 78 Administrative Agent shall have the same rights and powers under this Agreement as any Bank and may exercise the same as though it were not the Administrative Agent, and the terms "Bank" and "Banks" shall include the Administrative Agent in its individual capacity. 8.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 30 days' written notice to the Banks and the Company. If the Administrative Agent shall resign as Administrative Agent under this Agreement, then the Required Banks shall appoint from among the Banks a successor agent for the Banks, which appointment shall be subject to the approval of the Company (which approval shall not be unreasonably withheld), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon its appointment, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Section 8.9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 8.10 Beneficiaries. Except as expressly provided herein, the provisions of this Section 8 are solely for the benefit of the Administrative Agent and the Banks, and the Company shall not have any rights to rely on or enforce any of the provisions hereof. In performing its functions and duties under this Agreement the Administrative Agent shall act solely as agent of the Banks and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for the Company. 8.11 Co-Agents. The Co-Agents, in such capacities, shall have no duties or responsibilities under this Agreement or the other Loan Documents, and shall, in such capacities, have no liability to any Bank for any actions taken in connection with the Loan Documents. SECTION 9. MISCELLANEOUS 9.1 Amendments and Waivers. Neither this Agreement, any Note, nor any terms hereof of thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. With the written consent of the Required Banks, the Administrative Agent and the Company may, from time to 79 time, enter into written amendments, supplements or modifications hereto and to the Notes for the purpose of adding any provisions to this Agreement, the Notes or the other Loan Documents or changing in any manner the rights of the Banks or of the Company hereunder or thereunder or waiving, on such terms and conditions as the Administrative Agent may specify in such instrument, any of the requirements of this Agreement, the Notes or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall directly or indirectly (a) reduce the amount or extend the maturity of any Note or any installment thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any fee payable to any Bank hereunder (including the Issuing Banks) or extend the time for payment of the same, or change the amount of any Bank's Commitment, or amend, modify or waive any provision of this Section or reduce the percentage specified in the definition of Required Banks, or consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement, the Notes and the other Loan Documents, in each case without the written consent of all the Banks, or (b) amend, modify or waive any provision of Section 8 without the written consent of the then Administrative Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Banks and shall be binding upon the Company, the Banks, the Administrative Agent, the Co-Agents and all future holders of the Notes. In the case of any waiver, the Company, the Banks and the Agents shall be restored to their former position and rights hereunder and under the outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 9.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy, telegraph or telex), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received during normal business hours, or, in the case of telegraphic notice, when delivered to the telegraph company, or, in the case of telex notice, when sent, answerback received, addressed as follows in the case of the Company and the Administrative Agent, and as set forth in Schedule I in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: 80 The Company: Strawbridge & Clothier 801 Market Street Philadelphia, PA 19107 Attention: Steven L. Strawbridge Telecopy: (215) 629-6833 The Administrative Agent: PNC Bank, National Association Broad and Chestnut Streets Philadelphia, Pennsylvania 19110 Attention: H. Todd Dissinger Telecopy: (215) 585-6037 with a copy to: PNC Bank, National Association Multibank Loan Administration 19th Floor One PNC Plaza Pittsburgh, Pennsylvania 15265 Attention: Arlene Ohler Telecopy: 412-762-8672; provided that any notice, request or demand to or upon the Administrative Agent or the Banks pursuant to Sections 2.2, 2.3, 2.7, 2.18, 2.19 and 2.26 shall not be effective until received. 9.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Bank, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 9.4 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes. 9.5 Payment of Expenses and Taxes. The Company agrees (a) to pay or reimburse the Administrative Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the development, negotiation, preparation, execution, delivery and syndication of, and any actual or proposed amendment, supplement, modification or consent to, this Agreement, the Notes and the other Loan Documents and any other documents executed and delivered in connection herewith or therewith, and the consummation of the transactions contemplated 81 hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent and the fees and expenses for title and lien searches, (b) to pay or reimburse each Bank and the Administrative Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the preservation of rights under, or enforcement of any rights under, this Agreement, the Notes, the other Loan Documents and any other documents entered into in connection herewith or therewith, including, without limitation, reasonable fees and disbursements of counsel to each of the Administrative Agent and the Banks, and (c) to pay, indemnify, and hold each Bank and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any (other than Taxes expressly excluded from the definition of Taxes in Section 2.22 and Taxes for which the Company has no liability under Section 2.22(c)) which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Notes, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Bank and the Administrative Agent harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the Notes, the other Loan Documents and any such other documents (all the foregoing, collectively, the "indemnified liabilities"), provided, that the Company shall have no obligation hereunder to the Administrative Agent or any Bank with respect to indemnified liabilities arising from the gross negligence or willful misconduct of the Administrative Agent or any such Bank. The agreements in this Section shall survive repayment of the Notes and all other amounts payable hereunder. 9.6 Successors and Assigns. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party; and all covenants, promises and agreements by or on behalf of the Company, the Administrative Agent or the Banks that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. The Company may not assign or transfer any of its rights or obligations under this Agreement or the other Loan Documents without the prior written consent of each Bank. (b) Each Bank may, in accordance with applicable law, sell to any Bank or Affiliate thereof and, with the consent of the Company (which consent shall not be unreasonably withheld) 82 and the Administrative Agent, to one or more banks or other financial institutions (each, a "Purchasing Bank") all or any part of its interests, rights and obligations under this Agreement, the Notes and the other Loan Documents (including all or a portion of its Commitment and the Loans at the time owing to it and the Notes held by it); provided, however, that (i) so long as the Commitments are then in effect, such assignment shall be in an amount not less than $5,000,000 (or such lesser amount as the Company and the Administrative Agent shall agree in their sole discretion), (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent and the Company for acceptance and recording by the Administrative Agent in the Register an Assignment and Acceptance, together with the Note or Notes subject to such assignment and a processing and recordation fee of $2,000 and (iii) each such assignment of Committed Loans or all or any portion of a Bank's Commitment shall be of a constant percentage of the assigning Bank's Commitment and Committed Loans then outstanding and (iv) no Competitive Loans may be assigned unless the Commitment shall have expired or been terminated. Upon acceptance and recording pursuant to paragraph (e) of this subsection 9.6, from and after the effective date specified in an Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof, (A) such Purchasing Bank shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Bank under this Agreement and (B) the assigning Bank thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Bank's rights and obligations under this Agreement and the other Loan Documents, such Bank shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.21, 2.22 and 2.23 (to the extent that such Bank's entitlement to such benefits arose out of such Bank's position as a Bank prior to the applicable assignment), as well as to any Facility Fees accrued for its account and not yet paid). Such Assignment and Acceptance shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Bank and the resulting amounts and percentages held by the Banks arising from the purchase by such Purchasing Bank of all or a portion of the rights and obligations of such assigning Bank under this Agreement, the Notes and the other Loan Documents. Notwithstanding any provision of this Section 9.6, the consent of the Company shall not be required for any assignment which occurs at any time when any Default or Event of Default shall have