SECOND AMENDED AND RESTATED
ACCOUNT PURCHASE AND CREDIT CARD PROGRAM AGREEMENT
by and among
▇▇▇▇▇▇ FURNITURE CORPORATION,
▇▇▇▇▇▇ FURNITURE COMPANY OF THE MIDWEST, INC.,
▇▇▇▇▇▇ FURNITURE COMPANY OF THE PACIFIC, INC.,
▇▇▇▇▇▇ FURNITURE COMPANY OF WASHINGTON, INC.,
▇▇▇▇▇▇ SHOPPING SERVICE, INC.,
▇▇▇▇ ▇. ▇▇▇▇▇ COMPANY
and
GENERAL ELECTRIC CAPITAL CORPORATION
TABLE OF CONTENTS
Page
1. DEFINITIONS................................................................................... 2
2. PURCHASE OF ACCOUNTS.......................................................................... 14
2.1 Exclusivity of Accounts and Indebtedness............................................. 14
2.2 Payment for Indebtedness............................................................. 14
2.3 Fees................................................................................. 14
2.4 RPR Indebtedness..................................................................... 18
2.5 Promotional Service Fees............................................................. 18
3. SERVICING..................................................................................... 20
3.1 GE Capital's Responsibilities........................................................ 20
3.2 GE Capital's Liabilities............................................................. 20
3.3 Finance Charge Rates................................................................. 20
3.4 Records.............................................................................. 20
3.5 Audit................................................................................ 21
4. CONDITIONS PRECEDENT.......................................................................... 21
4.1 Conditions to Each Purchase, Establishment and/or Addition of
Indebtedness......................................................................... 21
5. SECURITY AND OTHER CREDIT TERMS............................................................... 22
5.1 Security Interest.................................................................... 22
5.2 Verification by GE Capital of Accounts............................................... 22
5.3 Receipt of Payments.................................................................. 22
5.4 Insurance............................................................................ 23
5.5 Warranties........................................................................... 23
5.6 Credits and Allowances............................................................... 23
5.7 Notice to GE Capital................................................................. 23
5.8 Further Assurances................................................................... 24
5.9 Attorney-in-Fact..................................................................... 24
5.10 Continued Liabilities................................................................ 24
5.11 GE Capital May Perform............................................................... 25
5.12 Right of Setoff...................................................................... 25
5.13 Payments............................................................................. 25
5.14 Use of Proceeds...................................................................... 25
5.15 Accounting........................................................................... 25
5.16 Access............................................................................... 26
6. LOSS RESERVE ACCOUNT.......................................................................... 26
6.1 Establishment........................................................................ 26
6.2 Credits.............................................................................. 26
6.3 Debits............................................................................... 26
6.4 Termination.......................................................................... 26
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7. REPRESENTATIONS AND WARRANTIES OF PARENT AND
OPERATING SUBSIDIARIES........................................................................ 26
7.1 Corporate Existence: Compliance with Law............................................. 26
7.2 Executive Offices.................................................................... 27
7.3 Corporate Power; Authorization; Enforceable Obligations.............................. 27
7.4 Financials........................................................................... 27
7.5 No Default........................................................................... 28
7.6 No Burdensome Restrictions........................................................... 28
7.7 Taxes................................................................................ 28
7.8 ERISA.................................................................................29
7.9 No Litigation........................................................................ 30
7.10 Brokers.............................................................................. 30
7.11 Compliance with Law.................................................................. 30
7.12 Accounts............................................................................. 31
7.13 Information Correct.................................................................. 31
7.14 Title................................................................................ 31
7.15 Treatment of Washington Residents.................................................... 31
8. REPORTS AND NOTICES........................................................................... 31
9. INDEMNIFICATION............................................................................... 33
9.1 Indemnification by Parent and Operating Subsidiaries................................. 33
9.2 Indemnification by GE Capital........................................................ 33
9.3 Defense of Claims.................................................................... 34
9.4 Payment of Indemnified Amounts....................................................... 34
10. AFFIRMATIVE COVENANTS OF PARENT AND OPERATING
SUBSIDIARIES.................................................................................. 35
10.1 Maintenance of Existence and Conduct of Business..................................... 35
10.2 GE Capital's Instructions............................................................ 35
10.3 Books and Records.................................................................... 35
10.4 Litigation........................................................................... 35
10.5 Compliance with Law.................................................................. 35
10.6 Agreements........................................................................... 35
10.7 Employee Plans....................................................................... 36
10.8 Supplemental Disclosure.............................................................. 36
10.9 Use of Proceeds...................................................................... 36
11. NEGATIVE COVENANTS OF PARENT AND OPERATING
SUBSIDIARIES.................................................................................. 36
11.1 Subsidiaries......................................................................... 36
11.2 Adverse Transactions................................................................. 36
11.3 Liens................................................................................ 37
11.4 Sales of Assets...................................................................... 37
11.5 Cancellation of Indebtedness......................................................... 37
11.6 Events of Default.................................................................... 37
11.7 New Locations........................................................................ 37
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11.8 ERISA................................................................................ 37
12. TERM.......................................................................................... 37
12.1 Termination and Renewal.............................................................. 37
12.2 Survival of Obligations Upon Termination............................................. 37
12.3 Termination Fee...................................................................... 38
12.4 Purchase of Accounts................................................................. 38
12.5 Termination Options.................................................................. 39
12.6 Liquidation of Accounts.............................................................. 39
12.7 Purchase of Accounts in Connection with an Acquisition............................... 39
13. EVENTS OF DEFAULT; RIGHTS AND REMEDIES........................................................ 39
13.1 Events of Default.................................................................... 39
13.2 Remedies............................................................................. 41
13.3 Waivers.............................................................................. 42
14. MISCELLANEOUS................................................................................. 42
14.1 Complete Agreement; Modification of Agreement; Sale of
Interest............................................................................. 42
14.2 Fees and Expenses.................................................................... 43
14.3 Changes in Circumstances............................................................. 43
14.4 No Waiver by GE Capital.............................................................. 44
14.5 Remedies............................................................................. 44
14.6 Waiver of Jury Trial................................................................. 44
14.7 Severability......................................................................... 44
14.8 Parties.............................................................................. 45
14.9 Authorized Signature................................................................. 45
14.10 Governing Law; Consent to Jurisdiction................................................. 45
14.11 Notices................................................................................ 45
14.12 Confidentiality........................................................................ 47
14.13 Value Added Programs................................................................... 47
14.14 Payments............................................................................... 47
14.15 Furnishings Agreement.................................................................. 48
14.16 Survival............................................................................... 48
14.17 Section Titles......................................................................... 48
14.18 Counterparts........................................................................... 48
14.19 Monogram Bank Credit Card Program...................................................... 48
14.20 Reorganized Debtors.................................................................... 48
14.21 Effective Date of Agreement............................................................ 48
14.22 Certain Additional Provisions.......................................................... 48
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EXHIBITS AND SCHEDULES
EXHIBIT A - Form of Approval Order
EXHIBIT B - Form of Certificate
EXHIBIT C - Authorized Signature
SCHEDULE 2.4 - RPR Indebtedness
SCHEDULE 7.2 - Location of Books and Records
SCHEDULE 7.7(a) - Tax Matters
SCHEDULE 7.7(b) - Tax Matters
SCHEDULE 7.8 - ERISA Matters
SCHEDULE 7.9 - Litigation
SCHEDULE 12.7 - Purchase of Accounts in the Event of an
Acquisition
SCHEDULE 14.22 - Provisions Applying During Chapter 11 Cases
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SECOND AMENDED AND RESTATED ACCOUNT
PURCHASE AND CREDIT CARD PROGRAM AGREEMENT
SECOND AMENDED AND RESTATED ACCOUNT PURCHASE AND CREDIT CARD
PROGRAM AGREEMENT (as it may be amended, supplemented or otherwise modified
from time to time, this "Agreement"), dated as of September 5, 1997, by and
among ▇▇▇▇▇▇ FURNITURE CORPORATION, a Florida corporation with its principal
place of business and chief executive offices located at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, its subsidiary operating corporations,
▇▇▇▇▇▇ FURNITURE COMPANY OF THE MIDWEST, INC., a Colorado corporation, ▇▇▇▇▇▇
FURNITURE COMPANY OF THE PACIFIC, INC., a California corporation, ▇▇▇▇▇▇
FURNITURE COMPANY OF WASHINGTON, INC., a Washington corporation, ▇▇▇▇▇▇ SHOPPING
SERVICE, INC., a Florida corporation, and ▇▇▇▇ ▇. ▇▇▇▇▇ COMPANY, an Illinois
corporation, all with their principal places of business and chief executive
offices located at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, and
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation having its
administrative office located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇.
W I T N E S S E T H :
WHEREAS, on September 5, 1997 (the "Petition Date"), Parent
and Operating Subsidiaries (both as hereinafter defined) commenced Chapter 11
Case Nos. ▇▇-▇▇▇▇-▇▇▇▇ (JJF) (the "Chapter 11 Cases") by filing a voluntary
petition for reorganization under the Bankruptcy Code (as hereinafter defined)
with the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"); and
WHEREAS, Parent and Operating Subsidiaries continue to operate
their businesses and manage their properties as debtors and debtors in
possession pursuant to Section 1107(a) and 1108 of the Bankruptcy Code; and
WHEREAS, Parent and each Operating Subsidiary are engaged in
the business of selling Merchandise (as hereinafter defined) and financing the
credit purchase thereof by Account Debtors (as hereinafter defined) through the
creation of Accounts (as hereinafter defined); and
WHEREAS, Parent and Operating Subsidiaries and GE Capital
entered into that certain Account Purchase Agreement dated as of October 31,
1987, and Amended, Restated and Renamed as of May 2, 1994 as the Account
Purchase and Credit Program Agreement as amended from time to time (the "Prior
Agreement"), pursuant to which Parent and Operating Subsidiaries agreed to sell
and GE Capital agreed to purchase certain Accounts, as more particularly
described therein; and
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WHEREAS, GE Capital has agreed, upon the terms and subject to
the conditions hereof, (a) to purchase Accounts and Indebtedness (as hereinafter
defined) from Parent and the Operating Subsidiaries, except that, in the State
of Washington, GE Capital will establish Accounts through Lender Credit Card
Agreements (as hereinafter defined) and add Indebtedness in connection therewith
and (b) to provide certain credit-related services to Parent and the Operating
Subsidiaries, all pursuant to the terms and conditions hereinafter set forth;
and
WHEREAS, to induce GE Capital to make such purchases, offer
Lender Credit Card Agreements and perform such services, all as specified
herein, Parent and the Operating Subsidiaries have made certain undertakings,
covenants, representations, and warranties;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, the parties hereto agree to amend and
restate their agreement to read in its entirety as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the
respective meanings set forth below:
"Account" shall mean any account, account receivable, other
receivable, contract right, chose in action, general intangible, chattel paper,
instrument, document, note, and proceeds thereof, wherever located, whether now
owned or hereafter acquired by GE Capital, Parent or any Operating Subsidiary,
arising out of the sale of Merchandise by Parent or any Operating Subsidiary to
an Account Debtor pursuant to either a Credit Agreement or a Lender Credit Card
Agreement, together with, in either case, (a) all of the instruments and Account
Documentation evidencing the same, the receivables therefrom (I.E.,
Indebtedness), and the proceeds thereof, (b) all rights as to any Merchandise,
goods, or other property which is represented thereby or is security or
collateral therefor, and (c) all guarantees, claims, security interests, or
other security held by or granted to Parent, any Operating Subsidiary or GE
Capital to secure payment by any Person with respect thereto. "Accounts" shall
include Furnishings Accounts, as such term is defined in the Furnishings
Agreement and ▇▇▇▇▇ Accounts. For the puposes of the security interests granted
herein, "Accounts" shall include the Loss Reserve Account.
"Account Debtor" shall mean any Person who is or who may
become obligated pursuant to an Account.
"Account Documentation" shall mean any and all documentation
relating to an Account, including, without limitation, applications for
Accounts, Credit Agreements, Lender Credit Card Agreements, sales orders and
finance copies thereof, delivery receipts, billing statements, checks and stubs,
sales slips, and all correspondence, memoranda, magnetic tapes, disks, or
hardcopy formats, or any
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other computer-readable data transmissions or software related thereto, and all
other written material relating to an Account, and the file or other storage
containers in which such documentation is kept.
"Accrual Amount" shall have the meaning assigned to it in
section 2.3(g).
"Active Account" shall mean, for any Settlement Period, an
Account owned by GE Capital which has a positive or negative balance at any time
during such Settlement Period.
"Affiliate" shall mean, with respect to any Person, (a) each
Person that, directly or indirectly, owns or controls, whether beneficially or
as a trustee, guardian, or other fiduciary, any Stock having 15% or more of the
ordinary voting power in the election of directors of such Person, (b) each
Person that controls, is controlled by, or is under common control with, such
Person or any Affiliate of such Person, and (c) each of such Person's officers,
directors, joint venturers, and partners. For the purpose of this definition,
"control" of a Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract, or otherwise.
"Aggregate Investment" shall mean, at any time during a
Settlement Period, the aggregate of all Indebtedness owned by GE Capital as of
the relevant Billing Date of such Settlement Period.
"Alternate Service Fee" shall have the meaning assigned to it
in Section 2.3(e).
"Applicable Accounts" shall have the meaning assigned to it
in Section 12.4.
"Approval Order" shall mean the order of the Bankruptcy Court
entered in the Chapter 11 Cases upon the Debtors' Emergency Motion for Order
Pursuant to Bankruptcy Code Sections 105, 363 and 365 Authorizing Debtors to
Sell Accounts and Assume Second Amended and Restated Account Purchase and Credit
Card Program Agreement, substantially in the form attached to this Agreement as
Exhibit A, together with all extensions, modifications and amendments thereto.
"Average Net Account Balance" shall mean, on any Settlement
Date, the Aggregate Investment on the relevant Billing Date during the most
recently ended Settlement Period divided by the number of Active Accounts during
such Settlement Period.
"Bad Debt Loss" shall mean the amount of Indebtedness which is
due and uncollected under a Loss Account less any recoveries collected thereon,
such recoveries to be reduced by GE Capital's out-of-pocket expenses (including,
without limitation, collection agency and attorneys' fees) incurred in
collecting such recoveries.
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"Bankruptcy Code" under Title 11 of the United States Code, 11
U.S.C. ss. 101 et seq.
"Bankruptcy Court" shall have the meaning assigned to it in
the first recital.
"Billing Date" shall mean, collectively, those dates during a
Settlement Period as of which Accounts are billed as designated by GE Capital's
▇▇▇▇▇▇ Business Center. All calculations to be performed pursuant to this
Agreement on a "relevant Billing Date" shall be based upon transactions
processed on the various Billing Dates during a Settlement Period.
"Business Day" shall mean any day that is not a Saturday, a
Sunday, or a day on which banks or GE Capital are required or permitted to be
closed in the State of New York.
"Certificate" shall mean a certificate in substantially the
form as Exhibit B annexed hereto.
"Chapter 11 Cases" shall have the meaning assigned to it in
the first recital.
"Charge" shall mean any federal, state, county, city,
municipal, local, foreign, or other governmental (including, without limitation,
PBGC) tax at any time due and payable, levy, assessment, charge, lien, claim, or
encumbrance upon or relating to (a) the Accounts, (b) the Consolidated Group's
employees, payroll, income, or gross receipts, (c) the Consolidated Group's
ownership or use of any of its assets, or (d) any other aspect of the
Consolidated Group's business.
"Closing Date" shall mean October 31, 1987.
"Code" shall mean the Uniform Commercial Code (or similar
personal property security law) of the jurisdiction with respect to which such
term is used, as in effect from time to time.
"Collateral" shall have the meaning assigned to it in Section
5.1.
"Confirmation Order" shall mean the order of the Bankruptcy
Court entered in the Chapter 11 Cases which (i) confirms the Plan of
Reorganization after appropriate notice and hearing and is final and
non-appealable, (ii) finds or otherwise provides that all of the requirements of
Section 1129 of the Bankruptcy Code have been satisfied, and (iii) in the
reasonable judgment of GE Capital, does not adversely affect in any material
manner (a) the validity, enforceability or the continued effect of this
Agreement, the Obligations, the Collateral, the Accounts or the Indebtedness,
(b) the collectibility of the Accounts or the Indebtedness, or (c) any of GE
Capital's rights and remedies under, and the prospective economic benefit to GE
Capital of, this Agreement.
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"Consolidated Group" shall mean and include Parent, each
Operating Subsidiary, each ERISA Affiliate, and each Person that becomes a
Subsidiary of any of the foregoing or whose operations would be required
pursuant to GAAP to be consolidated for financial reporting purposes with any of
such named Persons or such Subsidiaries.