occurred and be continuing. (c) By executing and delivering an Assignment and Acceptance, the assigning Bank thereunder and the Purchasing Bank 83 thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Bank warrants that it is the legal and beneficial owner of the interest being assigned thereby, free and clear of any adverse claim and that its Commitment, and the outstanding balances of its Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the other Loan Documents, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto, or the financial condition of the Company or any Subsidiary thereof or the performance or observance by the Company or any Subsidiary thereof of any of its obligations under this Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (iv) such Purchasing Bank confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements delivered pursuant to Section 5.1 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (v) such Purchasing Bank will independently and without reliance upon the Administrative Agent, such assigning Bank or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (vi) such Purchasing Bank appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; and (vii) such Purchasing Bank agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Bank including, if it is organized under the laws of a jurisdiction outside the United States, its obligation pursuant to Section 2.22 to deliver the forms prescribed by the Internal Revenue Service of the United States certifying as to the Purchasing Bank's exemption from United States withholding taxes with respect to all payments to be made to the Purchasing Bank under this Agreement. (d) The Administrative Agent shall maintain at its offices in Philadelphia or Pittsburgh, Pennsylvania, a copy 84 of each Assignment and Acceptance and the names and addresses of the Banks, and the Commitment of, and principal amount of the Loans owing to, each Bank pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive in the absence of manifest error and the Company, the Administrative Agent and the Banks may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Company and any Bank at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Bank and a Purchasing Bank (and in the case of a Purchasing Bank that is not then a Bank or an Affiliate thereof, by the Company and the Administrative Agent) together with the Note or Notes subject to such assignment and the processing and recordation fee referred to in paragraph (b) above, the Administrative Agent shall promptly (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give notice thereof to the Banks. Within five Business Days after receipt of written notice, the Company, at its own expense, shall execute and deliver to the Administrative Agent, in exchange for the surrender of the original Notes held by the assigning Bank (A) a new Committed Note to the order of such Purchasing Bank in an amount equal to the Commitment assumed, (B) a new Competitive Note to the order of such Purchasing Bank in an amount equal to the Total Commitment then in effect and (C) if the assigning Bank has retained a Commitment, a new Committed Note to the order of such assignor in an amount equal to the Commitment retained by it. Such new Committed Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Committed Note(s); such new Notes shall be dated the date of the surrendered Notes which they replace and shall otherwise be in substantially the form of Exhibits B-1 and B-2, respectively. Canceled Notes shall be promptly returned to the Company. (f) Each Bank may without the consent of the Company or the Administrative Agent (except to the extent provided below) sell participations to one or more banks or other entities (each a "Participant") in any Loan owing to such Bank, any Note held by such Bank, any Commitment of such Bank or any other interest of such Bank hereunder and under the other Loan Documents, provided, however, that (i) such Bank's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Bank shall remain the holder of any such Note for all purposes under this Agreement and the other Loan 85 Documents, (iv) the Company, the Banks and the Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement and the other Loan Documents, (v) in any proceeding under the Bankruptcy Code such Bank shall be, to the extent permitted by law, the sole representative with respect to the obligations held in the name of such Bank, whether for its own account or for the account of any Participant, (vi) such Bank shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of this Agreement or the Note or Notes held by such Bank or any other Loan Document, other than any such amendment, modification or waiver with respect to any Loan or Commitment in which such Participant has an interest and which is described in subsection 9.1(a) hereof. (g) If amounts outstanding under this Agreement and the Notes are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement or any Note, provided that in purchasing such participation such Participant shall be deemed to have agreed to share with the Banks the proceeds thereof as provided in Section 9.8. The Company also agrees that each Participant shall be entitled to the benefits of Sections 2.21, 2.22, 2.23 and 9.5 with respect to its participation in the Commitments and the Loans outstanding from time to time; provided, that no Participant shall be entitled to receive any greater amount pursuant to such Sections than the assigning Bank would have been entitled to receive in respect of the amount of the participation transferred by such assigning Bank to such Participant had no such transfer occurred. (h) If any Participant is organized under the laws of any jurisdiction other than the United States or any state thereof, the assigning Bank, concurrently with the sale of a participating interest to such Participant, shall cause such Participant (i) to represent to the assigning Bank (for the benefit of the assigning Bank, the other Banks, the Administrative Agent and the Company) that under applicable law and treaties no taxes will be required to be withheld by the Administrative Agent, the Company or the assigning Bank with respect to any payments to be made to such Participant in respect of its participation in the Loans and (ii) to agree (for the benefit of the assigning Bank, the other Banks, the Administrative Agent and the Company) that it will deliver the tax forms and other documents required to be delivered pursuant to Section 2.22 and comply from time to time with all applicable 86 U.S. laws and regulations with respect to withholding tax exemptions. (i) Any Bank may at any time assign all or any portion of its rights under this Agreement and the Notes issued to it to a Federal Reserve Bank; provided that no such assignment shall release a Bank from any of its obligations hereunder. 9.7 Confidentiality; Disclosure of Information. Unless otherwise consented to by the Company in writing, each of the Banks and the Administrative Agent agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with its customary procedures for handling confidential information of the same nature and in accordance with safe and sound banking practices, any non-public information supplied to it by the Company pursuant to this Agreement; provided that nothing herein shall limit the disclosure of any such information (a) to the extent required by statute, rule, regulation or judicial process, (b) to counsel for any Bank or the Administrative Agent, (c) to bank examiners, auditors or accountants, (d) to the Administrative Agent or any other Bank, (e) in connection with any litigation to which any one or more of the Banks or the Administrative Agent is a party and (f) to any Participant or Purchasing Bank (or prospective Participant or Purchasing Bank) so long as such Participant or Purchasing Bank (or prospective Participant or Purchasing Bank) agrees in writing to comply with the requirements of this section. 9.8 Adjustments; Set-off. (a) If any Bank (a "benefitted Bank") shall at any time receive any payment of all or part of its Loans or the Reimbursement Obligations owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in subsection 7(i), or otherwise), in a greater proportion than any such payment to or collateral received by any other Bank, if any, in respect of such other Bank's Loans or the Reimbursement Obligations owing to it, or interest thereon, such benefitted Bank shall purchase for cash from the other Banks such portion of each such other Bank's Loan, or shall provide such other Banks with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Bank to share the excess payment or benefits of such collateral or proceeds ratably with each of the Banks; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Bank, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Company agrees that each Bank so purchasing a portion of another 87 Bank's Loan may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Bank were the direct holder of such portion. (b) In addition to any rights and remedies, of the Banks provided by law, upon the occurrence and during the continuance of an Event of Default, each Bank shall have the right, without prior notice to the Company, any such notice being expressly waived by the Company to the extent permitted by applicable law, upon any amount becoming due and payable by the Company hereunder or under the Notes (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Bank to or for the credit or the account of the Company. Each Bank agrees promptly to notify the Company and the Administrative Agent in writing after any such set-off and application made by such Bank, provided that the failure to give such notice shall not affect the validity of such set-off and application. 