"CPI-U" shall mean the Consumer Price Index for all Urban
Consumers, as published by the United States Department of Labor, or, if such
index shall no longer be published, such similar index as GE Capital may
substitute.
"Credit Agreement" shall mean a revolving credit agreement
between an Account Debtor and Parent or any Operating Subsidiary (including an
agreement between an Account Debtor and Old JMS), including those sold and
assigned by them, pursuant to which an Account Debtor may be permitted to
purchase, from time to time, Merchandise from Parent and/or an Operating
Subsidiary on credit, subject to a finance charge computed from time to time and
includes, without limitation, retail installment credit agreements, revolving
budget agreements, revolving account agreements, and similar agreements.
"Debtors" shall mean the Parent and the Operating Subsidiaries
as debtors and debtors in possession in the Chapter 11 Cases.
"Default" shall mean any event the occurrence of which, with
the passage of time or the giving of notice or both, would, unless cured or
waived, become an Event of Default.
"Eligible Indebtedness" shall mean such Indebtedness as shall
be or shall have been incurred by an Account Debtor as GE Capital, in its sole
discretion, shall deem eligible: (a) for purchase pursuant to Section 2.1(a) in
the case of a Credit Agreement, or (b) for establishment and/or addition
pursuant to Section 2.1(b) in the case of a Lender Credit Card Agreement;
PROVIDED, HOWEVER, that GE Capital shall not materially change its credit
criteria with respect to GE Capital's determination as to the Eligibility of
Indebtedness, except in response to changes in economic conditions or loss
experience; and PROVIDED, FURTHER, that, with respect to all Credit Agreements
pursuant to which Eligible Indebtedness is incurred, they shall be in such form
as GE Capital shall have approved in writing, except that GE Capital's approval
shall be restricted to the form of such Credit Agreements under state and
federal law and shall not in any manner whatsoever relate to the amount or rate
of finance charges or any other financial terms, all of which shall be
established solely by Parent and/or Operating Subsidiaries. GE Capital will not
treat as Eligible Indebtedness: (a) (i) any Indebtedness if any representation
or warranty of Parent or any Operating Subsidiary contained in this Agreement
applicable to Indebtedness has been breached and such breach has a Material
Adverse Effect or (ii) specific Indebtedness if any representation or warranty
of Parent or any Operating Subsidiary contained in this Agreement applicable to
such Indebtedness has been breached; (b) specific Indebtedness if the Account
Debtor with respect to such specific Indebtedness has made a bona fide claim
disputing its liability in any material respect or has made any
5
material bona fide claim with respect to any Indebtedness due from such Account
Debtor; (c) specific Indebtedness if, at the time the Account Documentation
relating to such Indebtedness is forwarded to GE Capital, the Account Debtor has
filed a petition for relief under the Bankruptcy Code, made a general assignment
for the benefit of creditors, had filed against it any petition or other
application for relief under the Bankruptcy Code, failed, suspended business
operations, become insolvent, called a meeting of its creditors for the purpose
of obtaining any financial concession or accommodation, or had or suffered a
receiver or a trustee to be appointed for all or a significant portion of its
assets or affairs; or (d) specific Indebtedness if such Indebtedness is the
subject of any claim or setoff by the Account Debtor. The determination as to
whether any Indebtedness is Eligible Indebtedness shall be made as of the date
GE Capital receives and reviews all information required to evaluate
eligibility.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and any regulations promulgated pursuant
thereto.
"ERISA Affiliate" shall mean all trades or businesses, whether
or not incorporated, within the commonly controlled or affiliated service group
of Parent which, together with Parent, are treated as a single employer under
IRC ss.414(b), (c), or (m) and shall include each Operating Subsidiary.
"ERISA Event" shall mean (a) any Reportable Event other than a
Reportable Event not subject to the provisions for 30-day notice to the PBGC
under regulations issued under ERISA ss. 4043, (b) the withdrawal by Parent or
any ERISA Affiliate from a Plan during a Plan year in which such Person was a
"substantial employer" (as defined in ERISA ss. 4001(a)(2)), (c) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan amendment as a
termination under ERISA ss. 4041, (d) the institution of proceedings by PBGC to
terminate a Plan, or (e) any other event or condition which might reasonably be
expected to constitute grounds for the termination of, or the appointment of a
trustee to administer, any Plan, under ERISA ss. 4042 or the imposition of any
liability under Title IV of ERISA.
"Eurodollar Business Day" shall have the meaning assigned to
it in Section 2.3(e).
"Event of Default" shall have the meaning assigned to it in
Section 13.1.
"Federal Reserve Board" shall mean the Board of Governors of
the Federal Reserve System.
"Financials" shall mean those financial statements referred
to in Section 7.4.
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"Fiscal Year" shall mean the fiscal year of Parent ending on
the 31st day of March in each calendar year or such other date as may be elected
by Parent after notice to GE Capital.
"Furnishings Agreement" shall mean the letter agreement, dated
April 26, 1991, among GE Capital, Parent and the Operating Subsidiaries
regarding the sale of accounts originated by Furnishings 2000, Inc.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
"GE Capital" shall mean General Electric Capital corporation,
a New York corporation having its administrative office at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
"Gross Losses" shall have the meaning assigned to it in the
definition of "YTD Net Losses".
"Guarantee" shall mean, with respect to any Person, any
legally binding obligation of such Person guaranteeing any indebtedness, lease,
dividend, or other legally binding obligation (a "primary obligation") of any
other Person (the "primary obligor") in any manner, including, without
limitation, any obligation or arrangement of such Person (a) to purchase or
repurchase any such primary obligation, (b) to advance, pay, 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 net worth or solvency or any balance sheet condition of the primary
obligor, (c) to purchase property, securities, or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (d) to
indemnify the owner of such primary obligation against loss in respect thereof.
"Indebtedness" shall mean an obligation incurred by an Account
Debtor in respect of an Account, including, without limitation, any charges for
Merchandise and all finance charges, late charges, charges for insurance
financed pursuant to an Account, and similar charges added to an Account, as
such charges are accrued pursuant to GE Capital's accounting practices.
"Indebtedness" shall include Furnishings Indebtedness, as such term is defined
in the Furnishings Agreement, and Old ▇▇▇▇▇ Indebtedness.
"Intercreditor Agreement" shall mean that certain
Intercreditor Agreement, dated as of July 1, 1996 and reaffirmed as of September
5, 1997, by and among GE Capital, the agent under the Tranche A Credit
Agreement, the Tranche B Credit Agreement and the Prepetitition Credit
Agreement, and the Lenders, including all amendments, modifications,
supplements, exhibits and schedules thereto and shall refer to such
Intercreditor Agreement as the same may be in effect at the time such reference
becomes operative.
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"IRC" shall mean the Internal Revenue Code of 1986, as
amended.
"IRS" shall mean the Internal Revenue Service.
"JMS" shall mean ▇▇▇▇ ▇. ▇▇▇▇▇ Company, an Illinois
corporation and doing business as ▇▇▇▇ ▇. ▇▇▇▇▇ Homemakers.
"Lender Credit Card" shall mean a card or device under a
Lender Credit Card Agreement pursuant to which an Account Debtor residing in the
State of Washington is given the privilege of obtaining credit from GE Capital
or a subsequent assignee of the Lender Credit Card Agreement from time to time
through the Account Debtor's incurring of Indebtedness as reflected in a sales
slip memorandum evidencing the purchase or lease of Merchandise to be paid in
accordance with that agreement.
"Lender Credit Card Agreement" shall mean an agreement between
an Account Debtor and GE Capital pursuant to which the Account Debtor receives a
Lender Credit Card from GE Capital.
"Lenders" shall mean, collectively, the lenders under the
Tranche A Credit Agreement and the lenders under the Tranche B Credit Agreement.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, Charge, claim, security
interest (including, without limitation, any interest of a buyer of accounts or
chattel paper which is subject to Article 9 of the Code), easement or
encumbrance, preference, priority, or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
lease or title retention agreement, any financing lease having substantially the
same economic effect and any of the foregoing, and the filing of, or agreement
to file, any financing statement pursuant to the Code).
"Loss Account" shall mean any Account with respect to which
there is no RPR Indebtedness and (a) which the amount of any payment due thereon
in more than 120 days past due, calculated on a contractual basis, (b) as to
which an Account Debtor is deceased or legally dissolved or seeks protection
under the Bankruptcy Code, (c) as to which none of GE Capital, Parent or any
Operating Subsidiary has an accurate current address for the Account Debtor, or
(d) which is reasonably deemed by GE Capital to be uncollectible; PROVIDED,
HOWEVER, that if GE Capital determines that an Account with respect to which
there is no RPR Indebtedness is collectible despite the occurrence of an event
described in sections (a)-(c), such Account shall not be a Loss Account.
"Loss Reserve Account" shall have the meaning assigned to it
in Section 6.1.
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"Loss Reserve Balance" shall mean, at any time, the net amount
of all debits and credits to the Loss Reserve Account, as determined pursuant to
Part 6 hereof.
"Loss Reserve Charge" shall mean a portion of each Service Fee
received by GE Capital which GE Capital, in its discretion, allocates to the
Loss Reserve Account. Generally, the Loss Reserve Charge shall be set at a level
which, over the course of any consecutive twelve-month period, is estimated by
GE Capital to generate an amount equal to the estimated Bad Debt Loss for such
period less 1% of the estimated average Aggregate Investment for such period.
The amount so allocated shall be adjusted by GE Capital annually.
"Loss Supplement Fees" shall have the meaning assigned to it
in Section 2.3(f).
"Material Adverse Effect" shall mean a material adverse effect
on (a) the business, assets, operations, prospects, or financial or other
condition of Parent and the Operating Subsidiaries taken as a whole, (b) the
ability of Parent and the Operating Subsidiaries taken as a whole to pay the
Obligations in accordance with the terms thereof, (c) GE Capital's Lien in and
to the Accounts and the Indebtedness or the priority of such Lien, or (d) the
collectibility, in a timely fashion, of a substantial number of Accounts.
"Maximum Investment" shall mean $900,000,000, or such other
figure to which the parties hereto may mutually agree.
"Merchandise" shall mean those goods and services, including
accessories and delivery services sold in connection therewith, sold at retail
by Parent or any Operating Subsidiary. Merchandise shall include items that are
repossessed and subsequently offered for resale by Parent or any Operating
Subsidiary.
"Multiemployer Plan" shall mean any employee pension benefit
plan, as defined in ERISA ss. 3(2), that is covered by Title IV of ERISA and is
maintained pursuant to a collective bargaining agreement or any other
arrangement pursuant to which more than one employer makes contributions and to
which Parent or any ERISA Affiliate is then making, or accruing an obligation to
make, contributions or to which Parent or any ERISA Affiliate has contributed
within the five immediately preceding Plan years.
"Net Billing Credits" shall mean, for any Settlement Period,
the amount, if any, by which net late charges and net finance charges credited
to Parent and the Operating Subsidiaries for such Settlement Period pursuant to
the first sentence of Section 2.3(c) exceeds the amount, if any, payable to GE
Capital by Parent and the Operating Subsidiaries for such Settlement Period
pursuant to Sections 2.3(a) and (b) or Section 2.3(e), as the case may be.
9
"Net Loss Percentages" shall have the meaning assigned to it
in Section 2.3(f).
"New ▇▇▇▇▇ Indebtedness" shall mean any obligation incurred by
an Account Debtor in respect of a ▇▇▇▇▇ Account after the ▇▇▇▇▇ Closing Date.
"Obligations" shall mean all loans, advances, debts,
liabilities, obligations, covenants, and duties owing by Parent or any Operating
Subsidiary to GE Capital, of any kind or nature, present or future, whether or
not evidenced by any note, agreement, or other instrument, arising pursuant to
this Agreement, whether or not for the payment of money, whether arising by
reason of an extension of credit, loan, Guarantee, opening of a letter of
credit, indemnification, or in any other manner, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising, and however acquired. The term
includes, without limitation, all interest, fees, charges, expenses, attorney's
fees, and any other sum chargeable to Parent or any Operating Subsidiary
pursuant to this Agreement.
"Old JMS" shall mean ▇▇▇▇ ▇. ▇▇▇▇▇ Company, an Illinois
corporation doing business an ▇▇▇▇ ▇. ▇▇▇▇▇ Homemakers prior to the ▇▇▇▇▇
Closing Date.
"Old ▇▇▇▇▇ Indebtedness" shall mean any obligation incurred by
an Account Debtor in respect of a ▇▇▇▇▇ Account prior to the ▇▇▇▇▇ Closing Date.
"Operating Subsidiary" shall mean and shall include any and
all of the following subsidiary operating corporations of Parent: (a) ▇▇▇▇▇▇
Furniture Company of the Midwest, Inc., a Colorado corporation, (b) ▇▇▇▇▇▇
Furniture Company of the Pacific, Inc., a California corporation, (c) ▇▇▇▇▇▇
Furniture Company of Washington, Inc., a Washington corporation, (d) ▇▇▇▇▇▇
Shopping Services, Inc., a Florida corporation, and (e) JMS.
"Option Settlement Period" shall have the meaning assigned to
it in Section 2.3(e).
"Parent" shall mean ▇▇▇▇▇▇ Furniture Corporation, a Florida
corporation with its principal place of business and chief executive office
located at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇.
"Parent Balance Sheet" shall have the meaning assigned to it
in Section 7.4(a).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any Person succeeding to any or all of the functions thereof under ERISA.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution,
10
public benefit corporation, entity, or government (whether federal, state,
county, city, municipal, or otherwise, including, without limitation, any
instrumentality, division, agency, body, or department thereof).
"Petition Date" shall have the meaning assigned to it in the
first recital.
"Plan" shall mean any employee pension benefit plan, as
defined in ERISA ss. 3(2) (other than a Multiemployer Plan), maintained by
Parent or any ERISA Affiliate which Plan is covered by Title IV of ERISA or
subject to the minimum funding standards of IRC ss. 412.
"Plan of Reorganization" shall mean a plan of reorganization
in the Chapter 11 Cases which, in the reasonable judgment of GE Capital, (i)
does not adversely affect in any material manner (a) the validity,
enforceability or the continued effect of this Agreement, the Obligations, the
Collateral, the Accounts or the Indebtedness, (b) the collectibility of the
Accounts or the Indebtedness, or (c) any of GE Capital's rights and remedies
under, and the prospective economic benefit to GE Capital of, this Agreement,
(ii) includes a satisfactory business plan, including without limitation the
projected Aggregate Investment, and (iii) provides for adequate capitalization
and management.
"Postpetition Credit Agreement" means the Postpetition Credit
Agreement dated as of September 5, 1997 among ▇▇▇▇▇▇ Furniture Incorporated and
each of its direct and indirect subsidiaries parties thereto (including Parent
and each of the Operating Subsidiaries), BT Commercial Corporation, in its
capacity as agent, and the lenders parties thereto from time to time, including
all amendments, modifications, supplements, exhibits and schedules thereto and
shall refer to such Postpetition Credit Agreement as the same may be in effect
at the time such reference becomes operative.
"Prior Agreement" shall have the meaning assigned to it in
the fourth recital.
"Prior Indebtedness" shall have the meaning assigned to it
in Section 12.4.
"Prime Rate" shall mean the highest rate most recently
reported in THE WALL STREET JOURNAL as the "Prime Rate" under "Money Rates" or
in such other similar publication as GE Capital may, from time to time, specify,
whether or not banks shall at times lend to borrowers at lower rates of
interest; PROVIDED, HOWEVER, that if, at any time, THE WALL STREET JOURNAL (or
such other similar publication) shall publish more than one rate as the "Prime
Rate," Prime Rate during such period shall mean the average of the prime rates
or other similar rates most recently announced by Citibank, N.A., The Chase
Manhattan Bank, and Bankers Trust Company.
"Promotion" shall have the meaning assigned to it in Section
2.5(a).
11
"Promotional Service Fee" shall have the meaning assigned to
it in Section 2.5(a).
"Purchase Price" shall have the meaning assigned to it in
Section 12.4.
"Reportable Event" shall have the meaning assigned to it in
Section 4043 of ERISA.
"Reorganized Debtors" shall mean the Parent and Operating
Subsidiaries on and after the effective date of a Plan of Reorganization.