9.9 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and each of the Banks. 9.10 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.11 Integration. This Agreement represents the agreement of the Company, the Agents and the Banks with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Agents or any Bank relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 9.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT 88 AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF PENNSYLVANIA. 9.13 Submission To Jurisdiction; Waivers. The Company hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement or the Notes, or for recognition and enforcement of any judgement in respect thereof, to the non-exclusive general jurisdiction of the Courts of the Commonwealth of Pennsylvania, the courts of the United States of America for the Eastern District of Pennsylvania, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Company at its address set forth in Section 9.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; and (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. 9.14 Acknowledgements. The Company hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution, delivery of this Agreement, the Notes and the other Loan Documents; (b) neither the Administrative Agent, the Co-Agents nor any Bank has any fiduciary relationship to the Company solely by reason of or arising from this Agreement, and the relationship hereunder between Administrative Agent, the Co-Agents and the Banks, on one hand, and the Company, on the other hand, is solely that of debtor and creditor; and (c) no joint venture exists among the Banks or among the Company and the Banks. 89 9.15 Limitation of Liability. No claim may be made by the Company, any Subsidiary thereof or any other Person against the Administrative Agent, the Co-Agents, any Bank, or the Affiliates, directors, officers, employees, attorneys or agent of any of them for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, the other Loan Documents or any other transactions (including the other Transactions), or any act, omission or event occurring in connection therewith; and each of the Company and its Subsidiaries hereby waives, releases and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 90 9.16 WAIVERS OF JURY TRIAL. THE COMPANY, THE ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES AND FOR ANY MANDATORY COUNTERCLAIM THEREIN. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in Philadelphia, Pennsylvania by their proper and duly authorized officers as of the day and year first above written. STRAWBRIDGE & CLOTHIER By /s/ Steven L. Strawbridge ----------------------------------------- Title: Vice President, Secretary, Treasurer PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent and as a Bank By /s/ H. Todd Dissinger ----------------------------------------- Title: Vice President CORESTATES BANK, N.A., as Co-Agent and as a Bank By /s/ James A. Bennett ----------------------------------------- Title: Senior Vice President FIRST FIDELITY BANK, N.A., as Co-Agent and as a Bank By /s/ Wynelle Farlow ----------------------------------------- Title: Vice President S-1 MELLON BANK, N.A. By /s/ Donald G. Cassidy, Jr. ----------------------------------------- Title: First Vice President S-2 EX-10.7.1 11 EXHIBIT 10-7-1 Exhibit 10.7.1 WAIVER AND FIRST AMENDMENT THIS WAIVER AND FIRST AMENDMENT, dated as of December 20, 1995, is made by and among STRAWBRIDGE & CLOTHIER (the "Company"), the several banks and other financial institutions parties to the Credit Agreement (as hereinafter defined) (the "Banks"), PNC BANK, NATIONAL ASSOCIATION, as administrative agent (in such capacity, the "Administrative Agent"), and CORESTATES BANK, N.A. and FIRST FIDELITY BANK, N.A., as co-agents (each, in such capacity, a "Co-Agent" and together, the "Co-Agents"). BACKGROUND A. Reference is made to the Credit Agreement, dated as of November 21, 1995, among the Company, the Banks, the Administrative Agent and the Co-Agents (the "Credit Agreement"). Capitalized terms used herein and not otherwise defined herein shall have the meanings provided in the Credit Agreement. B. The Company has requested that the Banks waive and amend certain provisions of the Credit Agreement, and the Banks have agreed to waive and amend such provisions on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and for other consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Amendments to Credit Agreement. The Credit Agreement is hereby amended as provided below in this paragraph 1 and all references in the Credit Agreement to "this Agreement" shall be deemed to refer to the Credit Agreement as amended hereby. (a) Amendment to Section 6.1(a) (Leverage Ratio). Section 6.1(a) of the Credit Agreement is hereby amended by deleting such Section in its entirety and inserting in lieu thereof the following: "(a) Leverage Ratio. The Company shall not permit the Leverage Ratio as of any date occurring on and after December 20, 1995, to exceed .50:1.0. (b) Amendment to Section 6.1(d) (Capital Expenditures). Section 6.1(d) of the Credit Agreement is hereby amended by deleting the number "$17,500,000" the one time it appears therein and inserting in lieu thereof the number "$15,000,000". (c) Amendment to Section 6.4 (Restrictions on Fundamental Changes). Section 6.4(b) of the Credit Agreement is hereby amended by deleting the number "$7,500,000" the one time it appears therein and inserting in lieu thereof the following: "(A) for fiscal year 1996, -$0- and (B) for each fiscal year thereafter, $7,500,000". 2. Waiver of Provisions of Section 6.1(b) (Fixed Charge Coverage Ratio). Compliance by the Company with the provisions of Section 6.1(b) of the Credit Agreement is hereby waived for the Company's fourth fiscal quarter of 1995 and the first fiscal quarter of 1996. 3. Representations and Warranties. The Company hereby represents and warrants that: (a) There exists no Default or Event of Default under the Credit Agreement as amended hereby; (b) The representations and warranties made in the Credit Agreement are true and correct in all material respects as of the date hereof, except as set forth in Exhibit A attached hereto; and (c) The execution and delivery of this Waiver and First Amendment by and on behalf of the Company has been duly authorized by all requisite action on behalf of the Company and this Waiver and First Amendment constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 4. Additional Requirements. The effectiveness of this Waiver and First Amendment is subject to the following conditions precedent: (a) The Administrative Agent shall have received counterparts of this Waiver and First Amendment, duly executed by the Company and the Required Banks; 2 (b) The Company shall pay to the Administrative Agent (i) for the ratable benefit of the Banks in accordance with their respective Commitment Percentages, a non-refundable fee in the amount of $187,500 and (ii) for the account of the Administrative Agent, such additional agency fees as the Company and the Administrative Agent shall agree. 5. Limited Effect. Except as expressly amended by this Waiver and First Amendment, the Credit Agreement shall continue to be, and shall remain, unaltered and in full force and effect in accordance with its terms, and any waivers contained herein shall be limited precisely as drafted and shall not constitute a waiver of (a) any other terms or provisions of the Credit Agreement or any other Loan Document, (b) any Default or Event of Default or (c) any other rights or remedies of the Banks. This Waiver and First Amendment shall not be deemed to operate as a future waiver or modification of the provisions of Section 6.1(b), or a waiver or modification of any other term, condition or covenant of the Credit Agreement. 6. Release and Indemnity. Recognizing and in consideration of the Administrative Agent's, the Co-Agents' and the Banks' agreement to the amendments and waivers set forth herein, the Company hereby waives and releases the Administrative Agent, the Co-Agents and the Banks and their officers, attorneys, agents, and employees from any liability, suit, damage, claim, loss or expense of any kind or nature whatsoever and howsoever arising that the Company ever had or now has against any of them arising out of or relating to the Administrative Agent's, the Co-Agents' or the Banks' acts or omissions with respect to this Waiver and First Amendment, the Credit Agreement, the other Loan Documents or any other matters described or referred to herein or therein. The Company further hereby agrees to indemnify and hold the Administrative Agent, the Co-Agents and the Banks and their officers, attorneys, agents and employees harmless from any loss, damage, judgment, liability or expense (including counsel fees) suffered by or rendered against the Administrative Agent, the Co- Agents or the Banks or any of them on account of anything arising out of this Waiver and First Amendment, the Credit Agreement, the other Loan Documents or any other document delivered pursuant thereto up to and including the date hereof, provided, that the Company shall have no obligation hereunder to the Administrative Agent, the Co-Agents or any Bank with respect to indemnified liabilities arising from the gross negligence or willful misconduct of the Administrative Agent, the Co-Agents or any such Bank. 3 7. Miscellaneous. (a) Expenses. The Company agrees to pay all of the Administrative Agent's reasonable out-of-pocket expenses incurred in connection with the preparation of this Waiver and First Amendment including, without limitation, the reasonable fees and expenses of counsel. (b) Governing Law. This Waiver and First Amendment shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. (c) Successor; Assigns. The terms and provisions of this Waiver and First Amendment shall be binding upon and shall inure to the benefit of the Company, the Administrative Agent, the Co-Agents and the Banks and their respective successors and assigns. (d) Counterparts. This Waiver and First Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, and all of which shall constitute one and the same instrument. (e) Headings. The headings of any paragraph of this Waiver and First Amendment are for convenience only and shall not be used to interpret any provision hereof. (f) Modifications. No modification hereof or any agreement referred to herein shall be binding or enforceable unless in writing and signed on behalf of the party against whom enforcement is sought. IN WITNESS WHEREOF, the parties hereto have caused this Waiver and First Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. STRAWBRIDGE & CLOTHIER By: /s/ Steven L. Strawbridge ----------------------------------- Title: Vice President 4 PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent and as a Bank By: /s/ H. Todd Dissinger ----------------------------------- Title: Vice President CORESTATES BANK, N.A., as Co-Agent and as a Bank By: /s/ Carol A. Williams ----------------------------------- Title: Senior Vice President FIRST FIDELITY BANK, N.A., as Co-Agent and as a Bank By: /s/ Wynelle Farlow ----------------------------------- Title: Vice President MELLON BANK, N.A. By: /s/ Laurie G. Dunn ----------------------------------- Title: Vice President 5 Exhibit A Exceptions to Bringdown of Representations and Warranties --------------------------------------------------------- Due to the inclement weather and the continuing sluggish retail environment, the Company has lowered its expectations for operating results in the fourth quarter of fiscal 1995. 6 EX-11 12 EXHIBIT 11 EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS YEAR ENDED ------------------------------------------- February 3, January 28, January 29, 1996 1995 1994 ------------------------------------------- (in thousands, except per share data) PRIMARY Average shares outstanding 10,531 10,411 10,316 Net effect of dilutive stock options -- based on the treasury stock method using average market price 0 15 8 ------------------------------------------- TOTAL 10,531 10,426 10,324 =========================================== Net (loss) earnings ($8,787) $20,032 $17,727 Less: preferred stock dividends 1 8 17 ------------------------------------------- TOTAL ($8,788) $20,024 $17,710 =========================================== Per share amount ($0.83) $1.92 $1.71 =========================================== FULLY DILUTED Average shares outstanding 10,531 10,411 10,316 Net effect of dilutive stock options -- based on the treasury stock method using the year-end market price, if higher than average market price 0 15 9 ------------------------------------------- TOTAL 10,531 10,426 10,325 =========================================== Net (loss) earnings ($8,787) $20,032 $17,727 Less: preferred stock dividends 1 8 17 ------------------------------------------- TOTAL ($8,788) $20,024 $17,710 =========================================== Per share amount ($0.83) $1.92 $1.71 =========================================== (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%. EX-13 13 EXHIBIT 13 Exhibit 13 STRAWBRIDGE & CLOTHIER PORTIONS OF THE 1995 ANNUAL REPORT TO SHAREHOLDERS 1
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) - ------------------------------------------------------------------------------ Year Ended ---------------------------------------- FEBRUARY 3 January 28 January 29 1996 1995 1994 ---------- ---------- ---------- (53 weeks) (52 weeks) (52 weeks) Net sales ........................... $ 980,598 $1,003,524 $ 984,615 Other income, net of other deductions 6,238 3,265 2,412 ---------- ---------- ---------- 986,836 1,006,789 987,027 Deduct: Cost of sales, including occupancy and buying costs ................. 746,473 745,251 733,901 Selling and administrative expenses, net of finance charges ........... 189,207 172,029 171,835 Depreciation ...................... 31,300 29,587 28,829 Interest .......................... 18,964 19,551 20,909 Provision for doubtful accounts ... 14,177 10,281 4,724 ---------- ---------- ---------- 1,000,121 976,699 960,198 ---------- ---------- ---------- (Loss) earnings before income taxes (benefit) ................... (13,285) 30,090 26,829 Income taxes (benefit) .............. (4,498) 10,058 9,102 ---------- ---------- ---------- Net (loss) earnings ................. $ (8,787) $ 20,032 $ 17,727 ========== ========== ========== (Loss) earnings per share ........... $(.83) $1.92 $1.71 ========== ========== ========== Average shares outstanding .......... 10,531,149 10,426,277 10,324,048 See accompanying notes.
2
CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) - ------------------------------------------------------------------------------ FEBRUARY 3 January 28 1996 1995 ---------- ---------- Assets CURRENT ASSETS Cash and equivalents ............................. $ 14,253 $ 1,575 Accounts receivable .............................. 45,058 167,487 Allowance for doubtful accounts ................ (1,940) (5,544) -------- -------- 43,118 161,943 Merchandise inventories .......................... 154,009 143,790 Deferred income taxes ............................ 3,365 3,975 Income taxes recoverable ......................... 5,653 -0- Prepaid expenses and other ....................... 9,534 7,427 -------- -------- TOTAL CURRENT ASSETS ............................. 229,932 318,710 PROPERTY, FIXTURES AND EQUIPMENT -- on the basis of cost Land ............................................. 20,311 20,311 Buildings and improvements ....................... 388,740 352,411 Store fixtures, furniture and equipment .......... 258,093 238,136 Allowance for depreciation (deduction) ........... (342,052) (315,105) -------- -------- 325,092 295,753 Construction in progress ......................... 4,300 12,408 -------- -------- 329,392 308,161 OTHER ASSETS ..................................... 16,490 12,921 -------- -------- $575,814 $639,792 ======== ======== Liabilities and Shareholders' Equity CURRENT LIABILITIES Notes payable to banks ........................... $ -0- $ 6,500 Accounts payable ................................. 63,494 59,500 Accrued expenses ................................. 30,153 24,665 Federal, state and local taxes ................... 3,116 15,357 Dividends payable ................................ -0- 2,798 Long-term debt and capital lease obligations due within one year ............................ 13,637 8,426 -------- -------- TOTAL CURRENT LIABILITIES ........................ 110,400 117,246 LONG-TERM DEBT -- due after one year ............. 129,358 161,442 CAPITAL LEASE OBLIGATIONS -- due after one year .. 35,739 40,848 ACCRUED RETIREMENT COSTS ......................... 48,518 51,105 OTHER LIABILITIES ................................ 6,740 6,799 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 1995 -- 7,473,841 shares, 1994 -- 7,291,482 shares ............................... 7,474 7,291 Series B Common Stock -- par value $1 a share, convertible: authorized -- 20,000,000 shares; issued and outstanding 1995 -- 3,139,699 shares, 1994 -- 3,170,343 shares 3,140 3,170 Capital in addition to par value of shares ....... 170,859 168,222 Retained earnings ................................ 63,586 83,669 -------- -------- TOTAL SHAREHOLDERS' EQUITY ....................... 245,059 262,352 -------- -------- $575,814 $639,792 ======== ======== See accompanying notes.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) - ------------------------------------------------------------------------------ Year Ended ---------------------------------------- FEBRUARY 3 January 28 January 29 1996 1995 1994 ---------- ---------- ---------- (53 weeks) (52 weeks) (52 weeks) CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) earnings .................. $ (8,787) $ 20,032 $ 17,727 Adjustments to reconcile net (loss) earnings to cash flows from operating activities: Depreciation ..................... 31,300 29,587 28,829 Deferred income taxes (benefit)... (407) (5,377) 502 Pension curtailment gain ......... (6,556) -0- -0- Sale of accounts receivable ...... 95,000 50,000 -0- Changes in: Accounts receivable ............ 23,825 (11,510) (21,016) Merchandise inventories ........ (10,219) (658) 1,829 Accounts payable and accrued expenses ..................... 9,482 3,303 (965) Federal, state and local taxes.. (17,895) 4,154 514 Other .......................... 6,090 3,481 4,240 -------- -------- -------- TOTAL ................................ 121,833 93,012 31,660 -------- -------- -------- NET CASH USED FOR INVESTING ACTIVITIES Acquisition of property, fixtures and equipment .......................... (48,692) (37,970) (22,076) Changes in other assets .............. (3,764) (5,917) (879) -------- -------- -------- TOTAL ................................ (52,456) (43,887) (22,955) -------- -------- -------- NET CASH USED FOR FINANCING ACTIVITIES Long-term borrowings.................. -0- 5,000 49,255 Payment of long-term debt and capital lease obligations .................. (37,320) (11,147) (66,718) Change in short-term notes payable ... (6,500) (37,000) 16,000 Proceeds from stock transactions ..... 1,213 1,094 1,226 Cash dividends ....................... (14,092) (8,357) (10,980) -------- -------- -------- TOTAL ................................ (56,699) (50,410) (11,217) -------- -------- -------- CHANGE IN CASH AND EQUIVALENTS ....... 12,678 (1,285) (2,512) Cash and equivalents at beginning of year ............................ 1,575 2,860 5,372 -------- -------- -------- CASH AND EQUIVALENTS AT END OF YEAR .. $ 14,253 $ 1,575 $ 2,860 ======== ======== ======== See accompanying notes.