"RPR Indebtedness" shall mean any Indebtedness (a) as to which
GE Capital determines, in its reasonable discretion, that the Account Debtor has
made a bona fide claim of (i) a breach of a representation or warranty (either
express or implied) by Parent or an Operating Subsidiary, (ii) a violation of a
local, state, or federal law or regulation by Parent or an Operating Subsidiary,
or (iii) failure by Parent or an Operating Subsidiary to provide Merchandise
required to be provided to an Account Debtor, (b) as to which Parent or an
Operating Subsidiary has accepted a return of Merchandise from an Account Debtor
for a reason other than the failure or anticipated failure of the Account Debtor
to make a payment on the Account or has granted a partial credit with respect to
Merchandise purchased pursuant thereto, (c) with respect to which the Account
Documentation has not been forwarded to GE Capital in accordance with Section
5.8, (d) as to which a representation or warranty of Parent or an Operating
Subsidiary contained herein shall have been breached, or (e) which did not
represent Eligible Indebtedness at the time it was purchased by GE Capital.
"Second Accrual Period" has the meaning assigned to that term
in Section 2.3(g).
"Service Fee" shall have the meaning assigned to it in
Section 2.3(a).
"Settlement Date" shall mean a Business Day no later than the
fifteenth day following the last Billing Date of a Settlement Period.
"Settlement Period" shall mean a calendar month.
"▇▇▇▇▇ Account" shall mean any Account arising pursuant to a
Credit Agreement between an Account Debtor and JMS, whether entered into before
or after the ▇▇▇▇▇ Closing Date, all of which such Accounts shall be deemed
Accounts under this Agreement.
"▇▇▇▇▇ Closing Date" shall mean the date on which ▇▇▇▇▇▇
Merger Corporation merged with and into Old JMS and JMS, and JMS became
obligated to GE Capital as an Operating Subsidiary under the Prior Agreement.
12
"▇▇▇▇▇ Indebtedness" shall mean Old ▇▇▇▇▇ Indebtedness and New
▇▇▇▇▇ Indebtedness.
"Solvent" shall mean, when used with respect to any Person,
that (a) the present fair salable value of such Person's assets is in excess of
the total amount of such Person's liabilities; (b) such Person is able to pay
its debts as they become due; and (c) such Person does not have unreasonably
small capital to carry on its business as theretofore operated and all
businesses in which such Person is out to engage. The phrase "present fair
salable value" of Person's assets is intended to mean that value which can be
obtained if the assets are sold within a reasonable time in arm's-length
transactions in an existing and not theoretical market.
"Stock" shall mean all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
corporation or equivalent entity, whether voting or nonvoting, including,
without limitation, common stock, preferred stock, or any other "equity
security" (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended).
"Subsidiary" shall mean, with respect to any Person, any
corporation of which an aggregate of 50% or more of the outstanding Stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, Stock of any other class of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is, at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person.
"Tax Returns" shall mean, with respect to any Person, any
federal, state, local, or foreign tax returns, reports, and statements required
to be filed with or supplied to any taxing authority by such Person.
"Taxes" shall mean, with respect to any Person, all taxes,
fees, registration fees, revenue permit fees, levies, or other charges or
assessments, including, without limitation, income, gross receipts, excise,
property, sales, transfer, license, payroll, and franchise taxes relating to the
assets or operations of such Person imposed by the United States or any state,
local, or foreign jurisdiction, or any subdivision or agency thereof, and
including any interest, penalty, or addition to tax relating thereto.
"Termination Date" shall mean the last Billing Date of the
Settlement Period during which the financing arrangement contemplated hereby
terminates as provided in Section 12.1.
"Termination Event" shall have the meaning assigned to it in
Section 12.5.
13
"Tranche A Credit Agreement" shall mean that certain Credit
Agreement dated as of July 1, 1996 in the amount of $150,000,000 among Parent,
▇▇▇▇▇▇ Furniture Company of the Midwest, ▇▇▇▇▇▇ Furniture Company of the
Pacific, ▇▇▇▇▇▇ Furniture Company of Washington, JMS, BT Commercial Corporation,
in its capacity agent and lender, and the Lenders, including all amendments,
modifications, supplements, exhibits and schedules thereto and shall refer to
such Tranche A Credit Agreement as the same may be in effect at the time such
reference becomes operative.
"Tranche B Credit Agreement" shall mean that certain Credit
Agreement dated as of July 1, 1996 in the amount of $40,000,000 among Parent,
▇▇▇▇▇▇ Furniture Company of the Midwest, ▇▇▇▇▇▇ Furniture Company of the
Pacific, ▇▇▇▇▇▇ Furniture Company of Washington, JMS, BT Commercial Corporation,
in its capacity agent and lender, and the Lenders, including all amendments,
modifications, supplements, exhibits and schedules thereto and shall refer to
such Tranche B Credit Agreement as the same may be in effect at the time such
reference becomes operative.
"Unfunded Vested Liability" shall mean, with respect to any
Plan at any time, the excess, if any, of (a) the present value of all
nonforfeitable accrued benefits pursuant to such Plan (utilizing the actuarial
assumptions utilized by the PBGC) upon termination of a Plan over (b) the fair
market value of all Plan assets allocable to such benefits.
"YTD Average Net Receivables" shall mean, for any Settlement
Period, the average month end Aggregate Investment for each month for the
calendar year during which such Settlement Period occurs.
"YTD Net Losses" shall mean, for any Settlement Period, the
aggregate Indebtedness written off by GE Capital for the calendar year during
which such Settlement Period occurs ("Gross Losses") less the sum of: (a) the
aggregate uncollected finance charges included in Gross Losses; (b) the
aggregate uncollected late charge included in Gross Losses; and (c) the amount
of recoveries on Indebtedness previously written off received by GE Capital for
the calendar year during which such Settlement Period occurs, such recoveries to
be reduced by GE Capital's out-of-pocket expenses (including, without
limitation, collection agency and attorneys' fees) incurred in collecting such
recoveries.
Any accounting term used herein shall have, unless otherwise
specifically provided herein, the meaning customarily given such term in
accordance with GAAP, and all financial ratios and other computations pursuant
hereto shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP. That certain terms or computations are explicitly modified
by the phrase "in accordance with GAAP" shall in no way be construed to limit
the foregoing. Where defined terms herein are used in computations, such
computations shall be made in accordance with GAAP notwithstanding the broader
definition of such terms herein. All other undefined terms contained herein
shall, unless the context indicates
14
otherwise, have the meanings provided for by the Code in the State of New York
to the extent the same are used or defined therein. The words "herein,"
"hereof," "hereto," "hereunder," and other words of similar import refer to this
Agreement as a whole, including the Exhibits and Schedules hereto, as the same
may from time to time be amended or supplemented, and not to any particular
section, subsection, or clause contained in this Agreement. "Includes" and
"including" are not limiting, and "or" is not exclusive. References to any
particular section, subsection, or clause shall be to sections, subsections, or
clauses in this Agreement unless otherwise indicated.
Wherever from the context it appears appropriate, each term
stated in either the singular or the plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine, or neuter gender shall
include the masculine, the feminine, and the neuter.
2. PURCHASE OF ACCOUNTS
2.1 EXCLUSIVITY OF ACCOUNTS AND INDEBTEDNESS. During the term of this
Agreement:
(a) Other than with respect to persons residing in the State
of Washington, Parent and each Operating Subsidiary agree to offer to sell,
assign, and transfer all Accounts and all Eligible Indebtedness originated from
time to time thereon to GE Capital and GE Capital agrees to purchase and acquire
from Parent and each Operating Subsidiary all Accounts and all Eligible
Indebtedness that are approved by GE Capital as set forth in Section 3.1.
(b) With respect to persons residing in the State of
Washington, Parent and each Operating Subsidiary agree to allow only GE Capital
to establish a credit facility using the names or trademarks under which Parent
and each Operating Subsidiary conduct business and GE Capital agrees it will
provide Lender Credit Card Agreements and establish and/or add Indebtedness
thereunder to the extent approved by GE Capital as set forth in Section 3.1.
(c) Notwithstanding anything otherwise provided herein, GE
Capital shall not be obligated to purchase any Accounts or Indebtedness from
Parent or any Operating Subsidiary or establish and/or add Accounts or
Indebtedness under a Lender Credit Card Agreement at any time during which the
Aggregate Investment exceeds the Maximum Investment.
2.2 PAYMENT FOR INDEBTEDNESS. GE Capital shall pay Parent the face
amount of Indebtedness, exclusive of the state documentary stamp tax, for all
Indebtedness purchased, established and/or added to an Account pursuant to
Section 2.1 hereof. GE Capital shall pay such amount by deposit of funds into an
account with a depository institution specified by Parent to GE Capital from
time to time. Parent shall allocate such amount among itself and the Operating
Subsidiaries in accordance with their interests.
15
2.3 FEES. In consideration of GE Capital's purchase, establishment
and/or addition and servicing of Accounts and Indebtedness, Parent and each
Operating Subsidiary jointly and severally agree to pay GE Capital the following
fees, each of which shall be payable in arrears on the Settlement Date following
the Settlement Period during which it is incurred:
(a) For each Settlement Period, Parent or the applicable
Operating Subsidiary shall be charged a fee (the "Service Fee") of $12.075 (and
after January 31, 1998, $12.475, subject to the reduction on the conditions set
forth in Section 2.3(g)) for each Account that is an Active Account during such
Settlement Period, subject to Section 2.3(g) and subject to the following
adjustments: (i) on each Settlement Date, the Service Fee shall be increased or
decreased, respectively, by adding thereto or subtracting therefrom an amount
equal to 1.38 cents ($0.0138) for each dollar by which the Average Net Account
Balance on the relevant Billing Date during the immediately preceding Settlement
Period exceeds or is less than $650; (ii) on each Settlement Date immediately
following each annual anniversary of the Closing Date, the Service Fee shall be
increased or decreased by a percentage equal to 23% of the percentage increase
or decrease, respectively, in the CPI-U above or below the level of such index
in effect on the immediately preceding anniversary of the Closing Date;
PROVIDED, HOWEVER, that such increase or decrease shall not be imposed with
respect to that portion of any increase or decrease in the CPI-U that is 10% or
less since the immediately preceding anniversary of the Closing Date; (iii) on
each Settlement Date that the United States First Class Postage Rate exceeds the
United States First Class Postage Rate in effect on the Closing Date, the
Service Fee shall be increased by an amount equal to the sum of the amount of
such excess and one-half of one cent ($0.005). Upon receipt of each Service Fee,
GE Capital shall allocate a portion of such Service Fee to a Loss Reserve Charge
and allocate the amount of such Loss Reserve Charge to the Loss Reserve Account.
The Service Fee shall be payable on each Settlement Date.
(b) For each Settlement Period, Parent or the applicable
Operating Subsidiary shall pay to GE Capital an amount equal to (i) the excess,
if any, of the Prime Rate in effect on the last Business Day of such Settlement
Period over 12% MULTIPLIED BY (ii) 75% MULTIPLIED BY (iii) the balance of the
Aggregate Investment as of the relevant Billing Date during such Settlement
Period MULTIPLIED BY (iv) the number of days during such Settlement Period
DIVIDED BY (v) 365. For each Settlement Period, GE Capital shall pay to Parent
or the applicable Operating Subsidiary an amount equal to (i) the amount, if
any, by which the Prime Rate in effect on the last Business Day of such
Settlement Period is less than 12% MULTIPLIED BY (ii) 75% MULTIPLIED BY (iii)
the Aggregate Investment as of the relevant Billing Date during such Settlement
Period MULTIPLIED BY (iv) the number of days during such Settlement Period
DIVIDED BY (v) 365; PROVIDED, HOWEVER, that there shall be no such payment to
the extent that the Prime Rate is less than 7%.
(c) On each Settlement Date, GE Capital shall credit to Parent
or the applicable Operating Subsidiary the amount of all net late charges and
all net finance charges accrued with respect to all Indebtedness serviced by GE
Capital
16
during such Settlement Period, in accordance with GE Capital's accounting
practices as in effect from time to time; PROVIDED THAT, subject to the
requirements of Section 2.5, on each Settlement Date, Parent and Operating
Subsidiaries shall pay to GE Capital (or, at GE Capital's election, GE Capital
may reduce from the applicable settlement payment) an amount equal to all
finance charges previously paid or credited to Parent and Operating Subsidiaries
pursuant to this Section 2.3(c) and which have been reversed. The amounts so
credited shall be deducted from the fees due to GE Capital for such Settlement
Period pursuant to this Section 2.3; to the extent such finance charges exceed
such fees, such excess shall be paid by GE Capital as Parent or the applicable
Operating Subsidiary shall direct.
(d) The fees charged pursuant to this Section 2.3 shall be
payable on each Settlement Date or, at GE Capital's option, be deducted from
amounts payable by GE Capital pursuant to Section 2.2. The fees charged pursuant
to this Section 2.3 shall be calculated and charged by GE Capital during each
Settlement Period based upon transactions processed as of various Billing Dates
during such Settlement Period.
(e) Notwithstanding subsections (a) and (b) of this Section
2.3, Parent may, on behalf of itself and each Operating Subsidiary, not more
than ten days prior to the end of any calendar quarter, notify GE Capital that
it is exercising its option to adopt the pricing set forth in this Section
2.3(e) for each Settlement Period ending during the following calendar quarter
(each an "Option Settlement Period") in lieu of the pricing set forth in
subsections (a) and (b) above. For each Option Settlement Period, the following
pricing shall be in effect: For each Option Settlement Period, Parent and each
Operating Subsidiary shall jointly and severally be charged a fee (the
"Alternate Service Fee") of $6.800 for each Account that is an Active Account
during such Option Settlement Period, subject to the following adjustments: (i)
on each Settlement Date, the Alternate Service Fee shall be increased or
decreased, respectively, by adding thereto or subtracting therefrom an amount
equal to 0.63 cents ($0.0063) for each dollar by which the Average Net Account
Balance on the relevant Billing Date during the immediately preceding Settlement
Period exceeds or is less than $650; (ii) on each Settlement Date immediately
following each annual anniversary of the Closing Date, the Alternate Service Fee
shall be increased or decreased by a percentage equal to 23% of the percentage
increase or decrease, respectively, in the CPI-U above or below, the level of
such index in effect on the immediately preceding anniversary of the Closing
Date; PROVIDED, HOWEVER, that such increase or decrease shall not be imposed
with respect to that portion of any increase or decrease in the CPI-U that is
10% or less since the immediately preceding anniversary of the Closing Date;
(iii) on each Settlement Date that the United States First Class Postage Rate
exceeds the United States First Class Postage Rate in effect on the Closing
Date, the Alternate Service Fee shall be increased by an amount equal to the sum
of the amount of such excess and one-half of one cent ($0.005). Upon receipt of
each Alternate Service Fee, GE Capital shall allocate a portion of such
Alternate Service Fee to a Loss Reserve Charge and allocate the amount of such
Loss Reserve Charge to the Loss Reserve Account. The Alternate Service Fee shall
be payable on each Settlement Date. For each Option Settlement Period, Parent
and
17
each Operating Subsidiary shall jointly and severally be liable to GE Capital in
an amount equal to (i) the LIBOR Rate (as hereinafter defined) in effect on the
last Eurodollar Business Day (as hereinafter defined) preceding the calendar
quarter for which the option set forth in this subsection (e) is in effect
MULTIPLIED BY (ii) 88% MULTIPLIED BY (iii) the balance of the Aggregate
Investment as of the relevant Billing Date during such Option Settlement Period
MULTIPLIED BY (iv) the number of days during such Option Settlement Period
DIVIDED BY (v) 365. For purposes of this Section 2.3, "LIBOR Rate", for any
Eurodollar Business Day, shall mean the average of the four rates, reported from
time to time by Telerate News Service (or such other number or rates as such
service may from time to time report), at which foreign branches of major United
States banks offer United States dollar deposits to other banks for a 90-day
period in the London interbank market at approximately 11:00 a.m., London time,
on such Eurodollar Business Day. If such interest rates shall cease to be
available from Telerate News Service, the LIBOR Rate shall be determined from
such financial reporting service or other information as shall be mutually
acceptable to GE Capital and Parent. For purposes of this Section 2.3,
"Eurodollar Business Day" shall mean a Business Day on which banks in the city
of London are generally open for interbank or foreign exchange transactions.
Notwithstanding the above, the amount payable to GE Capital under this
subsection (e) for any Option Settlement Period shall not exceed or be less than
the fees that would have been payable to GE Capital pursuant to subsections (a)
and (b) above for such Settlement Period by more than $100,000.