4
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, 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 Net loss .................. (8,787) (8,787) Cash dividends -- common (per share: $1.10 Series A; $1.00 Series B).......... (11,295) (11,295) Cash dividends -- preferred ................ (1) (1) Exercise of stock options, employee stock purchases, and contribution to Retirement Savings Plan... 153 2,637 2,790 Conversions ............... 30 (30) -0- ------ ------ -------- -------- ---- -------- Balance, February 3, 1996..$7,474 $3,140 $170,859 $ 63,586 $-0- $245,059 ====== ====== ======== ======== ==== ======== See accompanying notes.
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ The Company operates 40 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. See Note 9 -- Subsequent Event. 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. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 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: Store preopening costs are charged to expense in the year incurred and totalled $1,417,000, $28,000 and $0 in 1995, 1994 and 1993, respectively. 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. Advertising Costs: Advertising costs are expensed as incurred and totalled $29,292,000, $28,447,000 and $28,455,000 in 1995, 1994 and 1993, respectively. 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 dilutive common stock equivalents (employee stock options) outstanding during each fiscal year. Accounting Standards Pending Adoption: In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt Statement 121 in the first quarter of fiscal 1996. Due to the extensive number of estimates that must be made to assess the impact of adopting Statement 121, the financial statement impact of adoption has not yet been determined. In October 1995, the FASB issued Statement No. 123, "Accounting for Stock Based Compensation," which is effective for the Company's 1996 fiscal year. Statement 123 provides a choice to follow the accounting provisions of Statement 123 in determining stock based compensation expense or to continue following the provisions of APB 25, "Accounting for Stock Issued to Employees." The Company will continue to follow the accounting provisions of APB 25 in determining compensation expense for its stock option and employee stock purchase plans and will provide the pro forma disclosures as required by Statement 123 beginning in fiscal 1996. Reclassifications: Certain prior-year amounts have been reclassified to conform with the current presentation. 2. INVENTORIES If the first-in, first-out method of determining inventory cost had been used, inventories would have been $33,235,000 and $34,141,000 higher than reported at February 3, 1996 and January 28, 1995, respectively. 3. ACCOUNTS RECEIVABLE The Company entered into an agreement in January 1995 under which it could sell, on a revolving basis, up to $50,000,000 of the Company's private label credit card accounts receivable. In November 1995, the Company entered into an agreement that increased the amount of receivables the Company can sell to $150,000,000. Beginning in November 1996, there is a liquidation period during which the purchaser's interest in principal cash collections will be used to pay down the purchaser's investment. The amount of receivables sold was $145,000,000 at February 3, 1996 and $50,000,000 at January 28, 1995. The Company accounts for these sales under the provisions of FASB Statement No. 77, "Receivables Sold With Recourse." Under the recourse provisions of the agreement, the Company is obligated to cover uncollectible receivables within specified limits. The Company remained contingently liable for approximately $31,990,000 of the sold receivables at February 3, 1996. The 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------ Company established accruals of $7,560,000 at February 3, 1996 and $1,756,000 at January 28, 1995 to reserve for 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):
FEBRUARY 3 January 28 1996 1995 ---------- ---------- 6.625% notes due October 15, 2003 ................ $ 49,645 $ 49,612 Series A Senior Notes, maturing equally from 1996 to 2004 with interest at 9.2% ............. 21,819 24,546 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 2 to 12 years .................... 12,894 14,557 Senior Note, due October 15, 1997 with interest at 7.04% .............................. 25,000 25,000 Notes payable to bank under revolving credit agreement ...................................... -0- 25,000 Senior Notes ..................................... -0- 2,727 -------- -------- $129,358 $161,442 ======== ========
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 February 3, 1996 is $31,093,000. Fixed assets with a net book value of $31,420,000 are mortgaged by certain agreements. The fair value of the Company's long-term debt (including the current portion thereof) is approximately $132,411,000 at February 3, 1996 while the carrying amount is $133,748,000. 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. On November 21, 1995, the Company entered into a revolving credit agreement with a group of banks. Under the terms of the agreement, the Company may borrow up to $100,000,000 through November 20, 1998, subject to a thirty-day annual clean-down provision, at various interest rate options. At February 3, 1996, there were no borrowings outstanding under the agreement. The Company pays a commitment fee equal to .225% per annum on the total commitment. The agreement is also subject to certain restrictions and financial covenants measured on a quarterly basis. The Company is in compliance with such restrictions and covenants as of February 3, 1996. Continued compliance is important in that the Company depends on its credit facility with the bank group, as well as trade credit from vendors and factors, to meet seasonal borrowing needs. The weighted average interest rate on short-term borrowings outstanding at January 28, 1995 was 6.1%. There were no short-term borrowings outstanding at February 3, 1996. 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: 1996 -- $4,390,000; 1997 -- $29,107,000; 1998 -- $4,032,000; 1999 -- $23,959,000; 2000 -- $4,265,000. Interest paid, net of amounts capitalized, was: 1995 -- $19,428,000; 1994 -- $19,833,000; 1993 -- $21,050,000. 5. RETIREMENT BENEFITS Defined Benefit Plans: The Company provides pension benefits under a noncontributory defined benefit pension plan. Effective January 31, 1996, the benefits that were earned by all present participants in the plan were frozen. Employees who did not meet plan eligibility requirements prior to January 31, 1996 are not eligible to participate in the plan. For participants other than officers with at least fifteen years of eligibility service and whose age and service add up to seventy, earnings over the next three years will be used in determining their final benefit. The benefits for all other participants have been determined as of January 31, 1996, based on current years of service and salary levels. As a result of these changes, the Company recorded a one-time, non-cash curtailment gain in fiscal 1995 of $6,556,000, which is included in other income. 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. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------ Net pension cost included the following components (in thousands):
1995 1994 1993 ------- -------- ------- Service cost -- benefits earned during the period .................. $ 2,256 $ 2,739 $ 2,488 Interest cost on projected benefit obligation ......................... 7,224 6,856 6,562 Actual (return) loss on plan assets .. (19,783) 420 (10,164) Net amortization and deferral ........ 13,572 (6,782) 3,601 ------- ------- ------- Net pension cost ..................... $ 3,269 $ 3,233 $ 2,487 ======= ======= =======
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):