(f) For each Settlement Period, Parent and each of the
Operating Subsidiaries shall be jointly and severally obligated to pay to GE
Capital a fee (the "Loss Supplement Fee") of $125,000, subject to the following
adjustments: (i) for each Settlement Period, the Loss Supplement Fee shall be
increased or decreased, as the case may be, by $2,000 for each one hundredth of
one percent (0.01%) by which the Net Loss Percentage (as defined below) for such
Settlement Period exceeds or is less than 7.85%, as the case may be, PROVIDED,
that no such adjustment for any Settlement Period shall increase or decrease the
Loss Supplement Fee by more than $125,000; and (ii) the Loss Supplement Fee
shall not be payable for any Settlement Period for which the Net Billing Credit
(less net amounts advanced by Parent and Operating Subsidiaries during the
Settlement Period pursuant to Section 2.5) is less than $300,000. For purposes
of this Section 2.3(f), "Net Loss Percentage" shall mean, for any Settlement
Period, YTD Net Losses for such Settlement Period divided by YTD Average Net
Receivables for such Settlement Period, MULTIPLIED BY a fraction the numerator
of which is 12 and the denominator of which is the number of months which have
elapsed in the calendar year in which such Settlement Period occurs up to and
including such calendar month. The Loss Supplement Fee shall be payable on each
Settlement Date.
(g) A portion of the Service Fee for each Account that is an
Active Account shall come due but not be payable, and shall accrue (the "Accrual
Amount"), from the date of this Agreement through and including February 28,
1998. From the date of this Agreement through and including January 31, 1998,
the Accrual Amount for each such Account shall be $0.40. From February 1, 1998
through and including
18
February 28, 1998 (the "Second Accrual Period"), the Accrual Amount shall be
$0.80. On March 1, 1998, the aggregate of the Accrual Amounts for all such
Accounts shall be amortized in equal installments and paid by Parent or the
applicable Operating Subsidiary over the immediately following six Settlement
Periods; PROVIDED, that if Parent, Operating Subsidiaries and GE Capital shall
have agreed upon the substantive terms and conditions of a credit card program
agreement with Monogram Credit Card Bank of Georgia as referred to in Section
14.19 by March 1, 1998, subject only to GE Capital internal approval, the
Accrual Amount for the Second Accrual Period shall be $0.40 and the Service Fee,
prior to any other adjustments set forth in Section 2.3(a) shall be $12.075. All
amounts under this Section 2.3(g) shall become due and payable upon a
termination of this Agreement, including a termination in connection with an
acquisition of the type referred to in Section 12.7.
2.4 RPR INDEBTEDNESS. When GE Capital determines that any Indebtedness
is RPR Indebtedness, Parent or the applicable Operating Subsidiary shall
purchase such RPR Indebtedness from GE Capital for the amount then outstanding
pursuant to such RPR Indebtedness. The purchase price for such RPR Indebtedness
shall be forwarded by Parent or such Operating Subsidiary to GE Capital within
ten days following receipt of notice that such amount is due. The procedure for
handling and processing RPR Indebtedness shall be governed by Schedule 2.4
annexed hereto, as such Schedule may be amended by Parent upon 30 days' notice
to, and with the reasonable consent of, GE Capital. Upon such purchase, GE
Capital shall assign Parent or the applicable Operating Subsidiary all of its
right, title, and interest in and to such RPR Indebtedness, free and clear of
any and all Liens created or granted by GE Capital, subject to the Lien reserved
by GE Capital pursuant to Section 5.1(b). Parent and each Operating Subsidiary
hereby agree that they shall be jointly and severally liable for the purchase
price of all RPR Indebtedness hereunder.
2.5 PROMOTIONAL SERVICE FEES.
(a) In connection with any credit promotion from and after
July 11, 1997 pursuant to which finance charges may be subject to future
reversals based on cardholder payments or other actions (a "Promotion"), GE
Capital shall be entitled to a service fee (the "Promotional Service Fee") for
all Indebtedness it purchases pursuant to this Agreement that is subject to the
terms of the Promotion. This Promotional Service Fee shall be paid to GE Capital
by reducing the purchase price paid to Parent for all Indebtedness subject to
the terms of the Promotion by an amount determined as follows:
Length of Promotional Term Promotional Service Fee
13 months 14.40%
12 months 12.60%
11 months 11.50%
10 months 10.40%
9 months 9.30%
8 months 8.10%
19
7 months 5.80%
6 months 3.50%
5 months 3.50%
4 months .80%
3 months .80%
2 months .80%
1 month 0%
(b) This Promotional Service Fee shall be solely for the
account of GE Capital, shall not be required to be held in reserve by GE Capital
for the benefit of Parent, any Operating Subsidiary, any of their Affiliates or
any other party, and shall not be deemed a payment or prepayment by Parent,
Operating Subsidiary or any of their Affiliates of any amounts such parties owe
or may owe to GE Capital.
(c) Following the end of each quarter commencing with the
quarter ending August 31, 1997, GE Capital will project the aggregate dollar
amount of future finance charge reversals on Accounts. On a cumulative basis, if
(x) the Promotional Service Fees collected less finance charge reversals are
less than (y) the projected finance charge reversals, the "short-fall" amount
shall be paid by Parent and Operating Subsidiaries on the next Settlement Date
(or at GE Capital's election, GE Capital may reduce the applicable settlement
payment). On a cumulative basis, if (x) the Promotional Service Fees collected
less finance charge reversals are greater than (y) the projected finance charge
reversals, the excess amount shall be paid by GE Capital to Parent and Operating
Subsidiaries on the next Settlement Date.
(d) The Promotional Service Fee shall be a charge to Parent in
addition to any other fees, charges or amounts otherwise owed or payable to GE
Capital pursuant to this Agreement.
(e) Notwithstanding the foregoing, if GE Capital reasonably
believes that the terms of a Promotion require a different Promotional Service
Fee schedule, GE Capital shall so notify Parent and such schedule shall be
applicable to such Promotion.
3. SERVICING
3.1 GE CAPITAL'S RESPONSIBILITIES. In connection with its purchase,
establishment and/or addition and continued ownership of Accounts and
Indebtedness, GE Capital shall provide Parent and Operating Subsidiaries with
customized credit services, including, without limitation, the following: (a)
supplying Parent and each Operating Subsidiary with credit applications, Credit
Agreements and Lender Credit Card Agreements for use in the State of Washington
and reviewing all applications for credit by or on behalf of prospective Account
Debtors; (b) in its sole discretion, determining the creditworthiness of such
prospective Account Debtors and approving those applicants deemed creditworthy
pursuant to standards solely within the discretion of GE Capital; (c) in its
sole discretion, establishing and revising credit limits for particular Account
Debtors; (d) providing access to GE Capital's
20
authorization system for the approval of Accounts and Indebtedness and making
determinations with regard to whether particular credit extensions would
constitute Eligible Indebtedness, including the "Instant Credit" program; (e)
issuing customized credit cards to Account Debtors; (f) preparing and mailing
periodic billing statements to Account Debtors; (g) responding to billing
inquiries from Account Debtors; and (h) collecting delinquent Indebtedness from
Account Debtors.
3.2 GE CAPITAL'S LIABILITIES. Except as specifically provided herein,
the rejection for credit of any applicant, or any number of applicants, shall
not give rise to any claim, liability, demand, offset, defense, or counterclaim
by Parent or any Operating Subsidiary against GE Capital. GE Capital may furnish
credit and other information concerning any Account Debtor or prospective
Account Debtor to any credit bureau, credit interchange, or any other Person to
whom such information may lawfully be sent for its own use, sale, or such
purpose as it may deem appropriate or necessary.
3.3 FINANCE CHARGE RATES.
(a) Parent and Operating Subsidiaries shall bear the sole
responsibility for determining the rates for finance charges and other terms on
Accounts and Indebtedness arising from Credit Agreements and for informing GE
Capital to notify Account Debtors of changes, if any, in such rates and terms;
GE Capital shall have no rights or responsibilities whatsoever with respect to
such matters.
(b) Parent and Operating Subsidiaries shall give GE Capital
written notice of any revisions to the finance charge rates and other terms it
is imposing on Account Debtors at least 60 days prior to the date that notices
of such changes in terms are required to be mailed to Account Debtors.
(c) GE Capital shall, upon the request of Parent or any
Operating Subsidiary, advise Parent and Operating Subsidiaries of the maximum
permissible rates of finance charges and other terms that may be imposed on
Account Debtors in various jurisdictions and of the legal requirements for
lawfully revising such rates and terms.
3.4 RECORDS. Parent and each Operating Subsidiary agree that, as part
of GE Capital's servicing activities, GE Capital may store Account Documentation
forwarded to GE Capital on microfilm or other media and that GE Capital may, in
the normal course of its business, destroy Account Documentation in the form
forwarded to GE Capital once such Account Documentation has been microfilmed or
otherwise recorded.
3.5 AUDIT. Subject to Section 14.12, Parent, by its officers, employees
or other professionals who agree to be bound by the provisions of Section 14.12,
shall have the right, at its own expense, to conduct reasonable audits of GE
Capital's calculation of the fees and charges payable by Parent and the
Operating Subsidiaries hereunder, such audit to be conducted in a manner which
will minimize interference
21
with GE Capital's normal business operations; PROVIDED, HOWEVER, that GE Capital
shall in no event be required to disclose to Parent or any of its
representatives any information regarding customers of GE Capital other than
Parent and the Operating Subsidiaries.
4. CONDITIONS PRECEDENT
4.1 CONDITIONS TO EACH PURCHASE, ESTABLISHMENT AND/OR ADDITION OF
INDEBTEDNESS. Notwithstanding anything to the contrary herein, GE Capital shall
not be obligated to purchase Accounts or to establish new or additional
Indebtedness unless the following are true and correct in all respects:
(a) The Bankruptcy Court shall have entered the Approval
Order, and if an appeal has been filed, no stay of such Approval Order pending
appeal has been granted.
(b) The Bankruptcy Court shall have entered an interim order,
or if there is no interim order or the interim order is no longer effective, a
final order, with respect to the Postpetition Credit Agreement or any other
debtor in possession financing credit agreement in form and substance reasonably
satisfactory to GE Capital in all material respects, and if an appeal has been
filed, no stay of such interim or final order, as the case may be, has been
granted.
(c) All of the representations and warranties contained herein
shall be true and correct in all material respects on and as of such date as
though made on and as of such date.
(d) No event shall have occurred and be continuing, or would
result from the purchase, establishment and/or addition of such Indebtedness,
that constitutes a Default or an Event of Default.
(e) No Liens shall have been filed or recorded or otherwise
exist against any of the Accounts or Indebtedness other than the Liens arising
pursuant to this Agreement and neither Parent nor any Operating Subsidiary has
any notice of an intention by any potential lienor to file or record any such
Liens against any of the Accounts or Indebtedness.
The acceptance by Parent and each Operating Subsidiary of the
proceeds of each purchase of Indebtedness shall be deemed to constitute a
representation and warranty by Parent and each Operating Subsidiary that the
conditions in this Section 4.1 have been satisfied.
22
5. SECURITY AND OTHER CREDIT TERMS
5.1 SECURITY INTEREST.
(a) The parties hereto (i) intend that the transactions
contemplated by Section 2.1(a) shall be treated as a purchase and sale of
Accounts and Indebtedness for all purposes and that the transactions
contemplated by Section 2.1(b) shall be treated as a program for the extension
of credit by GE Capital to Account Debtors who wish to obtain financing from GE
Capital to purchase Merchandise, not as lending transactions and (ii) shall file
and/or have filed UCC-1 or comparable statements in order to perfect the
interests created thereby. To secure payment of all Obligations and, against the
possibility that those transactions contemplated hereby as a purchase and sale
of Accounts and Indebtedness or as extensions of credit to Account Debtors are
not so considered despite the intentions of the parties, Parent and each
Operating Subsidiary hereby grant, to the extent of their interests therein, to
GE Capital a continuing first priority Lien in and to all Accounts and
Indebtedness sold, assigned or otherwise transferred to GE Capital, established
and/or added by GE Capital, or as to which GE Capital has otherwise provided
consideration under this Agreement, including, without limitation, a first
priority Lien, to the extent of Parent's or its Operating Subsidiary's interest
therein, in and to all Merchandise purchased by Account Debtors pursuant to such
Accounts. Such Lien is in addition to the Liens specified in Sections 5.1(b),
5.4 and 6.1. All such property shall be collectively referred to as the
"Collateral".
(b) In addition to the Lien granted pursuant to Section
5.1(a), to secure payment of all Obligations, Parent and each Operating
Subsidiary hereby ▇▇▇▇▇ ▇▇ Capital a continuing first priority Lien in and to
(a) all Accounts and Indebtedness at anytime owned by any such Person, including
without limitation, Accounts and Indebtedness purchased by Parent or an
Operating Subsidiary pursuant to Section 2.4 and (b) all Accounts and
Indebtedness established and/or added by GE Capital that are purchased by Parent
or an Operating Subsidiary pursuant to Section 2.4.
5.2 VERIFICATION BY GE CAPITAL OF ACCOUNTS. Any of GE Capital's
officers, employees, or agents shall have the right, at any time hereafter, in
GE Capital's name or in the name of a nominee of GE Capital, to verify the
validity or amount of any Account or any other matter relating to any Account or
Indebtedness by mail, telephone, telegraph, or otherwise.
5.3 RECEIPT OF PAYMENTS. The primary and exclusive right to effect
collection of Indebtedness owned by GE Capital shall be vested in GE Capital and
GE Capital may, at any time, in its sole discretion, notify Account Debtors to
make payments directly to it in accordance with its instructions. GE Capital's
collection procedures shall be consistent with the collection procedures it
generally utilizes in connection with consumer receivables. Checks, money
orders, or other forms of payment received by Parent or any Operating Subsidiary
from Account Debtors in respect of Indebtedness shall be held in trust for the
benefit of GE Capital and shall be forwarded to GE Capital within one Business
Day of receipt along with a statement as to when such checks, money orders, or
forms of payment were received. GE
23
Capital shall have the right, at any time and from time to time, in its
discretion, without notice thereof to Parent or any Operating Subsidiary (i) to
collect, by legal proceedings or otherwise, the Accounts and Indebtedness owned
by GE Capital in the name of GE Capital; and (ii) to take control, in any
manner, of any item of payment for, or proceeds of, the Accounts and
Indebtedness owned by GE Capital.
5.4 INSURANCE. Parent and each Operating Subsidiary shall list GE
Capital as the loss payee under any insurance policy sold in connection with
Accounts. To secure payment of all Obligations under this Agreement, Parent and
each Operating Subsidiary hereby ▇▇▇▇▇ ▇▇ Capital a first priority Lien in and
to any and all proceeds of such insurance policies. GE Capital may, in its
reasonable discretion, disapprove any insurance carrier with which Parent or any
Operating Subsidiary enters an agreement whereby insurance will be sold to
Account Debtors where the premiums of such insurance will constitute part of
Indebtedness on an Account.
5.5 WARRANTIES. Parent and each Operating Subsidiary shall comply with
all of its warranties and other obligations with respect to Merchandise, the
sale of which has resulted in an Account.
5.6 CREDITS AND ALLOWANCES. Neither Parent nor any Operating Subsidiary
shall settle or adjust any dispute or claim, grant any discount, credit, or
allowance, or accept any return of Merchandise purchased pursuant to an Account,
except in the ordinary course of business. Parent and each Operating Subsidiary
shall notify GE Capital, as soon as practicable, of all returns of Merchandise
purchased pursuant to Accounts and of all credits granted to Account Debtors by
Parent or any Operating Subsidiary with respect to such Merchandise or with
respect to any finance or other charges due in respect of Accounts. Each such
notification shall be accompanied by a statement describing the Merchandise with
respect to which such credit was granted and indicating the Account to which
such credit relates and the amount of credit granted to the Account Debtor. GE
Capital may deduct the amount of all such credits from payments due to Parent
and the Operating Subsidiaries pursuant to Section 2.1 or, at GE Capital's
option, may require Parent or an Operating Subsidiary to pay such amounts within
two Business Days after notification by GE Capital. When Parent or any Operating
Subsidiary receives property of any kind in respect of an Account by reason of a
transaction with an Account Debtor, it shall hold such property in trust for the
benefit of GE Capital, subject to GE Capital's Lien, as property forming part of
the Account, until GE Capital receives payment with respect to the Account
pursuant to which such Merchandise was purchased. GE Capital may, at any time,
settle or adjust disputes or claims directly with Account Debtors for amounts
and upon terms which it considers advisable.
5.7 NOTICE TO GE CAPITAL. Parent and each Operating Subsidiary shall
each promptly: (a) upon learning thereof, inform GE Capital in writing of any
material delay in its performance of any of its obligations to Account Debtors
where such delay might have a Material Adverse Effect and (b) upon receipt or
learning thereof, furnish to and inform GE Capital of all material information
relating to an adverse change in the financial condition of any Account Debtor,
including, without
24
limitation, information regarding changes of address of Account Debtors and
notices of filings under the Bankruptcy Code with respect to Account Debtors.
5.8 FURTHER ASSURANCES. In addition to the undertakings specifically
provided for in this Agreement, Parent and each Operating Subsidiary shall each
do all other things and sign and deliver all other documents and instruments
requested by GE Capital to perfect, protect, maintain, and enforce the Liens of
GE Capital and the first priority of such Liens, and all other rights granted
pursuant hereto or pursuant to any other present or future agreement between
Parent or any Operating Subsidiary and GE Capital. Such acts shall include,
without limitation, indicating on the books and records of Parent and each
Operating Subsidiary (including, without limitation, originals and copies of
Credit Agreements, Lender Credit Card Agreements, sales slips, and computer
tapes where such items are in the possession of such Person) that Accounts and
Indebtedness have been sold and assigned to, or established and/or added by GE
Capital and are subject to a Lien pursuant hereto, providing GE Capital copies
of any Account Documentation, the filing of financing statements, amendments,
and termination statements under the Code, and the delivery of any document,
including computer tapes or disks, the physical possession of which is necessary
for GE Capital in connection with its ownership of Accounts and Indebtedness. In
addition, upon GE Capital's request, Parent and each Operating Subsidiary shall
make or cause to be made a conspicuous notation, satisfactory to GE Capital in
form and content, on the original and store copy of each Credit Agreement, and
on the original, store, and finance copy of each sales order which evidences any
Account or Indebtedness, indicating that such Account or Indebtedness is owned
by GE Capital. Parent and each Operating Subsidiary irrevocably authorize GE
Capital to execute alone any financing statement or any other document or
instrument which may be required to perfect, protect, or enforce any right or
Lien granted to GE Capital pursuant to this Agreement and authorize GE Capital
to sign such Person's name on the same.
5.9 ATTORNEY-IN-FACT. Parent and each Operating Subsidiary each hereby
appoints GE Capital or GE Capital's designee as its attorney-in-fact (a) to
endorse such Person's name on any check, note, acceptance, money order, draft,
or other form of payment of or security for any Account or Indebtedness that may
come into GE Capital's possession; (b) to sign such Person's name on drafts
against Account Debtors relating to any Account or Indebtedness, schedules and
assignments of any Account or Indebtedness, notices of assignment or other
public records, verifications, and notices to any Account Debtor; and (c) to do
all things necessary to carry out or enforce the obligations of Account Debtors
and to preserve GE Capital's Lien in and to Accounts and Indebtedness pursuant
hereto. Parent and each Operating Subsidiary each ratifies and approves all acts
of GE Capital as attorney-in-fact. GE Capital as attorney-in-fact will not be
liable for any act, omission, error of judgment, or mistake of fact or law,
except where such liability arises from GE Capital's negligence. This power,
being coupled with an interest, is irrevocable until there shall no longer be
any Indebtedness outstanding and all Obligations shall have been fully
satisfied.
5.10 CONTINUED LIABILITIES. Anything herein to the contrary
notwithstanding, (a) Parent and each Operating Subsidiary shall each remain
liable pursuant to any and
25
all contracts and agreements with any Account Debtor included in any Account
(including, for the avoidance of doubt, any and all contracts and agreements
entered into by Old JMS with any Account Debtor) to the extent set forth therein
to perform all of its duties and obligations pursuant thereto to the same extent
as if this Agreement had not been executed; (b) the exercise by GE Capital of
any rights pursuant to this Agreement shall not release Parent or any Operating
Subsidiary from any of such Person's duties or obligations pursuant to the
contracts and agreements relating to any Account; and (c) except to the extent
specifically set forth herein, GE Capital shall not have any obligation or
liability with respect to any Account by reason of this Agreement or be
obligated to perform any of the obligations or duties of Parent or any Operating
Subsidiary pursuant to this Agreement or to take any action to collect or
enforce any claim for payment assigned pursuant hereto or thereto.
5.11 GE CAPITAL MAY PERFORM. If Parent or any Operating Subsidiary
fails to perform any of its duties or obligations contained herein, GE Capital
may itself perform, or cause performance of, such duties or obligations or
enforce, or cause enforcement of, such rights, and the expenses of GE Capital
incurred in connection therewith shall be jointly and severally payable by
Parent and each Operating Subsidiary on demand.
5.12 RIGHT OF SETOFF. In addition to any other rights granted to GE
Capital herein, GE Capital shall, upon the occurrence and during the continuance
of any Default or Event of Default, have the right to appropriate and apply to
the payment of Obligations any and all money or property of Parent or any
Operating Subsidiary then held by GE Capital; PROVIDED, that during the pendency
of the Chapter 11 Cases, GE Capital shall provide the Debtors with four Business
Days written notice of its intent to take such actions. GE Capital may also
withhold any amount due from Parent or any Operating Subsidiary pursuant to this
Agreement from amounts payable to Parent and Operating Subsidiaries pursuant to
Section 2.2.
5.13 PAYMENTS. Parent and each Operating Subsidiary shall take any and
all actions requested by GE Capital to insure that all payments by Account
Debtors in respect of Accounts will be directed to such address as GE Capital
may specify.
5.14 USE OF PROCEEDS. Parent and each Operating Subsidiary each agrees
that it will utilize all amounts received under Section 2.2 only for its working
capital needs, for distributions made (after giving effect thereto) in
compliance with law or for other valid and lawful corporate purposes.
5.15 ACCOUNTING. GE Capital will provide a monthly accounting of the
Indebtedness and all fees and charges pursuant to this Agreement. Each and every
such accounting shall be deemed final, binding, and conclusive upon Parent and
each Operating Subsidiary in all respects as to all matters reflected therein,
unless Parent or any Operating Subsidiary, within 60 days after the date any
such accounting is rendered, shall notify GE Capital of any objection which such
Person may have to any such accounting, describing the basis for such objection
with specificity. In that event, only those items expressly objected to in such
notice shall be deemed to be disputed.
26
5.16 ACCESS. GE Capital (by any of its officers, employees, and/or
agents) shall, upon reasonable notice during normal business hours, have the
right to examine, inspect, audit, and make extracts from all of the records,
files, and books of account of Parent and each Operating Subsidiary, insofar as
such records, files, and books of account relate to Accounts or Indebtedness.
Parent and each Operating Subsidiary shall each use its best efforts to
facilitate GE Capital's exercise of such right, including, without limitation,
the assignment of such personnel for the assistance of GE Capital as GE Capital
shall request. Upon GE Capital's request, Parent and each Operating Subsidiary
shall supply GE Capital with originals and/or copies of any of the foregoing
within three Business Days of such request.
6. LOSS RESERVE ACCOUNT
6.1 ESTABLISHMENT. GE Capital shall create, on its books, for the
benefit of and in the name of Parent and each Operating Subsidiary, a record
known as the "Loss Reserve Account." To secure payment of all Obligations,
Parent and each Operating Subsidiary hereby grant, to the extent of their
interests therein, to GE Capital a first priority security interest in and to
the Loss Reserve Account. Neither Parent nor any Operating Subsidiary shall be
entitled to any interest or similar charge on the Loss Reserve Balance.
6.2 CREDITS. GE Capital shall credit the Loss Reserve Balance with the
amounts required to be so credited pursuant to Section 2.3(a) or 2.3(e).
6.3 DEBITS. GE Capital shall decrease the Loss Reserve Balance by the
amount of all Bad Debt Loss; PROVIDED, HOWEVER, that the Loss Reserve Balance
shall never be decreased below zero.
6.4 TERMINATION. Notwithstanding anything to the contrary herein, upon
any termination of the arrangement contemplated by this Agreement, on the first
Settlement Date on which GE Capital owns no Accounts or Indebtedness and the
Obligations have been satisfied in full, GE Capital shall forward to Parent an
amount equal to the Loss Reserve Balance on such date.
7. REPRESENTATIONS AND WARRANTIES
OF PARENT AND OPERATING SUBSIDIARIES
To induce GE Capital to purchase, establish and/or add
Accounts and Indebtedness, Parent and each Operating Subsidiary make the
following representations and warranties to GE Capital each and all of which
shall survive the execution and delivery of this Agreement, and each and all of
which shall be deemed to be restated and remade on each day on which
Indebtedness is purchased, established and/or added by GE Capital:
7.1 CORPORATE EXISTENCE: COMPLIANCE WITH LAW. Parent and each
Operating Subsidiary each (a) is a corporation duly organized, validly existing,
and in
27
good standing under the laws of the state in which it is incorporated; (b) is
duly qualified as a foreign corporation and in good standing under the laws of
each jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification; (c) subject to the requirements of the
Bankruptcy Code, has the requisite corporate power and authority and the legal
right to own, pledge, mortgage, or otherwise encumber and operate its
properties, to lease the properties it operates under lease, and to conduct its
business as now, and hereafter contemplated to be, conducted; (d) has all
material licenses, permits, consents, or approvals from or by, has made all
necessary filings with, and has given all necessary notices to, all governmental
authorities having jurisdiction, to the extent required for such ownership,
operation, and conduct; and (e) is in compliance with its certificate of
incorporation and bylaws. Parent owns all of the outstanding Stock of each
Operating Subsidiary.
7.2 EXECUTIVE OFFICES. The chief executive office and principal place
of business of Parent and each Operating Subsidiary is at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇; all records relating to Accounts and
Indebtedness are and shall be maintained there or at such locations as are set
forth on Schedule 7.2 annexed hereto, as such Schedule may be amended by Parent
from time to time upon 30 days' prior written notice to GE Capital. Schedule 7.2
contains a complete and correct listing of the address of all stores of Parent
and each Operating Subsidiary.
7.3 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Subject to
the entry of the Approval Order, the execution, delivery, and performance of
this Agreement and all instruments and documents to be delivered by Parent and
Operating Subsidiaries pursuant to this Agreement, and the creation of all Liens
provided for herein and therein: (a) are within the corporate power of such
Person; (b) have been duly authorized by all necessary or proper corporate
action, including the consent of shareholders where required; (c) are not in
contravention of any provision of the certificate of incorporation or bylaws of
such Person; (d) will not violate any law or regulation or any order or decree
of any court or governmental instrumentality; (e) will not conflict with or
result in the breach or termination of, constitute a default pursuant to, or
accelerate any performance required by, any indenture, mortgage, deed of trust,
lease, agreement, or other instrument to which such Person is a party or by
which such Person or any of its property is bound; and (f) do not require the
consent or approval of any governmental body, agency, authority, or any other
Person which has not been made or obtained previously. Subject to the entry of
the Approval Order, this Agreement has been duly executed and delivered by
Parent and each Operating Subsidiary and constitutes the legal, valid, and
binding obligation of each such Person, enforceable against each such Person in
accordance with its terms.
7.4 FINANCIALS.
(a) The consolidated balance sheet of Parent as at June 30,
1987 (the "Parent Balance Sheet"), and the related statements of earnings and
retained earnings and changes in financial position for the fiscal period then
ended, has been prepared in accordance with GAAP applied on a consistent basis
and presents fairly
28
the financial condition of Parent as at such date and the result of its
operations and changes in financial position for the period then ended.
(b) Parent, as at the date of the Parent Balance Sheet, had no
liabilities or obligations whatsoever, whether absolute, accrued, contingent, or
otherwise, or liabilities for Charges, long-term leases, or unusual forward or
long-- term commitments, which are not reflected and fully reserved in the
Parent Balance Sheet or disclosed in the Notes thereto and which would have a
Material Adverse Effect.
(c) From the date of the Parent Balance Sheet through the
Closing Date, (i) there has been no material adverse change in the business,
operations, prospects, assets, or financial or other condition of Parent and
(ii) no dividends or other distributions have been declared, paid, or made upon
any shares of Stock of Parent, nor have any shares of Stock of Parent been
redeemed, retired, purchased, or otherwise acquired for value by Parent.
7.5 NO DEFAULT. Neither Parent nor any Operating Subsidiary is in
default pursuant to or in respect of any contract, agreement, lease, or other
instrument to which such Person is a party nor has any such Person received any
notice of default pursuant to any such contract, agreement, lease, or other
instrument where such default would have a Material Adverse Effect; PROVIDED,
HOWEVER, that neither Parent nor any Operating Subsidiary shall be deemed to
have breached the representation and warranty in this Section 7.5 with respect
to any default with respect to any contract, agreement, lease, or other
instrument with any Person other than GE Capital unless such default has not
been cured within 30 days of its occurrence.
7.6 NO BURDENSOME RESTRICTIONS. No contract, lease, agreement, or other
instrument to which Parent or any Operating Subsidiary is a party or by which
Parent's or any Operating Subsidiary's property is bound, and no provision of
law or governmental regulation relating to or otherwise affecting Parent or any
Operating Subsidiary, will result in a Material Adverse Effect.
7.7 TAXES. All of Parent's and each Operating Subsidiary's Tax Returns
have been filed with or supplied to the appropriate governmental agencies, and
all Taxes shown thereon to be due and payable or otherwise due and payable have
been paid prior to the time when due and payable or will be timely paid with
adequate provision therefor being included in the books of such Person in
accordance with GAAP. All such Tax Returns are or will be, as the case may be,
true, complete, and accurate in all material respects. Except as provided in
Schedule 7.7(a) annexed hereto, none of the property owned by Parent or any
Operating Subsidiary is property which such Person is required to treat as being
owned by any other Person pursuant to the provisions of IRC ss. 168(f)(8) or is
"tax-exempt use property" within the meaning of IRC ss. 168(j)(3). Proper and
accurate amounts have been withheld by Parent and each Operating Subsidiary from
its employees for all periods in compliance in all material respects with the
income tax, social security, and unemployment withholdings provisions of
federal, state, local, and foreign law and such withholdings have been timely
paid to the respective governmental agencies or
29
adequate provision therefor is included on the books of such Person in
accordance with GAAP. Except as provided on Schedule 7.7(b) hereto, neither
Parent nor any Operating Subsidiary has executed or filed with the IRS or any
other governmental authority any agreement or other document extending, or
having the effect of extending, the period for assessment or collection of any
Taxes. Neither Parent nor any Operating Subsidiary has filed a consent pursuant
to IRC ss. 341(f) or agreed to have IRC ss. 341(f)(2) apply to any dispositions
of subsection (f) assets (as such term is defined in IRC ss. 341(f)(4)). Except
as shown on Schedule 7.7(b), since 1984, neither Parent nor any Operating
Subsidiary has agreed or been requested to make any adjustment under IRC ss.
481(a) by reason of a change in accounting method or otherwise. Neither Parent
nor any Operating Subsidiary has any obligation pursuant to any written
tax-sharing agreement. GE Capital has not provided Parent or any Operating
Subsidiary with any advice with respect to the financial, legal, tax, or other
consequences of any transactions, including the transactions contemplated by
this Agreement, and Parent and Operating Subsidiaries have retained or employed
their own professionals to render such financial, legal, tax, or other advice
where they believe such advice is necessary. Anything to the contrary herein
notwithstanding, the representations and warranties made in this Section 7.7
shall not be deemed to be breached where such breach does not have a Material
Adverse Effect.
7.8 ERISA. Each Plan is in compliance, in all material respects, with
ERISA, the IRC, and all federal and state laws and all regulations promulgated
thereunder. With respect to each Plan, all reports required under ERISA or under
any other law or regulation to be filed by Parent or any ERISA Affiliate with
the relevant governmental authority have been duly filed and all such reports
are true and correct in all material respects as of the date given. Neither
Parent nor any ERISA Affiliate nor any other "party-in-interest" or
"disqualified person" has engaged in a "prohibited transaction," as such terms
are defined in IRC ss. 4975 and Title I of ERISA, in connection with any Plan
maintained by Parent or any ERISA Affiliate which would subject a
party-in-interest or disqualified person (after giving effect to any exemption)
to the tax on prohibited transactions imposed by IRC ss. 4975 or any other
liability where the "amount involved" under such section exceeds $1,000,000.