1995 1994 ------- ------- Actuarial present value of benefit obligations: Vested ......................................... $75,973 $61,643 ======= ======= Accumulated .................................... $77,668 $63,312 ======= ======= Projected ...................................... $79,003 $73,586 Plan assets at fair value......................... 88,020 74,660 ------- ------- Plan assets in excess of projected benefit obligation ..................................... 9,017 1,074 Items not yet recognized: Net gain ....................................... (8,060) (6,848) Net obligation at transition ................... 12 337 Prior service cost ............................. 77 2,029 ------- ------- Prepaid (accrued) pension cost included in consolidated balance sheets .................... $ 1,046 $(3,408) ======= =======
The following assumptions were used in determining the actuarial present value of the projected benefit obligation:
1995 1994 ------- -------- Weighted average discount rate ................... 7.25% 8.75% Rate of increase in compensation levels .......... 3.0% 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 accrued retirement costs in the accompanying balance sheets. At December 31, 1995, the accumulated benefit obligation for this plan was $10,355,000 and the projected benefit obligation was $10,769,000. 401(k) Plan: The Company has a 401(k) Retirement Savings Plan, under which employees may defer a portion of their compensation. The Plan was amended effective February 1, 1996. Prior to February 1, 1996, 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 were matched by the Company at the rate of $.50 for each $1.00 contributed. Beginning February 1, 1996, the Company will contribute an amount equal to 1.5% of each participant's compensation for each Plan year. In addition, for Plan years beginning on or after July 1, 1996, the Company will match $.25 for each $1.00 of a participant's contribution up to 1.5% of a participant's compensation, and may also make additional discretionary contributions to the Plan. Matching expense was $630,000, $882,000 and $479,000 for 1995, 1994 and 1993, respectively. All Company matching contributions were 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. The following table presents the status of the Plan and the amounts recognized in the Company's consolidated balance sheets (in thousands):
1995 1994 ------- -------- Actuarial present value of accumulated postretirement benefit obligation: Retirees ..................................... $22,065 $23,442 Active plan participants ..................... 4,831 6,927 ------- ------- 26,896 30,369 Unrecognized net actuarial gain................... 16,511 12,577 Unrecognized prior service cost .................. 242 266 ------- ------- Accrued postretirement benefit cost included in consolidated balance sheets ................. $43,649 $43,212 ======= =======
8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------ Postretirement benefit expense included the following components (in thousands):
1995 1994 1993 ------ ------ ------ Service cost ................... $ 398 $ 375 $ 603 Interest cost .................. 2,576 2,310 3,437 Net amortization ............... (887) (736) -0- ------ ------ ------ $2,087 $1,949 $4,040 ====== ====== ======
The following assumptions were used in determining the accumulated postretirement benefit obligation:
1995 1994 ------- ------- Discount rate ................................. 7.5% 8.75%
1995 1994 ------------------- ------------------- CURRENT FUTURE CURRENT FUTURE RETIREES RETIREES RETIREES RETIREES ------------------- ------------------- Health care cost trend rate: Initial rate ................. 9.5% 8.5% 10.0% 9.0% Ultimate rate ................ 5.0% 5.0% 6.0% 6.0% Period to ultimate rate ...... 9 YEARS 7 YEARS 8 years 6 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 February 3, 1996 by $2,205,000 and the aggregate of the service and interest cost components of postretirement benefit expense for 1995 by $234,000. 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 1995, 1994 and 1993, respectively, 76,870, 75,422 and 74,499 shares were issued under the Plan at average prices of $17.00, $17.00 and $19.23. As of February 3, 1996, 326,306 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. During fiscal 1995, 2,044 shares were issued upon exercise of options at an average price of $19.14. No options were exercised during fiscal 1994. During fiscal 1993, 3,154 shares were issued upon exercise of options at an average price of $22.46. Options to purchase 365,134 shares of Series A Common Stock at an average exercise price of $26.79 were outstanding and exercisable at February 3, 1996. As of February 3, 1996, 66,379 shares of Series A Common Stock remain available for grant of options. During 1995, options to purchase 198,086 shares of Series A Common Stock and 145,254 shares of Series B Common Stock expired. 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 2,025,671 remain available for use at February 3, 1996. 7. INCOME TAXES 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):
1995 1994 ------- ------- Deferred tax liabilities: Depreciation ...................... $18,078 $20,456 Other -- net ...................... 3,812 2,898 ------- ------- 21,890 23,354 Deferred tax assets: Retiree health care obligation .... 14,854 15,158 Accruals and reserves ............. 11,863 12,616 ------- ------- 26,717 27,774 ------- ------- Net deferred tax asset ................ $ 4,827 $ 4,420 ======= =======
Other assets include deferred tax assets of $1,462,000 and $445,000 at February 3, 1996 and January 28, 1995, respectively. The components of income tax expense (benefit) are as follows (in thousands):
1995 1994 1993 ------- ------- ------ Current: Federal ....................... $(4,111) $13,886 $8,299 State ......................... 20 1,549 301 ------- ------ ------ (4,091) 15,435 8,600 Deferred: Federal ....................... (116) (3,927) 146 State ......................... (291) (1,450) 356 ------- ------ ------ (407) (5,377) 502 ------- ------ ------ $(4,498) $10,058 $9,102 ======= ====== ======
9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------ A reconciliation of the effective income tax rate with the statutory federal income tax rate is as follows:
1995 1994 1993 ---- ---- ---- Federal tax rate ................. (34.0)% 35.0% 35.0% State taxes, net of federal benefit......................... (1.6) 0.2 1.6 Jobs tax credit .................. (0.8) (1.9) (1.9) Effect of state statutory tax rate change .................... 1.1 -0- -0- Other ............................ 1.4 0.1 (0.8) ---- ---- ---- (33.9)% 33.4% 33.9% ==== ==== ====
Income taxes paid were as follows: 1995 -- $13,309,000; 1994 -- $11,735,000; 1993 -- $8,587,000. 8. COMMITMENTS Leases: Capital lease assets, which are included in property, fixtures and equipment, are as follows (in thousands):
FEBRUARY 3 January 28 1996 1995 ---------- ---------- Land ........................... $ 2,157 $ 2,157 Buildings ...................... 71,410 65,963 Store fixtures and equipment ... 2,807 2,807 -------- -------- 76,374 70,927 Allowance for amortization (deduction) .................. (35,969) (33,857) -------- -------- $ 40,405 $ 37,070 ======== ========
Amortization of capital lease assets is included in depreciation expense. Future minimum rental commitments as of February 3, 1996, for all noncancelable leases are as follows (in thousands):
Capital Operating Fiscal Year Leases Leases* - ----------- -------- --------- 1996 ...................... $ 16,083 $ 6,533 1997 ...................... 5,634 5,529 1998 ...................... 5,514 4,626 1999 ...................... 5,342 4,324 2000 ...................... 5,287 4,184 Thereafter ................ 33,000 36,336 -------- ------- Total minimum rental commitments ............. 70,860 $61,532 ======= Estimated executory costs.. (1,109) Imputed interest .......... (24,765) -------- Present value of net minimum lease payments .. $ 44,986 ======== *These amounts have not been reduced by future noncancelable sublease rentals of $5,222.