Except as set forth on Schedule 7.8 annexed hereto, no Plan has been terminated,
nor has any accumulated funding deficiency (as defined in IRC ss. 412(a)) been
incurred without regard to any waiver granted under IRC ss. 412. No funding
waiver from the IRS has been received or requested with respect to any Plan or
Multiemployer Plan. Neither Parent nor any ERISA Affiliate has failed to make
any contributions or to pay any amounts due and owing as required by terms of
any Plan or Multiemployer Plan. There has been no Reportable Event or event
requiring disclosure under ERISA ▇▇.▇▇. 4041(c)(3)(C), 4062(f), or 4063(a) with
respect to any Plan or any related trust since the effective date of ERISA. As
of the end of the immediately preceding plan year, the value of the assets of
each Plan equalled or exceeded the present value of the accrued benefits of such
Plan utilizing Plan actuarial assumptions as in effect for such plan year. Other
than routine claims for benefits in the ordinary course of business, there are
no actions, claims, or lawsuits asserted or instituted against, and neither
Parent nor any ERISA Affiliate has any knowledge of any threatened actions,
claims, or lawsuits against, (a) the assets of any Plan or any fiduciary of a
Plan with respect to the operation of such Plan or (b) the assets of any
employee welfare benefit
30
plan (as defined in ERISA ss. 3(l)) or any fiduciary thereof with respect to the
operation of such Plan, to the extent any such action, claim, or lawsuit, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect. Any bond required pursuant to ERISA with respect to any Plan has been
obtained and is in full force and effect. Neither Parent nor any ERISA Affiliate
has incurred, or reasonably expects to incur, (i) any liability, other than
premiums due under ERISA ss. 4007 to the PBGC, (ii) any withdrawal liability
(and no event has occurred which, with the giving of notice, would result in
such liability) under ERISA ss. 4201 as a result of a complete or partial
withdrawal (within the meaning of ERISA ss. 4203 or 4205) from a Multiemployer
Plan, or (iii) any liability under ERISA ss. 4062 to the PBGC, to a trust
established under ERISA ss. 4041 or 4042, or to a trustee appointed under ERISA
ss. 4042. Neither Parent nor any ERISA Affiliate nor any organization to which
Parent or any such ERISA Affiliate is a successor or parent corporation (within
the meaning of ERISA ss. 4069(b)) has engaged in a transaction within the
meaning of ERISA ss. 4069. Except for the provision of group health care
benefits to officers and certain key executives of Parent, and except for
premiums paid for retiree Medicare supplemental coverage, as of the Closing
Date, neither Parent nor any ERISA Affiliate maintains or has established any
welfare benefit plan (within the meaning of ERISA ss. 3(l)) which provides for
continuing benefits or coverage for any participant or any beneficiary of a
participant after such participant's termination of employment, except as may be
required by the Consolidated Omnibus Reconciliation Act of 1985, as amended, and
at the expense of the participant or the beneficiary of the participant.
7.9 NO LITIGATION. Except as set forth on Schedule 7.9 annexed hereto
(as such Schedule may be amended by Parent from time to time), no action, claim,
or proceeding is now pending or, to the knowledge of Parent or any Operating
Subsidiary, overtly threatened against Parent or any Operating Subsidiary, at
law, in equity, or otherwise, before any court, board, commission, agency, or
instrumentality of any federal, state, or local government or of any agency or
subdivision thereof, or before any arbitrator or panel of arbitrators which
individually or in the aggregate, if adversely determined, could have a Material
Adverse Effect nor, to the knowledge of such Person, does a state of facts exist
which would form the basis for any such proceedings. None of such matters set
forth on Schedule 7.9 questions the validity of this Agreement or any action
taken or to be taken pursuant hereto.
7.10 BROKERS. No broker or finder brought about the obtaining, making,
or closing of the transactions contemplated by this Agreement and neither Parent
nor any Operating Subsidiary has any obligation to any Person in respect of any
finder's or brokerage fees in connection with the transactions contemplated by
this Agreement.
7.11 COMPLIANCE WITH LAW. With respect to each Account and
Indebtedness, (a) every action taken by Parent, and each Operating Subsidiary,
(b) every agreement with an Account Debtor, form, letter, notice, statement, or
other material used by Parent, and each Operating Subsidiary in connection with
the performance of its duties and obligations in connection with such Account
and Indebtedness, (c) every action taken by Parent, and each Operating
Subsidiary in connection with each sale of Merchandise resulting in an Account
and/or
31
Indebtedness, and (d) all Account Documentation, complies, in all material
respects (except where non-compliance results from an act of GE Capital or
failure to act where GE Capital had a duty to act), with all federal, state, and
local statutes, regulations, ordinances, or administrative rulings, including,
without limitation, laws and regulations relating to unfair, deceptive, or
unconscionable acts or practices.
7.12 ACCOUNTS. Each item of Indebtedness on an Account owned by GE
Capital (and, to the extent applicable, each Account pursuant to which such
Indebtedness is incurred), at the time of purchase, establishment and/or
addition, (a) is owned by Parent, Old JMS or an Operating Subsidiary in the case
of a Credit Agreement; (b) is in all events free and clear of all Liens in favor
of any Person other than GE Capital; (c) arises in connection with a bona fide
final sale and delivery of Merchandise by Parent or an Operating Subsidiary in
the ordinary course of its business to an Account Debtor for personal, family,
or household use; (d) is for a liquidated amount as stated in the Account
Documentation relating thereto; (e) is enforceable against the Account Debtor in
accordance with its terms; (f) is not subject to any defense, deduction, offset,
or counterclaim; (g) bears a signature of an Account Debtor which is genuine and
not forged or unauthorized; and (h) is Eligible Indebtedness.
7.13 INFORMATION CORRECT. All information furnished by Parent or any
Operating Subsidiary to GE Capital for purposes of or in connection with this
Agreement or any transaction contemplated in connection with this Agreement, and
all information hereafter furnished by Parent or any Operating Subsidiary to GE
Capital, is true and correct in all material respects and no such information
omits to state a material fact necessary to make the information so furnished
not misleading.
7.14 TITLE. Upon the purchase of Accounts and Indebtedness by GE
Capital from Parent or any Operating Subsidiary, GE Capital will have good and
marketable title to such Accounts and Indebtedness.
7.15 TREATMENT OF WASHINGTON RESIDENTS. Parent and the Operating
Subsidiaries shall use Lender Credit Card Agreements in connection with the
establishment of Accounts for residents of the State of Washington and shall not
use Credit Agreements to create Accounts for residents of the State of
Washington.
For purposes of this Part 7, all references to "materiality"
with respect to Parent and/or Operating Subsidiaries shall be construed to refer
to a material effect with respect to Parent and Operating Subsidiaries on a
consolidated basis.
8. REPORTS AND NOTICES
As long as this Agreement remains in effect, Parent and, where
applicable, each Operating Subsidiary, shall deliver to GE Capital:
(a) Within 30 days after the end of each fiscal month, a copy
of the unaudited balance sheet of Parent as of the close of such fiscal month
and the related
32
statements of income, cash flow and changes in financial position for such
fiscal month, all prepared in accordance with GAAP (except for the omission of
immaterial footnotes, the substance of which is contained in the audited
financial statements for the immediately preceding fiscal year) applied on a
consistent basis and in accordance with the accounting principles applied during
previous periods and accompanied by the certification of the chief executive or
chief financial officer of Parent that such financial statement presents fairly
the financial position of Parent, subject to normal year-end adjustments, as of
the end of such fiscal month and that there is no Default or Event of Default
and a Certificate executed by such chief executive or chief financial officer,
to the extent such monthly reports are required to be delivered to any lender of
Parent and Operating Subsidiaries.
(b) Within 60 days after the end of each fiscal quarter of
Parent, other than the last fiscal quarter of any Fiscal Year, a copy of the
unaudited balance sheet of Parent as of the close of such quarter and the
related statements of income and changes in financial position for such quarter,
all prepared in accordance with GAAP (except for the omission of immaterial
footnotes, the substance of which is contained in the audited financial
statements for the immediately preceding fiscal year) applied on a consistent
basis and in accordance with the accounting principles applied during previous
periods and accompanied by the certification of the chief executive or chief
financial officer of Parent that such financial statement presents fairly the
financial position of Parent, subject to normal year-end adjustments, as of the
end of such quarter and that there is no Default or Event of Default and a
Certificate executed by such chief executive or chief financial officer.
(c) Within 100 days after the close of each Fiscal Year, a
copy of the annual financial statement of Parent, consisting of a balance sheet
and related statements of income and changes in financial position, all prepared
in accordance with GAAP applied on a consistent basis and in accordance with the
accounting principles applied during previous periods (except for changes
required by GAAP), certified, as to Reorganized Debtors (or Parent or any
Operating Subsidiary if it has not filed a Chapter 11 Case), by the independent
certified public accountants regularly retained by Parent and reasonably
acceptable to GE Capital, and accompanied by a certificate from such accountants
to the effect that during the course of their examination they have not become
aware of any Default or Event of Default. After the effective date of the Plan
of Reorganization, the certification of the financial statements shall be
without qualification.
(d) As soon as practicable, but in any event within three
Business Days after Parent or any Operating Subsidiary becomes aware of the
existence of any Default, any Event of Default, or any development or other
information which would have a Material Adverse Effect, telephonic or
telegraphic notice specifying the nature of such Default, Event of Default,
event, development, or information, including the anticipated effect thereof,
which notice shall be confirmed in writing within five days.
(e) As soon as practicable, but in any event (i) within 30
days after Parent or any ERISA Affiliate knows or has reason to know that any
ERISA Event described in clause (a) of the definition of such term has occurred
and (ii) within ten
33
days after Parent or any ERISA Affiliate knows or has reason to know that any
other ERISA Event has occurred or of any request for a minimum funding waiver
under IRC ss. 412 with respect to any Plan or Multiemployer Plan, a statement of
Parent's principal financial officer describing such ERISA Event and any action
Parent proposes to take with respect thereto.
(f) As soon an practicable, but in any event within two
Business Days following receipt thereof, copies of any notices received by
Parent or any ERISA Affiliate from PBGC of PBGC's intent to terminate any Plan
or to have a trustee appointed for the administration of any Plan.
(g) As soon as practicable, but in any event within two
Business Days after Parent or any ERISA Affiliate knows or has reason to know
that Parent or any such ERISA Affiliate has filed, or intends to file, a notice
of intent to terminate any Plan under a distress termination (within the meaning
of IRC ss. 4041(c)).
(h) As soon as practicable, but in any event within five
Business Days following receipt thereof, copies of any notices or correspondence
received by Parent or any ERISA Affiliate from any Multiemployer Plan sponsor
concerning the imposition of any withdrawal liability pursuant to ERISA ss.
4202.
(i) Promptly after the commencement thereof, notice of any
action suit, or proceeding before any court or governmental department,
commission, board, bureau, agency, or instrumentality, domestic or foreign,
which may have a Material Adverse Effect on Parent, any ERISA Affiliate, or any
Plan.
(j) As soon as available, copies of all pleadings, including
motions and applications and complaints, and other documents filed by or on
behalf of the Debtors in the Chapter 11 Cases, and copies of all documents and
other information distributed by or on behalf of the Debtors to an official
committee of creditors or any other official committee appointed in the Chapter
11 Cases (except to the extent such information is subject to a confidentiality
agreement between the Debtors and such committee).
(k) Such other information respecting the Accounts, the
Indebtedness, or the business or financial condition or prospects of Parent or
any Operating Subsidiary as GE Capital may, from time to time, reasonably
request.
9. INDEMNIFICATION
9.1 INDEMNIFICATION BY PARENT AND OPERATING SUBSIDIARIES. Parent and
each Operating Subsidiary agree, jointly and severally, to protect, indemnify,
and hold harmless GE Capital and its Affiliates, and the employees, officers,
and directors thereof, against any and all liabilities, costs, and expenses
(including attorneys' fees and expenses), judgments, damages, claims, demands,
offsets, defenses, counterclaims, actions, or proceedings, by whomsoever
asserted, including, without limitation, any governmental or regulatory
authority, Account Debtors with respect to
34
Accounts, any Person who prosecutes or defends any action or proceeding, whether
as representative of or on behalf of a class or interested group or otherwise,
arising out of, connected with, or resulting from: (a) any breach of warranty by
Parent or any Operating Subsidiary with respect to any sale of Merchandise
resulting in an Account or Indebtedness; (b) any transaction, contract,
understanding, promise, representation, or any other relationship, actual,
asserted, or alleged, between Parent or any Operating Subsidiary and any Account
Debtor relating to an Account; (c) any breach by Parent or any Operating
Subsidiary of any of the terms, covenants, representations, warranties,
conditions precedent, or other provisions contained in this Agreement or any
other instrument or document delivered to GE Capital in connection herewith or
therewith; (d) any breach by Old JMS of any terms, covenants, representations,
warranties, conditions precedent or other provision contained in the Account
Financing Agreement between GE Capital an Old JMS and any amendments or
supplements thereto; (e) any claim, demand, allegation, offset, defense, or
counterclaim which, if true or proven, would constitute a breach pursuant to (a)
or (c) of this Section 9.1; (f) any other act by Parent, any Operating
Subsidiary, or the employees or agents of such Person or omission by any such
Person where any of them had a duty to act; or (g) the use by any Person of any
Merchandise the purchase of which was financed by an Account. Such obligation to
indemnify shall survive any payment of amounts owing pursuant to any Account and
the termination of this Agreement.
9.2 INDEMNIFICATION BY GE CAPITAL. GE Capital agrees to protect,
indemnify, and hold harmless Parent, each Operating Subsidiary, and their
Affiliates, and the employees, officers, and directors thereof, against any and
all liabilities, costs, and expenses (including attorneys' fees and expenses),
judgments, damages, claims, demands, offsets, defenses, counterclaims, actions,
or proceedings, by whomsoever asserted, including, without limitation, any
governmental or regulatory authority, Account Debtors with respect to Accounts,
any Person who prosecutes or defends any action or proceeding, whether as
representative of or on behalf of a class or interested group or otherwise,
arising out of, connected with, or resulting from (a) any act by GE Capital, its
employees, or agents or omission by any such Person where any of them had a duty
to act or (b) any action taken by GE Capital pursuant to this Agreement which
fails to comply with law; PROVIDED, HOWEVER, that GE Capital shall not be
required to make any indemnification pursuant to this Section 9.2 with respect
to any form, Credit Agreement or Lender Credit Card Agreement which was supplied
by GE Capital to Parent or any Operating Subsidiary where such form, Credit
Agreement or Lender Credit Card Agreement was not used by such Person in
conformance with GE Capital's written instructions.
9.3 DEFENSE OF CLAIMS. In the event that any legal proceeding shall be
instituted or that any claim or demand shall be asserted by any Person in
respect of which payment may be sought by one party hereto from another pursuant
to this Part 9, the party seeking indemnification shall promptly cause written
notice of the assertion of any claim of which it has knowledge which is covered
by this indemnity to be forwarded to the other party which shall have the right,
to the extent of its indemnification, at its option and at its own expense, to
be represented by counsel of its choice and to defend against, negotiate,
settle, or otherwise deal with any
35
proceeding, claim, or demand which is related to any loss, liability, damage, or
deficiency indemnified against pursuant hereto. The parties hereto agree to
cooperate fully with the defense, negotiation, or settlement of any such legal
proceeding, claim, or demand.
9.4 PAYMENT OF INDEMNIFIED AMOUNTS. After any final judgment or award
shall have been rendered by a court, arbitration board, or administrative agency
of competent jurisdiction, or a settlement shall have been consummated, the
party seeking indemnification shall forward to the other party notice of any
sums due and owing by it with respect to such matter and such party shall be
required to pay all of the sums so owing to the party seeking indemnification
within 30 days after the date of such notice.
10. AFFIRMATIVE COVENANTS OF PARENT AND OPERATING
SUBSIDIARIES
Parent and each Operating Subsidiary covenant and agree that, without
GE Capital's prior written consent, which GE Capital shall not be under any
express or implied obligation to grant, from and after the date hereof until all
Obligations shall have been paid in full and GE Capital shall own no
Indebtedness:
10.1 MAINTENANCE OF EXISTENCE AND CONDUCT OF BUSINESS. Subject to the
requirements of the Bankruptcy Code, Parent and each Operating Subsidiary shall
(a) do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, except that neither Parent nor any
Operating Subsidiary shall have to qualify to do business in any jurisdiction
where the failure so to qualify will not have a Material Adverse Effect and (b)
transact business and invoice all Accounts in such name as shall clearly
indicate that all the Accounts belong solely to GE Capital. Notwithstanding the
provisions of subsection (a) of this Section 10.1, Parent or any Operating
Subsidiary may, upon 30 days' prior notice to GE Capital, cause itself to be
merged into or with any Operating Subsidiary or any company which is, as of the
Closing Date, an Affiliate or Subsidiary of Parent.
10.2 GE CAPITAL'S INSTRUCTIONS. Parent and each Operating Subsidiary
shall use forms and contracts supplied by GE Capital only in such manner and for
such purposes as GE Capital shall specify.
10.3 BOOKS AND RECORDS. Parent shall keep complete and correct records
and books of account with respect to its business activities, in which proper
entries, reflecting all of its financial transactions, are made in accordance
with GAAP consistently applied through the periods involved. Parent and each
Operating Subsidiary and their designees shall keep complete and correct records
and books of account with respect to all Indebtedness originated by Parent and
each Operating Subsidiary.
10.4 LITIGATION. Parent and each Operating Subsidiary shall notify GE
Capital in writing, promptly upon learning thereof, of any litigation involving
claims
36
(exclusive of claims for punitive damages) against it or its assets in an amount
in excess of $500,000 for a single claim or $1,000,000 in the aggregate for
related claims and of the institution of any suit or administrative proceeding
against any Person that, if adversely determined, would have a Material Adverse
Effect. This Section 10.4 shall not apply to claims which are covered by
insurance where the carrier has not contested responsibility.
10.5 COMPLIANCE WITH LAW. In the performance of all of its obligations
pursuant hereto, Parent and each Operating Subsidiary shall comply, in all
material respects, with all federal, state, and local laws and regulations.
10.6 AGREEMENTS. Subject to the restrictions of the Bankruptcy Code,
Parent and each Operating Subsidiary shall perform all of its obligations and
enforce all of its rights pursuant to each agreement to which it is a party.
10.7 EMPLOYEE PLANS. For each Plan adopted by Parent or an Operating
Subsidiary, such Person shall, to the extent required by ERISA, (a) use its best
efforts to seek and receive determination letters from the IRS to the effect
that such Plan is qualified within the meaning of IRC ss. 401(a); (b) from and
after the adoption of any Plan, use its best efforts to cause such Plan to be
qualified within the meaning of IRC ss. 401(a) and to be administered in all
material respects in accordance with the requirements of ERISA and IRC ss.
401(a); and (c) not take any action which would cause such Plan not to be
qualified within the meaning of IRC ss. 401(a) or not to be administered in all
material respects in accordance with the requirements of ERISA and IRC ss.
401(a).
10.8 SUPPLEMENTAL DISCLOSURE. From time to time as may be necessary,
Parent and Operating Subsidiaries shall each promptly supplement or amend each
Schedule hereto with respect to any matter hereafter arising which, if existing
or occurring at the Closing Date, would have been required to be set forth or
described in such Schedule or which is necessary to correct any information in
such Schedule which has been rendered inaccurate thereby; PROVIDED, HOWEVER,
that no such supplement or amendment shall constitute a waiver by GE Capital of
any of its rights pursuant to this Agreement.
10.9 USE OF PROCEEDS. All funds paid by GE Capital to Parent and each
Operating Subsidiary pursuant to the Operating Agreement shall be used by each
such Person only for its working capital needs, for distributions made (after
giving effect thereto) in compliance with law or for other valid and lawful
corporate purposes.
11. NEGATIVE COVENANTS OF PARENT AND OPERATING
SUBSIDIARIES
Parent and each Operating Subsidiary covenant and agree that,
without GE Capital's prior written consent, which GE Capital shall not be under
any express or implied obligation to grant, from and after the date hereof until
all Obligations shall have been paid in full and GE Capital shall own no
Indebtedness:
37
11.1 SUBSIDIARIES. Neither Parent nor any Operating Subsidiary shall
acquire the Stock of any Person that was not a Subsidiary as of the Closing
Date, except upon 30 days' prior written notice to GE Capital. In the event that
Parent shall form or acquire additional Subsidiaries principally engaged in the
same business as Operating Subsidiaries, the parties shall, by amendment to this
Agreement, and upon the reasonable satisfaction of GE Capital that there will be
no Material Adverse Effect, include such Subsidiaries as parties to this
Agreement.
11.2 ADVERSE TRANSACTIONS. Neither Parent nor any Operating Subsidiary
shall enter into any transaction, or permit or agree to any extension,
compromise, or settlement, or make any change or modification of any kind or
nature with respect to any Account, including any of the terms relating thereto,
which would have a Material Adverse Effect.
11.3 LIENS. Neither Parent nor any Operating Subsidiary shall create or
permit any Lien in and to the Accounts or Indebtedness except presently existing
or hereafter created Liens in favor of GE Capital.
11.4 SALES OF ASSETS. Neither Parent nor any Operating Subsidiary shall
sell, transfer, convey, or otherwise dispose of any Accounts or Indebtedness
except as contemplated by this Agreement.
11.5 CANCELLATION OF INDEBTEDNESS. Neither Parent nor any Operating
Subsidiary shall cancel any claim or debt it owns, except for adequate
consideration and in the ordinary course of business.
11.6 EVENTS OF DEFAULT. Neither Parent nor any Operating Subsidiary
shall take or omit to take any action, which act or omission would constitute a
Default or Event of Default.
11.7 NEW LOCATIONS. Neither Parent nor any Operating Subsidiary shall
conduct any of its business at a location other than those set forth on Schedule
7.2 annexed hereto nor shall any such Person maintain records at a location
other than those set forth on Schedule 7.2 without 30 days, prior written notice
to GE Capital. Parent shall not permit any Affiliate, other than Operating
Subsidiaries, to enter into credit agreements with customers for the financing
of the purchase of retail goods from any Affiliate of Parent.
11.8 ERISA. Parent shall not: (a) terminate, directly or indirectly, or
permit any ERISA Affiliate to terminate, directly or indirectly, any Plan
subject to Title IV of ERISA where such termination could reasonably be expected
to have a Material Adverse Effect, (b) permit the occurrence or continuance of
any ERISA Event which could reasonably be expected to have a Material Adverse
Effect, or (c) make, or permit any ERISA Affiliate to make, any complete or
partial withdrawal (within the meaning of ERISA ss. 4201) from any Multiemployer
Plan where such withdrawal could reasonably be expected to have a Material
Adverse Effect.
38
12. TERM
12.1 TERMINATION AND RENEWAL. Subject to the provisions of Part 13
hereof, the arrangements contemplated hereby shall be in effect until October
31, 1999.
12.2 SURVIVAL OF OBLIGATIONS UPON TERMINATION. Except as otherwise
expressly provided for herein, no termination or cancellation (regardless of
cause or procedure) of this Agreement shall in any way affect or impair the
powers, obligations, duties, rights, and liabilities of Parent or any Operating
Subsidiary or the rights of GE Capital relating to any transaction or event
occurring prior to such termination. All undertakings, agreements, covenants,
indemnities, warranties, and representations contained herein shall survive such
termination or cancellation, except as specifically provided herein to the
contrary. Without in any manner limiting the generality of the foregoing, upon
such termination, GE Capital shall continue to own Accounts and Indebtedness and
Parent and each Operating Subsidiary shall continue to be jointly and severally
liable for the fees set forth herein and for RPR Indebtedness to the extent
specified in Section 2.4 until such time as the Aggregate Investment shall be
reduced to zero or Parent purchases Accounts and Indebtedness from GE Capital
pursuant to Section 12.4, whichever shall occur earlier.
12.3 TERMINATION FEE. Except as otherwise specified herein, upon any
termination hereof, Parent and each Operating Subsidiary shall be jointly and
severally liable to GE Capital for a termination fee equal to $3,500,000.
12.4 PURCHASE OF ACCOUNTS. Except as provided in the following
sentence, upon any termination hereof, Parent shall purchase all Accounts and
Indebtedness owned by GE Capital for an amount equal to the "Purchase Price" as
defined below. Notwithstanding the foregoing, upon any termination of this
Agreement under Section 12.1, Parent shall, if (and only if) requested in
writing by GE Capital, purchase all Accounts and Indebtedness owned by GE
Capital (other than Indebtedness incurred prior to January 1, 1997) for an
amount equal to the Purchase Price, provided that GE Capital may not require
Parent to consummate the purchase of such Accounts prior to the last Billing
Date in October 1999, and provided further that GE Capital may not request
Parent to purchase the Accounts and Indebtedness after the last Billing Date in
October 2000. In order to determine the amount of Indebtedness incurred prior to
January 1, 1997 (the "Prior Indebtedness") that remains outstanding at any point
in time for the purposes of calculating the amount of Indebtedness that GE
Capital does not have the right to require Parent to purchase pursuant to the
preceding sentence (and for no other purpose): (a) the amount of the Prior
Indebtedness as of December 31, 1996 was $750,991,264; (b) the number of
Accounts as of December 31, 1996 related to the Prior Indebtedness was 631,917
(the "Applicable Accounts"); and (c) all payments and write-offs with respect to
the Applicable Accounts shall be applied first to the Prior Indebtedness,
notwithstanding that (x) the Applicable Accounts may also have Indebtedness
incurred on or after January 1, 1997 and (b) the Account Debtor may have
directed that payments be otherwise applied. The obligation of Parent and each
Operating Subsidiary to pay the fees set forth in Section 2.3 and GE Capital's
obligation to perform the servicing activities specified in Section 3 shall be
terminated as of the date of any such
39
purchase. For purposes of this Section 12.4, the "Purchase Price" shall be equal
to (a) 100% of the aggregate balance of all Indebtedness then owned by GE
Capital LESS (b) the sum of (i) GE Capital's net loss-to-collection ratio for
the immediately preceding three-year period (based on GE Capital's net losses
over the immediately preceding 3-year period calculated at 1% of the average
Aggregate Investment) MULTIPLIED BY 100% of the Aggregate Investment PLUS 5% of
such amount PLUS (ii) the sum of (A) 10% of the balance of all Accounts then
owned by GE Capital as to which any payment is between four and six months past
due PLUS (B) 25% of the balance of all Accounts then owned by GE Capital as to
which any payment is between seven and nine months past due PLUS (C) 50% of the
balance of all Accounts then owned by GE Capital as to which any payment in
between ten and twelve months past due PLUS (D) 100% of the balance of all
Accounts then owned by GE Capital as to which any payment is more than twelve
months past due. GE Capital hereby represents to Parent and each Operating
Subsidiary that the calculations described in (b) above represent the manner in
which GE Capital's Retailer Financial Services Operation calculates its
"three-year rolling reserves" and "formula reserve" as of the Closing Date.
12.5 TERMINATION OPTIONS. Upon the occurrence of any Termination Event,
Parent and each Operating Subsidiary may, upon 90 days' notice thereof to GE
Capital, terminate this Agreement. Upon any such termination, neither Parent nor
the Operating Subsidiaries shall be required to pay the termination fee set
forth in Section 12.3 if, and only if, the provisions of Section 12.4 are
complied with by Parent. For purposes hereof, a Termination Event shall occur if
Parent shall demonstrate to GE Capital that the Maximum Investment is
insufficient to accommodate all Eligible Indebtedness generated or reasonably
expected to be generated in connection with the businesses of Parent and
Operating Subsidiaries and Parent shall request GE Capital to increase the
Maximum Investment and GE Capital shall unreasonably refuse to comply with such
request within 100 days after the receipt of such request; PROVIDED, HOWEVER,
that such refusal by GE Capital shall not be deemed to be unreasonable if it is
based upon GE Capital's reasonable belief that the business, operations, or
financial condition of Parent and Operating Subsidiaries, taken as a whole, do
not merit such increase; and PROVIDED, FURTHER, that during the 100-day period
that GE Capital is considering such request, GE Capital shall continue to
purchase, establish and/or add Accounts and Indebtedness until such time as the
Aggregate Investment exceeds the Maximum Investment by 10%. Such termination
rights shall be in effect for twelve months following the occurrence of such
Termination Event.
12.6 LIQUIDATION OF ACCOUNTS. Upon any termination of this Agreement,
if Parent fails to purchase all of the Accounts and Indebtedness from GE Capital
under circumstances in which Parent is obligated to purchase such Accounts and
Indebtedness pursuant to this Agreement, GE Capital shall have the right, in
addition to and retaining all other rights it may have under the terms of this
Agreement or applicable law, (i) to liquidate such Accounts and Indebtedness in
any such lawful manner which may be expeditious or economically advantageous to
GE Capital, (ii) to issue a replacement or substitute credit card, or (iii) to
sell such Accounts and Indebtedness to any Person not a party to this Agreement.
Parent and each Operating Subsidiary expressly agree to cooperate with GE
Capital and take any action
40
reasonably necessary to effectuate any such liquidation or replacement or
substitute credit card issuance in an orderly manner, including, without
limitation, accepting any substitute credit cards following the effective date
of termination and/or taking any other action as may reasonably require to
encourage use and acceptance of such replacement or substitute credit cards.
12.7 PURCHASE OF ACCOUNTS IN CONNECTION WITH AN ACQUISITION. In the
event Parent and Operating Subsidiaries are merged into a Person which has an
existing in-house private label credit card program or a Person acquires a
controlling interest in the Parent which Person has an existing in-house private
label credit card program, Parent or such Person may purchase the Accounts and
Indebtedness then owned by GE Capital at the price set forth in Schedule 12.7.
13. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
13.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute an "Event
of Default":
(a) Parent or any Operating Subsidiary shall fail to make any
payment of any amount owing pursuant to this Agreement when due and payable or
declared due and payable and such failure shall have remained unremedied for a
period of ten days after Parent has received notice of such failure from GE
Capital.
(b) Parent or any Operating Subsidiary shall fail or neglect
to perform, keep, or observe any term, provision, condition, or covenant
contained in this Agreement and such failure or neglect shall have a Material
Adverse Effect.
(c) Any representation, warranty, written statement, report,
financial statement, or certificate made or delivered by Parent or any Operating
Subsidiary, or any of their respective officers, employees, or agents, to GE
Capital shall not be true and correct in any material respect as of the date
when made or reaffirmed and the failure of such representation, warranty,
written statement, report, financial statement, or certificate to be true shall
have a Material Adverse Effect.
(d) Following the Petition Date (i) any of the Accounts or
Indebtedness or any of the other assets of Parent or any Operating Subsidiary
(where such assets shall have a present fair salable value of $1,000,000 or more
in the aggregate) shall be attached, seized, levied upon, or subjected to a writ
or distress warrant, or come within the possession of any receiver, trustee,
custodian, or assignee for the benefit of creditors and such writ or distress
warrant shall not have been vacated, discharged, stayed or bonded within 30
days; (ii) Parent or any Operating Subsidiary shall have concealed, removed, or
permitted to be concealed or removed, any part of its property, with intent to
hinder, delay, or defraud its creditors or any of them or made or suffered a
transfer of any of its property or the incurring of an obligation which may, in
the reasonable judgment of GE Capital, be fraudulent under any bankruptcy,
fraudulent conveyance, or other similar law; or (iii) Parent or any
41
Operating Subsidiary shall have made any transfer of its property to or for the
benefit of a creditor at a time when other creditors similarly situated have not
been paid when such payments became due.
(e) A decree or order by a court having competent jurisdiction
(i) for relief in respect of Parent or any Operating Subsidiary pursuant to the
Bankruptcy Code or any other state or foreign bankruptcy or similar law, (ii)
appointing a custodian, receiver, liquidator, assignee, trustee, or sequestrator
(or similar official) of Parent or such Operating Subsidiary or of any
substantial part of its properties, or (iii) ordering the winding-up or
liquidation of the affairs of Parent or any Operating Subsidiary shall be
entered and shall not be vacated, discharged, stayed, or bonded within 30 days
from the date of entry thereof.
(f) Parent or any Operating Subsidiary shall (i) file a
petition seeking relief under the Bankruptcy Code or any other state or foreign
bankruptcy or similar law, (ii) consent to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee, or
sequestrator (or similar official) of such Person or of any substantial part of
its properties, (iii) fail generally to pay its debts as such debts become due,
or (iv) take any corporate action in furtherance of any such action.
(g) Final judgment for the payment of money in excess of
$1,000,000 in the aggregate shall be rendered against Parent or any Operating
Subsidiary and (i)(A) the same shall not be fully covered by insurance or (B)
the insurer shall not have accepted liability therefor or (ii) the same shall
not be vacated, stayed, bonded, paid, or discharged prior to expiration of the
applicable appeal period, but in no event more than 30 days; PROVIDED, that
during the pendency of the Chapter 11 Cases, this Event of Default shall apply
only to any such judgment that is granted the priority of an administrative
expense under the Bankruptcy Code.
(h) With respect to any Plan: (i) Parent and/or any ERISA
Affiliate or any other party-in-interest or disqualified person engages in any
transactions which in the aggregate would reasonably result in an "amount
involved," within the meaning of IRC ss. 4975, that exceeds $1,000,000 and would
result in a direct or indirect material liability pursuant to ERISA ss. 409 or
502; (ii) Parent and/or any ERISA Affiliate incurs any accumulated funding
deficiency (as defined in IRC ss. 412) that is not waived, in the aggregate in
excess of $1,000,000, or requests a funding waiver from the IRS for
contributions in the aggregate in excess of $1,000,000; or (iii) a liability of
Parent or an ERISA Affiliate which could accrue in the aggregate pursuant to
ERISA ss. 4062, 4063, 4064, 4219, or 4243 with respect to all such Plans,
computed by the actuary of the Plan taking into account any applicable rules and
regulations of the PBGC at such time, computed based upon the actuarial
assumptions used by such Plan, would result in liability of Parent or any ERISA
Affiliate to the PBGC in an amount in excess of $1,000,000; PROVIDED, that
during the pendency of the Chapter 11 Cases, this Event of Default shall apply
only to any such liability that is granted the priority of an administrative
expense under the Bankruptcy Code.