During 1995, the Company incurred a capital lease obligation of $5,478,000 in connection with a lease agreement for additional space within an existing distribution facility. 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):
1995 1994 1993 ------ ------- ------ Minimum rentals ...................... $7,318 $ 5,661 $5,861 Contingent rentals, based on sales ... 1,222 1,310 1,288 Sublease rentals ..................... (973) (1,022) (831) ------ ------- ------ $7,567 $ 5,949 $6,318 ====== ======= ======
Other: Estimated cost to complete construction in progress at February 3, 1996 is approximately $1,245,000. In fiscal 1995, the City of Philadelphia advised the Company that it will exercise its eminent domain power to acquire the Company's Department Store Distribution Center by fiscal 1997. The Company anticipates that a gain will be recognized as a result of this sale. It is the Company's intention to replace the Distribution Center by leasing another warehouse facility. The Company is obligated to repurchase from a bank on June 1, 1997 or arrange refinancing of a loan in the amount of $5,760,000 made to the landlord of a distribution facility that is leased by the Company under a capital lease. 9. SUBSEQUENT EVENT On April 4, 1996, the Company announced that its Board of Directors had approved agreements for the sale of the assets of the Company. The transactions will consist of the sale of the department store assets in a tax-free reorganization to The May Department Stores Company ("May") in exchange for May stock and the assumption of certain liabilities; the sale of the Clover stores to Kimco Realty Corporation for cash and the assumption of certain liabilities; and the liquidation of Clover inventory and fixtures. Following these sales, the Company will be liquidated and, after provision for liabilities not assumed by the buyers, the shareholders will receive May stock. Depending on the final amount of liabilities, the Company's management has estimated that shareholders will receive approximately four-tenths of a share of May stock for each share of the Company. The closing price of the May stock on the New York Stock Exchange was $47-7/8 on April 3, 1996. The transactions are subject to shareholder approval and antitrust clearance. The financial statements do not reflect any effects of these transactions. 10 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 February 3, 1996 and January 28, 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three fiscal years in the period ended February 3, 1996. 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 February 3, 1996 and January 28, 1995, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended February 3, 1996, in conformity with generally accepted accounting principles. Philadelphia, Pennsylvania ERNST & YOUNG LLP March 22, 1996, except for Note 9, as to which the date is April 4, 1996 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ OPERATIONS Sales for fiscal 1995, a 53-week year, were $980,598,000, a decrease of 2.3% from sales of $1,003,524,000 in fiscal 1994, a 52-week year. Fiscal 1994 sales had increased 1.9% over fiscal 1993 sales of $984,615,000. Fiscal 1993 was a 52-week year. Comparable store sales for fiscal 1995 decreased 4.7% from fiscal 1994. Several factors combined to produce this disappointing sales result. During the all- important Christmas selling season, there were three snowstorms, and during the Easter selling season, there was a fourteen-day public transit strike in the Company's trading area. The local retailing climate continued to be highly competitive and consumer confidence was low. On April 21, 1995, the Company opened its first home furnishings store in the Concord Mall, on May 8, 1995, the Company opened its new Brandywine Clover store and on August 7, 1995, the Company opened its new Clover store at the Gallery in Philadelphia. The net loss for fiscal 1995 of $8,787,000 compared to net earnings for fiscal 1994 of $20,032,000 and net earnings for fiscal 1993 of $17,727,000. The 1995 result can be attributed to the decreased sales and increased markdowns taken to clear seasonal inventory. Fiscal 1994 earnings increased from fiscal 1993 due 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. Other income and deductions was $6,238,000 in fiscal 1995 compared to $3,265,000 in fiscal 1994 and $2,412,000 in fiscal 1993. Fiscal 1995 included a $6,556,000 gain on the curtailment of the Company's pension plan and $2,920,000 expense incurred in connection with the attempt to acquire six John Wanamaker stores. Cost of sales, including occupancy and buying costs, was 76.1% of sales in fiscal 1995, compared to 74.3% in 1994 and 74.5% in 1993. 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. Occupancy and buying costs increased in 1995 due to the new stores, but had decreased in 1994 and 1993. The impact of the LIFO method of accounting for inventories (benefits of $903,000, $39,000 and $1,239,000 in fiscal 1995, 1994 and 1993, respectively) is reflected in cost of sales. Selling and administrative expenses, net of finance charges, were 19.3% of sales in 1995, compared to 17.1% of sales in 1994 and 17.5% of sales in 1993. The 1995 increase as a percentage of sales reflects the decrease in sales, preopening and operating expenses for three new stores, and a reduction in finance charge income due to the sale of customer accounts receivable as discussed in Note 3 to the financial statements. This reduction of finance charge income is offset by comparable interest expense savings resulting from the use of the proceeds to reduce borrowings. 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. Depreciation expense was 3.2% of sales in 1995 and 2.9% in 1994 and 1993. The increase in 1995 reflects the new stores and the decreased sales. Interest expense was 1.9% of sales in 1995 and 1994 and 2.1% of sales in 1993. The provision for doubtful accounts was 1.4% of sales in 1995 compared to 1.0% in 1994 and .5% in 1993. The results in 1995 and 1994 reflect increases in write-offs and increases in the reserve for doubtful accounts, which resulted from more liberal credit policies instituted in prior fiscal years to stimulate credit sales and remain competitive in the credit market. The effective tax rates were 33.9%, 33.4% and 33.9% for fiscal years 1995, 1994 and 1993, respectively. The 1995 result reflects the expiration of the jobs tax credits, offset by a lower statutory federal rate as a result of reduced pretax earnings. The decrease in the 1994 rate resulted from decreases in statutory state income tax rates. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) - ------------------------------------------------------------------------------ FINANCIAL CONDITION AND LIQUIDITY Cash provided by operating activities for 1995 was $121.8 million compared to $93.0 million in 1994 and $31.7 million in 1993. Results for fiscal 1995 and fiscal 1994 include $95.0 million and $50.0 million, respectively, from the Company's sale of its private label credit card accounts receivable, as discussed in Note 3 to the financial statements. Without the effects of the sale of accounts receivable, the 1995 result decreased due to the reduced earnings. The Company's capital expenditures were $48.7 million, $38.0 million and $22.1 million in fiscal 1995, 1994 and 1993, respectively. Capital expenditures for 1995 included two new Clover stores, the home furnishings store, renovation of the Center Square and Rising Sun Clover stores, the renovation of the Concord department store and other smaller renovation projects. Capital expenditures for 1994 and 1993 were for various renovation projects. Cash used for financing activities was $56.7 million, $50.4 million and $11.2 million in fiscal 1995, 1994 and 1993, respectively. In November 1995, the Company obtained a $150.0 million facility for the sale of the Company's accounts receivable as well as a $100.0 million revolving credit facility with a group of banks, with PNC Bank, National Association, as lead agent. These facilities replaced the Company's existing $50.0 million receivable facility, its existing $25.0 million revolving credit facility and previous confirmed bank credit lines. Due to the timing of the Company's fiscal year end, cash dividends paid reflects five, three and four regular quarterly common stock cash dividend payments in fiscal 1995, 1994 and 1993, respectively. On April 4, 1996, the Company announced that its Board of Directors had approved agreements for the sale of the assets of the Company. The transactions will consist of the sale of the department store assets in a tax-free reorganization to The May Department Stores Company ("May") in exchange for May stock and the assumption of certain liabilities; the sale of the Clover stores to Kimco Realty Corporation for cash and the assumption of certain liabilities; and the liquidation of Clover inventory and fixtures. Following these sales, the Company will be liquidated and, after provision for liabilities not assumed by the buyers, the shareholders will receive May stock. The transactions are subject to shareholder approval and antitrust clearance. Management believes that existing credit facilities will be sufficient to provide necessary financing until the closing of the May and Kimco transactions. - ------------------------------------------------------------------------------ 13 FIVE-YEAR FINANCIAL SUMMARY (amounts in thousands, except per share data)