42
(i) Parent or any ERISA Affiliate as employer pursuant to a
Multiemployer Plan shall have made a complete or partial withdrawal from such
Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have
notified such withdrawing employer that such employer has incurred a withdrawal
liability and such employer fails to pay such liability when legally required to
be paid; PROVIDED, that during the pendency of the Chapter 11 Cases, this Event
of Default shall apply only to any such withdrawal liability that is granted the
priority of an administrative expense under the Bankruptcy Code.
(j) Following the Petition Date, a default shall occur
pursuant to any other agreement, document, or instrument to which Parent or any
of its Affiliates is a party or by which any such Person or any such Person's
property is bound, and such default (i) has a Material Adverse Effect and (ii)
is not remedied or waived within the time period, if any, provided for therein;
PROVIDED, HOWEVER, that a default pursuant to the Tranche A Credit Agreement and
Tranche B Credit Agreement shall not be considered an Event of Default unless
and until the indebtedness owed to the Lenders pursuant thereto is accelerated,
except that, notwithstanding the above, for purposes of exercising the remedy
set forth in Section 13.2(a)(i), GE Capital may consider a default pursuant to
the Tranche A Credit Agreement and Tranche B Credit Agreement to be an Event of
Default.
13.2 REMEDIES. If any Event of Default shall have occurred and be
continuing:
(a) GE Capital, in its discretion may, upon written notice,
(i) terminate this Agreement with respect to further purchases, establishments
and/or additions of Accounts and Indebtedness and/or (ii) declare all
Obligations to be forthwith due and payable, whereupon all Obligations shall
become and be immediately due and payable, without further presentment, demand,
protest, or further notice of any kind, all of which are expressly waived by
Parent and each Operating Subsidiary.
(b) GE Capital, in its discretion, may exercise any one or
more of the rights and remedies accruing to a secured party under the Code of
the relevant state and any other law upon default by a debtor upon four Business
Days written notice to Parent and Operating Subsidiaries.
(c) Notwithstanding the foregoing, upon the occurrence of the
Event of Default specified in Sections 13.1(e) and 13.1(f), the purchasing of
Accounts shall automatically terminate without notice and all Obligations of
Reorganized Debtors (or Parent or any Operating Subsidiary if it has not filed a
Chapter 11 Case) to GE Capital under this Agreement shall be immediately due and
payable without further presentment, demand, protest, or further notice of any
kind, all of which are expressly waived by Parent and each Operating Subsidiary.
(d) GE Capital may, if GE Capital deems it reasonable,
postpone or adjourn any sale of the Accounts or Indebtedness, or any part
thereof, from time to time, by an announcement at the time and place of sale or
by announcement at the
43
time and place of such postponed or adjourned sale, without being required to
give a new notice of sale. Parent and each Operating Subsidiary agree that GE
Capital has no obligation to preserve rights against prior parties to the
Collateral.
13.3 WAIVERS. Except as otherwise provided for in this Agreement,
Parent and each Operating Subsidiary waive (a) presentment, demand, and protest
and notice of presentment, dishonor, protest, default, nonpayment, maturity,
release, compromise, settlement, extension, or renewal of any or all commercial
paper, accounts, contract rights, documents, instruments, chattel paper, and
guarantees at any time held by GE Capital on which Parent or any Operating
Subsidiary may in any way be liable and hereby ratifies and confirms whatever GE
Capital may do in this regard, (b) all rights to notice and a hearing prior to
GE Capital's taking possession or control of, or to GE Capital's replevy,
attachment, or levy upon, the Accounts or to any bond or security which might be
required by any court prior to allowing GE Capital to exercise any of GE
Capital's remedies, and (c) the benefit of all valuation, appraisal, and
exemption laws. Parent and each Operating Subsidiary acknowledge that it has
been advised by counsel of its choice with respect to this Agreement, and the
transactions evidenced by this Agreement.
14. MISCELLANEOUS
14.1 COMPLETE AGREEMENT; MODIFICATION OF AGREEMENT; SALE OF INTEREST.
This Agreement constitutes the complete agreement between the parties with
respect to the subject matter hereof and may not be modified, altered, or
amended except (a) by an agreement in writing signed by the parties hereto or
(b) as expressly provided for herein. Neither Parent nor any Operating
Subsidiary may sell, assign, or transfer any of its rights, titles, interests,
remedies, powers, or duties pursuant hereto. Parent and each Operating
Subsidiary hereby consent to GE Capital's sale of participations, assignment,
transfer, or other disposition, at any time, of any of its rights, titles,
interests, remedies, powers, or duties pursuant hereto; PROVIDED, HOWEVER, that
no such party shall be obligated to any such assignee or transferee until it
receives notice of the assignment or transfer; and PROVIDED, FURTHER, that such
transfer or assignment shall not increase any of the Obligations.
14.2 FEES AND EXPENSES. Parent and each Operating Subsidiary shall pay,
jointly and severally, all reasonable out-of-pocket expenses of GE Capital
including, without limitation, the fees and expenses of its external counsel, in
connection with the preparation and negotiation of this Agreement and the
transactions described herein. If, at any time, regardless of the existence of
an Event of Default, GE Capital shall employ external counsel for advice or
other representation or shall incur legal or other costs and expenses in
connection with:
(a) any amendment, modification, waiver, or consent with
respect to this Agreement or any sale or attempted sale of any interest herein
to any Person;
(b) any litigation, contest, dispute, suit, proceeding, or
action (whether instituted by GE Capital or any other Person) in any way
relating to this
44
Agreement, or any other agreement to be executed or delivered in connection
herewith or therewith or in connection with the affairs of Parent or any
Operating Subsidiary (except where GE Capital is required to pay such costs and
expenses pursuant to Part 9 hereof or where Parent or any Operating Subsidiary
is the prevailing party in a suit with GE Capital);
(c) any attempt to enforce any rights of GE Capital against
Parent or any Operating Subsidiary or any other Person (other than an Account
Debtor) that may be obligated to GE Capital by virtue of this Agreement; or
(d) monitoring the Chapter 11 Cases, including the review of
pleadings and other documents filed in the Chapter 11 Cases and negotiations
with parties in interest in the Chapter 11 Cases, as such monitoring may relate
to or affect this Agreement, the Obligations, GE Capital's rights and remedies
hereunder, or the Accounts, Indebtedness, Merchandise purchased by Account
Debtors or reserves established hereunder;
then, and in any such event, the reasonable attorneys' fees arising from such
services and all reasonably incurred expenses, costs, charges, and other fees of
such counsel or of GE Capital in any way or respect arising in connection with
or relating to any of the events or actions described in this Section 14.2 shall
be jointly and severally payable, on demand, by Parent and each Operating
Subsidiary to GE Capital and shall be additional Obligations secured pursuant to
this Agreement.
14.3 CHANGES IN CIRCUMSTANCES. The parties acknowledge that the fees
and charges set forth herein have been determined based upon the assumption that
the Aggregate Investment will be equal to or exceed $300,000,000. If, for
whatever reason, the Aggregate Investment shall be less than $250,000,000 during
any consecutive 12-month period, GE Capital, upon three months' prior notice to
Parent, may increase the fees and charges set forth in Section 2.3 in order to
maintain the same economic return on its investment as if such Aggregate
Investment had been $300,000,000 or more; PROVIDED HOWEVER, that if the
Aggregate Investment is less than $300,000,000 during any such consecutive
12-month period due to store closings which result in a reduction of the number
of stores owned and operated by the Operating Subsidiaries from the total in
existence as of the Closing Date, the $300,000,000 set forth above shall be
reduced in the same proportion that Indebtedness initially arising from sales at
such closed stores bears to the total Indebtedness arising from sales at all
stores on the first Settlement Date after the Closing Date. In the event such
fees and charges are increased, Parent and the Operating Subsidiaries may
terminate this Agreement upon 12 months' notice to GE Capital. Anything
contained herein to the contrary notwithstanding, (i) Parent and the Operating
Subsidiaries shall continue their heretofore existing practices with respect to
the percentage of Accounts forwarded to GE Capital and (ii) GE Capital shall not
materially change its heretofore existing credit criteria and procedures,
including, without limitation, its administration of the "Instant Credit"
program, except in response to changes in economic conditions or loss
experience.
45
14.4 NO WAIVER BY GE CAPITAL. GE Capital's failure, at any time or
times, to require strict performance by Parent or any Operating Subsidiary of
any provision of this Agreement shall not waive, affect, or diminish any right
of GE Capital thereafter to demand strict compliance and performance therewith.
Any suspension or waiver by GE Capital of an Event of Default shall not suspend,
waive, or affect any other Event of Default, whether the same is prior or
subsequent thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants, and representations of Parent
or any Operating Subsidiary contained in this Agreement and no Event of Default
pursuant to this Agreement shall be deemed to have been suspended or waived by
GE Capital, unless such suspension or waiver is by an instrument in writing
signed by an officer of GE Capital and directed to Parent specifying such
suspension or waiver.
14.5 REMEDIES. GE Capital's rights and remedies pursuant to this
Agreement shall be cumulative and nonexclusive of any other rights and remedies
which GE Capital may have pursuant to any other agreement, by operation of law,
or otherwise.
14.6 WAIVER OF JURY TRIAL. The parties hereto waive all right to trial
by jury in any action or proceeding to enforce or defend any rights pursuant
hereto.
14.7 SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
14.8 PARTIES. This Agreement shall be binding upon, and inure to the
benefit of, the successors of each party hereto, the assigns of GE Capital, and,
subject to Section 14.1, this Agreement and all Liens created hereby shall be
binding upon Parent and each Operating Subsidiary, the estate of Parent and each
Operating Subsidiary and any trustee or successor in interest of Parent or any
Operating Subsidiary in its Chapter 11 Case or any subsequent case commenced
under Chapter 7 of the Bankruptcy Code. The Liens created by this Agreement
shall be and remain valid and perfected in the event of the substantive
consolidation or conversion of any Chapter 11 Case or any other bankruptcy case
of any Debtor to a case under Chapter 7 of the Bankruptcy Code or in the event
of dismissal of any Chapter 11 Case or the release of any Collateral from any
Debtor's estate or the jurisdiction of the Bankruptcy Court for any reason,
without the necessity that GE Capital file financing statements or otherwise
perfect Liens under applicable law.
14.9 AUTHORIZED SIGNATURE. Until GE Capital shall be notified to the
contrary, the signature upon any document or instrument delivered pursuant
hereto of an officer of Parent or any Operating Subsidiary listed in Exhibit C
annexed hereto shall bind such Person and be deemed to be the act of such Person
affixed pursuant to and in accordance with resolutions duly adopted by the board
of directors of such Person.
46
14.10 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement and the
Obligations arising pursuant hereto shall, in all respects, including all
matters of construction, validity, and performance, be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts made and performed in such state and any applicable laws of the United
States of America. Parent and each Operating Subsidiary agree to submit to
personal jurisdiction and to waive any objection as to jurisdiction or venue,
and agrees not to assert any defense based on lack of jurisdiction or venue of
the Bankruptcy Court. Service of process on Parent and each Operating Subsidiary
in any action arising out of or relating to this Agreement shall be effective if
mailed to such Person at the address listed in Section 14.11. Nothing herein
shall preclude GE Capital from bringing suit or taking other legal action in any
other jurisdiction.
14.11 NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval,
declaration, or other communication shall or may be given to or served upon any
of the parties by the other, or whenever any of the parties desires to give or
serve upon the other communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration, or other communication
shall be in writing and either shall be delivered in person with receipt
acknowledged or registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
(a) If to GE Capital, at
General Electric Capital Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ #▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇. ▇. ▇▇▇▇▇
With a copy to:
General Electric Capital Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Vice President and General Manager,
Retailer Financial Services, N.A.
With a copy to:
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: N. ▇▇▇▇▇▇ ▇▇▇▇
and to:
Fried, Frank, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
47
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. Shine, Esq.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
(b) If to Parent or any Operating Subsidiary, at
▇▇▇▇▇▇ Furniture Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇ Furniture Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Legal Department
and to:
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required pursuant hereto may be waived in
writing by the party entitled to receive such notice. Every notice, demand,
request, consent, approval, declaration, or other communication pursuant hereto
shall be deemed to have been duly given or served on the date on which
personally delivered, with receipt acknowledged, or three days after the same
shall have been deposited in the United States mail. Failure or delay in
delivering copies of any notice, demand, request, consent, approval,
declaration, or other communication to the persons designated above to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration, or other communication.
14.12 CONFIDENTIALITY. Each party hereto shall hold in confidence any
proprietary information obtained from any other party hereto in connection with
this Agreement and shall not disclose the same to any third party except (a) as
required by law or by judicial or administrative process or to appropriate
regulatory authorities, (b) as such information is or becomes public knowledge,
(c) to the extent that the other party discloses such information to agents or
professionals it retains to recover amounts owing pursuant hereto from another
party hereto, and (d) with the prior written consent of the other party pursuant
to an agreement between the Person to whom the information is being disclosed
and the nondisclosing party satisfactory in form and content to such
nondisclosing party as to the confidentiality of such
48
proprietary information; PROVIDED, HOWEVER, that prior to disclosing any
proprietary information of another party hereto to any Person, the party making
such disclosure shall notify the appropriate party of the nature of such
disclosure and of the fact that such disclosure will be made. Parent and each
Operating Subsidiary agree that the text of this Agreement, as well as the
financial and other terms of all such documents, are considered proprietary to
GE Capital and will not be disclosed to any Person, including, without
limitation, any creditor of such Person, except as set forth in this Section
14.12.
14.13 VALUE ADDED PROGRAMS. Notwithstanding Section 14.12, GE Capital
and its Affiliates may, with the written consent of Parent, contact Account
Debtors for the purpose of soliciting purchases by Account Debtors of goods
and/or services which do not compete with goods and/or services sold by Parent
and the Operating Subsidiaries.
14.14 PAYMENTS. All payments by Parent and each Operating Subsidiary to
be made pursuant hereto shall be made in lawful money of the United States in
immediately available funds to an account designated by GE Capital. Except an
expressly provided herein, if any amount due pursuant hereto is not paid when
due and owing, Parent and each Operating Subsidiary jointly and severally agree
to pay, on demand, a charge equal to 2% per annum above the Prime Rate on such
amount, until such amount is paid in full.
14.15 FURNISHINGS AGREEMENT. The parties hereto agree that, from and
after the date hereof, the Furnishings Agreement shall no longer be in effect.
14.16 SURVIVAL. The representations and warranties of Parent and each
Operating Subsidiary in this Agreement shall survive the execution, delivery,
and acceptance hereof by the parties hereto and the closing of the transactions
described herein or related hereto.
14.17 SECTION TITLES. The Section titles and Table of Contents
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto.
14.18 COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which shall, collectively and separately,
constitute one agreement.
14.19 MONOGRAM BANK CREDIT CARD PROGRAM. Parent, Operating Subsidiaries
and GE Capital acknowledge that they have been negotiating a new private label
credit card program to be entered into by Parent, Operating Subsidiaries and
Monogram Credit Card Bank of Georgia, a wholly owned subsidiary of GE Capital,
the terms of which are substantially set forth in a memorandum of understanding
dated June 9, 1997. Parent, Operating Subsidiaries and GE Capital acknowledge
that the new credit card program will be beneficial to all parties and agree to
continue to negotiate such new credit card program in good faith; PROVIDED that
no Event of Default has occurred or is continuing.
49
14.20 REORGANIZED DEBTORS. Notwithstanding any provision of this
Agreement to the contrary, the provisions of this Agreement that pertain to the
Reorganized Debtors shall not be operative until after the effective date of the
Plan of Reorganization.
14.21 EFFECTIVE DATE OF AGREEMENT. This Agreement shall not be
effective until entry of the Approval Order.
14.22 CERTAIN ADDITIONAL PROVISIONS. Schedule 14.22 sets forth certain
additional provisions that shall be applicable to this Agreement during the
pendency of the Chapter 11 Cases.
50
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year first above written.
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------
Title: Duly Authorized Signatory
-----------------------
▇▇▇▇▇▇ FURNITURE CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------
Title: Senior Vice President Finance
-----------------------
▇▇▇▇▇▇ FURNITURE COMPANY OF THE
MIDWEST, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------
Title: Vice President Finance
-----------------------
▇▇▇▇▇▇ FURNITURE COMPANY OF THE
PACIFIC, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------
Title: Vice President Finance
-----------------------
▇▇▇▇▇▇ FURNITURE COMPANY OF
WASHINGTON, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------
Title: Vice President Finance
-----------------------
▇▇▇▇ ▇. ▇▇▇▇▇ COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------
Title: Vice President Finance
-----------------------
51
▇▇▇▇▇▇ SHOPPING SERVICE, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------
Title: Vice President Finance
-----------------------
52