1995(1) 1994 1993 1992 1991 - ------------------------------------------------------------------------ OPERATING RESULTS Net Sales $980,598 $1,003,524 $984,615 $967,794 $967,786 - ------------------------------------------------------------------------ Cost of Sales 746,473 745,251 733,901 718,582 718,927 - ------------------------------------------------------------------------ Interest Expense 18,964 19,551 20,909 21,446 23,048 - ------------------------------------------------------------------------ Earnings (Loss) Before Income Taxes and Cumulative Effect of Accounting Changes (13,285) 30,090 26,829 27,189 20,714 - ------------------------------------------------------------------------ Income Taxes (Benefit) (4,498) 10,058 9,102 9,169 7,146 - ------------------------------------------------------------------------ Earnings (Loss) Before Cumulative Effect of Accounting Changes (8,787) 20,032 17,727 18,020 13,568 - ------------------------------------------------------------------------ Net Earnings (Loss) (8,787) 20,032 17,727 1,170(3) 13,568 OTHER OPERATING DATA Depreciation $ 31,300 $ 29,587 $ 28,829 $ 28,322 $ 28,710 - ------------------------------------------------------------------------ Rent 7,567 5,949 6,318 7,419 6,320 - ------------------------------------------------------------------------ Taxes Other Than Income Taxes 26,011 25,353 25,050 25,164 25,627 DIVIDENDS Cash Dividends on Common Stock $ 11,295 $ 11,147 $ 10,963 $ 10,502 $ 10,067 - ------------------------------------------------------------------------ Stock Dividends on Common Stock -- -- 3% 3% 3% PER SHARE OF COMMON STOCK(2) Earnings (Loss) Before Cumulative Effect of Accounting Changes $ (.83) $ 1.92 $ 1.71 $ 1.76 $ 1.34 - ------------------------------------------------------------------------ Net Earnings (Loss) (.83) 1.92 1.71 .11(3) 1.34 - ------------------------------------------------------------------------ Cash Dividends on Series A Common Stock 1.10 1.10 1.09 1.07 1.03 - ------------------------------------------------------------------------ Cash Dividends on Series B Common Stock 1.00 1.00 .99 .96 .92 - ------------------------------------------------------------------------ Book Value 23.09 25.08 24.28 23.68 24.66 FINANCIAL DATA Working Capital $119,532 $ 201,464 $209,581 $212,514 $184,641 - ------------------------------------------------------------------------ Property, Fixtures & Equipment -- Net 329,392 308,161 300,368 307,158 312,876 - ------------------------------------------------------------------------ Total Assets 575,814 639,792 663,052 653,939 631,987 - ------------------------------------------------------------------------ Long-Term Debt 129,358 161,442 162,254 171,617 156,237 - ------------------------------------------------------------------------ Capital Lease Obligations 35,739 40,848 43,554 52,030 55,481 - ------------------------------------------------------------------------ Redeemable Preferred Stock -- 116 296 474 655 - ------------------------------------------------------------------------ Shareholders' Equity 245,059 262,352 252,202 242,839 250,548 - ------------------------------------------------------------------------ Number of Common Shares Outstanding 10,614 10,462 10,386 9,957 9,579 - ------------------------------------------------------------------------ Square Feet of Store Space 6,007 5,744 5,744 5,744 5,744
(1) 53-week fiscal year. (2) Weighted average shares outstanding were: 1995 -- 10,531; 1994 -- 10,426; 1993 -- 10,324; 1992 -- 10,216; 1991 -- 10,099. (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. 14 QUARTERLY RESULTS OF OPERATIONS (in thousands, except per share data) - ------------------------------------------------------------------------------ The following is a summary of unaudited quarterly results of operations for the 1995 and 1994 fiscal years. The fourth quarter consisted of fourteen weeks in 1995 and thirteen weeks in 1994.
Net Earnings Net Earnings (Loss) Per Net Sales Gross Profit (Loss) Common Share Fiscal ------------------ ---------------- ----------------- --------------- Quarter 1995 1994 1995 1994 1995 1994 1995 1994 - ------- -------- -------- ------- ------- ------- ------- ------ ------ First ...... $198,625 $208,303 $45,465 $50,233 $(6,064) $ (988) $(0.58) $(0.10) Second ..... 218,551 222,894 47,081 53,377 (9,079) 244 (0.86) 0.02 Third ...... 225,504 226,559 52,271 58,559 (7,232) 526 (0.68) 0.05 Fourth ..... 337,918 345,768 89,308 96,104 13,588(1) 20,250 1.28(1) 1.93
(1) Includes a gain on the curtailment of the pension plan of $4,320, or $.41 per share. 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 2, 1996 was 5,018 for Series A and 222 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 1995 1994 1995 1994 1995 1994 - ------- ------------------ ---------------- ------- ------- ------ ------ First ..... $19.00 $22.75 $20.00 $23.50 $0.275 $0.275 $0.25 $0.25 Second .... 18.50 21.50 19.50 21.75 0.275 0.275 0.25 0.25 Third ..... 14.13 19.75 20.75 23.50 0.275 0.275 0.25 0.25 Fourth .... 18.00 25.25 20.75 23.25 0.275 0.275 0.25 0.25
15 EX-21 14 EXHIBIT 21 EXHIBIT 21 ---------- Subsidiaries of Strawbridge & Clothier -------------------------------------- Jurisdiction Percentage Name of Incorporation Ownership - ---- ---------------- ---------- 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 Construction, Inc. New Jersey 90% Anfly, Inc. Delaware 100% 8th & Filbert Parking, Inc. Pennsylvania 100% S&C, Funding, Inc. Delaware 100% EX-23 15 EXHIBIT 23 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 22, 1996, (except for Note 9, as to which the date is April 4, 1996) included in the 1995 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 22, 1996 (except for Note 9, as to which the date is April 4, 1996), 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 1995 Annual Report (Form 10-K) of Strawbridge & Clothier. ERNST & YOUNG LLP Philadelphia, Pennsylvania May 1, 1996 EX-27 16 ART. 5 FDS FOR ANNUAL REPORT
5 1,000 12-MOS FEB-03-1996 FEB-03-1996 14,253 0 45,058 1,940 154,009 229,932 671,444 342,052 575,814 110,400 165,097 10,614 0 0 234,445 575,814 980,598 986,836 746,473 746,473 220,507 14,177 18,964 (13,285) (4,498) (8,787) 0 0 0 (8,787) (0.83) (0.83)
EX-99 17 EXHIBIT 99 Exhibit 99 Contact: Mr. F.R. Strawbridge, III - 215-629-6456 Mr. P.S. Strawbridge - 215-629-6607 PRESS RELEASE from STRAWBRIDGE & CLOTHIER - For Immediate Release - April 4, 1996 Strawbridge & Clothier announced today that its Board of Directors had approved agreements for the sale of the assets of the Company. The transactions will consist of the sale of the department store assets in a tax free reorganization to The May Department Stores Company in exchange for May stock and the assumption of certain liabilities; the sale of the Clover stores to Kimco Realty Corporation for cash and the assumption of certain liabilities; and the liquidation of the Clover inventory and fixtures. Following these sales the Company will be liquidated and, after provision for liabilities not assumed by the buyers, the shareholders will receive May stock. Depending on the final amount of liabilities, it is presently estimated that shareholders will receive approximately four-tenths of a share of May stock for each share of the Company. The closing price of the May stock on the New York Stock Exchange on April 3, 1996 was $47 7/8. The transactions are subject to shareholder approval and antitrust clearance. It is anticipated that the Annual Shareholders' Meeting will be held in July and, if approved, that a substantial partial distribution of May stock will be made by September. The Board of Directors also declared a cash dividend of $0.275 per share on the Series A Common Stock and $0.25 per share on the Series B Common Stock payable May 1, 1996 to shareholders of record on April 15, 1996. Francis R. Strawbridge, Chairman of the Board and Peter S. Strawbridge, President said: "Although our preferred alternative from the outset has been to 'stay the course' and retain the Company's independence, it has become increasingly apparent that the economic environment made that objective not viable without taking substantial steps to reduce expenses to levels that would change significantly the basic character of the business and reduce customer service for which we have a long-standing national reputation. Consequently, the Board believes that this sale will be in the best interests of our shareholders and associates." The May Department Stores Company, a highly respected national department store group, will retain the "Strawbridge" name and provide opportunities for our associates and shareholders. -----END PRIVACY-ENHANCED MESSAGE-----